Workwear and laundry group taking full advantage of government business support

Johnson Service Group, the textile services provider, said it is continuing to see a significant amount of disruption across its markets.

This follows its announcement on March 20, that it was taking action to cut costs and had cancelled its dividend payments, expected to save around £8.7m, in response to the impact of the coronavirus pandemic.

In a trading update this morning ahead of its annual general meeting, the group, based in Preston Brook, near Runcorn, said its workwear business, which provides garment rental, protective wear and laundry services, is continuing to supply key industries and all its processing sites remain open.

While trading for the first two months of the year was in line with expectations, it subsequently saw a reduction in requirements from certain, mainly blue collar, industries, although it is seeing some increased demand from its food customers which partly offsets this.

Organic growth within the workwear business for the first quarter overall was slightly negative and trading in April was some 12% down.

Within HORECA, which serves the Hotel, Restaurant and Catering markets, it has ceased processing at the vast majority of its 18 sites as the demand for linen has significantly reduced from most sections of the hospitality market.

Organic growth for the first two months of the year was particularly strong at nine per cent, however, March saw volumes reduce resulting in a negative organic growth in the month of 27%.

In April, revenue fell by some 97% on an organic basis due to the closure of the vast majority of the group’s hospitality customers.

Due to the reduction in demand Johnson Services has furloughed a significant proportion of its staff, mainly in the HORECA division.

The board and senior management team have all accepted a temporary salary reduction of 20%, initially for a three-month period from April 1, and the majority of other staff in support and administration roles who have not been furloughed have accepted a salary reduction of 10%, initially for the same period.

These measures, together with a hold on capital investment and the cancellation of all non-essential revenue expenditure, are aimed at conserving cash.

Net debt, excluding IFRS 16, at the end of March 2020, was in line with December 2019, at £87.7m, resulting in a net debt to adjusted EBITDA leverage ratio, calculated in accordance with the group’s bank facilities, of 1.3:1 (December 2019: £87.7m and 1.3:1, respectively).

In addition to accessing the Coronavirus Job Retention Scheme, the group has welcomed the VAT and PAYE payment deferrals announced by the Government.

The group said it has always adopted a prudent approach to its cost base and capital allocation and, with the benefit of its ordinarily cash generative business model, has maintained a strong financial position.

Today’s statement said: “We are currently engaged in constructive discussions with our three principal banks and have agreed that, although we expect to achieve the June 2020 covenants, they will waive that test. No fee has been charged for this waiver, demonstrating the strong relationship we continue to have with our lenders.”

Alongside discussions with its principal banks for the drawing of the £40m accordion facility, the business is also pursuing a resetting of covenants into 2021 to reflect the significant changes it is currently experiencing in trading, particularly within the HORECA business, and the continuing uncertainty around the length of time that the current containment measures may be in place.

The group is also exploring the availability and suitability of other government funding initiatives.

The board said it remains confident in the prospects and viability of the group and is focused on taking action to maintain its strong cash and liquidity position and ensuring the business is ready to return to more normal levels of operation.