Final Results

16th Jun 2009 07:00



16 June 2009

Embargoed, 0700hrs

Journey Group PLC

Annual Results

for the year ended 31 December 2008

Journey Group plc ("Journey Group" or the "Group"), formerly Watermark Group plc, a leading provider of in-flight products, catering and cabin management services to the airline and travel industry today announces its results for the year ended 31 December 2008.

Highlights

Operating profit before exceptional items £0.1m (2007: loss £5.3m)

EBITDA before exceptional items and share based payments £2.3m (2007: loss £3.4m)

Loss before taxation £10.5m (2007: loss £31.8m)

Retained major contracts at Heathrow

Launched successful catering facility in Los Angeles

Recycling contract renewed with Virgin for 3 years

Strengthened management throughout organisation

Products Division restructured and refocused 

Stephen Yapp, Chairman commented "The airline industry continues to face tough challenges in the current economic environment. In these uncertain times, the Group's businesses remain exposed to further pricing and volume pressures. Nevertheless, the Group has made significant progress to re-position itself with an attractive and competitive product range and service offering and with a lean cost structure. Whilst the near term future is difficult to predict, I have confidence that the Group will measure up well to the challenges ahead".

For further information please contact:

Stephen Yapp

Journey Group plc

Tel: +44 (0) 20 8606 2000

info@journeygroup.plc.uk

KBC Peel Hunt Ltd (Nominated Advisor & Broker)

David Anderson / Daniel Harris

Tel: +44 (0) 20 7418 8900

  

EXECUTIVE CHAIRMAN'S LETTER TO SHAREHOLDERS

INTRODUCTION

During 2008 your Group made significant progress on the objectives that we set, despite facing challenging market conditions. The focus was on restoring underlying profitability, laying the strategic foundations for growth and opening a new facility in Los Angeles. These annual results demonstrate success in all of these areas:  

Group EBITDA before exceptional items and share based payments of £2.3m (2007: £3.4m loss)

Improved management at Heathrow operations

 

- Positive contribution to the Group's results

- Increased capacity

Los Angeles facility

- Successful start up in November 2008

Key to the progress achieved were the steps taken to simplify the Group's business by implementing its new divisional structure. This has driven greater ownership throughout the management team, enabling financial performance to be measured more precisely and resulting in a more efficient business with better customer service at lower costs. 

The airline industry, which is the Group's principal marketplace, has endured very difficult market conditions throughout the year. Early in the year the rise in the cost of oil per barrel affected the price of aviation fuel, which set the industry on course for substantially reduced profits or losses triggering the need for airlines to reduce costs and numbers of flights. Reflecting the inevitability of impending recession in the major western economies the price of aviation fuel fell from around mid-year providing some relief, but in the autumn passenger numbers also dropped significantly, particularly in the premium cabins (by circa. 25%), putting renewed pressure on airlines' profitability. Initially, these conditions impacted the Products Division with new product programmes being shelved by airlines, product specifications reduced and increasingly lower product volumes being shipped. Subsequently, the Services Division has been impacted by reduced numbers of flights. 

An important foundation of the Group's recovery was the successful reorganisation of its capital structure, creating circa. £18 million of new equity capital, which was successfully executed despite difficult capital market conditions. Following the half year end, £9 million of new equity (before expenses) was raised through a placing of ordinary shares at 7.5 pence per share. These funds were used to finance the opening of the Los Angeles facility and to rebalance the Group's stretched working capital position. At the same time the holders of the Group's £9.3 million of convertible bonds agreed to convert their bonds into ordinary shares. Both proposals were approved by shareholders at the EGM in July 2008 and were completed at the end of August 2008. In addition to raising new cash resources for the Group, these measures bolstered the Group's net asset position by £16.9 million, which at the end of the year stood at £17.5 million.

As part of the capital reorganisation the opportunity was taken to transfer the trading of the Company's ordinary shares to the AIM market of London Stock Exchange plc. The Board considers AIM to be a more appropriate market for the Company and in doing so this will lead to a reduced administrative burden and lower on-going costs associated with being a public company.

The Group's businesses have been re-branded to develop and re-establish brand value in their markets with the Products business taking the Watermark name whilst the Group was renamed Journey Group plc.

The past year has been testing for all those involved in the business. Even so, during this period we have been able to continue to provide an excellent service to our customers. I would like to take this opportunity to thank our employees, customers and suppliers for their continued support during this period.

RESULTS

The results for the year were as follows:

Year to 31 December	2008	2007
	£m	£m
Revenue	91.3	106.0
EBITDA	2.3	(3.4)
Depreciation and amortization	(1.7)	(1.7)
Operating profit/(loss) before exceptional items and share based payments	0.6	(5.1)
Share based payments	(0.5)	(0.3)
Exceptional items	(9.3)	(24.8)
Net interest payable	(1.3)	(1.6)
Loss before taxation	(10.5)	(31.8)
Basic loss per share (pence)	8.1	69.1

The results demonstrate a significant improvement in profitability. In particular, EBITDA before exceptional items and share based payments of £2.3 million was achieved compared with a loss of £3.4 million for 2007. At the operating profit level prior to exceptional items and share based payments the Group achieved a profit of £0.6 million compared with a loss of £5.1 million in 2007.

The Group had exceptional items of £9.3 million. The two major items were a non-cash fair value charge amounting to £5.0 million arising from the reorganisation of the Group's capital structure and £2.8 million of start-up costs relating to the Los Angeles facility. There was a net loss before taxation of £10.5 million and a basic loss of 8.1 pence per share whilst net debt fell considerably by £7.8 million from £13.5 million to £5.7 million.

SERVICES DIVISION

Year to 31 December		2008	2007
		£m	£m
Revenue		63.0	73.5
EBITDA before exceptional items and share based payments		1.7	(3.5)
Operating loss before exceptional items
	Operating loss before non-recurring income	(0.5)	(4.7)
	Non-recurring income	0.9	-
		0.4	(4.7)

The major element of the reduction in revenue was due to a change in the business model of the Encompass business to an agency basis, which had minimal profit impact. Turnover benefited from the commencement of operations in Los Angeles in November 2008.

The significant turnaround has been brought about by lower labour costs, continued process improvements, focus on cost controls and reducing waste. At the same time the Division has suffered from lower pricing on customer contracts agreed in earlier years by the previous management of the Group, which makes the result achieved all the more creditable.

Two important successes for the Division during the year were the renewal of the catering contract with Qantas, commencing in December 2008 for three years and winning the United Airlines contract in Los Angeles for seven years. The award of these two contracts against tough competition demonstrates that Air Fayre's catering business model remains highly competitive and meets both the operational and strategic needs of major airlines.

Heathrow

The renewal of the contract with Qantas reflected the considerable steps taken in the Division's continuous improvement programme. Customer service improvements were realised through the investment in and strengthening of the London Heathrow team. Specific steps were taken to renegotiate certain supply agreements more advantageously. An onerous labour supply agreement was also terminated allowing greater flexibility and control over manpower in turn giving the business the ability to react quickly to seasonal schedule changes as well as reducing costs. 

A main focus of the new management has been the creation of a leaner operation coupled with improved customer service, which during the year recorded 99% on time in full performance and 99% customer satisfaction ratings. In June 2008 we also achieved Halal accreditation from the UK Halal Food Authority and in August 2008 we retained our Cmi Higher level accreditation in Food Hygiene. At ITCA (International Travel Catering Association) in February 2008 we were awarded the Mercury Award for "Training Across Borders".

Los Angeles

The Los Angeles facility successfully commenced operations in November 2008 after a period of only seven months from being awarded the United Airlines contract. The facility is now fully operational, serving approximately 70 United Airlines flights a day and consistently delivering a high standard of service to a satisfied customer. The expectation was initially for a higher number of United Airlines flights, but some level of recovery is anticipated over the coming year. The facility is expected to be profitable from Q2 2009. As the facility was constructed with spare capacity and, in line with the original plan, the focus will now shift to filling that capacity by securing additional customers.

North America has been identified as a main strategic opportunity for the catering business. The signing of the contract with United Airlines was the first step in realising this strategy. As new customers are secured for the facility, the business model will be further validated in the United States and the benefits of change demonstrated within this large geographic market. This will create the basis for expanding into other US locations.

PRODUCTS DIVISION

Year to 31 December	2008	2007
	£m	£m
Revenue	30.9	35.2
EBITDA before exceptional items and share based payments	1.5	2.3
Operating profit before exceptional items	1.4	1.9

Under the leadership of David Young, who was appointed as Managing Director of the Division at the beginning of the year, the Products Division has concentrated on rebuilding its capabilities and strategic focus.  

Market conditions have been very difficult as airlines have struggled with the impact of high aviation fuel prices and reduced passenger numbers. Reflecting these conditions, revenue fell by £4.3 million to £30.9 million with operating profit before exceptional items falling to £1.4 million from £1.9 million. The collapse of Silverjet resulted in a bad debt of £0.3 million, which is included in exceptional items. 

The talent within the Products team was enhanced with a number of key appointments. A rebranding program has been undertaken reflecting the history of the business whilst updating the Division's marketing approach for a new trading environment. A new website was launched with new marketing brochures and presentation guidelines. New offices were opened in Sydney and Auckland to work closely with key customers in that region including Qantas, Air New Zealand and Air Tahiti Nui. At MnH, the Group's recycling business, an innovative pitch was made for the renewal of its main contract with Virgin Atlantic and The House, which was won for a further three years. 

Following the year end the Division conducted a broadly based review of its in-flight products operations with a view to better positioning it in the continuing difficult conditions and to take advantage of opportunities as its principal markets recover. As a consequence, a number of fundamental decisions have been taken. These included the focus on a reduced range of products where the Division can better add value and has competitive advantage, the concentration on a smaller number of larger customers and those with growth potential, and the reorganisation of the Division's supply chain. As part of these changes, product will be sourced from strategic suppliers. Overall the measures being taken are expected to reduce costs and the investment in working capital significantly.

BOARD

We are delighted to welcome Dimitri Goulandris as a Non-executive Director and David Young as an Executive Director. Dimitri is the Managing Partner of Cycladic Capital, which was set up in 2002 to focus on making investments in small and medium sized public and private companies predominantly in Europe. Following the reorganisation of the Company's capital structure, Cycladic became a significant shareholder in the Company with a holding of 13.5% in ordinary shares. Dimitri replaced Gijs de Reuver as representative of Cycladic and I would like to thank Gijs for his contribution to the Board. David Young has been the Managing Director of the Products Division since January 2008. Nick Scott left the Board following the year end and I would also like to thank him for his contribution.

OUTLOOK

As set out in note 2i to the Group financial statements, the Company's bank facilities are due for renewal on 31 August 2009 and, in applying the going concern basis, the Directors have assumed that appropriate new borrowing facilities will be available. Steps are presently being taken to reduce net debt, which stood at £5.7 million at year end and at £4.7 million at 30 April 2009, both by reducing working capital needs and by progressing the Group's strategic actions being taken. In conjunction with these measures, new borrowing facilities will be sought consistent with the Group's on-going cash requirements.

The airline industry continues to face tough challenges in the current economic environment. In these uncertain times, the Group's businesses remain exposed to further pricing and volume pressures. Nevertheless, the Group has made significant progress to re-position itself with an attractive and competitive product range and service offering and with a lean cost structure. Whilst the near term future is difficult to predict, I have confidence that the Group will measure up well to the challenges ahead.

Stephen Yapp

Executive Chairman

15 June 2009

  CONSOLIDATED INCOME STATEMENT

for the 12 months to 31 December 2008

	Before  exceptional  items  £'000	Exceptional  items  £'000	Total £'000
Revenue	91,344	-	91,344
Cost of sales	(75,331)	-	(75,331)
Gross profit	16,013	-	16,013
Operating and administrative costs
(excluding exceptional items)	(15,898)	-	(15,898)
Movement in fair value of derivative financial instruments	(13)	-	(13)
Exceptional items:
Fair value charges relating to convertible bonds	-	(5,044)	(5,044)
Los Angeles start-up costs	-	(2,793)	(2,793)
Supply contract termination	-	(576)	(576)
Costs of refinancing	-	(543)	(543)
Bad debt	-	(300)	(300)
Reorganisation costs	-	(65)	(65)
Total operating and administrative costs	(15,911)	(9,321)	(25,232)
Operating profit/(loss)	102	(9,321)	(9,219)
Operating profit/(loss) before share based payments	633	(9,215)	(8,582)
Share based payments	(531)	(106)	(637)
Finance costs	(1,280)	-	(1,280)
Finance income	9	-	9
Loss before tax attributable	(1,271)	-	(1,271)
to equity shareholders	(1,169)	(9,321)	(10,490)
Income tax credit	5	-	5
Loss after tax attributable
to equity shareholders	(1,164)	(9,321)	(10,485)
Loss per share (pence)
Basic			8.1p
Diluted			8.1p

  RESTATED AND RECLASSIFIED CONSOLIDATED INCOME STATEMENT

for the 12 months to 31 December 2007

	Before exceptional items  £'000	Exceptional items  £'000	Total  £'000
Revenue	106,049	-	106,049
Cost of sales	(92,634)	-	(92,634)
Gross profit	13,415	-	13,415
Operating and administrative costs
(excluding exceptional items)	(18,453)	-	(18,453)
Movement in fair value of derivative financial instruments	(311)	-	(311)
Exceptional items:
Impairment of goodwill	-	(20,600)	(20,600)
Asset retirement	-	(2,066)	(2,066)
Costs of refinancing	-	(1,836)	(1,836)
Reorganisation costs	-	(309)	(309)
Total operating and administrative costs	(18,764)	(24,811)	(43,575)
Operating loss	(5,349)	(24,811)	(30,160)
Operating loss before share based payments	(5,099)	(24,811)	(29,910)
Share based payments	(250)	-	(250)
Finance costs	(1,706)	-	(1,706)
Finance income	23	-	23
Loss before tax attributable	(1,683)	-	(1,683)
to equity shareholders	(7,032)	(24,811)	(31,843)
Income tax credit	53	-	53
Loss after tax attributable
to equity shareholders	(6,979)	(24,811)	(31,790)
Loss per share (pence)
Basic			69.1p
Diluted			69.1p

  CONSOLIDATED BALANCE SHEET

as at 31 December 2008

	31 December 2008  £'000	Restated  31 December 2007  £'000
Assets
Non-current assets
Property, plant and equipment	15,591	9,358
Goodwill	10,010	10,010
Intangible assets	260	430
	25,861	19,798
Current assets
Inventories	3,917	7,148
Trade and other receivables	10,462	15,896
Prepayments	1,370	646
Current income tax	113	98
Cash and short-term deposits	1,762	2,001
Fair value of derivative financial instruments	-	13
	17,624	25,802
Total assets	43,485	45,600
Equity and liabilities
Equity attributable to equity shareholders of the parent
Issued share capital	2,906	467
Share premium account	36,352	21,582
Shares to be issued	100	-
Capital redemption reserve	24	24
Merger reserve	1,521	7,621
Equity element of convertible bonds	-	282
Foreign currency translation reserve	(903)	(703)
Retained earnings	(22,543)	(23,633)
Total equity	17,457	5,640
Non-current liabilities
Interest bearing loans and borrowings	1,633	14,235
	1,633	14,235
Current liabilities
Trade and other payables	18,576	24,470
Interest bearing loans and borrowings	5,819	1,239
Current income tax	-	16
	24,395	25,725
Total liabilities	26,028	39,960
Total equity and liabilities	43,485	45,600

  CONSOLIDATED CASH FLOW STATEMENT

for the 12 months to 31 December 2008

	12 months to  31 December 2008  £'000	Restated 12 months to  31 December 2007  £'000
Net cash flows from operating activities
Loss after tax	(10,485)	(31,790)
Tax credit	(5)	(53)
Depreciation and amortisation	1,664	1,660
Exceptional impairment of goodwill	-	20,600
Exceptional asset retirement	-	2,066
Exceptional supply contract termination	421	-
Share based payments expense	531	250
Fair value charges relating to convertible bonds	5,044	-
Finance income	(9)	(23)
Finance costs	1,280	1,706
Movement in fair value of derivative financial instruments	13	311
Movement in other non-cash items	-	(93)
Decrease / (increase) in inventories	3,231	(2,690)
Decrease in trade and other receivables	4,710	3,055
(Decrease) / increase in trade and other payables	(5,884)	3,704
Cash inflows generated from / (used in) operations	511	(1,297)
Interest received	9	23
Interest paid	(757)	(1,162)
Income taxes paid	(26)	(594)
Net cash inflows used in operating activities	(263)	(3,030)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	33	110
Purchase of property, plant and equipment	(7,446)	(1,059)
Purchase of intangible assets	(507)	(144)
Acquisition of subsidiaries, net of cash acquired	-	(2,322)
Net cash flows used in investing activities	(7,920)	(3,415)
Cash flows from financing activities
Proceeds from issue of convertible bonds	-	8,000
Proceeds from borrowings	2,115	6,500
Proceeds from issue of shares	7,920	-
Payment of hire purchase, bank loan and finance lease obligations	(1,663)	(324)
Net cash flows generated from financing activities	8,372	14,176
Net increase in cash and cash equivalents	189	7,731
Net foreign exchange difference	(428)	(31)
Cash and cash equivalents at beginning of year	2,001	(5,699)
Cash and cash equivalents at end of year	1,762	2,001

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 12 months to 31 December 2008

	Issued share capital £'000	Share premium account £'000	Shares to be issued £'000	Capital redemption reserve £'000	Merger reserve £'000	Equity element of convertible bonds £'000	Foreign currency translation reserve £'000	Retained earnings £'000	Total equity £'000
At 1 January 2008	467	21,582	-	24	7,621	282	(703)	(23,633)	5,640
Currency translation differences	-	-	-	-	-	-	(200)	-	(200)
Net expense recognised in equity	-	-	-	-	-	-	(200)	-	(200)
Loss for the year	-	-	-	-	-	-	-	(10,485)	(10,485)
Total recognised expense	-	-	-	-	-	-	(200)	(10,485)	(10,685)
Issue of share capital	2,439	14,770	-	-	-	-	-	-	17,209
Equity element of convertible bonds converted into shares	-	-	-	-	-	(282)	-	-	(282)
Fair value charges relating to convertible bonds	-	-	100	-	-	-	-	4,944	5,044
Cost of share based payments	-	-	-	-	-	-	-	531	531
Transfer between reserves	-	-	-	-	(6,100)	-	-	6,100	-
At 31 December 2008	2,906	36,352	100	24	1,521	-	(903)	(22,543)	17,457

  NOTES TO THE PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2008

1. Basis of preparation and statement of compliance

The financial information contained in this preliminary announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2008 or 2007 but is derived from these financial statements. The financial statements for the year ended 31 December 2007 have been delivered to the Registrar of Companies. 

The financial statements for the year ended 31 December 2008 which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, and as issued by the IASB, will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these financial statements; their reports were unqualified, but did include reference to an emphasis of matter regarding the Group's ability to continue as a going concern, and did not contain statements under Section 237(2) or (3) of the Companies Act 1985.

In preparing the financial statements the Directors are required to make judgements and estimates in applying accounting policies. The most significant areas where judgements and estimates have been applied are as follows:

Judgements

The results for the year ended 31 December 2007 have been restated for a contract entered into during the year ended 31 December 2005 under which services would be provided over a five year period.

The Company financed the Group's investment in its Los Angeles facility by intercompany debt to Air Fayre CA Inc. The Directors regarded this debt as being repayable in due course rather than as an investment in Air Fayre CA Inc and, accordingly, the exchange gains that have arisen during the year have been taken to the income statement rather than to equity. The Directors also consider such gains to be appropriately classified within operating and administrative costs rather than finance income.

Included within the exceptional cost of £5,044,000 for the fair value charges relating to convertible bonds, an amount of £106,000 has been included relating to the fair value of additional ordinary shares that would be issued under the matching awards provision of the Executive Incentive Share Plan arising from the change in the conversion terms of the bonds. The Directors consider that this cost arises directly as a consequence of such change in conversion terms and is so appropriately treated as a part of the exceptional item rather than as a cost of employment charged within operating profit before exceptional items.

In assessing the need for a provision in respect of certain threatened and outstanding litigation, the Directors consider that such litigation will not result in an outflow of economic resources. 

Estimates

In conducting the annual impairment test of goodwill, various significant assumptions have been made in arriving at the recoverable amounts of cash generating units.

The Group measures the cost of share based payments by reference to the fair value of the equity instruments at the date on which they are granted. Judgement is required in determining the most appropriate valuation model and assumptions are necessary in arriving at the inputs into such models.

Going concern

The Group achieved an operating profit before exceptional items of £102,000 and incurred a loss after tax attributable to equity shareholders of £10,485,000 for the year. On 31 August 2008 the Company completed a reorganisation of its capital structure in order to provide it with financial resources to pursue its strategy, including the expansion of its Air Fayre operations in Los Angeles, and to reduce net debt. The changes to the Company's capital structure comprised the placing of 120,000,000 ordinary shares at a placing price of 7.5 pence per share to raise £9,000,000 before expenses (and approximately £8 million after expenses) and the conversion of the Company's convertible bonds of £9,288,035 into 123,840,460 ordinary shares at a conversion price of 7.5 pence per share. However, the Company's existing borrowing facilities, comprising a medium-term loan of £4,923,000 and a multi-option facility of £1,500,000, expire on 31 August 2009. In these circumstances, in the absence of additional cash resources becoming available, the Group's forecasts, taking account of reasonably possible changes in trading performance, show that during the next 12 months it will not have sufficient financial resources to enable it to continue in operational existence in its current form. The Directors have concluded that the combination of these circumstances represent a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern.

Nonetheless in order to provide the Group with such additional cash resources, steps are being taken to secure new bank facilities. To allow more time to secure such facilities the Company has entered discussions with its existing bankers to seek an extension of its present facilities beyond 31 August 2009. In order to reduce the extent of the required new facilities the Group is in negotiations in relation to a corporate transaction that, if successful, would lead to significant cash resources becoming available. Significant progress has been made towards this transaction and, although there can be no certainty, the Directors are optimistic regarding its successful outcome materially in accordance with the terms currently being negotiated.

Measures have also been taken to maintain appropriate cash headroom under the Company's present facilities pending completion of the foregoing steps by the deferral of payment of certain amounts owing to a small number of creditors to whom significant balances are outstanding. The total amount overdue to such creditors at 30 April 2009 amounted to £3.7 million, although this amount will progressively reduce in accordance with the understandings and agreements reached with them.

In assessing the financing requirements of the Group the Directors have prepared forecasts incorporating the measures taken in relation to the deferral of creditors and have determined the levels of bank facilities required to maintain the Group in operational existence in its current form assuming that the corporate transaction currently under negotiation is completed and the amount realised and the completion date are materially in line with the terms currently being negotiated. In such event, the Directors consider they would have a reasonable expectation that such facilities will be available, although inherently there is no certainty that they will be available. 

In considering the going concern position of the Group the Directors have made the following principal assumptions:

1. The corporate transaction under negotiation is completed and the amount realised and its completion date are  materially in line with the terms currently being negotiated. 

2. Payments to the creditors referred to above to which significant balances are presently outstanding are in   accordance with the understandings and agreements reached with them. 

3. Appropriate new borrowing facilities become available prior to the expiry of the Company's existing borrowing  facilities on 31 August 2009 or prior to the expiry of any extension of such facilities.

4. In the event that new bank facilities are not obtained prior to 31 August 2009, an extension of an appropriate part  of the Company's existing facilities is obtained for such period as is necessary to enable the required new bank  facilities to be obtained.

5. In the event that an appropriate part of the Company's existing facilities is extended beyond 31 August 2009,  agreements to defer payment of creditors are obtained to the extent necessary in order to maintain appropriate  cash headroom.

6. The forecasts as referred to above prepared by the Directors for the purposes of assessing the financing  requirements of the Group are accurate in all material respects.

On the basis of the foregoing assumptions and having made enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate financial resources to continue in operational existence for the foreseeable future and, therefore, that it is appropriate to continue to adopt the going concern basis. Failing the foregoing assumptions being met, the Group may not have adequate financial resources to continue in operational existence for the foreseeable future and, in such circumstances, it may not be appropriate to continue to adopt the going concern basis. The financial statements do not include any of the adjustments that would result if the Group was unable to continue as a going concern, which would include writing down the carrying value of assets, including goodwill, to their recoverable amount and providing any further liabilities that may arise.

2. Restatement of the prior year's results and reclassification

During the year ended 31 December 2005 the Company entered into a contract under which income arose of £1,000,000 that was credited wholly to revenue in that year. As the terms of the contract provide that services would be provided over a five year period, the income arising under the contract is more appropriately accounted for by crediting it evenly to revenues over the period of the contract and, accordingly, the results for the year ended 31 December 2007 have been restated. The effect of the restatement on the financial statements is summarised in the table below:

	Restated  12 months to 31 December 2007
Consolidated income statement	£'000
Increase in revenue	200
Decrease in loss before tax attributable to equity shareholders	200

	Restated  1 January 2007	Restated  31 December 2007
Consolidated balance sheet	£'000	£'000
Increase in accruals and deferred income	(667)	(467)
Reduction in net assets	(667)	(467)
Decrease in retained earnings brought forward	(867)	(667)

As a result of the prior year adjustment, the basic and diluted loss per share has reduced by 0.4 pence from 69.5 pence to 69.1 pence and the adjusted basic and adjusted diluted loss per share has reduced by 0.4 pence from 15.6 pence to 15.2 pence.

Labour costs amounting to £12,112,000 have been reclassified from operating and administrative costs to cost of sales (2007: £14,937,000). These costs have been reclassified as they are directly attributable costs and the revised presentation is more relevant to an understanding of the nature of the transactions.

3. Segmental reporting

The Group is organised on a worldwide basis into two primary business segments, the Products Division and the Services Division. These reportable segments are the two strategic divisions for which monthly financial information is provided to the Board. The Products Division provides a broad range of travel supplies predominately to the international travel industry on a global basis. The Services Division is a supplier of catering to the international travel industry within the United Kingdom and the USA and of media services to the international travel industry in the United Kingdom. The Services Division is also engaged in supply chain management. Both Divisions provide marketing, design and consultancy services.

Whilst the Group's two Divisions are managed on a worldwide basis, they operate in three principal geographical areas of the world which are the United Kingdom, Europe and the Middle East; Asia and the Americas. The main region where significant Group revenues are earned is the United Kingdom, Europe and Middle East and this business is conducted from the United Kingdom. Operations in Asia are conducted through the Group's Hong Kong subsidiary and in the Americas through the Group's United States subsidiaries.

Information on primary reporting by business segment and secondary reporting by geographical region is shown below.

Segment revenues, expenses and results include transfers and transactions between business segments and between geographical segments. Such transactions are accounted for at competitive market prices which would be charged to unaffiliated clients for similar goods. All inter-segment transactions are eliminated on consolidation.

Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories, goodwill and property, plant and equipment, net of allowances and provisions. Whilst most assets can be directly attributed to individual segments, the carrying value of certain assets used jointly by two or more segments is allocated to the segments on a reasonable basis. Where assets cannot be apportioned, they are classified as unallocated corporate assets. 

Segment liabilities include all operating liabilities and consist principally of accounts payable, wages and accrued liabilities. Where allocation is not possible across more than one segment, such liabilities are classified as unallocated corporate liabilities.

Segment assets and liabilities do not include receivable or payable balances in respect of income taxes.

Exceptional items relate to significant non-recurring expenditure of an unusual nature.

Segmental information by business segment for 12 months to 31 December 2008

	Products Division £'000	Services  Division  £'000	Eliminations £'000	Total £'000
Revenue
Travel supplies, catering and media services	28,298	49,531	-	77,829
Supply chain management	-	12,415	-	12,415
Marketing, design and consultancy	-	200	-	200
Other non-recurring income	-	900	-	900
Net sales to other segments	2,647	-	(2,647)	-
Total revenue	30,945	63,046	(2,647)	91,344
Result
Segment result before exceptional items	1,412	370	39	1,821
Exceptional costs:
Los Angeles start-up costs	-	(2,793)	-	(2,793)
Supply contract termination	-	(576)	-	(576)
Bad debt	(270)	(30)	-	(300)
Reorganisation costs	(5)	(60)	-	(65)
Segment result	1,137	(3,089)	39	(1,913)
Unallocated corporate costs				(1,719)
Exceptional costs:
Fair value charges relating to convertible bonds				(5,044)
Costs of refinancing				(543)
Operating loss				(9,219)
Finance costs				(1,280)
Finance income				9
Income tax credit				5
Loss after tax				(10,485)
Other information
Segment assets	6,979	22,731	(149)	29,561
Unallocated corporate assets				13,811
				43,372
Current income tax				113
Consolidated assets				43,485
Segment liabilities	(5,593)	(25,578)	11,129	(20,042)
Unallocated corporate liabilities				(5,986)
Consolidated liabilities				(26,028)
Capital expenditure including intangible assets	209	7,667	77	7,953
Depreciation, impairment and amortisation	112	1,317	235	1,664
Other non-cash expenses / (income) included within segment results	4	(90)	417	331

Segmental information by geographical region for 12 months to 31 December 2008

	Revenue  12 months to  31 December 2008  £'000	Segment assets as at  31 December 2008  £'000	Capital expenditure  12 months to  31 December 2008  £'000
United Kingdom, Europe and Middle East	65,560	32,231	1,286
Asia	6,790	2,791	111
Americas	18,994	8,350	6,556
	91,344	43,372	7,953

Restated segmental information by business segment for 12 months to 31 December 2007

	Products  Division  £'000	Services  Division  £'000	Eliminations  £'000	Total  £'000
Revenue
Travel supplies, catering and media services	32,581	56,014	-	88,595
Supply chain management	-	17,254	-	17,254
Marketing, design and consultancy	-	200	-	200
Net sales to other segments	2,605	-	(2,605)	-
Total revenue	35,186	73,468	(2,605)	106,049
Result
Segment result before exceptional items	1,878	(4,709)	(39)	(2,870)
Exceptional costs:
Impairment of goodwill	-	(20,600)	-	(20,600)
Reorganisation costs	-	(262)	-	(262)
Segment result	1,878	(25,571)	(39)	(23,732)
Unallocated corporate costs				(2,479)
Exceptional costs:
Asset retirement				(2,066)
Costs of refinancing				(1,836)
Reorganisation costs				(47)
Operating loss				(30,160)
Finance costs				(1,706)
Finance income				23
Income tax credit				53
Loss after tax				(31,790)
Other information
Segment assets	11,067	29,479	(1,597)	38,949
Unallocated corporate assets				6,553
				45,502
Current income tax				98
Consolidated assets				45,600
Segment liabilities	(6,730)	(19,292)	1,558	(24,464)
Unallocated corporate liabilities				(15,480)
				(39,944)
Current income tax				(16)
Consolidated liabilities				(39,960)
Capital expenditure including intangible assets	250	866	87	1,203
Depreciation, impairment and amortisation	395	21,695	170	22,260
Other non-cash (income) / expenses included within segment results	(105)	78	184	157

The segmental results before exceptional items of the Products and Services Divisions have been reclassified by reallocating certain corporate costs back to unallocated corporate costs, whereas previously such costs were deducted in arriving at the segmental results. The resulting presentation provides a more meaningful analysis of the divisional operating results and corporate costs.

Restated segmental information by geographical region for 12 months to 31 December 2007

	Revenue  12 months to  31 December 2007  £'000	Segment assets as at  31 December 2007  £'000	Capital expenditure  12 months to  31 December 2007  £'000
United Kingdom, Europe and Middle East	75,313	31,991	1,129
Asia	9,391	4,682	74
Americas	21,345	8,829	-
	106,049	45,502	1,203

4. Exceptional items

	12 months to  31 December 2008  £'000	12 months to  31 December 2007  £'000
Fair value charges relating to convertible bonds	5,044	-
Los Angeles start-up costs	2,793	-
Supply contract termination	576	-
Costs of refinancing	543	1,836
Bad debt	300	-
Reorganisation costs	65	309
Impairment of goodwill	-	20,600
Asset retirement	-	2,066
Total exceptional items	9,321	24,811

Fair value charges relating to convertible bonds

These fair value charges, which are non-cash, arose as a consequence of the conversion of the Company's convertible bonds into ordinary shares as follows:

£ 4,838,000 being the market value, calculated at a price of 6.25 pence per share, of the additional ordinary shares that were issued on conversion of the bonds that arose from the change in their conversion terms from 20 pence per share to 7.5 pence per share.

£100,000 being the fair value of the warrants issued in connection with the change in the conversion terms of the bonds.

£106,000 being the fair value of the additional ordinary shares that would be issued under the matching awards provisions of the Executive Incentive Share Plan arising from the change in the conversion terms of the bonds.

 

Los Angeles start-up costs

These costs relate to the costs of the start-up of the Group's in-flight catering operation based in Los Angeles, USA. They comprise the costs of establishing the operation together with the excess running costs incurred in the initial two months of operations.

Supply contract termination

In July 2008 a dispute was settled with a significant supplier under which a 5 year contract was renegotiated resulting in the expectation of reduced costs and increased flexibility. Payments totaling £500,000 attributable to such terms and cost savings were initially capitalised as an intangible asset to be amortised over the life of the contract. Subsequently, the supplier entered Administration and the unamortized balance of £421,000 has been written off. In addition, legal and other costs amounting to £155,000 were incurred and have been written off.

Costs of refinancing

During 2008, the Group expensed costs of £543,000 relating to changes to its capital structure, including the placing of 120,000,000 ordinary shares at a placing price of 7.5 pence to raise £9,000,000 before expenses, the conversion of the Company's convertible bonds of £9,288,035 into ordinary shares following a change in the terms of conversion from 20 pence per share to 7.5 pence per share and changes to the terms of the Group's borrowing facilities.

During 2007, the Group expensed costs of £1,836,000 relating to the reorganisation of its capital structure, which culminated in the issue of £8,000,000 secured fixed rate convertible bonds due in 2010 and the conversion of the previous bank overdraft facility into a £6,500,000 term loan and a new £1,500,000 multi-option facility.

Bad debt

The bad debt arose on the Administration of Silverjet.

Impairment of goodwill

The Group tested the carrying value of its goodwill for impairment as at 31 December 2007 based on future cash flow projections for each of its cash generating units and, as a result, made an impairment charge against goodwill of £20,600,000. £18,900,000 of this charge related to Air Fayre Limited and Elev8 Retail Limited and £1,700,000 related to Media On The Move Limited, which are both cash generating units within the Services Division. 

Asset retirement

During 2007, the Group wrote down the value of its Axapta Enterprise Resource and Planning ("ERP") software and certain associated hardware by £1,930,000 and £136,000, respectively, for a total charge of £2,066,000. The ERP software had been implemented in the Group in 2004 and due to the change in business processes subsequent to the implementation, a number of the modules that had been customised and developed during implementation were no longer relevant to the needs of the business. These modules have been identified as generating no future value to the Group and, accordingly, have been retired from use.

Reorganisation costs

During 2008, the Group made payments of £65,000 in relation to redundancy costs. 

In April 2006, the Group purchased International Catering Limited and commenced a restructuring programme under which significant reorganisation costs were incurred in that year. In 2007, additional redundancy and salary costs of £262,000 and professional fees of £47,000 were incurred.

5. Loss per share 

The loss per share is calculated by dividing the loss after tax attributable to equity shareholders (numerator) by the weighted average number of ordinary shares in issue during the year (denominator). 

The diluted loss per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options and shares to be issued. As the Group has made a loss in the current year and previous year, no adjustment is made to the denominator for the impact of share options and shares to be issued because the potential shares are anti-dilutive. 

Adjusted loss per share, both basic and dilutive, use the denominator described in the appropriate paragraphs above. For both adjusted basic loss per share and adjusted diluted loss per share, the numerator is adjusted to remove the post tax impact of exceptional items from the calculations. 

The weighted average number of shares in issue during the year was 130,010,939 (2007: 46,004,784). The following represents loss data used to calculate basic, diluted and adjusted loss per share:

Loss table	12 months to 31 December 2008 £'000	Restated 12 months to 31 December 2007 £'000
Loss after tax attributable to equity shareholders	(10,485)	(31,790)
Exceptional items (post tax)	9,321	24,811
Adjusted net loss after tax attributable to equity shareholders	(1,164)	(6,979)

	Loss per share	Restated Loss per share
Loss per share table	12 months to 31 December 2008 Pence	12 months to 31 December 2007 Pence
Basic loss per share	8.1	69.1
Diluted loss per share	8.1	69.1
Adjusted basic loss per share	0.9	15.2
Adjusted diluted loss per share	0.9	15.2

6. Additional cash flow information

	1 January 2008 £'000	Cash Flow £'000	Exchange Differences £'000	Non-cash movements £'000	31 December 2008 £'000
Cash and cash equivalents	2,001	189	(428)	-	1,762
Increase / (decrease) in cash	2,001	189	(428)	-	1,762
Finance lease and hire purchase contracts	(500)	(1,717)	-	-	(2,217)
Convertible bonds	(8,474)	-	-	8,474	-
Bank loan	(6,500)	1,265	-	-	(5,235)
Net debt	(13,473)	(263)	(428)	8,474	(5,690)

	1 January 2007 £'000	Cash Flow £'000	Exchange Differences £'000	Non-cash movements £'000	31 December 2007 £'000
Cash and cash equivalents	9,766	(7,734)	(31)	-	2,001
Bank loans maturing within 3 months and overdrafts	(15,465)	15,465	-	-	-
(Decrease) / increase in cash	(5,699)	7,731	(31)	-	2,001
Finance lease and hire purchase contracts	(824)	324	-	-	(500)
Convertible bonds	-	(8,000)	-	(474)	(8,474)
Bank loan	-	(6,500)	-	-	(6,500)
Net debt	(6,523)	(6,445)	(31)	(474)	(13,473)

7. Annual accounts

The annual report and accounts will be posted to all shareholders in June 2009 and will be available from the Company's website at www.journeygroup.plc.uk and its registered office:

The Encompass CentreInternational Avenue

Heston

Middlesex

TW5 9NJ

ENDFR FAMFTMMJBBJL

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Related Shares:

JNY.L