Shares in workwear and laundry supply firm Johnson Service Group (JSG) dipped 2.5% to 116p against a stronger market after it revealed the extent of the effect of the lockdown on its laundry and linen business in its AGM statement.
The group ‘is continuing to see a significant amount of disruption across its markets’, especially in the hotel, restaurant and catering (HORECA) sector where it has ceased processing at most of its 18 sites.
SEVERE SLOWDOWN
From an increase of 9% in organic growth in the first two months of the year, revenues fell 27% in March and an unprecedented 97% in April due to the closure of the vast majority of its hospitality customers.
The workwear business, which provides garment rental, protective wear and laundry services, continues to supply key industries including food processing and all its sites remain open.
Nevertheless, organic revenue growth was ‘slightly negative’ in the first quarter and revenues in April were down 12% as more customers were forced to shut their operations.
MITIGATING ACTIONS
Due to the sudden drop in demand the firm has placed a significant number of people on government furlough while the board and senior management have all taken pay cuts.
In addition, the 2.35p final dividend for 2019 has been cut as previously announced, capital spending has been put on hold and all non-essential spending has been cancelled in order to conserve cash.
The firm’s ratio of net debt excluding leases to earnings before interest, taxes, depreciation and amortisation (EBITDA) was 1.3 times at the end of March, unchanged from December.
However, the company has taken the precaution of negotiating with its banks the drawdown of £40m of financing and resetting its June 2020 covenants - which it fully expected to achieve, for the benefit of doubt - into 2021 to reflect the significant drop in trading.
No dividend will be paid for the current financial year and there is no financial guidance for the time being.
Analysts at HSBC described the update as ‘broadly in line with our base case scenario’ of a 40% reduction in HORECA revenues and 10% in workwear.
