CONSOlidated Income Statement

 

		Year ended 31 December 2020	Year ended 31 December 2019
	Note	£m	£m
Revenue	2	229.8	350.6
Operating (loss) / profit	2	(27.4)	42.7
Operating (loss) / profit before amortisation of intangible assets (excluding software amortisation) and exceptional items	2	(12.1)	52.8
Amortisation of intangible assets (excluding software amortisation)		(11.0)	(10.1)
Exceptional items	3
- Business acquisition costs		-	-
- Restructuring costs		(5.8)	-
- Insurance claims		2.5	-
- Impairment losses re insurance claims		(1.0)	-
Operating (loss) / profit	2	(27.4)	42.7
Finance cost	4	(4.9)	(4.6)
(Loss) / profit before taxation		(32.3)	38.1
Taxation credit / (charge)	6	5.2	(7.2)
(Loss) / profit for the year attributable to equity holders		(27.1)	30.9
EARNINGS PER SHARE	7
Basic (loss) / earnings per share		(6.6)p	8.4p
Diluted (loss) / earnings per share		(6.6)p	8.3p
Adjusted basic (loss) / earnings per share		(3.4)p	10.6p
Adjusted diluted (loss) / earnings per share		(3.4)p	10.5p

 

 

 

Consolidated Statement of COMPREHENSIVE Income

 

					Year ended 31 December 2020	Year ended 31 December 2019
				Note	£m	£m
(Loss) / profit for the year					(27.1)	30.9
Items that will not be subsequently reclassified to profit or loss
Re-measurement and experience losses on post-employment benefit obligations				10	(9.4)	(4.5)
Taxation in respect of re-measurement and experience losses					1.7	0.7
Change in deferred tax due to change in tax rate					0.2	-
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value losses					(2.9)	(0.2)
- transfers to administrative expenses					1.8	0.1
- transfers to finance cost					0.6	0.2
Total other comprehensive loss for the year					(8.0)	(3.7)
Total comprehensive (loss) / income for the year					(35.1)	27.2

 

 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

 

	Share Capital			Share Premium	Merger Reserve	Capital Redemption Reserve	Hedge Reserve	Retained  Earnings	Total  Equity
	£m			£m	£m	£m	£m	£m	£m
Balance at 31 December 2018		36.8		15.7	1.6	0.6	(0.6)	136.3	190.4
Prior year change in accounting standard		-		-	-	-	-	0.2	0.2
Restated balance at 1 January 2019		36.8		15.7	1.6	0.6	(0.6)	136.5	190.6
Profit for the year		-		-	-	-	-	30.9	30.9
Other comprehensive income / (loss)		-		-	-	-	0.1	(3.8)	(3.7)
Total comprehensive income for the year			-	-	-	-	0.1	27.1	27.2
Share options (value of employee services)		-		-	-	-	-	0.8	0.8
Purchase of own shares by EBT		-		-	-	-	-	(0.2)	(0.2)
Current tax on share options		-		-	-	-	-	0.3	0.3
Deferred tax on share options		-		-	-	-	-	0.2	0.2
Issue of share capital		0.2		0.4	-	-	-	-	0.6
Dividend paid		-		-	-	-	-	(12.0)	(12.0)
Transactions with Shareholders recognised directly in Shareholders' equity		0.2		0.4	-	-	-	(10.9)	(10.3)
Balance at 31 December 2019		37.0		16.1	1.6	0.6	(0.5)	152.7	207.5
Loss for the year		-		-	-	-	-	(27.1)	(27.1)
Other comprehensive loss		-		-	-	-	(0.5)	(7.5)	(8.0)
Total comprehensive loss for the year		-		-	-	-	(0.5)	(34.6)	(35.1)
Share options (value of employee services)		-		-	-	-	-	0.4	0.4
Deferred tax on share options		-		-	-	-	-	(0.2)	(0.2)
Issue of share capital		7.4		0.2	-	-	-	75.3	82.9
Transactions with Shareholders recognised directly in Shareholders' equity		7.4		0.2	-	-	-	75.5	83.1
Balance at 31 December 2020		44.4		16.3	1.6	0.6	(1.0)	193.6	255.5

 

The Group has an Employee Benefit Trust (EBT) to administer share plans and to acquire shares, using funds contributed by the Group, to meet commitments to employee share schemes.  At 31 December 2020 the EBT held 8,388 shares (2019: 12,468).

 

 

Consolidated Balance Sheet

 

		As at 31 December 2020	As at 31 December 2019
	Note	£m	£m
Assets
Non-current assets
Goodwill	9	130.9	130.5
Intangible assets	10	27.7	36.7
Property, plant and equipment	11	107.2	104.0
Right of use assets	12	38.5	39.0
Textile rental items	13	35.6	56.8
Trade and other receivables		0.4	0.7
Deferred income tax assets		-	2.6
		340.3	370.3
Current assets
Inventories		1.4	2.3
Trade and other receivables		31.3	54.5
Current income tax assets		3.0	-
Cash and cash equivalents		7.8	8.3
		43.5	65.1
Liabilities
Current liabilities
Trade and other payables		64.8	69.2
Current income tax liabilities		-	4.5
Borrowings	14	1.0	10.9
Lease liabilities	15	5.5	5.6
Derivative financial liabilities		0.1	-
Provisions		2.0	1.4
		73.4	91.6
Non-current liabilities
Post-employment benefit obligations	16	14.9	7.3
Deferred income tax liabilities		1.2	6.8
Trade and other payables		0.4	0.5
Borrowings	14	-	84.7
Lease liabilities	15	35.1	34.8
Derivative financial liabilities		2.0	0.5
Provisions		1.3	1.7
		54.9	136.3
Net assets		255.5	207.5
Equity
Capital and reserves attributable to the company's shareholders
Share capital	19	44.4	37.0
Share premium		16.3	16.1
Merger reserve		1.6	1.6
Capital redemption reserve		0.6	0.6
Hedge reserve		(1.0)	(0.5)
Retained earnings		193.6	152.7
Total equity		255.5	207.5

 

The notes on pages 22 to 40 form an integral part of these condensed consolidated financial statements.  The condensed consolidated financial statements on pages 18 to 40 were approved by the Board of Directors on 19 March 2021 and signed on its behalf by:

 

Yvonne Monaghan

Chief Financial Officer

 

 

 

 Consolidated Statement OF Cash Flows

		Year ended 31 December 2020	Year ended 31 December 2019
	Note	£m	£m
Cash flows from operating activities
(Loss) / profit for the year		(27.1)	30.9
Adjustments for:
Taxation (credit) / charge	4	(5.2)	7.2
Total finance cost	5	4.9	4.6
Depreciation and impairment		66.2	66.1
Amortisation	10	11.2	10.2
Loss on disposal of tangible fixed assets		0.8	-
Loss on disposal of textile rental items		0.2	-
Decrease in inventories		0.9	0.6
Decrease / (increase) in trade and other receivables		23.7	(0.5)
(Decrease) / increase in trade and other payables		(0.2)	2.2
Deficit recovery payments in respect of post-employment benefit obligations		(1.9)	(1.9)
Share-based payments		0.4	0.8
Increase / (decrease) in provisions		0.2	(0.2)
Commodity swaps not qualifying as hedges		0.3	-
Exceptional items relating to investing activities		(2.5)	-
Cash generated from operations		71.9	120.0
Interest paid		(4.0)	(4.6)
Taxation paid		(3.4)	(9.3)
Net cash generated from operating activities		64.5	106.1
Cash flows from investing activities
Acquisition of businesses (net of cash and overdrafts acquired)		(0.9)	(8.5)
Purchase of other intangible assets		(1.2)	(2.3)
Purchase of property, plant and equipment		(20.4)	(18.8)
Proceeds from insurance claims		2.5	-
Purchase of software		(1.0)	(1.2)
Proceeds from sale of property, plant and equipment		0.2	0.3
Purchase of textile rental items		(28.1)	(48.2)
Proceeds received in respect of special charges	13	2.1	2.3
Net cash used in investing activities		(46.8)	(76.4)
Cash flows from financing activities
Proceeds from borrowings		58.0	88.0
Repayment of borrowings		(143.0)	(91.1)
Capital element of leases		(6.1)	(13.2)
Purchase of own shares by EBT		-	(0.2)
Proceeds from issue of Ordinary shares	19	82.9	0.6
Dividend paid		-	(12.0)
Net cash used in financing activities		(8.2)	(27.9)
Net increase in cash and cash equivalents		9.5	1.8
Cash and cash equivalents at beginning of year		(2.9)	(4.7)
Cash and cash equivalents at end of year	17	6.6	(2.9)

 

Cash and cash equivalents comprise:

Cash		7.8	8.3
Overdraft		(1.2)	(11.2)
Cash and cash equivalents at end of year		6.6	(2.9)

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT

 

1              BASIS OF PREPARATION & FORWARD LOOKING STATEMENTS

 

Basis of Preparation

The financial information contained within this Preliminary Announcement has been prepared on a going concern basis in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

 

The financial information has been prepared using accounting policies consistent with those set out in the 2019 Annual Report.

 

The financial information set out within this Preliminary Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2020 or 31 December 2019 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

 

Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered as soon as practicable but not later than 30 April 2021.  The auditor has reported on those accounts; the reports were unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

Going Concern

Background and Summary

The Directors have adopted the going concern basis in preparing these financial statements after careful assessment of identified principal risks and, in particular, the possible adverse impact on financial performance, specifically on revenue and cash flows, of restrictions imposed by the UK Government and the devolved authorities in response to COVID-19.  The process and key judgments in coming to this conclusion are set out below.

 

Going Concern Assessment

The Group has reacted quickly and decisively to the COVID-19 pandemic, implementing a range of prudent cost management and cash preservation actions, securing additional funding facilities, revising bank covenants and raising equity in order to protect the business from any potential adverse impact. Notwithstanding all of these actions, there continues to be uncertainty surrounding the resolution of the pandemic and the impact on the wider economy.

 

The current and plausible future impact of COVID-19 and the related macroeconomic environment on the Group's activities and performance has been considered by the Board in preparing its going concern assessment. The Group has prepared a base case scenario, reflecting an initial set of assumptions around financial projections and trading performance, together with various, more pessimistic, expectations for market developments over the remainder of 2021 and 2022 to reflect subdued trading conditions.  The specific assumptions used within the base case scenario, with regard to the assumed dates for the staged reopening of hospitality, follow those set out within the UK Government's recently announced four-step roadmap for the easing of restrictions across England.  It is assumed that arrangements within the devolved geographies will follow a similar roadmap.

 

The Board is required to assess going concern at each reporting period. These assessments are significantly more difficult currently given the uncertainties about the impact of COVID-19, the extent and duration of social distancing measures and the impact on the markets in which we operate. The level of judgment to be applied has therefore increased considerably. The Directors have considered three main factors in reaching their conclusions on going concern, as set out below.

 

1) Cash Flows and Sensitivity Analysis

 

In assessing going concern, the Directors considered a variety of scenarios in the context of the COVID-19 pandemic. These scenarios are not the forecasts of the Group or Company but are designed to stress test liquidity and covenant compliance. EBITDA used within the scenarios is that used for bank covenant purposes which, for 2021, is defined as adjusted operating profit before property, plant and equipment depreciation, rental stock depreciation and software amortisation. In 2022, the definition is amended to also exclude right of use asset depreciation. The three most relevant scenarios, in ascending order of severity, reviewed to test going concern are as follows:

 

Base Case Scenario

This scenario assumes that the HORECA market gradually begins to reopen during the second quarter. April assumes a modest increase in current volumes, based on the planned reopening of gyms, outdoor hospitality and self-catering holiday accommodation on 12 April whilst May assumes a more stepped increase as a result of the planned reopening of indoor hospitality (pubs and restaurants), hotels and B&Bs on 17 May.  By June 2021, this scenario assumes that volumes have reached between 50% and 70% of normalised levels, such range reflecting the nuances of specific sub-markets within the overall HORECA market, for example, restaurants, hotels, contract catering.  Volumes increase month on month thereafter, reaching a maximum of 85% of normalised volumes by September 2021 with modest increases thereafter to reach 90% of normalised volumes by December 2021. Further modest monthly increases are then assumed throughout 2022.

 

Delay in Lifting of Restrictions Scenario

In this scenario the gradual recovery in the HORECA market that is assumed within the Base Case is delayed by two months, up to and including September 2021, reaching a maximum of 75% of normalised volumes in September 2021.  Revenue in, and beyond, the final quarter of 2021 is then consistent with that assumed in the Base Case, reflective of a successful vaccine rollout and pent-up consumer demand.

 

Severe but Plausible Scenario

This scenario largely mirrors that within the 'Delay in Lifting of Restrictions Scenario' above, however, further restrictions are assumed during the winter months (for example, maximum group sizes of six) which subdues volumes further.

 

2) Covenants

 

As previously announced, at the same time as extending its bank facilities in 2020, the Group also renegotiated its banking covenants such that the pre-existing covenants were replaced, up to and including until the December 2021 covenant test date, with a maximum net debt and a minimum EBITDA threshold. From March 2022, the covenants will revert to a leverage and interest covenant test.  In all three scenarios above, the financial projections indicate that the Group would remain in compliance with the financial covenants in its bank facilities. A decline in underlying EBIT / EBITDA well in excess of that contemplated in the scenarios would need to persist throughout the period for a covenant breach to occur. The Directors do not consider such a scenario plausible.

 

The Group also has a number of mitigating actions under its control (not all of which were included in the scenarios) including minimising capital expenditure to critical requirements, further reducing levels of discretionary spend and rationalising its overhead base in order to be able to meet the covenant tests.

 

3) Liquidity

 

The Group extended its committed debt facilities in May 2020. The revised facilities comprise a £135 million revolving credit facility, which matures in August 2023, together with a £40 million accordion facility, which is due to mature in May 2022 but which may be extended for a further one year, subject to lender approval. Quarterly covenant tests allow for maximum bank borrowings of £155 million at each quarter end from September 2020 through to September 2021, reducing to £145 million for the quarter ending December 2021. Thereafter, the maximum net debt covenant falls away and is effectively replaced with a leverage covenant.

 

Following the successful equity placement that raised net proceeds of £82.7 million, the Group repaid its bank borrowings. As a consequence, the bank facilities available to the Group provide significant liquidity in all scenarios modelled.

 

Going Concern Statement

After considering the current financial scenarios, the severe but plausible sensitivities and the facilities available to the Group and Company, the Directors have a reasonable expectation that the Group and Company have adequate resources for their operational needs, will remain in compliance with the financial covenants set out in the bank facility agreement and will continue in operation for at least the next 12 months from the date of approving both the Group and Company financial statements.  As a consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis in preparing the Group and Company financial statements.

 

Forward Looking Statements

Certain statements in these condensed consolidated financial statements constitute forward-looking statements.  Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Group's future expectations, operations, financial performance, financial condition and business is a forward-looking statement.  Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.  These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions.  These and other factors could adversely affect the outcome and financial effects of the plans and events described in these condensed consolidated financial statements.  As a result you are cautioned not to place reliance on such forward-looking statements.  Nothing in this document should be construed as a profit forecast.

 

 

2              SEGMENT ANALYSIS

 

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2020.

 

The chief operating decision-maker has been identified as the Board of Directors (the Board).  The Board reviews the Group's internal reporting in order to assess performance and allocate resources.  The Board determines the operating segments based on these reports and on the internal reporting structure. 

 

For reporting purposes, the Board considered the aggregation criteria set out within IFRS 8, 'Operating Segments', which allows for two or more operating segments to be combined as a single reporting segment if:

1)     aggregation provides financial statement users with information that allows them to evaluate the business and the environment in which it operates; and

2)     they have similar economic characteristics (e.g. similar long-term average gross margins would be expected) and are similar in each of the following respects:

§    the nature of the products and services;

§    the nature of the production processes;

§    the type or class of customer for their products and services;

§    the methods used to distribute their products or provide their services; and

§    the nature of the regulatory environment (i.e. banking, insurance or public utilities), if applicable.

 

The Board deem it appropriate to present two reporting segments (in addition to 'Discontinued Operations' and 'All Other Segments'), being:

1)     Workwear: comprising of our Workwear business only; and

2)     Hotel, Restaurants and Catering ('HORECA'): comprising of our Stalbridge, London Linen, and Hotel Linen businesses, each of which are a separate operating segment.

 

The Board's rationale for aggregating the Stalbridge, London Linen, and Hotel Linen operating segments into a single reporting segment is set out below:

§ the gross margins of each operating segment are within a similar range, with the long-term average margin expected to further align;

§ the nature of the customers, products and production processes of each operating segment are very similar;

§ the nature of the regulatory environment is the same due to the similar nature of products, processes and customers involved; and

§ distribution is via exactly the same method across each operating segment.

 

The Board assesses the performance of the reporting segments based on a measure of operating profit, both including and excluding the effects of non-recurring items from the reporting segments, such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring or non-operating event.  Interest income and expenditure are not included in the result for each reporting segment that is reviewed by the Board.  Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, for example rental income received by Johnson Group Properties PLC (the property holding company of the Group) is credited back, where appropriate, to the paying company for the purpose of segmental reporting.  There have been no changes in measurement methods used compared to the prior year.

 

Other information provided to the Board is measured in a manner consistent with that in the financial statements.  Segment assets exclude deferred income tax assets, derivative financial assets and cash and cash equivalents, all of which are managed on a central basis.  Segment liabilities include lease liabilities but exclude current income tax liabilities, bank borrowings, derivative financial liabilities, post-employment benefit obligations and deferred income tax liabilities, all of which are managed on a central basis.  These balances are part of the reconciliation to total assets and liabilities.

 

Exceptional items have been included within the appropriate reporting segment as shown on pages 25 to 26.

 

Workwear Supply and laundering of workwear garments and protective wear.   HORECA Linen services for the hotel, restaurant and catering sector.	§  Workwear     §  Stalbridge §  London Linen §  Hotel Linen
All Other Segments Comprising of central and Group costs.

 

 

2          SEGMENT ANALYSIS continued

 

Year ended 31 December 2020		Workwear	HORECA	All Other Segments	Total
		£m	£m	£m	£m
Revenue
Rendering of services		127.1	100.3	-	227.4
Sale of goods		2.4	-	-	2.4
Total revenue		129.5	100.3	-	229.8
Result
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items		23.3	(31.5)	(3.9)	(12.1)
Amortisation of intangible assets (excluding software amortisation)		(0.1)	(10.9)	-	(11.0)
Exceptional items		(0.1)	(4.2)	-	(4.3)
Operating profit / (loss)		23.1	(46.6)	(3.9)	(27.4)
Total finance cost					(4.9)
Loss before taxation					(32.3)
Taxation credit					5.2
Loss for the year attributable to equity holders					(27.1)

 

		Discontinued Operations			Workwear	HORECA	All Other Segments	Total
		£m			£m	£m	£m	£m
Balance sheet information
Segment assets		-			132.1	239.1	1.8	373.0
Unallocated assets:    Current income tax assets								3.0
Cash and cash equivalents								7.8
Total assets								383.8
Segment liabilities				(3.5)	(47.1)	(55.0)	(3.5)	(109.1)
Unallocated liabilities: Bank borrowings								(1.0)
Derivative financial liabilities								(2.1)
Post-employment benefit obligations								(14.9)
Deferred income tax liabilities								(1.2)
Total liabilities								(128.3)
Other information
Non-current asset additions
- Property, plant and equipment		-			6.0	14.7	-	20.7
- Right of use assets		-			3.4	1.8	-	5.2
- Textile rental items		-			14.1	9.8	-	23.9
- Intangible software		-			1.0	-	-	1.0
- Customer contracts		-			-	1.2	-	1.2
Depreciation, impairment and amortisation expense
- Property, plant and equipment		-			5.3	11.2	-	16.5
- Right of use assets depreciation		-			2.2	4.5	0.1	6.8
- Right of use assets impairment		-			0.1	-	-	0.1
- Textile rental items depreciation		-			17.7	24.5	-	42.2
- Textile rental items impairment		-			-	0.6	-	0.6
- Intangible software		-			0.2	-	-	0.2
- Customer contracts		-			0.1	10.9	-	11.0

 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

 

 

 

2          SEGMENT ANALYSIS continued

 

Year ended 31 December 2019		Workwear	HORECA	All Other Segments	Total
		£m	£m	£m	£m
Revenue
Rendering of services		131.3	215.0	-	346.3
Sale of goods		4.0	0.3	-	4.3
Total revenue		135.3	215.3	-	350.6
Result
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items		24.4	33.1	(4.7)	52.8
Amortisation of intangible assets (excluding software amortisation)		(0.5)	(9.6)	-	(10.1)
Exceptional items		-	-	-	-
Operating profit / (loss)		23.9	23.5	(4.7)	42.7
Total finance cost					(4.6)
Profit before taxation					38.1
Taxation charge					(7.2)
Profit for the year attributable to equity holders					30.9

 

 

	Discontinued Operations		Workwear		HORECA		All Other Segments			Total
	£m		£m		£m		£m			£m
Balance sheet information
Segment assets	-		139.3		284.0		1.2			424.5
Unallocated assets:    Deferred income tax assets										2.6
Cash and cash equivalents										8.3
Total assets										435.4
Segment liabilities	(3.5)		(39.3)		(65.6)		(4.8)			(113.2)
Unallocated liabilities: Current income tax liabilities										(4.5)
Bank borrowings										(95.6)
Derivative financial liabilities										(0.5)
Post-employment benefit obligations										(7.3)
Deferred income tax liabilities										(6.8)
Total liabilities										(227.9)
Other information
Non-current asset additions
- Property, plant and equipment	-	5.6			13.9		-			19.5
- Right of use assets	-	1.7			4.8		-			6.5
- Textile rental items	-	20.5			25.6		-			46.1
- Intangible software	-	1.3			-		-			1.3
- Customer contracts	-	-			2.3		-			2.3
Depreciation and amortisation expense
- Property, plant and equipment	-	4.6			9.3		-			13.9
- Right of use assets	-	2.2			4.9		-			7.1
- Textile rental items	-	17.9			27.2		-			45.1
- Intangible software	-	0.1			-		-			0.1
- Customer contracts	-	0.5			9.6		-			10.1

 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

 

 

3          EXCEPTIONAL ITEMS

	2020	2019
	£m	£m
Costs in relation to business acquisition activity	-	-
Restructuring costs	(5.8)	-
Insurance claims	2.5	-
Impairment losses re insurance claims	(1.0)	-
Total exceptional items	(4.3)	-

 

Current year exceptional items

Restructuring costs

Restructuring costs include £4.7 million of redundancy costs relating to the realignment of the workforce in response to the impact of COVID-19 and £1.1 million in respect of the closure of the Workwear plant in Newmarket, of which £0.4 million related to redundancy costs.

 

Insurance claims and impairment losses

During the year, a Workwear processing plant was destroyed as a result of a fire.  Plant and equipment with a net book value of £0.5 million and Textile rental items with a net book value of £0.2 million were destroyed and have been written off.  Interim insurance proceeds of £1.5 million have been received.  Negotiations are continuing with the insurers for a final settlement value which is expected in 2021.

 

A further Workwear processing plant was damaged as a result of flooding during the year. Plant and equipment with a net book value of £0.3 million has been written off.  Interim insurance proceeds of £1.0 million have been received. Negotiations are continuing with the insurers for a final settlement value which is expected in 2021.

 

Prior year exceptional items

Costs in relation to business acquisition activity

During the prior year, professional fees of £0.1 million were paid relating to the acquisition of Fresh Linen Holdings Limited, together with its trading subsidiary Fresh Linen Limited and a further dormant company Pure Laundry Limited ('Fresh Linen').  This was offset by £0.1 million of prior year credits relating to previous acquisitions.

 

 

4          FINANCE COST

		2020		2019
		£m		£m
Finance cost:
- Interest payable on bank loans and overdrafts			2.0	2.4
- Discontinuance of hedge accounting on interest rate swaps previously designated as cash flow hedges			0.6	-
- Loss on interest rate swaps not qualifying as hedges			0.1	-
- Amortisation of bank facility fees			0.4	0.3
- Finance costs on lease liabilities relating to IFRS 16 (note 15)			1.7	1.8
- Notional interest on post-employment benefit obligations (note 16)			0.1	0.1
Total finance cost			4.9	4.6

 

Following the equity placing in June 2020 which raised £82.7 million, the Group repaid its loans outstanding at that date. Hedge accounting was therefore discontinued at that date as the Group no longer had any loans for the Group's interest rate swaps to economically hedge.  Accordingly, the Mark to Market value of £0.6 million, as at 30 June 2020, was transferred from equity and recognised as an expense within finance costs.  From July 2020, the change in fair value on interest rate swaps was recognised directly within finance costs resulting in a £0.1 million charge.  Of the total £0.7 million charge to the Consolidated Income Statement in 2020 in relation to interest rate swaps, £0.6 million would have been charged in future periods had hedge accounting been applicable.  

 

 

5          ALTERNATIVE PERFORMANCE MEASURES (APM's)

 

            Throughout this Preliminary Statement, we refer to a number of APMs.  A reconciliation of the APMs used are shown below:

 

		2020	2019
		£m	£m
(Loss) / profit before taxation		(32.3)	38.1
Amortisation of intangible assets (excluding software amortisation)		11.0	10.1
Exceptional items		4.3	-
Adjusted (loss) / profit before taxation		(17.0)	48.2
Taxation thereon		3.2	(9.1)
Adjusted (loss) / profit after taxation		(13.8)	39.1

Operating (loss) / profit before amortisation of intangible assets (excluding software amortisation) and exceptional items		(12.1)	52.8
Software amortisation		0.2	0.1
Property, plant and equipment depreciation		16.5	13.9
Right of use asset depreciation		6.8	7.1
Textile rental items depreciation		42.2	45.1
Adjusted EBITDA		53.6	119.0

 

 

 

6           TAXATION

	2020	2019
	£m	£m
Current tax
UK corporation tax (credit) / charge for the year	(3.7)	9.4
Adjustment in relation to previous years	(0.4)	(0.5)
Current tax (credit) / charge for the year	(4.1)	8.9
Deferred tax
Origination and reversal of temporary differences	(1.9)	(1.7)
Changes in tax rate	0.7	(0.2)
Adjustment in relation to previous years	0.1	0.2
Deferred tax credit for the year	(1.1)	(1.7)
Total (credit) / charge for taxation included in the Consolidated Income Statement	(5.2)	7.2

 

The tax (credit) / charge for the year is lower than (2019: the same as) the effective rate of Corporation Tax in the UK of 19% (2019: 19%).  A reconciliation is provided below:

	2020	2019
	£m	£m
Profit before taxation	(32.3)	38.1
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK	(6.1)	7.2
Factors affecting taxation charge for the year:
Tax effect of expenses not deductible for tax purposes	0.5	0.5
Changes in tax rate	0.7	(0.2)
Adjustments in relation to previous years	(0.3)	(0.3)
Total (credit) / charge for taxation included in the Consolidated Income Statement	(5.2)	7.2

 

Taxation in relation to amortisation of intangible assets (excluding software amortisation) has increased the credit for taxation on continuing operations by £1.2 million (2019: £1.9 million reduction to the charge). Taxation in relation to exceptional items has increased the credit for taxation on continuing operations by £0.8 million (2019: no change).

 

The Finance Bill 2016 enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020. However, in the March 2020 Budget it was announced that the reduction in the UK rate to 17% will now not occur and the Corporation Tax Rate will be held at 19%.  The Group has recognised deferred tax balances at 19% accordingly.

 

Deferred income taxes at the balance sheet date have been measured at 19% (2019: 17%). The impact of the change in tax rates to 19% from 17% has been a £0.7 million charge (2019: £0.2 million credit) in the Consolidated Income Statement and a £0.2 million charge (2019: £nil) recognised within other comprehensive income.

 

During the year, a deferred taxation credit of £1.7 million (2019: £0.7 million credit) has been recognised in other comprehensive income in relation to post-employment benefit obligations.

 

During the year, £nil relating to current taxation (2019: £0.3 million credit) and a £0.2 million charge relating to deferred taxation (2019: £0.2 million credit) have been recognised directly in Shareholders' equity.

 

In the Budget 2021, the government announced that the rate of UK corporation tax will increase to 25% from 6 April 2023 for businesses with profits of £250,000 or more.  The rate will remain at 19% until that date.  The legislation to implement this new law has not been substantively enacted as at the date of this report and, therefore, no adjustment to deferred tax balances has been recognised in the Consolidated Financial Statements.  However, the impact of the rate change is not expected to be material to the Group.

 

 

7          EARNINGS PER SHARE

	2020	2019
	£m	£m
Profit for the financial year from continuing operations attributable to Shareholders	(27.1)	30.9
Amortisation of intangible assets from continuing operations (net of taxation)	9.8	8.2
Exceptional costs from continuing operations (net of taxation)	3.5	-
Adjusted profit attributable to Shareholders	(13.8)	39.1
	No. of shares	No. of shares
Weighted average number of Ordinary shares	412,947,064	369,145,562
Potentially dilutive Ordinary shares	835,491	2,710,583
Diluted number of Ordinary shares	413,782,555	371,856,145
Basic earnings per share	(6.6)p	8.4p
Adjustments for amortisation of intangible assets	2.4p	2.2p
Adjustment for exceptional items	0.8p	-
Adjusted basic earnings per share	(3.4)p	10.6p
Diluted earnings per share	(6.6)p	8.3p
Adjustments for amortisation of intangible assets	2.4p	2.2p
Adjustment for exceptional items	0.8p	-
Adjusted diluted earnings per share	(3.4)p	10.5p

 

Basic earnings per share is calculated using the weighted average number of Ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust, based on the profit for the year attributable to Shareholders.

 

Adjusted earnings per share figures are given to exclude the effects of amortisation of intangible assets (excluding software amortisation) and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group.

 

For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potentially dilutive Ordinary shares.  The Company has potentially dilutive Ordinary shares arising from share options granted to employees. Options are dilutive under the SAYE scheme, where the exercise price together with the future IFRS 2 charge of the option is less than the average market price of the Company's Ordinary shares during the year. Options under the LTIP schemes, as defined by IFRS 2, are contingently issuable shares and are therefore only included within the calculation of diluted EPS if the performance conditions, as set out in the Directors' Remuneration Report, are satisfied at the end of the reporting period, irrespective of whether this is the end of the vesting period or not.

 

Potentially dilutive Ordinary shares are dilutive at the point, from a continuing operations level, when their conversion to Ordinary shares would decrease earnings per share or increase loss per share.  For the year ended 31 December 2020 potentially dilutive Ordinary shares have not been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases the loss per share from continuing operations.  For the year ending 31 December 2019, potentially dilutive Ordinary shares have been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases earnings per share from continuing operations.

 

There were no events occurring after the balance sheet date that would have changed significantly the number of Ordinary shares or potentially dilutive Ordinary shares outstanding at the balance sheet date if those transactions had occurred before the end of the reporting period.

 

 

 

8              DIVIDENDS

 

On 20 March 2020, the Board issued a market update regarding the impact of COVID-19 on the business and confirming that, it would, at the upcoming Annual General Meeting on 5 May 2020, withdraw Resolution 3 in the Notice of Annual General Meeting relating to the final dividend payment in respect of 2019 of 2.35 pence per Ordinary share. 

 

Furthermore, and as previously announced on 5 May 2020, the Board have decided not to pay dividends for the financial year ended 31 December 2020.  In reaching these decisions, the Board considered the importance of a dividend to the Company's shareholders, the need to preserve the Company's liquidity and the exceptional circumstances that COVID-19 represented.  The Board will keep future dividends under review and look to reinstate its dividend policy as trading returns to more normalised levels.

 

In respect of the financial year ended 31 December 2019, an interim dividend of 1.15 pence per Ordinary share was paid to Shareholders in November 2019, amounting to a distribution for the year of £4.3 million.

 

 

           

            9              GOODWILL

		2020	2019
		£m	£m
Cost
Brought forward		130.5	128.1
Business combinations		0.4	2.4
Carried forward		130.9	130.5
Accumulated impairment losses
Brought forward		-	-
Carried forward		-	-
Carrying amount
Opening		130.5	128.1
Closing		130.9	130.5

 

In accordance with International Financial Reporting Standards, goodwill is not amortised, but instead is tested annually for impairment and carried at cost less accumulated impairment losses.

 

Impairment tests for goodwill

The allocation of goodwill to Cash Generating Units (CGUs) is as follows:

 

		2020	2019
		£m	£m
Workwear		41.7	41.7
Stalbridge		19.1	19.1
London Linen		29.2	29.2
Hotel Linen (note a)		40.9	40.5
HORECA		89.2	88.8
Total		130.9	130.5

Note a

The net increase during the year relates to the goodwill of the 2019 acquisition of Fresh Linen increasing by £0.4 million as a result of a fair value adjustment to trade and other payables acquired.

 

Goodwill is tested for impairment by comparing the carrying value of each CGU against its recoverable amount.  The carrying value for each CGU includes the net book value of goodwill, intangible assets and related deferred tax balances, property, plant and equipment, right of use assets, textile rental items and lease liabilities.  The recoverable amount for each of the Cash Generating Units (CGUs) is as follows:

		2020	2019
		£m	£m
Workwear		259.7	596.8
Stalbridge		108.4	289.2
London Linen		60.5	170.1
Hotel Linen		149.1	464.7
HORECA		318.0	924.0
Total		577.7	1,520.8

 

 

The recoverable amount of a CGU is primarily determined based on value-in-use calculations.  These calculations use cash flow projections based on financial budgets and forecasts, ordinarily covering three years, which are approved by the Board. Income and costs within the budget are derived on a detailed, 'bottom up' basis - all income streams and cost lines are considered and appropriate growth, or decline, rates are assumed for each, all of which are then reviewed, challenged and stress tested, firstly by senior management and ultimately by the Board.  Income and cost growth forecasts are risk adjusted to reflect specific risks facing each CGU and take into account the markets in which they operate.

 

Cash flows beyond the above period are, ordinarily, extrapolated using the estimated growth rate stated below, which does not exceed the long-term average growth rate for the markets in which the CGU's operate, into perpetuity. When assessing the recoverable amount for CGUs as at 31 December 2020, the forecasts covered the period to the end of 2022.  The Group has stated that, as a result of COVID-19, it does not currently expect trading to normalise to 2019 levels until the second half of 2022.  As a result, cash flows for 2023 were assumed, for the purpose of determining the recoverable amount of a CGU only, to be the same as for 2019.  Cash flows beyond that period were then extrapolated using the estimated growth rate stated below.  Other than as included in the financial forecasts, it is assumed that there are no material adverse changes in legislation that would affect the forecast cash flows.

 

The pre-tax discount rate used within the recoverable amount calculations was 10.79% (2019: 6.62%) and is based upon the weighted average cost of capital reflecting specific principal risks and uncertainties.  The discount rate takes into account, amongst other things, the risk free rate of return (derived from a 20 year government bond price), the market risk premium, size premium (2020 only) and beta factor reflecting the average Beta for the Group and comparator companies which are used in deriving the cost of equity.

 

         The same discount rate has been used for each CGU as the principal risks and uncertainties associated with the Group, as highlighted on pages 37 to 39, would also impact each CGU in a similar manner.  The Board acknowledge that there are additional factors that could impact the risk profile of each CGU.  These additional factors were considered by way of sensitivity analysis performed as part of the annual impairment tests.  For example, a scenario in line with the "severe but plausible" scenario modelled for going concern purposes (page 22) was used to further sensitise for impairment.  The sensitivity did not result in any impairment of goodwill relating to the CGUs.  The level of impairment recognised is predominantly dependent upon judgments used in arriving at future growth rates and the discount rate applied to cash flow projections.  Key drivers to future growth rates are dependent on the Group's ability to maintain and grow income streams whilst effectively managing operating costs.  The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to realising any impairment, being the fair value less costs to dispose.

 

The key assumptions used for value-in-use calculations are as follows:

 

	2020	2019
Annual growth rate (after forecast period)	2.00%	1.23%
Risk free rate of return	0.72%	1.23%
Market risk premium	7.50%	6.25%
Beta Factor	1.05	0.72
Size Premium	3.00%	-
Cost of debt	2.25%	3.27%

 

Having completed the 2020 impairment review, no impairment has been recognised in relation to the CGUs (2019: no impairment).  Sensitivity analysis has been performed in assessing the recoverable amounts of goodwill such that the growth rate for the forecast period was reduced to nil.  Such a change did not result in any impairment of goodwill relating to the CGU. There are no changes to the key assumptions of growth rate or discount rate that are considered by the Directors to be reasonably possible, which would give rise to an impairment of goodwill relating to the CGUs.

 

 

10            INTANGIBLE ASSETS

 

 

  Capitalised software

	2020	2019
	£m	£m
Opening net book value	1.9	0.7
Additions	1.0	1.3
Amortisation	(0.2)	(0.1)
Closing net book value	2.7	1.9

 

 

Other intangible assets

	2020	2019
	£m	£m
Opening net book value	34.8	38.6
Additions	1.2	2.3
Business combinations	-	4.0
Amortisation	(11.0)	(10.1)
Closing net book value	25.0	34.8

 

Other intangible assets comprise of customer contracts and relationships.  During the year to 31 December 2020, the Group acquired customer contracts valued at £1.2 million (2019: £2.3 million). 

 

 

 

11            PROPERTY, PLANT AND EQUIPMENT

 

	2020 £m	2019 £m
Opening net book value	104.0	84.1
Additions	20.7	19.5
Business combinations	-	4.3
Depreciation	(16.5)	(13.9)
Disposals	(1.0)	(0.3)
Transfers from right of use assets (note 12)	-	10.3
Closing net book value	107.2	104.0

 

The transfers from right of use assets represents the reclassification of the net book value of assets, transferred from right of use assets, where the lease expired in the year and the assets are now owned.

 

CAPITAL COMMITMENTS

 

Orders placed for future capital expenditure contracted but not provided for in the financial statements are shown below:

	2020	2019
	£m	£m
Software	0.1	0.8
Property, plant and equipment	10.3	10.3

 

 

 

12            RIGHT OF USE ASSETS

 

	2020 £m	2019 £m
Opening net book value	39.0	48.0
Additions	5.2	6.5
Business combinations	-	0.7
Reassessment/modification of assets previously recognised	1.9	1.2
Depreciation	(6.8)	(7.1)
Impairment losses	(0.1)	-
Disposals	(0.7)	-
Transfers to property, plant and equipment (note 11)	-	(10.3)
Closing net book value	38.5	39.0

 

The reassessment / modification of assets relates to rent increases and extensions to lease terms that have been agreed during the year to 31 December 2020 and 31 December 2019 for property leases that were in place at the start of the year.

 

During the current year, the Group announced the closure of the Newmarket site.  As a result, the Group will utilise the break clause which was part of the original lease contract.  The lease term was previously assumed to end in April 2027 but will instead end in April 2022.  As such, the lease term has been revised resulting in a right of use asset disposal of £0.3 million.  The remaining disposal of £0.4 million relates to a number of other asset disposals which are, individually, not material.

 

The transfers to property, plant and equipment represents the reclassification of the net book value of assets, to property, plant and equipment, where the lease expired in the year and the assets are now owned.

 

 

 

13            TEXTILE RENTAL ITEMS

 

	2020	2019
	£m	£m
Opening net book value	56.8	56.4
Additions	23.9	46.1
Business combinations	-	1.7
Depreciation	(42.2)	(45.1)
Impairment losses	(0.6)	-
Disposals	(0.2)	-
Special charges	(2.1)	(2.3)
Closing net book value	35.6	56.8

 

 

 

14         BORROWINGS

 

	2020	2019
	£m	£m
Current
Overdraft	1.2	11.2
Bank loans	(0.2)	(0.3)
	1.0	10.9
Non-current
Bank loans	(0.2)	84.7
	(0.2)	84.7
	0.8	95.6

 

At the 31 December 2020, borrowings were secured and drawn down under a committed facility dated 21 February 2014, as amended and restated from time to time. This amended facility comprised a £135.0 million rolling credit facility (including an overdraft) which runs to August 2023 and a £40.0 million rolling credit facility which runs to 22 May 2022 with the option for a one year extension.

 

Individual tranches are drawn down, in sterling, for periods of up to six months at LIBOR rates of interest prevailing at the time of drawdown, plus the applicable margin.  The margin varies between 1.25% and 2.25%, but for the period to 31 March 2022 is fixed at 2.00%.   

 

The secured bank loans are stated net of unamortised issue costs of £0.4 million (2019: £0.6 million) of which £0.2 million is included within current borrowings (2019: £0.3 million) and £0.2 million is included within non-current trade and other receivables (2019: £0.3 million within non-current borrowings) as there are no borrowings at the end of the period for the fees to be offset against. 

 

As at 31 December 2020, the Group has in place the following hedging arrangements which have the effect of replacing LIBOR with fixed rates as follows:

 

§ for £15.0 million of borrowings, LIBOR is replaced with 1.070% from 30 January 2019 to 29 January 2021; and

§ for £15.0 million of borrowings, LIBOR is replaced with 1.144% from 30 January 2019 to 31 January 2022; and

§ for £15.0 million of borrowings, LIBOR is replaced with 0.805% from 8 January 2020 to 9 January 2023.

 

Following the equity placing in June 2020 which raised £82.7 million, the Group repaid its loans outstanding at that date. Hedge accounting was therefore discontinued at that date as the Group no longer had any loans for the Group's interest rate swaps to economically hedge. 

 

Amounts drawn under the revolving credit facility have been classified as either current or non-current depending upon when the loan is expected to be repaid.

 

The Group has two net overdraft facilities for £5.0 million and £3.0 million with two of its principal bankers (2019: £5.0 million and £3.0 million).

 

 

 

15         LEASE LIABILITIES

 

	2020 £m	2019 £m
Opening liabilities	40.4	44.6
New leases recognised	5.1	6.5
Business combinations	-	1.3
Reassessment / modification of leases previously recognised	1.9	1.2
Lease payments	(7.8)	(15.0)
Disposals	(0.7)	-
Finance costs	1.7	1.8
Closing liabilities	40.6	40.4

 

 

Of which are:
Current lease liabilities	5.5	5.6
Non-current lease liabilities	35.1	34.8
Closing liabilities	40.6	40.4

 

The reassessment/modification of leases relates to rent increases and extensions to lease terms that have been agreed during the year.

 

During the current year, the Group announced the closure of the Newmarket site.  As a result, the Group will utilise the break clause which was part of the original lease contract. The lease term was previously assumed to end in April 2027 but will instead end in April 2022. As such the lease term has been revised resulting in a disposal of £0.3 million.  The remaining disposal of £0.4 million relates to a number of other lease disposals which are, individually, not material.

 

 

 

16            POST-EMPLOYMENT BENEFIT OBLIGATIONS

 

The Group has applied the requirements of IAS 19, 'Employee Benefits' (revised June 2011) to its employee pension schemes and post-retirement healthcare benefits.  The Group operates a defined benefit pension scheme, the Johnson Group Defined Benefit Scheme ('JGDBS'). The JGDBS was closed to future accrual on 31 December 2014.

 

As part of the Group's objective to reduce its overall pension deficit, deficit recovery payments of £1.9 million (2019: £1.9 million) were paid to the JGDBS.  A net re-measurement and experience loss of £9.4 million has been recognised in the year to December 2020.

 

The gross post-employment benefit obligation and associated deferred income tax asset thereon is shown below:

 

	2020 £m	2019 £m
Gross post-employment benefit obligation	14.9	7.3
Deferred income tax asset thereon	(2.8)	(1.2)
Net liability	12.1	6.1

 

The reconciliation of the opening gross post-employment benefit obligation to the closing gross post-employment benefit obligation is shown below:

	2020 £m	2019 £m
Opening gross post-employment benefit obligation	(7.3)	(4.6)
Notional interest	(0.1)	(0.1)
Deficit recovery payments	1.9	1.9
Utilisation of post-retirement healthcare obligation	-	-
Re-measurement and experience losses	(9.4)	(4.5)
Closing gross post-employment benefit obligation	(14.9)	(7.3)

 

Within the Group's 2020 Interim Report and Accounts, disclosures were made in respect of the actuarial pension valuation as at 30 June 2020.  On subsequent review of the support information provided for the purposes of the disclosure, an error was identified.  The impact of the error was an overstatement of the fair value of scheme assets, as at 30 June 2020, by £10.3 million.  As a result, the post-employment benefit obligations at 30 June 2020 should have been a £9.0 million liability, compared to the reported £1.3 million asset, and the deferred tax asset thereon should have been £1.7 million, compared to the reported deferred tax liability of £0.3 million.  As a result, both retained earnings and net assets should have been £8.3 million lower.  The error had no impact on the Consolidated Income Statement or the Consolidated Statement of Cash Flows.

 

 

17            ANALYSIS OF NET DEBT

 

Net debt is calculated as total borrowings net of unamortised bank facility fees, less cash and cash equivalents.  Non-cash changes represent the effects of the recognition and subsequent amortisation of fees relating to the bank facility, changing maturity profiles, debt acquired as part of an acquisition and the recognition of lease liabilities entered into during the year.

 

2020				At 31 December 2019	Cash Flow	Non-cash Changes	At 31 December 2020
				£m	£m	£m	£m
Debt due within one year				0.3	0.1	(0.2)	0.2
Debt due after more than one year				(84.7)	85.1	(0.2)	0.2
Lease liabilities (See note 15)				(40.4)	6.1	(6.3)	(40.6)
Total debt and lease financing				(124.8)	91.3	(6.7)	(40.2)
Cash and cash equivalents				(2.9)	9.5	-	6.6
Net debt				(127.7)	100.8	(6.7)	(33.6)

 

 

	At 31 December 2018	Adoption of IFRS 16	At 1 January 2019	Cash Flow	Non-cash Changes	At 31 December 2019
2019	£m	£m	£m	£m	£m	£m
Debt due within one year	0.3	-	0.3	1.1	(1.1)	0.3
Debt due after more than one year	(86.6)	-	(86.6)	2.2	(0.3)	(84.7)
Finance leases	(7.4)	7.4	-	-	-	-
Lease liabilities	-	(44.6)	(44.6)	13.2	(9.0)	(40.4)
Total debt and lease financing	(93.7)	(37.2)	(130.9)	16.5	(10.4)	(124.8)
Cash and cash equivalents	(4.7)	-	(4.7)	1.8	-	(2.9)
Net debt	(98.4)	(37.2)	(135.6)	18.3	(10.4)	(127.7)

 

 

The cash and cash equivalents figures are comprised of the following balance sheet amounts:

	2020	2019
	£m	£m
Cash (Current assets)	7.8	8.3
Overdraft (Borrowings, Current liabilities)	(1.2)	(11.2)
	6.6	(2.9)

 

 

Lease liabilities are comprised of the following balance sheet amounts:

	2020	2019
	£m	£m
Amounts due within one year (Lease liabilities, Current liabilities)	(5.5)	(5.6)
Amounts due after more than one year (Lease liabilities, Non-current liabilities)	(35.1)	(34.8)
	(40.6)	(40.4)

 

 

 

18         RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

	2020	2019
	£m	£m
Increase in cash in year	9.5	1.8
Decrease in debt and lease financing	91.3	16.5
Change in net debt resulting from cash flows	100.8	18.3
Debt acquired through business acquisitions	-	(2.4)
Leases previously recognised as operating leases under IAS 17	-	(37.2)
Lease liabilities recognised during the period	(6.3)	(7.7)
Non-cash movement in unamortised bank facility fees	(0.4)	(0.3)
Movement in net debt	94.1	(29.3)
Opening net debt	(127.7)	(98.4)
Closing net debt	(33.6)	(127.7)

 

 

 

19         SHARE CAPITAL

				2020		2019
Issued and Fully Paid			Shares	£m	Shares	£m
Ordinary shares of 10p each:
-  At start of year			369,760,824	37.0	367,574,210	36.8
-  New shares issued			74,450,276	7.4	2,186,614	0.2
-  At end of year			444,211,100	44.4	369,760,824	37.0

 

Issue of Ordinary shares of 10p each

An analysis of the new shares issued in each year is shown below:

				2020		2019
Issued and Fully Paid			Shares	£	Shares	£
Ordinary shares of 10p each:
-  Approved LTIP	note a		-	-	150,000	15,000
-  EBT	note b		300,000	30,000	1,655,000	165,000
-  SAYE	note c		235,088	23,509	381,614	38,161
- Placing	note d		73,915,188	7,391,519
New shares issued			74,450,276	7,445,028	2,186,614	218,161

 

Note a:    Nil (2019: 150,000) Ordinary shares were allotted in relation to employee share option exercises.  The total nominal value received was £nil (2019: £15,000). 

 

Note b:    300,000 (2019: 1,655,000) Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises.  The total nominal value received was £30,000 (2019: £165,000).  At the time of allotment, the EBT already held 12,468 (2019: 16,256) Ordinary shares of 10 pence each which, together with the 300,000 (2019: 1,655,000) newly allotted Ordinary shares of 10 pence each, were used to satisfy the exercise of 304,080 (2019: 1,654,934) LTIP options. In addition, the EBT sold no further shares (2019: 3,854 shares and retained the net proceeds).

 

Note c:    235,088 (2019: 381,614) SAYE Scheme options were exercised with a total nominal value of £23,509 (2019: £38,161).

 

Note d:    During the year ended 31 December 2020, the Company placed 73.9 million Ordinary shares (the '2020 Placing') with existing and new institutional investors raising net proceeds of £82.7 million (gross proceeds of £85.0 million less costs of £2.3 million) of which £7.4 million was credited to share capital.  The 2020 Placing shares represented approximately 19.99 per cent. of the Company's existing share capital.  The 2020 Placing price of 115 pence per share was equal to a discount of 7 per cent. to the 10-day average closing mid-market price of 123.6 pence per share, and 2 per cent. to the 10-day volume weighted average price of 117.5 pence per ordinary share both ending on 28 May 2020, being the last practicable day prior to the publication of the announcement.

 

                Whilst the Directors were cognisant to the effect of any non-pre-emptive issuance on retail shareholders, due to the size of the transaction, and the short timeframe required to secure additional liquidity as part of the Company's response to the extreme circumstances of the COVID-19 pandemic, the 2020 Placing was undertaken on a non-pre-emptive basis using a cash box structure.  The Company was, therefore, able to rely on Section 612 of the Companies Act 2006, which provides relief from the requirements under Section 610 of the Companies Act 2006 to create a share premium account.  As such, no share premium was recorded in relation to the 2020 Placing shares and, instead, the net proceeds in excess of the nominal value of the 2020 Placing shares was credited to retained earnings.  Such retained earnings are considered to be distributable for the purposes of the Companies Act 2006.

 

                For the avoidance of doubt, existing share awards were not normalised to negate the dilutive effect of the 2020 Placing.

 

 

The total proceeds received on allotment in respect of all of the above transactions were £82.9 million (2019: £0.6 million) and were credited as follows:

				2019		2019
				£m		£m
Share capital				7.4		0.2
Share premium				0.2		0.4
Retained earnings				75.3		-
				82.9		0.6

  

 

            20            CONTINGENT ASSETS

 

During the year, the Group made claims against its insurance policy in relation to a fire and a flood at two Workwear processing plants.  £4.4 million of claims have been recognised within the Consolidated Income Statement during the year.  £2.5 million of this income has been recognised in exceptional items as it relates to capital items and £1.9 million is included within adjusted operating profit, offsetting against an equal value of associated business interruption costs.

 

Work is ongoing with the insurers such that the claims will likely be finalised in 2021.  The insurance proceeds relating to capital items expected to be received during 2021 are between £7.0 million and £8.0 million.  Further proceeds are likely to be received in relation to business interruption costs in line with expenditure as it is incurred.

 

 

 

21            CONTINGENT LIABILITIES

 

The Group operates from a number of sites across the UK.  Some of the sites have operated as laundry sites for many years and historic environmental liabilities may exist.  Such liabilities are not expected to give rise to any significant loss.

 

The Group has granted its Bankers and Trustee of the Pension Scheme (the 'Trustee') security over the assets of the Group.  The priority of security is as follows:

§ first ranking security for £28.0 million to the Trustee ranking pari passu with up to £155.0 million of bank liabilities; and

§ second ranking security for the balance of any remaining liabilities to the Trustee ranking pari passu with any remaining bank liabilities.

 

During the period of ownership of the Facilities Management division the Company had given guarantees over the performance of contracts entered into by the division.  As part of the disposal of the division the purchaser has agreed to pursue the release or transfer of obligations under the Parent Company guarantees and this is in process.  The Sale and Purchase agreement contains an indemnity from the purchaser to cover any loss in the event a claim is made prior to release.  In the period until release the purchaser is to make a payment to the Company of £0.2 million per annum, reduced pro rata as guarantees are released.  Such liabilities are not expected to give rise to any significant loss.

 

As a condition of the sale of the Facilities Management division in August 2013, the Group has put in place indemnities, to the purchaser, in relation to any future amounts payable in respect of contingent consideration related to the Nickleby acquisition completed in February 2012.  As set out in the 2012 Annual Report and Accounts the maximum amount payable under the terms of the indemnity could be up to £5.0 million.  The Directors believe the risk of settlement at, or near, the maximum level to be remote.

 

 

 

22            EVENTS AFTER THE REPORTING PERIOD

 

There were no events occurring after the balance sheet date that require disclosing in accordance with IAS 10, 'Events after the reporting period'.

 

 

 

23        PRINCIPAL RISKS AND UNCERTAINTIES

 

Our Approach to Risk Management

The Board has overall accountability for ensuring that risk is effectively managed across the Group and, on behalf of the Board, the Audit Committee coordinates and reviews the effectiveness of the Group's risk management process.

 

Risks are reviewed by all of our businesses on an ongoing basis and are measured against a defined set of likelihood and impact criteria.  This is captured in consistent reporting formats enabling the Audit Committee to review and consolidate risk information and summarise the principal risks and uncertainties facing the Group.  Wherever possible, action is taken to mitigate, to an acceptable level, the potential impact of identified principal risks and uncertainties.

 

The Board formally reviews the most significant risks facing the Group at its February and August meetings, or more frequently should new matters arise.  Throughout 2020, and other than as described below, the overall risk environment remained largely unchanged from that reported within the Group's 2019 Annual Report.

 

Risk Appetite

The Board interprets appetite for risk as the level of risk that the Company is willing to take in order to meet its strategic goals.  The Board communicates its approach to, and appetite for, risk to the business through the strategy planning process and the internal risk governance and control frameworks.  In determining its risk appetite, the Board recognises that a prudent and robust approach to risk assessment and mitigation must be carefully balanced with a degree of flexibility so that the entrepreneurial spirit which has greatly contributed to the success of the Group is not inhibited.  Both the Board and the Audit Committee remain satisfied that the Group's internal risk control framework continues to provide the necessary element of flexibility without compromising the integrity of risk management and internal control systems.

 

Emerging Risks

The Board has established processes for identifying emerging risks, and horizon scanning for risks that may arise over the medium to long term.  Emerging and potential changes to the Group's risk profile are identified through the Group's risk governance frameworks and processes, and through direct feedback from management, including changing operating conditions, market and consumer trends.

 

Principal Risks and Uncertainties

The principal risks and uncertainties affecting the Group are summarised below:

 

§ Economic Conditions § Failure of Strategy § Loss of a Processing Facility § Cost Inflation § Insufficient Processing Capacity § Customer Sales and Retention

§ Competition and Market Disruption § Recruitment, Retention and Motivation of Employees § Health and Safety § Compliance and Fraud § Information Systems and Technology § Climate Change and Energy Costs

 

Full details of the above risks, together with details on how the Board takes action to mitigate each risk, will be provided in our 2020 Annual Report.  These risks and uncertainties do not comprise all of the risks that the Group may face and are not necessarily listed in any order of priority.  Additional risks and uncertainties not presently known to the Board, or deemed to be less material, may also have an adverse effect on the Group.

 

In accordance with the provisions of the UK Corporate Governance Code, the Board has taken into consideration the principal risks and uncertainties in the context of determining whether to adopt the going concern basis of preparation and when assessing the future prospects of the Group.

 

COVID-19 Pandemic

Whilst we have not established a new principal risk for the COVID-19 pandemic, or for future potential pandemics, the Board has specifically considered how our principal risks and uncertainties have been impacted by it, as set out below.

 

	Risk	COVID-19 Impact
Health and Safety	Health and safety in the workplace is an extremely important consideration for any employer.  Legislation is often complex and fast-changing and failure to ensure our employees remain safe at work may lead to serious business interruption and potential damage to reputation.	Increased amount of health and safety legislation and guidelines introduced in response to COVID-19.   The Group has followed all relevant guidelines to ensure that its facilities are COVID secure.  While the potential risk has increased during the period due to COVID-19, the Directors' assessment is that this increase has been mitigated by the measures implemented.
Economic Conditions	Our business could be susceptible to adverse changes in, inter alia, economic conditions and customer spending habits, which could impact our profitability and cash flow.	The extraordinary and unprecedented events arising in 2020 exasperated this risk as a result of the various lockdowns and restrictions imposed across the UK in response to COVID-19 pandemic.  HORECA customers may delay opening until they are confident of demand for their own services having returned to more normalised levels.   In response to COVID-19, we have implemented action plans to protect the liquidity of the Group and to reduce the cost base.  We continue to review our cost base for additional savings.
Loss of a Processing Facility	The loss of a key processing facility could result in significant disruption to our business, due to the high utilisation of plant capacity.	Historically, the loss of a processing facility would most likely be as a result of flooding or fire, however, a site may now temporarily become unavailable as a result of Government guidance changes, on either a localised or national level, in response to COVID-19.  Similarly, a localised outbreak of COVID-19 may also lead to the temporary closure of a site.   A wide geographic spread of processing facilities mitigates the effect of a temporary loss of any single facility as our estate provides us the ability to relocate the processing of work.  Detailed plans are in place for the processing to be relocated quickly and efficiently.
Customers	For our businesses to grow organically, we are reliant on securing and retaining a diverse range of customers.  A reliance on any one particular customer or group of customers may present a risk to the future cash flows of the Group should they not be retained.   Adverse economic conditions may lead to an increased number of our customers and clients being unable to pay for existing or additional products and services.	COVID-19 may lead to a higher number of customer closures than we would ordinarily experience and, as set out above, customers may delay opening until they are confident of demand for their own services having returned to more normalised levels.   Our business model is structured so that we are not reliant on one particular customer or group of customers and we have limited concentration of credit risk with regard to trade receivables given the diverse and unrelated nature of the Group's customer base.   Given the diversity of our customer base and the various industries which we serve, it is generally possible to contain the impact of these adverse conditions.  Any adverse impact on cash flow could be mitigated in the short term by controls over capital expenditure and other discretionary spend.
Competition	We operate in a highly competitive marketplace.  Aggressive pricing from our competitors could cause a reduction in our revenues and margins.	Competitors may seek to aggressively price contracts in order to backfill volume lost during the pandemic, particularly as they may not have access to the same level of liquidity as the Group.   The Group will continue to differentiate its proposition and focus on our points of strength, such as transparency of our pricing, flexibility in our cost base, quality and value of service and innovation.
Recruitment, Retention and Motivation of Employees	As a service orientated Group, retaining and motivating the best people with the right skills, at all levels of the organisation, is key to the long-term success of the Group.  Short term disruption could occur if a key member of our team was unavailable at short notice, either on a temporary or permanent basis.	The Group has established training, development, performance management and reward programmes to retain, develop and motivate our people.  The Group regularly reviews the adequacy and strength of its management teams to ensure that appropriate experience and training is given such that there is not over reliance on any one individual.   As a consequence of COVID-19 and/or the measures implemented by authorities to combat COVID-19, the Group may experience material labour shortages, particularly in the short-term.  By virtue of the size of the Group, we are able to reallocate work across our estate in the event of employee unavailability in a particular location.

Information Systems and Technology

The digital world creates many risks for a business including technology failures, loss of confidential data and damage to brand reputation.

The adoption of alternative working practices during the pandemic may have increased our exposure to external threats.   We seek to assess and manage the effectiveness of our security infrastructure and our ability to effectively defend against current and future cyber risks by using analysis tools and experienced professionals to evaluate and mitigate potential impacts.  Throughout the pandemic, the Group has increased its focus in this area as well as regularly educating users of the increased risk of cyber-attacks.

 

The Board will continue to closely monitor the situation over the coming period and will take any required action to maintain control over the impact.

 

BREXIT

The impact of the UK's decision to exit the European Union (Brexit) remains high on our agenda.  The Board continues to view the potential impact of Brexit as an integral part of our principal risks rather than as a standalone risk.

 

We perceive the main risks as a potential delay on imports as well as an increase in costs and tariffs on those imports, however, in our risk mitigation planning we have sought to ensure that our key suppliers had the correct customs documentation in place for 1 January 2021.  We also planned for increased stock holding of linen and garments within the UK.  We are also aware that the recent changes to the UK's immigration system may have an impact on employee availability, particularly in the short-term, in certain regions where we operate.  By virtue of the size of the Group, we are able to reallocate work across our estate in the event of employee unavailability in a particular location.

 

The Board will continue to monitor the potential impact and will take necessary mitigating actions as appropriate.

 

 

 

24            STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

 

The Annual Report and Accounts for the year ended 31 December 2020, which will be made available on the Group's website (www.jsg.com) on or before 26 March 2021, contains the following statement regarding responsibility for the Annual Report and financial statements:

 

"The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

 

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.  Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group for that period.

 

In preparing the financial statements, the Directors are required to:

§    select suitable accounting policies and then apply them consistently;

§    state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

§     make judgments and accounting estimates that are reasonable and prudent; and

§     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

 

The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. 

 

The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group and Parent Company's position and performance, business model and strategy.

 

Directors' Confirmations

In the case of each Director in office at the date the Directors' Report is approved:

§     so far as the Director is aware, there is no relevant audit information of which the Group and Parent Company's auditors are unaware; and

§    they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Parent Company's auditors are aware of that information.

 

 

 

25            PRELIMINARY ANNOUNCEMENT

 

A copy of this Preliminary Announcement is available on request to all Shareholders by post from the Company Secretary, Johnson Service Group PLC, Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH.  The announcement can also be accessed on the Internet at www.jsg.com.

 

The Company's Annual Report will be made available on the Group's website (www.jsg.com) on or before 26 March 2021.

 

 

 

26         APPROVAL

 

The Preliminary Announcement was approved by the Board of Directors on 19 March 2021.