TIDMJSG
RNS Number : 4992F
Johnson Service Group PLC
17 November 2020
17 November 2020
AIM: JSG
Johnson Service Group PLC
("JSG" or "the Group")
Trading Update & Management Actions
JSG, a leading UK textile services provider, today releases an
update on trading and management actions being taken within the
business.
The past three months' performance has been a mixed picture
across the Group reflecting current market conditions, with the
Workwear business currently seeing volumes having returned to
pre-Covid levels, whilst the focus within the Hotel, Restaurant and
Catering ("HORECA") business has been to manage the cost base and
ensure we are ready once volumes in the UK's hotel, restaurant and
catering markets resume in the coming months.
Trading Update
Since the interim results announcement on 2 September 2020, the
Group has continued to see disruption, particularly within its
HORECA business, with increasing uncertainty in recent weeks on the
back of the various lockdowns and associated reduced activity
within the hospitality sector.
Encouragingly, in our Workwear division, which serves both
industrial and food processing customers, volumes have continued to
increase with the 6% year on year reduction reported in August
improving to a 2% reduction at the end of September and being
slightly ahead of pre-COVID levels by the end of October. The
latest lockdown in England is currently expected to have a limited
impact on the division.
95% of customers who had advised that they were closed during
the national lockdown earlier in the year had returned at varying
levels of activity by the end of October, up from 91% at the end of
August. Testament to the high service levels of JSG, the annualised
year to date customer retention levels within Workwear increased to
94.0% at the end of October, compared to 93.8% in July 2020, and
customer satisfaction levels remained at circa 86% in the third
quarter.
HORECA volumes, particularly in the regions, held up well during
September with volumes at 55% of normal, up from 45% in August.
However, volumes reduced in October, particularly in the
high-volume hotel linen plants, back to 45% of our normal levels
due to the various local lockdown measures being implemented across
the UK. The outlook for the remainder of the current year remains
dependent on the level and impact of regional restrictions on the
hospitality industry in December, particularly following the
planned ending of the lockdown in England on 2 December 2020.
Management Actions Underway
Workwear
Whilst Workwear volumes overall have recovered to the levels
seen in February, there is an expectation that the lower level of
new sales signed during the national lockdown, the increased
uncertainty for many of our industrial customers and the potential
for further lockdowns, on either a regional or national basis, will
restrict the division's ability to achieve organic revenue growth
in the short term.
We have therefore been reviewing our resource levels along with
our overall cost base in order to improve efficiency whilst
continuing to deliver our high level of customer service.
As a result of the increased spare capacity we have created at
nearby Workwear sites, we have announced the closure of our
Newmarket site, which is one of our smaller Workwear sites and our
only mixed economy facility. Work is currently in the process of
being transferred to neighbouring sites.
At the end of December 2019, the division had 2,300 employees.
Following the changes discussed above, along with the normal churn
of employees, we anticipate starting 2021 with 2,100 employees
operating from 16 processing sites across the UK.
HORECA
The HORECA division is continuing to experience uncertainty.
Whilst the news last week of a possible vaccine is encouraging,
volumes currently remain unpredictable and the timing of any
sustained recovery in our market remains unknown. Although mindful
of the current reduced volumes, we are continuing to manage the
business prudently and are in ongoing discussions with many of our
customers so that we are in the best position possible to scale up
our operations when markets return.
All of our existing sites were open until 7 November, albeit
operating on reduced hours. As a result of the current lockdown in
England, we now have three sites mothballed with a limited number
of deliveries to those customers who have remained open. Two of our
larger sites, in Reading and Bourne, each comprise two independent
processing units on one site. We had already hibernated the smaller
unit on each of these sites and this is likely to continue to be
the case over the winter months. We have also taken the decision to
delay the commissioning of our new Leeds site until volumes return
to more normal levels.
Once the current lockdown has ended, we will operate our estate
in line with the volumes experienced. Over the coming months,
traditionally our quietest time of the year, we are ensuring that
we operate as efficiently as possible with the majority of plants
operating very flexibly in order to manage costs in line with sales
demand, whilst maintaining strong service levels, as we plan for
the recovery.
Throughout the year we have utilised the Coronavirus Job
Retention Scheme, which has been extended to March 2021, and will
continue to do so as and where appropriate. At the end of 2019, the
division comprised 3,800 employees. In line with the reduction in
volumes this number has reduced significantly, through both
redundancies and natural churn, such that we anticipate ending the
year with some 2,450 employees. Some 1,600 of our employees are
currently on furlough with the majority of the remaining workforce
being flexi-furloughed and working reduced hours in line with the
current reduced volumes.
Balance Sheet and Capital Allocation
The Group has a committed bank facility of GBP175 million and
benefits from a strong balance sheet with net cash as at 31 October
2020, excluding IFRS 16 lease liabilities, of GBP1.7 million,
compared to a net debt position of GBP0.2 million as at 30 June
2020. We are continuing to preserve cash where possible and
anticipate that there may be opportunities for us to invest to
strengthen our position in the market.
We have previously managed our net debt (excluding IFRS 16)
levels at a ratio of less than 2 times adjusted EBITDA (EBIT plus
PPE depreciation and software amortisation) compared to a bank
covenant threshold of less than 3 times. This ratio as at 31
December 2019 was 1.3 times. From March 2022, we intend measuring
against an amended bank definition of adjusted EBITDA which will be
defined as EBIT plus depreciation of PPE, rental stock and right of
use assets and software amortisation, compared to net debt
including IFRS 16 liabilities. The covenant threshold is expected
to remain at less than 3 times. Using this new measure, the ratio
would have been 1.1 times as at 31 December 2019.
The Group's medium to long term intention is to return the
capital structure such that we operate between 1 and 2 times on
this new basis, other than for short term specific exceptions.
Under this framework, our capital allocation policy remains
unchanged and will take into account the following criteria as part
of a periodic review of capital structure:
1) maintaining a strong balance sheet;
2) continuing capital investment to increase processing capacity and efficiency;
3) appropriate value accretive acquisitions;
4) operating a progressive dividend policy; and
5) distributing any surplus cash to Shareholders.
Outlook
While the next few months are difficult to predict, particularly
for our HORECA business, we have taken steps to reduce the cost
base of the Group, whilst retaining as many of our employees as
practical utilising the extended Coronavirus Job Retention Scheme.
This will allow us to maintain our ability to service our customers
during both periods of lower volume and during the ultimate
recovery.
We acknowledge that the possible rollout of a vaccine is
encouraging, however, the precise timing of that together with the
speed of a sustained recovery in our markets remains unknown. The
Group remains confident of our leading market positions, our
experienced management team and proven operational structure which
gives us the ability to take advantage of any opportunities as they
arise.
As stated at the time of the interims, we remain confident that
the adjusted EBITDA margin for the full year will be similar to
that achieved in the first half.
The cost of the restructuring, including the closure of
Newmarket, will amount to some GBP6.0 million and will be charged
as an exceptional item, offset by the net impact of the Exeter fire
and Treforest flood.
Peter Egan, Chief Executive Officer of JSG, commented:
"The past three months' performance has been a mixed picture
across the Group reflecting current market conditions, with the
Workwear business currently seeing volumes having returned to
pre-Covid levels, whilst the focus within the HORECA business has
been to manage the cost base and ensure we are ready once volumes
in the UK's hotel, restaurant and catering markets resume in the
coming months.
"I have nothing but admiration for the way in which our
employees have risen to the many challenges posed by Covid-19. I
thank them for the commitment, hard work and resilience they have
demonstrated which has enabled our businesses to continue to
operate and to service our customers effectively.
"We have taken the right steps to manage our cost base and
maintain a firm foundation for JSG, with the strength of balance
sheet and flexibility of resources and operations to provide for
future strong returns when the recovery emerges."
ENQUIRIES:
Johnson Service Group PLC
Peter Egan, CEO
Yvonne Monaghan, CFO
Tel: 01928 704600
Investec Investment Banking (NOMAD) Camarco (Financial PR)
David Flin Ginny Pulbrook
Carlton Nelson Ben Woodford
Oliver Head
Tel: 020 7597 5970 Tel: 020 3757 4992
About Johnson Service Group PLC
www.jsg.com
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