Final Results

27 March 2012

Embargoed 0700hrs

Journey Group plc

Annual Results

for the year ended 31 December 2011

Journey Group plc ("Journey Group" or the "Group") a leading provider of catering services and in-flight products to the international airline and travel industries today announces its results for the year ended 31 December 2011.

Returned to profitability, financially solid and focused on growth

·; Revenue increased by 23% to £42.6 million

·; Adjusted profit before tax* £369,000 (2010: loss of £1,189,000)

·; Adjusted earnings per share* of 0.10p (2010: loss of 0.41p)

·; Net cash of £2,055,000 (2010: net debt of £189,000)

·; Strategic re-positioning complete with sale of Media on the Move Limited for £1,182,000

Stephen Yapp, Executive Chairman commented 

"2011 was a successful year for Journey Group having completed its turnaround. At the financial and operational levels it performed strongly with a return to profitability, the creation of a solid financial position and significant new business progress and opportunities.

We are now focused on growth. Both Divisions serve secular growth markets which are both relevant and attractive to the market. For the first time in many years, the Group is well funded, with additional debt capacity in the US. We have the key ingredients for growth and it is against this background that we believe the Group will make significant progress in the coming year."

* from continuing operations

For further information please contact:

Stephen Yapp

Journey Group plc

Tel: +44 (0) 20 8606 2000

info@journeygroup.plc.uk

Carl Fry

Journey Group plc

Tel: +44 (0) 20 8606 2000

info@journeygroup.plc.uk

Singer Capital Markets Limited (Nominated Advisor & Broker)

Jonathan Marren

Matt Thomas

Tel: +44 (0) 20 3205 7500

EXECUTIVE CHAIRMAN'S LETTER TO SHAREHOLDERS

Dear Shareholder

INTRODUCTION

2011 was a successful year for Journey Group having completed its turnaround and succeeded in strategically positioning itself for growth over the coming years. At the financial and operational levels it performed strongly with a return to profitability, the creation of a solid financial position and significant new business progress and opportunities.

The key highlights of the year were:

Financial

·; Achieved significant revenue growth - Revenues increased by 23%

·; Returned to profitability - Adjusted profit before tax from continuing operations of £369,000 (2010: loss before tax of £1,189,000) and adjusted earnings per share from continuing operations of 0.10 pence (2010: loss per share of 0.41 pence)

·; Eliminated debt leading to significant net cash - Net cash of £2,055,000 versus net debt last year of £189,000

·; Increased borrowing facility - Two year committed borrowing facility of up to £2,450,000

Operational

·; New markets - The Products Division has re-entered the US market and significantly extended its reach into meal service products with a substantial contract win with Delta Airlines

·; The US Division's outstanding customer service won further awards from United Airlines, including best overall Hub in the United Airlines system

Strategic

·; Disposal - Media on the Move Limited sold for £1,182,000

·; Strategic re-positioning - Now complete with two core Divisions each with significant growth potential, with the US Division offering step change as well as incremental growth prospects

MARKET CONDITIONS

Conditions in the international airline industry improved during the year with passenger traffic growing by 5.9%. This growth, which was in line with long-term growth trends, arose mainly during the first half of the year. Passenger load factors, however, were marginally down. In the zones most served by the Group, growth in passenger traffic was mixed with North America up 4.0%, Asia Pacific up 4.1% and Europe up 9.5%, benefitting from robust business travel on long-haul routes. In contrast, freight levels dipped by 0.7% and load factors were down by 2.2%. Whilst the current evidence of improving economic conditions in the USA and the avoidance, so far, of further crisis in the eurozone seem likely to lead to continued passenger growth, conditions remain fragile with higher oil prices, political uncertainty and sovereign debt issues all recurrent threats.

STRATEGY

Consistent with the Group's strategy to focus its resources on the business segments offering the greatest potential for growth, Media on the Move Limited ("Media") was sold in July 2011. The gross proceeds amounted to £1,182,000 which, net of disposal costs and adjustments, resulted in a net cash inflow of £1,070,000. For the period to the disposal date, Media's turnover and profit before taxation amounted, respectively, to £1,265,000 and £50,000. As a consequence of the £2,146,000 carrying value of goodwill in Media and of disposal costs of £112,000, an exceptional loss on disposal of £1,119,000 arose. This loss and Media's operating results have been treated in these financial statements as discontinued operations.

The Group now comprises two core Divisions; US and Products. Both offer the potential for significant incremental growth with the US Division in particular offering step change growth prospects. Its patented airline catering model is increasingly seen as a lower cost solution that provides a higher quality and more flexible, reliable service. Accordingly, the US Division is focussed on its prospects for establishing new facilities in other US cities as well as on the fill-out of its significant existing spare capacity. Within the Products Division, Watermark Limited is looking to extend its recent success as well as to broaden the markets it serves by securing a higher proportion of meal service business within the airline sector and by developing identified opportunities in the wider travel and retail sectors. MNH Sustainable Cabin Services Limited is seeking to expand its activities into the Asia Pacific and US regions by exploiting its traditional recycling strengths and unique managed product supply proposition.

FUNDING

Important milestones were reached during the year when the Group paid down its remaining debt and restructured its borrowing facilities so as to provide for increased UK facilities as well as to create significant debt capacity in the USA. Following the disposal of Media on the Move Limited and along with the positive operating cash flow during the year and the exercise of warrants, the Group moved into significant net cash, which at 31 December 2011 amounted to £2,055,000 comprising cash of £2,591,000 offset by finance leases of £536,000. New, increased UK borrowing facilities were secured in May 2011 when a two year committed facility was entered with Royal Bank of Scotland plc of up to a maximum of £2,450,000. At the same time the remaining £1,500,000 Taurouge II SARL debt was repaid. The new facility has a lower cost, it does not include restrictions on the US Division raising debt and provides significant additional UK debt availability over the previous £1,500,000 facility. Exercise notices were received in respect of warrants over 14,528,624 ordinary shares at an exercise price of 2 pence each resulting in additional cash resources of £290,572.

The Group's net cash, together with its UK borrowing facilities of £2.45 million, and its significant debt capacity in the USA, puts the Group in a strong financial position to pursue its growth prospects in the USA and elsewhere.

RESULTS

The results for the year were as follows:

The Group's financial results improved considerably over 2010 with a significant increase in turnover and a return to profitability driven by a substantial recovery in the Products Division. Revenues from continuing operations increased by 23% to £42,639,000 and EBITDA before exchange differences from continuing operations increased 139% to £1,399,000. Adjusted profit before taxation from continuing operations amounted to £369,000 compared with a loss of £1,189,000 in 2010. Adjusted earnings per share from continuing operations amounted to 0.10 pence compared with a loss of 0.41 pence in 2010. The Board considers that adjusted profit before tax and adjusted earnings per share provide a better guide to the underlying performance of the Group.

On a statutory basis, there was a loss before tax from continuing operations of £137,000, which was arrived at after charging share based payments of £506,000. The share based payment charge, which is a non-cash fair value expense, comprised £460,000 that arose as a consequence of the adoption during the year of the new share incentive scheme for the Company's Executive Directors and £46,000 that arose from an increase in the number of shares under the retention incentive share plan. Future charges in relation to the new share incentive scheme are expected to be £167,000 in 2012. There was a loss from discontinued operations of £1,072,000, which included a provision for loss on disposal of £1,119,000 in relation to Media on the Move Limited. The loss attributable to equity shareholders amounted to £1,268,000.

Net cash amounted to £2,055,000, comprising cash of £2,591,000 less debt under finance leases of £536,000, compared with net debt of £189,000 at 31 December 2010. The £2,244,000 improvement in net cash was primarily driven by cash flow generated from operations of £996,000, which was a significant improvement compared with the outflow of £2,837,000 in the prior year, a net cash inflow of £1,070,000 arising on the disposal of Media on the Move Limited, and the exercise of warrants with subscription proceeds of £290,572.

US DIVISION

The US Division produced a robust performance. It achieved an improved result compared with the previous year that was a little ahead of its expectations in a difficult climate for airlines and despite modestly lower flight numbers and higher fuel prices impacting costs. The Division's turnover was broadly flat at £15,170,000, but EBITDA was ahead by 6% to £1,492,000. These results reflect the considerable management strengths of the Division and its continued drive for increased efficiency in our patent protected supply chain business model.

The Division serviced 25,037 flights (68.6 flights a day) versus 26,500 flights last year (72.6 flights a day), as United Airlines consolidated some flights to improve load factors and offset higher fuel prices. The number of meals served increased to 1,996,627 meals from 1,878,097 last year. It was also another outstanding year for safety as once again there were no safety incidents.

Excellent customer service continued to be the highest operational priority of the Division and this was again rewarded when in February this year United Airlines announced Air Fayre CA Inc as its best overall Hub in the United Airlines system as well as best in reliability and best in international meal quality as perceived by passengers' ratings. The significance of this honour is a testament to the dedication of the team executing the Air Fayre model each and every day and reflects the Division's philosophy that the Air Fayre model plus outstanding execution drives award winning service at the lowest possible cost.

The US airline catering market is approximately a $2bn industry. In the coming years there will be significant contract renewals for both large and small hubs. Our accomplishments are receiving increasing attention from carriers and we believe our patented solution, along with the Group's improved financial position will give the business the opportunity to participate in these contract renewal processes.

PRODUCTS DIVISION

The Products Division had a strong year with a substantial recovery in revenues and EBITDA driven by Watermark with its new client wins, the full year effect of cost saving and restructuring measures taken in the previous year and the absence of the high one-off air freight costs and high cotton prices that impacted last year. The Division's turnover increased by 41% to £27,469,000, whilst EBITDA before exchange differences improved significantly to a profit of £669,000 from a loss last year of £661,000.

Within Watermark the highlights for the year were the successful launch of its new contract with Delta Airlines for the provision of meal service items in the premium cabins globally together with the award of the Jetstar comfort pack and meal service items in Australasia. Both accounts required large start up volumes which contributed strongly to the better than expected result for the year. Renewals of the Division's contracts with British Airways and Air New Zealand, together with ongoing sales to customers including Qantas and Etihad, all contributed to the strong performance.

During 2012 Watermark's focus will continue to be on growth in the Asia Pacific and USA regions within the airline sector and on achieving its objective of a higher proportion of meal service business which utilises its design expertise in contracts that typically last longer than those for traditional amenity kits. Additional sales resources are also being directed toward identified opportunities in the broader travel and retail sectors in all regions. A global initiative was launched in late 2011 with the view to expanding the Division's sourcing opportunities beyond the traditional Chinese market. Initial indications are that for some of the Division's key product segments there are significant opportunities to secure further supply chain efficiencies outside of the existing supply base.

MNH Sustainable Cabin Services had another good year, benefitting from its strengths in recycling and headset and amenity kit supply chain solutions. MNH have maintained and strengthened their relationships with core customers Virgin Atlantic and Qantas Airways and are starting to benefit from their unique managed product supply proposition with its successful introduction to Virgin Atlantic during the year. This new industry leading pricing model for new and refurbished amenity kit and headset supply delivers reduced cost through operational and environmental efficiencies making it an attractive proposition for an increasingly cost conscious airline sector. For 2012 MNH's primary focus will be to exploit further its traditional strengths and new pricing model with other carriers in the Asia Pacific and US regions.

CENTRAL COSTS

Central costs before exchange differences increased by £545,000, which mainly arose from the absence of the favourable factors that benefitted 2010, comprising a product marketing contract coming to an end during 2010, the absence in 2011 of charges made to the Alpha-Airfayre Limited joint venture following its disposal in 2010 and adjustments to historic accruals relating to the former activities of Air Fayre Limited and its subsidiaries.

STAFF

Over the last three years the Group has undergone considerable change to position itself within growth markets with strategies and business models offering good prospects of success. In the final analysis it is the quality and dedication of our people that have created the change and opportunities. A determination to succeed has become part of the Journey Group culture and I am confident that this will continue. On behalf of the Board I would like to thank our people for their considerable efforts over the past year.

OUTLOOK

We are now focused on growth. Both Divisions serve secular growth markets which are both relevant and attractive to the market. For the first time in many years, the Group is well funded, with additional debt capacity in the USA. We have the key ingredients for growth and it is against this background that we believe the Group will make significant progress in the coming year.

Stephen Yapp

Executive Chairman

CONSOLIDATED INCOME STATEMENT

for the 12 months to 31 December 2011

CONSOLIDATED INCOME STATEMENT

for the 12 months to 31 December 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 12 months to 31 December 2011

CONSOLIDATED BALANCE SHEET

as at 31 December 2011

CONSOLIDATED CASH FLOW STATEMENT

for the 12 months to 31 December 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 12 months to 31 December 2011

* Total equity is all attributable to shareholders of the parent.

NOTES TO THE PRELIMINARY ANNOUNCEMENT FOR THE 12 MONTHS TO 31 DECEMBER 2011

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 2011 or 2010, but is derived from these financial statements. The financial statements for the year ended 31 December 2010 have been delivered to the Registrar of Companies. 

The financial statements for the year ended 31 December 2011 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and the Group has complied with International Financial Reporting Standards as issued by the IASB. The financial statements for the year ended 31 December 2011 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 and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

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

·; On 30 March 2011 the Board approved a new share incentive scheme in which each of the Company's four Executive Directors participate. Whilst this scheme was under consideration during 2010 and provides for retrospective vesting covering periods prior to 31 December 2010, the Directors do not consider that a fair value charge is required in the period to 31 December 2010 as there was, in their opinion, an insufficient probability that the scheme would be implemented in substantially the form under consideration. As such they consider that the prospective members of the scheme did not deliver services during that period in expectation of any award under the scheme.

·; The value of the awards under the new share incentive scheme was measured, in accordance with IFRS 2, by reference to their fair value at the date on which they were granted. Judgement was required in determining the most appropriate valuation model.

Estimates

·; Significant assumptions were necessary in arriving at the inputs into the valuation model for the new share incentive scheme. In particular, judgement was required in determining the life of the options of 1.75 years. The options are normally exercisable between 1 January 2013 and 31 December 2014, giving an option life of between 1.75 and 3.75 years, but, should a change of control or disposal of a substantial part of the Group's business occur, the options immediately vest and become exercisable.

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

·; In arriving at the charge to income for obsolete and slow moving inventories of £308,000, significant estimates were made in determining the extent to which inventories would be slow moving.

Going concern

The Directors have reviewed the Group's budgets and forecasts for the coming 12 months, which have been prepared with appropriate regard to the current macroeconomic environment and the conditions in the principal markets served by the Group. As a result, and taking into consideration the Group's net funds and borrowing facilities, at the time of approving these financial statements, the Directors consider that the Group has sufficient financial resources to continue in operational existence for the foreseeable future and, therefore, that it is appropriate to adopt the going concern basis in preparing these financial statements.

2. Segmental reporting

The Group was previously organised into three primary business segments, the Products, Services and US Divisions. Following disposal of Media on the Move Limited, which has been treated as a discontinued operation, the results of the remaining activities of the Services Division are not material enough to be reported as a separate segment and have been included in unallocated corporate costs. The remaining reportable segments, the Products and US Divisions, are the two strategic divisions for which monthly financial information is provided to the chief operating decision maker. Previously the US Division was referred to as the Los Angeles Division.

The Products Division provides a broad range of travel supplies predominately to the international travel industry on a global basis. The US Division is a supplier of catering to the domestic and international travel industry within the United States of America.

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. Exceptional items relate to significant non-recurring expenditure of an unusual nature. The segment results for the year ended 31 December 2010 have been re-presented in line with the information provided to the chief operating decision maker to treat share based payments as a separate cost not allocated on a segmental basis resulting in an increase in the segmental results of the Products and US Divisions of, respectively, £21,000 and £19,000 and a reduction in unallocated corporate costs of £53,000. Geographical segment revenues are based on the country of domicile; information is not available to produce geographical segment revenues based on sales by destination.

Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, prepayments, inventories, goodwill and property, plant and equipment, net of allowances and provisions. Where allocation of assets across segments is not possible, they are classified as unallocated corporate assets. Geographical segment non-current assets comprise fixed assets and goodwill and are based on the location of the assets and operations. Segment liabilities include all operating liabilities and consist principally of finance leases, accounts payable, social security and other taxes, and accrued liabilities. Where allocation of liabilities across segments is not possible, such liabilities are classified as unallocated corporate liabilities. Segment assets and liabilities do not include receivable or payable balances in respect of income taxes.

The Group has two customers (2010: one customer) who accounted for revenues of £22.3 million (2010: £14.8 million), which amounts to more than 10% of Group revenues. Of these revenues £14.7 million (2010: £14.8 million) arose in the US Division and £7.6 million arose in the Products Division.

Segmental information by business segment for 12 months to 31 December 2011

Segmental information by business segment for 12 months to 31 December 2010

Segmental information by geographical region for 12 months to 31 December 2011

Segmental information by geographical region for 12 months to 31 December 2010

3. Exceptional items

Disposal of investment in joint venture

The loss comprises the provision taken in the 2010 interim results of £1,232,000 to reduce the carrying value of the investment to its recoverable value offset by a profit on subsequent disposal of £108,000. The investment in the Alpha-Airfayre Limited joint venture was sold on 26 November 2010 for a cash consideration of £3,500,000.

Banking costs

These costs comprised the following:

·; Facility fees of £368,000 in respect of the former multi-option bank facility that were significantly in excess of reasonably normal levels plus related legal fees.

·; Facility fees, structuring fees, legal fees and accountants' fees amounting to £380,000 and the fair value of warrants of £846,000 issued in connection with the £4,500,000 Taurouge II SARL facility completed on 3 September 2010. The warrants were issued to the lender and were over 35,185,825 ordinary shares.

Reorganisation costs

Reorganisation costs primarily comprised redundancy costs and consultants' fees in relation to restructuring.

Recovery of PAYE and National Insurance

This income relates to the recovery of PAYE and National Insurance over-paid in previous years.

Adjustment to executive incentive share plan award

This income is a fair value credit to adjust the matching award under the executive incentive share plan to reduce the number of shares issuable by 700,160 to 2,012,400. This credit has been included in exceptional items as the fair value charge being adjusted was previously charged as an exceptional item.

4. Inventories

During the year, £308,000 (2010: £95,000) was charged to the income statement in respect of obsolete and slow moving inventories.

5. Discontinued operation

On 7 July 2011 the Company disposed of its investment in Media on the Move Limited and, accordingly, the results of its operations have been treated as discontinued operations. Revenue and expenses of Media on the Move Limited have been removed from the results of continuing operations and are shown as a single line item on the face of the income statement as discontinued operations. The operating results of the discontinued operations were as follows:

The exceptional loss on disposal comprised total consideration of £1,182,000, less goodwill of £2,146,000, net assets sold of £43,000 and directly attributable disposal costs of £112,000.

6.  Loss per share 

The basic loss per share from continuing and discontinued operations is calculated by dividing the loss attributable to equity shareholders (numerator) by the weighted average number of ordinary shares in issue during the year (denominator). The basic loss per share from continuing operations is calculated by dividing the loss after tax from continuing operations (numerator) by the weighted average number of ordinary shares in issue during the year (denominator). The basic (loss)/earnings per share from discontinued operations is calculated by dividing the (loss)/profit from discontinued operations (numerator) by the weighted average number of ordinary shares in issue during the year (denominator).

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

The adjusted basic earnings/(loss) per share from continuing operations uses the denominator described in the appropriate paragraph above with the numerator adjusted to remove the post tax impact of exceptional items and share based payments.

The weighted average number of shares in issue during the year was 298,203,887 (2010: 290,572,553).

7. Share based payments

During the year the Group operated an approved share option scheme, an unapproved share option scheme, a management incentive scheme, an executive incentive share plan and a retention incentive share plan.

The management incentive scheme (the "Scheme"), in which each of the Company's existing four Executive Directors participate, was approved by the Board on 30 March 2011. Awards under the Scheme take the form of share options granted over ordinary shares. Options are exercisable at an aggregate price of £1.00. The number of shares an Executive Director may receive on the exercise of his option will be determined by reference to the number of shares which would when multiplied by the share price at that time (calculated using an average over the thirty preceding trading days) equal the value attributable to him under the rules of the Scheme. Alternatively, at the Company's discretion the value attributable to an Executive Director may be paid in cash.

The principle behind the Scheme is that the Executive Directors are rewarded for shareholder value creation based on total shareholder returns measured over a starting share price of 2.92 pence. The Executive Directors' aggregate share of the value creation starts at 7.5% of the value created if the share price is 4.5 pence and rises on a straight line basis to 20% of value created if the share price is 10.8 pence or higher. Value creation is calculated on fully diluted shares excluding the Company's existing share option schemes, where the exercise prices of options issued under those schemes are well in excess of the current share price. No value is attributed to the Executive Directors until the share price reaches 4.5 pence and no further value is attributed above a share price of 15 pence. The individual allocation of the Executive Directors' aggregate share of the value creation is Stephen Yapp 40%, Carl Fry 20%, David Young 20% and Joseph Golio 20%.

The Scheme includes vesting conditions under which one third of the options are treated as vested on 30 June 2010 and the remainder vest on a straight line basis over the period to 31 December 2012 subject to continued employment. Executive Directors can exercise their options between 1 January 2013 and 31 December 2014. All options vest immediately on a change in control or on the disposal of a substantial proportion of the Group's business and assets, in which event all Executive Directors will be able to exercise their options. Vesting for Executive Directors who leave employment as a consequence of the disposal of the part of the Group in which they are employed will continue for 12 months from the date of leaving. Any such Executive Director can exercise their options during the period 1 January 2013 to 31 December 2014. Executive Directors who leave employment on or before 31 December 2012 must exercise their options by the later of 12 months from the date of leaving and 31 March 2013, but not before 1 January 2013. Executive Directors who leave employment after 31 December 2012 must exercise their options within 12 months from the date of leaving, but not later than 31 December 2014.

During the year, options were exercised under the matching awards provisions of the executive incentive share plan and under the retention incentive share plan for Stephen Yapp. Following the exercise of such options no options remained outstanding under either of those plans. Prior to exercise the number of ordinary shares outstanding under the retention incentive share plan was increased by 1,666,666 shares from 1,000,000 shares to 2,666,666 shares in line with the modification to the conversion terms of the Company's former convertible bonds from 20 pence per share to 7.5 pence per share.

The fair value of awards under the Scheme was estimated at the date of grant using a binomial model and amounted to £627,000 of which £460,000 was charged as an expense during the year in accordance with the vesting conditions. The fair value of the increase in the number of shares under the retention incentive share plan was estimated at the date of the increase using the Black Scholes Merton model and amounted to £46,000, which was charged as an expense during the year. The following table gives the assumptions used to value the awards made under the Scheme and the increase under the retention incentive share plan:

The expected volatility is based on the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome.

8. Additional cash flow information

Cash and cash equivalents comprise:

9. Annual accounts

The annual report and accounts will be posted to all shareholders shortly 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