Johnson Service Group revenue rises in first quarter

Textile service provider Johnson Service Group said in an update on Wednesday that in the first quarter, it recorded revenue of £114m, making for organic growth of 8.9%.

The AIM-traded firm said hotels, restaurants and cafes (HoReCa) grew 13.5%, while workwear saw a modest increase of 0.5%.

It said its new HoReCa site in Crawley remained on budget, with test processing set to start shortly.

The site was expected to start receiving transferred work by the end of June, enhancing overall capacity.

Although Crawley was projected to impact adjusted operating profit negatively by £3.7m in 2024, that figure was expected to diminish steadily as the site matured, eventually surpassing the group's weighted average cost of capital.

The acquisition of Celtic Linen in August had meanwhile integrated smoothly into the wider group, meeting performance expectations.

Additionally, workwear sales aligned with projections, demonstrating promising momentum with both new and existing clients.

Regarding energy costs, a general downward trend had been seen since late 2023, albeit with ongoing volatility.

JSG said its strategy of 'little and often' forward fixing of energy pricing had contributed to an improved outlook.

Based on current fixed arrangements and forward market rates, potential positive effects on adjusted operating profit was estimated for 2024 to 2026.

Bank debt increased to £72.9m by the end of March, expected to peak mid-year due to dividend payments and capital spending.

However, it was anticipated to decrease to £55m by December.

The company said it was focussed on organic growth opportunities with a promising merger and acquisition pipeline, adhering to a balanced capital allocation policy.

“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,” the board said in its statement.

“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.”

At 1256 BST, shares in Johnson Service Group were up 11.88% at 145p.

Reporting by Josh White for Sharecast.com.