1
May 2024
AIM: JSG
Johnson Service Group
PLC
("JSG" or "the
Group")
AGM Statement and Updated
Positive Energy Outlook
JSG, a leading textile services
provider in the UK and Republic of Ireland, will be holding its
Annual General Meeting today and will make the following
statement:
Current Trading
Revenue in the first three months of
the year amounted to some £114 million (2023: £98 million).
Organic growth in the same period was 8.9% (HORECA: 13.5%;
Workwear: 0.5%).
HORECA volumes have been in line
with our expectations, in what is traditionally the quietest
quarter of the year, whilst the more predictable volume pattern,
compared to recent years, has allowed us to better utilise our
resources.
Crawley, our new HORECA site,
remains on budget and is expected to begin test processing in the
next few weeks. We are already using the site as a trunking
depot and we anticipate that work will begin to transfer into
Crawley from the end of June, thereby also creating additional
capacity in the transferring sites. As previously indicated,
Crawley is expected to negatively impact adjusted operating profit
by some £3.7 million in 2024 (2023: £1.0 million) with progress
steadily towards a breakeven point during 2026 as the site
matures. The site remains on track to generate a return that
comfortably exceeds the Group's weighted average cost of
capital.
Our Celtic Linen business, acquired
in August 2023, is performing as expected and we are pleased with
how the business is integrating into the wider Group.
Workwear traded in line with our
expectations during the first quarter, with encouraging sales
momentum to both new and existing customers.
Updated Positive Energy Outlook
Energy costs have continued a
general trend downwards since the end of 2023, although still
remain volatile on a day-by-day basis.
As we have previously communicated,
our policy is to forward fix the pricing of energy on a 'little and
often' basis. The weighted average price of our current fixed
arrangements when combined with the current forward market rates
for the remaining proportion of our anticipated energy usage would
result in an improvement to current market consensus estimates for
2024 onwards.
Forward market rates, as at 29 April
2024, were as follows:
|
Gas
(pence per
Therm)
|
Electricity
(£ per
MWh)
|
2024
|
77
|
71
|
2025
|
85
|
76
|
2026
|
77
|
71
|
Based upon the market rates above
and the energy fixes currently in place, we estimate that the
impact on our forecast energy cost when updated for these figures,
together with the benefit of ongoing operational efficiencies,
would result in a potential positive effect on adjusted operating
profit in each of 2024, 2025 and 2026 of £3.0 million, £7.0 million
and £9.0 million, respectively. Applying the same uplift in
adjusted operating profit to current market consensus would equate
to a potential improvement in current market consensus adjusted
operating margin of 50, 130 and 170 basis
points, respectively.
Future energy market pricing will
have minimal impact on 2024 but it is estimated that, based on the
energy fixes in place currently, a 10 pence per Therm change in gas
pricing and a £10 per MWh change in electricity pricing, either up
or down, would impact adjusted operating profit in 2025 and 2026 by
£0.6 million and £1.2 million, respectively.
Our policy of forward fixing energy
pricing provides for visibility over future cost. In the
three-year period from 2021 to 2023, this policy secured, in
aggregate, gas and electricity pricing at some £15.4 million lower
than had no fixed pricing been in place. We do note, however,
that potentially for 2024, 2025 and 2026, this policy will result
in a drag on margin. We have estimated that the drag on
adjusted operating profit, as already reflected in our forecast
energy cost and, again, based on the current average market prices
and sensitivities quoted above, would be as follows:
|
£m
|
bps
|
2024
|
8.5
|
170
|
2025
|
3.0
|
60
|
2026
|
0.5
|
10
|
Balance Sheet
Bank debt increased from £61.7
million at December 2023 to £72.9 million at the end of March 2024
and is expected to peak mid-year, reflective of the timing of
dividend payments and capital expenditure. Bank debt at June
2024 is expected to be some £85.0 million before reducing to some
£55.0 million by December 2024. We
continue to see exciting opportunities to deploy capital
organically and have a good M&A pipeline. Under our
capital allocation policy, we keep our capital structure under
review taking into account maintaining a strong balance sheet,
continuing capital investment in our estate, accretive
acquisitions, a progressive dividend policy and distributing any
surplus cash to Shareholders.
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.
Accordingly, the Board
intends to host a webcast of its interim results
announcement in September of this year.
Furthermore, the Board currently anticipates that a London-based investor event
will be held in the final quarter of 2024 to update the market on
the future growth and financial plans for the Group. Further
details will be announced in due course.
Outlook
We remain encouraged by the medium-term prospects of the Group, in
respect of both organic growth and expansion through our strategy
of targeted acquisitions.
Based upon the market rates for
energy referred to above, the energy fixed pricing currently in
place and the benefit of our ongoing actions to increase
operational efficiency, we expect to exit 2024 with strong
progression towards previous levels of adjusted operating margin.
Furthermore, the Board is confident
that, as energy costs stabilise at lower levels and Crawley builds
volume and reaches its potential, combined with further operational
efficiencies across the wider estate, divisional margins will
continue to return towards those achieved in 2019, with an overall
Group adjusted operating margin of at least 14.0% being achieved in
2026.
ENQUIRIES
Johnson Service Group PLC
|
|
Peter Egan, CEO
|
|
Yvonne Monaghan, CFO
|
|
Tel: 01928 704 600
|
|
|
|
Investec Investment Banking (NOMAD)
|
Camarco (Financial PR)
|
David Flin
|
Ginny Pulbrook
|
Carlton Nelson
|
Rosie Driscoll
|
Virginia Bull
|
Letaba Rimell
|
Tel: 020 7597 5970
|
Tel: 020 3757 4992/4981
|
|
Email: jsg@camarco.co.uk
|