Final Results

22 March 2016

Journey Group plc

("Journey" or together with its subsidiaries the "Group")

Preliminary results

for the year ended 31 December 2015

Journey Group plc, a leading provider of catering services and in-flight products to the international airline and travel industries, is pleased to announce its unaudited results for the year ended 31 December 2015.

Financial highlights:

* The dividend will be paid as an interim dividend for the year ending 31 December 2016, rather than a final dividend for the year ended 31 December 2015, as it is likely to be more beneficial to shareholders of Journey to pay the dividend prior to the finalisation of the Company's accounts for year ended 31 December 2015 given the tax changes relating to dividends that are to take effect at the start of April this year.

Operational highlights:

US Division "Air Fayre":

Products Division "Watermark":

Stephen Yapp, Executive Chairman commented:

"Journey has had a transformational year strategically in which Air Fayre demonstrated the model could be replicated and moved beyond the boundaries of California whilst the three year contract extension that we signed with United at LAX also serves to strengthen our relationship. Financially, within the US Division we have also continued to make both good profit progression and cash generation with results in line with expectations notwithstanding the previously announced challenges in the US from the change in the mix of types of aircraft utilised and adverse weather in the first quarter at LAX.

The Group's performance reflects our continued strategy of pursuing identified near term opportunities in the US alongside a significant investment in the quality of our service offering to existing customers. In the interim, we remain committed to using our surplus resources effectively without constraining our future investment requirements.

We ended 2015 as a very different business from the beginning of the year and entered 2016 with increased confidence in the Group's prospects."

For further information please contact: 

Stephen Yapp

Alison Whittenbury

Journey Group plc

Tel: +44 (0) 20 8744 7080

[email protected] 

N+1 Singer (Nominated Adviser & Broker)

Nic Hellyer

Alex Price

Lauren Kettle

Tel: +44 (0) 20 7496 3000

EXECUTIVE CHAIRMAN'S STATEMENT

INTRODUCTION

Journey has had a transformational year strategically in which Air Fayre demonstrated that our model could be replicated and moved beyond the boundaries of California whilst at the same time strengthening our relationship with United Airlines Inc. ("United") at Los Angeles International Airport ("LAX"). Financially, within the US Division we have also continued to make both good profit progression and cash generation with results in line with expectations notwithstanding the previously announced challenges in the US from the change in the mix of types of aircraft utilised and adverse weather in the first quarter at LAX.

Financial highlights:

Operational highlights:

US Division "Air Fayre":

Products Division "Watermark":

MARKET CONDITIONS

Global air passenger traffic grew by 6.5% in 2015 as a whole, well above the 10 year average annual growth of 5.5% with the global load factor reaching an all-time high of 80.3% according to the International Air Transport Association (IATA), the airline trade body.

In IATA's Economic Performance of the Airline Industry end of year report for 2015, it noted that the Airline CFOs and Heads of Cargo had become more cautious about future growth in October 2015, but that consensus remains that 2016 should be slightly better than this year with growth in traffic of approximately 6.9%. This reflects consumers continuing to benefit from lower energy prices boosting consumer incomes and spending together with lower fares and more routes.

Encouragingly for the Group, the report also notes that the strongest financial performance is anticipated by airlines in North America, our core market, where net post-tax profits are forecast to be $19.2bn significantly up from $11.2bn in 2014 and net margin predictions of 9.5% exceed the peak of the late 1990s.

RESULTS

* Earnings before interest, taxation, depreciation and amortisation ("EBITDA") is a non IFRS measure which the Group uses to assess its performance. It is defined as earnings before interest, taxation, depreciation and amortisation.

Overall, the Group had a good year of trading largely driven by the US division.

Total revenue was down only 1% with the US Division's growth of $4.0 million offset by the Watermark's reduction of $4.7 million.

EBITDA from operations increased by 4% to $5.0 million, mainly the net result of the US Division's improvement of $0.6 million, the Product's Division reduction of $0.1 million and a $0.3m reduction at the Head Office level due to an unusually high prior year's patent royalty income which included a one-off catch up amount.

Operating profit and profit before tax broadly unchanged at $3.4 million and $3.3 million respectively, predominantly reflecting the increased depreciation charge from trucks purchased for new contracts.

The tax charge of 29% is an average percentage that reflects a mix of trading profits chargeable at US corporate tax rates (40%) combined with patent income in the UK, which has been offset by non-trading losses. The previous year effective tax rate of 24% was unusually low, attributable to the backdated increase in patent royalty charges, which, being classed as non-trading income at Group level, were offset against brought forward non-trading losses.

The resulting profit from operations after tax was $2.3 million.

Net cash as at 31 December 2015 amounted to $3.6 million comprising cash of $6.4 million less debt under finance leases of $2.8 million. This compares with net cash at 31 December 2014 of $6.7 million and at 30 June 2015 of $7.2 million. The reduction in net cash reflects the share buyback purchase settlements of $3.1 million and the timing of payments at Memphis.

US DIVISION

The US Division delivered a strong financial performance in line with expectations despite the challenges of an ongoing change in the mix of aircraft utilised by airlines to smaller planes and severe weather throughout the USA which caused significant delays and cancellations during the first quarter.

Several milestones were achieved throughout the year. In California, this included the additional award of United Express in the second quarter and the subsequent extension of the initial United Airlines contract for three years from 1 January 2016, along with the JetBlue contracts in Long Beach and Los Angeles being extended for three years.

The transformational event was the award and launch of Air Fayre's new facility to service all of Fedex flights with beverages and crew meals out of their main hub at Memphis International Airport, Tennessee under a five year agreement.

The business serviced some 85,300 flights out of LA, of which 68,200 were for United. Since the start of the contract we have serviced over 21,700 flights for Fedex out of Memphis.

Revenue rose 10% in US$ terms to $45.8 million from $41.7 million reflecting the new contract with Fedex at Memphis, an enhanced food offering from United and a full year impact of JetBlue at LAX.

EBITDA increased by 19% to $3.9 million with operating profit before share based payments increasing 19% from $2.0 million to $2.4 million. Profits are after expensing set up costs relating to ExpressJet Airlines at LAX and Fedex at Memphis, with underlying profits being slightly higher than stated.

PRODUCTS DIVISION

Watermark's year was impacted by reduced volumes from several customers with revenue for the full year down 21% to $17.8 million. The business reacted by improving cost efficiencies and more of a focus on R&D, technology and brand partnerships which resulted in an operating profit of $0.3 million. 

 The successful investment in brands, design and procurement have resulted in the launches of several new products, namely the Qantas Country Road amenity kit programme for Premium Economy which brings together two iconic Australian brands, Air Tahiti Nui's and Air Calin's business class programmes and the upcoming launches for new customers across the Americas.

Challenges do still persist but the business is now operating as a base line organisation with additional specialist resources bought in as required to deliver 'best in class' whilst keeping costs project-based.

CENTRAL COSTS

Central income reduced 33% to $626,000 reflecting the unusually high net income in the previous year. During 2014 the patent royalty rates were increased and backdated royalty fees were recognised as additional income within the central unit. Underlying head office costs have also reduced and are continually reviewed.

DIVIDEND POLICY

Post-period end, an interim dividend in respect of the year ending 31 December 2016 has been declared of 3.4 pence per share which will be paid on 31 March 2016 to those who were on the register as at close of business 11 March 2016. This was deemed beneficial to shareholders ahead of the tax changes relating to dividends which take effect at the start of April 2016. As a consequence the Board will not be proposing to recommend the payment of a final dividend for the twelve months ended 31 December 2015

TEAM

In most instances, our success in being awarded and retaining contracts is the culmination of many years of dedication and hard work and I would like to express my gratitude to all staff for their ongoing support and contribution.

OUTLOOK

The Group's performance reflects our continued strategy of pursuing identified near-term opportunities in the US alongside a significant investment in the quality of our service offering to existing customers. In the interim, we remain committed to using our surplus resources effectively without constraining our future investment requirements.

We ended 2015 as a very different business from the beginning of the year and entered 2016 with increased confidence in the Group's prospects.

Stephen Yapp

Executive Chairman

22 March 2016

UNAUDITED CONSOLIDATED INCOME STATEMENT

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

* Total equity is all attributable to shareholders of the parent

NOTES TO THE PRELIMINARY ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2015

1. Basis of preparation and statement of compliance

Journey Group plc has prepared its consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The financial statements have been prepared on the historical cost basis. The consolidated financial statements are presented in US Dollars and are rounded to the nearest thousand ($'000) except where otherwise indicated.

The figures in this preliminary announcement for the year ended 31 December 2015 have been extracted from the unaudited statutory financial statements for the year that have yet to be delivered to the Registrar of Companies and on which the auditor has yet to issue an opinion. The financial information for the years ended 31 December 2015 and 31 December 2014 does not constitute statutory financial information as defined in Section 434 of the Companies Act 2006 and does not contain all of the information required to be disclosed in a full set of IFRS financial statements. This announcement was approved by the Board of Directors on 21 March 2016. The auditor's report on the financial statements for 31 December 2014 was unqualified, and did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain a statement under either Section 498 (2) or 498 (3) of the Companies Act 2006. The financial statements for the year ended 31 December 2014 have been delivered to the Registrar.

Significant judgements and estimates

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 made are as follows:

Judgements

· No deferred tax assets have been recognised in respect of UK tax losses that are available indefinitely for offset against future taxable profits arising from the same trades of the companies as there is insufficient certainty of future taxable profits against which to utilise them.

· Awards under the management incentive scheme (the "Scheme") have been accounted for as equity settled. The option holders can request cash settlement or equity settlement whilst exercising awards under the Scheme but the Group has the ultimate authority to determine the mode of settlement. Based on Group's discretion to determine the mode of settlement and absence of any present obligation to settle such awards in cash, the management considers that it is more appropriate to account for the awards under the Scheme as equity settled.

· Revenue is recognised in US Division on raw materials that are bought in and sold on to caterer on the basis that the risks and rewards of ownership are initially assumed by Journey Group plc and are subsequently transferred to the caterer.

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.

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 financial position, including its net funds, and its principal risks and uncertainties, 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.

Presentation Currency

The presentation currency of the Group is US Dollars (USD).

Items included in the Group's financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The functional currency of the majority of the Group's subsidiaries is the USD. The consolidated financial statements are presented in USD ("the presentation currency") because this is the currency better understood by the principal users of the financial statements.

Up to 2014, the Group's financial statements were presented in sterling. In 2015, management has decided to change the presentation currency to USD. The Company believes that the presentation of financial results in USD, which is the functional currency of the majority of the Group, will provide greater transparency and provide shareholders and other users of the financial statements with reliable and more relevant information, providing a more accurate reflection of the Group's underlying financial performance and financial position. The change has been applied retrospectively in line with IAS 8 "Accounting Policies, Changes in accounting Estimates and Errors" and as a result the comparative financial information for the year ended 31 December 2014 has been presented in USD. Further, in accordance with IAS 1, a balance sheet as at 31 December 2013 was presented in these consolidated financial statements. The sterling to USD exchange rates as at 31 December 2013, 2014 and 2015 were 1.6563, 1.5593 and 1.4739, respectively. The average sterling to USD exchange rates for 2014 and 2015 were 1.6450 and 1.5285, respectively.

2. Restatement of the prior year's results

A review of the Group's operational and accounting systems, processes and internal controls was carried out during the year. This review identified the following items which had not been accounted for appropriately during 2014. In accordance with IAS8 "Accounting Policies, Changes in Estimates and Errors", the nature of the errors and the impact on each financial item affected is stated below.

The effect of the prior year adjustments is to increase the profit before taxation attributable to equity shareholders by $24,000. The prior year restatements are as follows:

· Salary costs were reduced by $10,000 for the correction in the value of vacation accrual in US Division.

· Rent was reduced by $14,000 for the correction in the value of deferred rent liability in US Division.

The effect of the restatement on the prior year income statement is summarised in the table below:

The effect of the prior year adjustments on cumulative brought forward balances in statement of financial position was as follows:

· Vacation accrual increased by $191,000 in 2014 (2013: $201,000).

· Deferred rent liability increased by $66,000 in 2014 (2013: $80,000).

· Retained earnings brought forward decreased by $257,000 in 2014 (2013: $281,000).

The effect of the restatement on the prior years' statement of financial position is summarised in the table below:

Prior year numbers have also been restated from GBP to USD which is the functional currency of the majority of the Group. Change in presentation currency from GBP to USD has resulted in a gain of $711,000 in foreign currency revaluation reserve in the earliest period reported in the financial statements.

3. Segmental reporting

The Group is organised into two primary segments, the Products and the US Divisions. These reportable segments are the strategic divisions for which financial information is provided to the chief operating decision maker. 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 and beverages to the domestic and international travel industry within the United States of America.

Segment revenues, expenses and results include transfers and transactions between 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 revenues are based on the country of domicile of the customer; information is not available to produce 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. 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 had two customers (2014: two customers), who accounted for revenues of $45.5 million (2014: $43.5 million), which amounts to more than 10% of Group revenues. Of these revenues $36.5 million (2014: $35.3 million) arose in the US Division and $9.0 million (2014: $8.2 million) arose in the Products Division.

Information by geographical region for 2015

Information by geographical region for 2014

Information by business segment for 2015

* Revenue is recognised on raw materials that are bought in and sold on to caterer on the basis that the risks and rewards of ownership are initially assumed by Journey Group Plc and are subsequently transferred to the caterer.

Information by business segment for 2014

4. Income tax

The major components of income tax expense were as follows:

The reconciliation of the income tax expense based on the profit before tax at the statutory income tax rate to the income tax expense at the Group's effective income tax rate is as follows:

The movement on the deferred tax asset and liability was as follows:

Deferred tax balances in US Division have been offset in Statement of Financial Position.

The Group has timing differences in respect of decelerated capital allowances available to carry forward of $2.8 million (2014: $3.4 million).

The Group has estimated UK tax losses of $13.8 million i.e. £8.3 million (2014: $13.8 million i.e. £8.3 million) that are available indefinitely for offset against future taxable profits arising from the same trades of the companies in which the losses arose. The Group has also estimated non-trade UK tax losses of $5.5 million i.e. £3.3 million (2014: $5.8 million i.e. £3.5 million) that are available indefinitely for offset against future non-trading gains. Deferred tax assets have not been recognised in respect of these UK tax losses as there is insufficient certainty of future taxable profits against which to utilise them.

5. Earnings per share

The basic earnings per share is calculated by dividing the profit attributable to equity shareholders (numerator) by the weighted average number of ordinary shares in issue during the year (denominator). The diluted earnings per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options. The adjusted basic earnings per share is calculated by dividing the adjusted profit after tax to remove the impact of share based payments (numerator) by the weighted average number of ordinary shares in issue during the year (denominator). The adjusted diluted earnings per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options.

6. Dividends

A final dividend of 1.65 pence per share in respect of the year ended 31 December 2014 amounting to $333,000 (£199,480) was paid on 1 May 2015 to shareholders who were on the register as at the close of business on 7 April 2015. An interim dividend in respect of the year ending 31 December 2016 has been declared of 3.4 pence per share which will be paid on 31 March 2016 to those who were on the register as at close of business 11 March 2016.

7. Inventories

During the year, $nil was credited (2014: credit of $25,000) to the income statement in respect of a reduction in obsolete and slow moving inventories.

8. Share capital

The Company had warrants as at 31 December 2013 outstanding over 999,277 ordinary shares of 25 pence each with a subscription price of 25 pence per share. During the previous year all of these warrants were exercised for a total subscription price of £249,819 (USD 415,000). On 31 December 2015 the Company had 1,787,948 (2014: 264,913) ordinary shares held in treasury.

9. Additional cash flow information

New finance leases of $1,676,000 (2014: 804,000) were secured during the year to buy plant and machinery. The net finance lease liability paid during the year was $630,000 ($409,000).

Cash and cash equivalents comprise:

10. Annual accounts

The annual report and financial statements will be posted to all shareholders shortly and will soon be available from the Company's website at www.journeygroup.plc.uk and its registered office:

Building One

The Square

Southall Lane

Southall

UB2 5NH