Acquisition of Empire

In line with our capital allocation policy, the Group has continued to seek out and acquire businesses which complement our existing geographic coverage and are earnings enhancing.  In September 2024, we completed the acquisition of Empire Linen Services Limited ('Empire') which predominantly services luxury hotels in London and the South East.

We will continue to assess future acquisition opportunities having regard to satisfying our margin and ROCE targets.

Share Buyback Programme

In the period September 2022 to November 2023, the Group undertook two share buyback programmes which returned over £35.0 million to Shareholders.  Even after spending £44.6 million on capital investments during the year, together with the £20.6 million acquisition of Empire, the Group continues to have significant headroom under its committed facilities and leverage of less than one times.  Accordingly, the Board is pleased to confirm that it intends to shortly commence a further share buyback programme for up to a maximum consideration of £30.0 million, excluding expenses.  The Board will further actively review its options once this programme is completed.  Further details are set out within the Financial Review.

OPERATIONAL REVIEW

Our Businesses

The Group provides textile rental and related services throughout the UK and Republic of Ireland.

Within our Hotel, Restaurant and Catering ('HORECA') division, 'Johnsons Hotel Linen', our high-volume linen business, primarily serves group and independent large hotel customers, 'Johnsons Hotel, Restaurant and Catering Linen' provides premium linen services to restaurant, hospitality and corporate event customers whilst 'Johnsons Luxury Linen', which comprises of Empire, acquired in September 2024, and Regency, acquired in February 2023, provides bespoke linen predominantly to four and five-star luxury hotels.  Also, within HORECA, 'Johnsons Ireland' serves both hospitality and healthcare customers.  Our Workwear division comprises solely of 'Johnsons Workwear', which predominantly provides workwear rental, protective wear and laundry services to UK corporates across all industry sectors.

The year has seen further significant investment across the business, both in terms of improving existing sites and the completion of our new facility in Crawley to support future growth in HORECA, together with expanding our services into London and the South East through acquisition and the updating of our commercial vehicle fleet.

Price increase and renewal discussions have been challenging during 2024 as we have sought to offset the cost pressures faced by the business.  We remain focused on delivering excellent service which is commensurate with our pricing levels as we move into 2025.

Energy Cost Management

Energy costs (comprising gas, electricity and fuel) have remained elevated throughout the year and continue to be so, albeit were less volatile than experienced during recent years.  Costs for 2024 represented 8.8% of revenue, a reduction from 10.0% of revenue in 2023 but significantly higher than in 2019 where the cost was 6.2% of revenue.

For many years, our policy in the UK has been to fix energy prices on a rolling basis, building a position so that the upcoming months are largely fixed.  This provides certainty but also means that costs do not immediately reflect falls, or increases, in spot prices.  We have continued this policy of proactively fixing energy prices and, as at the end of February 2025, we had fixed 73% of our anticipated core electricity usage and 73% of our anticipated core gas usage for the first half of 2025 and 58% and 60%, respectively, for the second half of 2025.  In addition, we have hedged 77% of our anticipated diesel requirement across 2025.  Looking further ahead, we currently have, based on our anticipated core usage, 45% electricity, 29% gas and 17% diesel at fixed prices for 2026, with reducing amounts into 2027, and will continue to lock in prices as opportunities allow.

Labour

Labour remains the biggest cost of our operations.  In the year to 31 December 2024, labour as a percentage of revenue was 44.6%, compared to 44.7% in the six months to 30 June 2024, 44.0% in the year to 31 December 2023 and 43.0% in the year to 31 December 2019.  We note that further improvements are challenged by increasing labour rates and the significant increase in tax on UK employers from April 2025.  The annualised impact of the forthcoming increase in employer national insurance contributions in the UK is expected to amount to some £6.0 million, which we will seek to mitigate and manage through operational efficiencies and other measures.

HORECA Division

An independent study, commissioned by the Group in 2023, estimated the total addressable market for commercial laundry services to the HORECA segment in Great Britain at that time to be £1.3 billion.  A subsequent independent study, commissioned by the Group in 2024, estimated the total addressable market for commercial laundry services to the HORECA and healthcare segments on the island of Ireland at that time to be €0.4 billion.

The total revenue for the HORECA division increased by 15.0% to £371.2 million (2023: £322.7 million).  Volumes have continued to increase throughout the year and the division now incorporates the acquisition completed during 2024.  On an organic basis, revenue increased by 5.6%, benefitting from strong customer retention, higher volumes and price increases implemented across the division in order to help offset the continuing level of cost inflation experienced.  Following significant investment, in terms of improving existing sites, a new build to support future growth and an acquisition in London, the division is well placed to expand further.

Adjusted EBITDA for the year increased by 23.2% to £110.5 million (2023: £89.7 million) with an improved margin of 29.8% (2023: 27.8%).  The adjusted EBITDA margin in the second half of the year was 31.5%, compared to 27.8% in the first half.  Adjusted operating profit was £49.4 million (2023: £36.0 million).

Johnsons Hotel Linen

Volumes within Johnsons Hotel Linen were in line with our expectations and were particularly strong in July, with the last week resulting in the highest volume ever delivered by the business.  Installations of new business continue to be efficient and well organised, often with very short lead times due to actions of incumbent suppliers and reinforcing our determination to rise above, and provide solutions to, customers' challenges and remain easy to do business with.

A consistent service, on time and in full, was maintained throughout 2024.  Our externally facilitated customer satisfaction survey resulted in the highest score since surveys began, reaching an impressive 89%.  Scores in all categories increased year on year, with excellent feedback relating to our internal and external service personnel and partnership approach.  A programme of proactive customer service telephone contact undertaken by our service personnel has resulted in excess of 1,500 calls a month, once again receiving positive feedback from our customers.  Our internal and external service teams continue to build strong relationships with all customers and we have recently secured the five-year renewal of the division's largest customer, which is testament to our reputation for delivering excellent service levels.

Investment continued across the Johnsons Hotel Linen estate.  Spend of some £3.0 million on upgrading our second unit in Bourne will uplift both production efficiencies within the unit and overall site capacity by around 30%, whilst the installation of a sortation system in Cardiff, a dryer shuttle in Chester and drying equipment in Edinburgh will each reduce carbon emissions, increase capacity and improve production efficiency.  An internally developed dynamic production data capture system has also been installed at all sites, further improving overall operating efficiency.  We continue to work on further innovation to improve site performance, labour and energy efficiencies, carbon footprint and overall customer experience.

In addition, our fleet of double-decker trailer and tractor units was extended, primarily due to the opening of a temporary depot in Enfield, London, which has since been relocated to a permanent site in South Mimms, Hertfordshire.  The depot operates in conjunction with our Bourne site to service the London area.  All commercial vehicles which operate from our Bourne site have converted to HVO (Hydrotreated Vegetable Oil) as part of our sustainability plans.

Johnsons Hotel, Restaurant and Catering Linen

Johnsons Hotel, Restaurant and Catering Linen has continued to make progress in 2024.  New sales were strong and, as well as achieving above-target independent sales across the whole of the UK, we have continued to win and install some multi-site group business, largely because of our reputation for reliability, flexibility and great service delivery.  The integration across all of our sites from us agreeing to transfer and perform contracts previously operated by a chefs' wear provider, with effect from 1 July 2024, is progressing well and has added annual revenue of some £4.5 million to the business.  Our service and quality levels have remained high as reflected in our annual customer survey results where an improved overall score of 88 was achieved, with several sites achieving a world class score of over 90.

Our brand-new Crawley site, representing an overall capital investment of some £16.0 million, is now operational and the transfer of customers from other sites is underway.  Reduced laundry miles, lower energy usage, higher productivity levels, industry leading water recycling and plastic free packaging are just some of the environmental benefits that Crawley will deliver, making it one of the most sustainable and energy efficient laundries of scale in the UK.  Recent activities to raise the profile of the new site have resulted in encouraging new sales activity to help build throughput.

Investment in our other sites has also continued, with replacement boilers, continuous batch washers, ironers and garment finishing equipment being installed across several of our sites.  Additional operating space was also created in Hayle, Cornwall, through the installation of a mezzanine floor in the sorting and packing area.  All new investments have a pre-requisite to reduce carbon emissions against our 2030 targets as well as helping to manage increased volumes and improve production efficiency.

Johnsons Luxury Linen

Following the acquisition of Empire in 2024, Johnsons Luxury Linen is now managed by one Managing Director, with a General Manager at each site.  This ensures best practice is shared between the sites and will allow us to assess the future benefit of expanding the use of the RFID technology which is already in use at Empire.  A Key Account Director role has been established to enhance customer relationship management and pursue future sales opportunities in the growing luxury hotel sector.

Since the acquisition of Empire, the focus has been to ensure the team continues to deliver the high levels of service that its customers are accustomed to, with customer retention being paramount and successfully achieved, whilst collaboratively sharing best practice across the enlarged Group.  Employee welfare facilities at the Tottenham site have also been improved as we welcome those employees into the Johnson family.

The £1.4 million investment in our Corsham site, which increased processing capacity there by almost 20%, was completed in the first half of 2024 and the planned efficiency gains are now being realised.

Johnsons Ireland

2024 was the first full year for our Johnsons Ireland business.  With some 560 employees and processing sites both north and south of the border, Johnsons Ireland comprises Johnsons Celtic Linen and Johnsons Belfast.  Over the coming months, we will roll-out the branding further in terms of vehicle livery, website and stationery.

Overall trading levels have remained high, with the addition of almost 600 new rooms in hospitality being partially offset by softer demand in certain locations.  Whilst we have seen some price competition, our focus is to continue to deliver long-term high service levels to our customers with easy channels of communication and access to our team.  Within healthcare, volumes continue to increase with existing customers facing challenges around influenza outbreaks and the growing demand for more clinics and day procedures.

Similar to the UK, increasing labour costs remain a challenge following the 6.3% increase in minimum wage and the increase in Pay-Related Social Insurance ('PRSI'), both of which were effective on 1 January 2025, and we are working to further improve efficiencies, driven by both capital investment and process changes, as part of our overall mitigation plan.

Capital investment continues across all sites, with new offices, canteen and welfare facilities for employees now completed in Belfast, creating a bright airy space, which was welcomed by all our team members.  A £6.3 million investment across our Wexford and Naas sites is currently underway.  In Wexford, capacity within the healthcare unit has been increased by some 10% to service the growing demand from healthcare customers in Ireland, with associated production efficiencies also increasing by around 10%.  Additionally, the new washer extractors will improve water and energy usage and are consistent with our focus on delivering the HSE's climate action strategy.  We have turned our focus onto developing the hospitality unit in the first quarter of 2025.  In Naas, we commenced a major investment plan in the final quarter of 2024.  The investment will upgrade the water and chemical system and install new washer extractors and a dryer.  This is the first stage of a nine-month plan, which will result in a highly energy efficient site and a 40% increase in capacity.

Workwear Division

Revenue for the Workwear division was in line with the prior year at £142.2 million (2023: £142.6 million).  Adjusted EBITDA was £49.4 million (2023: £48.6 million) with an increased margin of 34.7% (2023: 34.1%).  Adjusted operating profit was £20.3 million (2023: £21.4 million), the year-on-year reduction largely reflective of additional rental stock depreciation incurred in respect of new customer installations and existing customer renewals.

The collective efforts of all departments have played a crucial role in driving an improvement in customer retention.  Every team, from sales and service to operations and support functions, worked collaboratively to strengthen existing partnerships and deliver a consistent service that meets, and often exceeds, customer expectations.  This has resulted in a customer retention rate of 93% (2023: 91%), a positive trend year-on-year.

The externally facilitated satisfaction survey for existing customers saw us achieve a result of 86% whilst the new customer satisfaction survey achieved an excellent 88.7% score.  These scores highlight the value and trust both long-standing and new customers place in our services.  This achievement is evidence of our reputation for delivering excellent service levels and contributed to securing the renewal of the division's largest customer during the year.

Our sales teams have confidence in the ability of the business to deliver excellent service and focus on this when participating in tenders and new opportunities and had a successful year in acquiring new business sales.  New-to-rental customers represented 25% of our total new sales in the period.  We have started 2025 with some positive momentum, although acknowledge that new business wins take time to impact revenue.

A new customer facing website was launched in January 2025.  Key improvements include enhanced interaction to optimise lead capture and drive new sales, the integration of marketing campaigns and search engine optimisation tools to boost visibility, with real-time analytics for insights into web performance and campaign success.

We continued to drive our capital investment programme throughout the year, reflecting our commitment to innovation, sustainability and operational excellence.  Our Manchester site completed the £4.0 million implementation of a new automated production facility, uplifting its capacity by some 45%.  Combined with a replacement programme of equipment across the estate, the new energy-efficient machinery reduces our environmental impact and facilitates improved operating practices.

The lease at our Lancaster premises is nearing its end, ahead of the planned redevelopment of the site by the Landlord.  The additional capacity created at our Manchester site has allowed for the transfer of customers from the smaller Lancaster site.  The work transfer is underway and we are assisting our employees during this time of change.

We remain committed to sustainability and integrating environmentally responsible practices into every aspect of our operations.  A notable achievement during the year was the replacement of single use plastic bags with a new reusable and processable hamper bag for the delivery of our industrial garments.

SUSTAINABILITY

The Board, as a whole, has overall responsibility for environmental, social and governance matters and we recognise our duty to stakeholders to operate the business in an ethical and responsible manner.  We remain committed to further developing our environmental and social responsibility agenda, recognising that it plays a major part in leading and influencing all of our people and operations.

In July 2024, we published our third Sustainability Report, which set out the progress we have made and the targets we have set ourselves.

We have continued to build on the foundations of our sustainability strategy with communication and involvement of employees at all levels being a key focus.

Further details of our achievements during 2024 and our targets for 2025, ongoing initiatives and actions for the future will be set out within the Group's 2024 Annual Report.

EMPLOYEES

We place great importance on the contribution that each of our employees make to the success of the Group.  Our employees are key in our ability to deliver customer service levels which exceed our customers' expectations.  The Board would like to thank them for their support and hard work during 2024.

Ensuring employees achieve their full potential remains a key focus of the Group.  Providing a range of training, education, apprenticeship and development programmes for employees allows them to take advantage of career progression opportunities within the Group and helps to build a workforce for the future.

Our commitment to employee engagement, fostering a positive work environment and improving employee wellbeing has continued throughout the year.  Numerous initiatives have been rolled out during the year and we were delighted that the results from the latest employee engagement surveys showed a positive trend and an overall improvement on the previous year.  Volunteering to support local charities is encouraged and each of our sites are focused on building relationships to strengthen community involvement.  The strong employee engagement and satisfaction scores have given us a more stable workforce and helped us achieve improved productivity and quality service for our customers.

BOARD CHANGES

As previously announced, the Board resolved to appoint Kirsty Homer as Chair of the Remuneration Committee and designated Non-Executive Director for Workforce Engagement in succession to Nick Gregg, with effect from 1 November 2024.  Nick retired from the Board on 31 December 2024, having served nine years as an independent Non-Executive Director.  The Board would like to thank Nick for his significant input and unwavering support during his time with the Group.

FORTHCOMING INVESTOR ACTIVITIES

We are committed to clearly communicating our strategy and activities to our stakeholders, in order that they receive a balanced and complete view of our performance.  A recording of the sell-side analysts' meeting, which will be held today at 09:00, will be made available on the Group's website (www.jsg.com) following the conclusion of the meeting.  Furthermore, the Board currently anticipates that a site-based investor event, to update the market on the future growth and financial plans for the Group, will be held in the first half of 2025.  Further details will be announced in due course.

CONSIDERATION OF MAIN MARKET LISTING

The Board has been considering a move to the Main Market and will issue a further update in due course following engagement with our largest Shareholders.

OUTLOOK

We enter 2025 with a strong and well invested business which, as we have previously demonstrated during challenging times, is resilient and well placed to mitigate and manage the potential economic challenges that may arise in 2025 through operational efficiencies and other measures.  Our scale, expertise and operational excellence mean that we are well placed to capitalise on appropriate opportunities.

The impact of the announced tax increases on the business and their subsequent impact on customer behaviour remains difficult to predict.  We have a resilient business model to help mitigate these challenges and to address inflationary pressures which continue to impact the business.  We have continued to fix a proportion of our future energy costs and improve the efficiency of our sites to help offset and stabilise our cost base and we are continuing to engage with our customers regarding the pricing of our services as we advance through 2025.  New sales across the business are a focus, particularly in the regions where we are adding capacity.

We have started 2025 positively.  We are continuing to focus on expanding the Group through targeted investment in our existing sites, a focus on achieving operational efficiency at Crawley and identifying further earnings enhancing acquisition opportunities.  We have a strong balance sheet with available capital to support these plans and, in accordance with our stated capital allocation policy, intend to launch a share buyback programme, based on currently available resources, for up to £30.0 million over the next 12 months, with an initial £15.0 million tranche to be launched shortly.

Given the encouraging start to the year, the Board remains confident about delivering another year of progress in 2025 and future growth in the Group's performance over the medium term.

Peter Egan

Chief Executive Officer

3 March 2025