Johnson Service Group H2 Earnings Call Highlights

Johnson Service Group (LON:JSG) outlined improved profitability and disciplined capital allocation in its 2025 results presentation, citing price increases, lower energy costs, and operational efficiencies as key contributors. Management said it remained on track to deliver an adjusted operating margin of at least 14% in 2026, supported by continued targeted investment and energy hedging.

2025 performance: organic growth and margin improvement

The company reported that group revenue increased 4.3% to £535.4 million in 2025, reflecting the benefit of price increases and acquisitions. On an organic basis, revenue increased 1.4% versus 2024, with HoReCa up 1% and Workwear up 2.4%.

Management said volumes declined overall, which it attributed to “current economic uncertainty,” particularly in hospitality, but noted that it took “positive action” on pricing during the year.

Adjusted operating profit increased 16.4% to £72.5 million, lifting the adjusted operating margin to 13.5%, which the company said was in line with expectations. Adjusted earnings per share rose 19.8% to £0.121.

Dividends, buybacks, and leverage

The board proposed a 20% increase in the full-year dividend to £0.048 per share, which management said maintained its dividend commitment of “two and a half times.”

On share repurchases, the company reiterated that £55 million of buybacks were approved in 2025 and completed in January 2026, bringing the total returned to shareholders through buybacks since 2022 to £90.3 million.

Net debt increased to £159.2 million, which management linked to investment and capital returns, but it said leverage remained below 1x at year-end. The company also reiterated it remained comfortable with a target leverage range of 1x–1.5x.

Looking ahead, management said it anticipated net debt would reduce by the end of 2026 “in the absence of any share buybacks or acquisitions,” while noting the board would continue to actively review options for further buybacks during 2026.

Cost environment: energy easing, labor inflation persists

Energy costs were a recurring theme in the update. The company said energy costs fell to 7.4% of revenue in 2025, compared with 8.8% in 2024 and 10% in 2023 (and 6.2% in 2019). It said price increases helped offset higher labor costs and that operational control and investment-driven efficiencies supported margin expansion.

Management reiterated its approach of fixing energy “little and often.” For 2026, it said it has fixed 90% of gas prices and 85% of electricity, with diesel 70% hedged. For 2027, it cited approximate positions of 70% fixed for gas and 55% fixed for electricity.

Labor remained the largest operating cost. The company said labor costs as a percentage of revenue increased 140 basis points in the year to 46%, reflecting the 6.7% increase in the UK National Minimum Wage and higher National Insurance contributions. For 2026, management expects labor costs as a percentage of revenue to remain “relatively stable,” while anticipating energy costs as a percentage of revenue will reduce further based on fixed contracts.

Cash flow, capital investment, and financing items

The company described itself as “highly cash generative,” and said it generated strong cash in 2025, which it invested in capital expenditure across the estate, contract acquisitions, dividends, and share buybacks.

Working capital outflow increased, mainly due to timing of creditor payments and debtor receipts around year-end; management noted debtor days remained fairly consistent at 44 days and said it expected working capital movements to revert toward normal in 2026.

Key cash and investment items cited included:

• Rental stock depreciation of approximately £61 million, with net rental stock spend of £63.7 million.
• Property, plant, and equipment (PP&E) investment of £35.9 million, described as a more normalized level expected to remain broadly similar in 2026.
• Exceptional costs mainly related to the move to the Main Market and reorganization costs, including closure of the Lancaster Workwear site.

Total interest increased to £8 million, driven by higher borrowings to fund buybacks and acquisitions, partly offset by lower UK base rates during 2025. Management said the group’s £135 million bank facility matures in August of next year and that discussions have begun with existing lenders to refinance, extend tenure, and increase the size of the facility.

The underlying tax rate was 24.2%, slightly below the UK rate, which management said was partly due to the 12.5% rate in the Republic of Ireland. Tax payments were £6.6 million in 2025, with management expecting payments to increase toward £9 million in 2026 as first-year allowance benefits unwind. The net surplus on the defined benefit pension scheme rose to £3.7 million, and the company said no deficit contributions are expected in the next 12 months.

Divisional review: HoReCa growth and stable Workwear margins

In HoReCa (hotel, restaurant, and catering), divisional revenue increased 5% to £389.8 million, benefiting from the Empire acquisition in 2024 and additional contracts. Organic growth was 1%, as price increases were partially offset by a small decline in volumes. Energy costs in the division fell to 8.2% of revenue from 9.8%, and adjusted operating margin improved to 15.3%. Management said the Empire business in Tottenham had “settled well” into the group.

Management said it had renewed a number of large customers on long-term deals, while noting some churn, “particularly on price and in independent hotel, restaurant, and catering.” It emphasized the importance of maintaining service levels, highlighting customer satisfaction scores in the high 80s across Workwear and HoReCa and stating it was more acceptable to lose business on price than on service.

In Workwear, revenue increased to £145.6 million, with organic growth of 2.4% driven mainly by price increases. Adjusted operating profit was £21 million, with margin of 14.4%, broadly similar to 2024. Energy costs in Workwear fell to 5.2% of revenue from 6.3%, which management said largely offset the higher labor cost percentage. The company said Workwear retention was 94%, close to historic levels of 95%.

Management also addressed the closure of the Lancaster Workwear site, stating it was coming to the end of its lease and that work was moved predominantly to Manchester after capacity there was increased by 4%–5%, with no adverse impact to customers.

On sustainability, the company said it had published its fourth sustainability report, set further 2026 goals for gas and plastic reduction, and achieved 94% waste diversion from landfill. It also reiterated its positioning as operating within a “circular economy” through reuse and repair of textiles.

Looking into 2026, management highlighted expected seasonal strength in the summer-heavy second half, continued targeted investment to drive efficiencies, ongoing review of infill contract opportunities, and reiterated that it remains on track to reach an adjusted operating margin of at least 14% in 2026.

About Johnson Service Group (LON:JSG)

Johnson Service Group provides high quality textile rental and related services across a range of sectors throughout the UK.

Our family of high quality businesses includes “Johnsons Workwear”, “Johnsons Hotel Linen”, “Johnsons Hotel, Restaurant & Catering Linen” and “Johnsons Restaurant & Catering Linen”, each of which provides a high-quality and reliable service combined with outstanding customer care.

Across our entire family, our priorities are always clear and everything we do centres on the core values of Johnson Service Group – quality, reliability and service.

A strategy to consistently create value for shareholders, deliver outstanding customer service and offer fulfilling careers to employees lies at the heart of our business.