Interim results 2012

27 September 2012

Journey Group plc

Interim Results

for the six months ended 30 June 2012

Journey Group plc (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 six months ended 30 June 2012.

Key highlights

·; Adjusted profit before tax of £338,000 (H1 2011: £74,000)

·; Adjusted basic earnings per share 0.09p (H1 2011: 0.02p)

·; Net cash at 30 June 2012 of £1,830,000 and at 31 August 2012 of £3,250,000

·; Improved financial results driven by the US Division

·; Award by United Airlines of the former Continental traffic bringing the average number of United Airlines flights up to approaching 100 flights per day positions the US Division for significant growth in 2013

·; Capital reduction completed and expected to restore the ability to pay dividends

Stephen Yapp, Executive Chairman commented

"The financial results for the first half of this financial year demonstrate the resilience of the Group's businesses, particularly the US model, and the capability of its management teams in challenging conditions.

Trading in the second half of the year continues to be in line with market expectations and the prospects for 2013 are positive following the award to the US Division by United Airlines of the former Continental flight traffic. In these circumstances and from a solid platform, your Board looks forward with confidence to delivering shareholder value."

For further information please contact:

Stephen Yapp

Journey Group plc

Tel: +44 (0) 20 8606 2000

[email protected]

Carl Fry

Journey Group plc

Tel: +44 (0) 20 8606 2000

[email protected]

Singer Capital Markets Limited (Nominated Advisor & Broker)

Jonny Franklin-Adams

Matt Thomas

Tel: +44 (0) 20 3205 7500

EXECUTIVE CHAIRMAN'S LETTER TO SHAREHOLDERS

INTRODUCTION

Your Group continues to make significant progress both financially and strategically despite increasingly competitive conditions in its markets.

The key highlights for the half year were as follows:

·; Adjusted profit before tax of £338,000 (H1 2011: £74,000)

·; Adjusted basic earnings per share 0.09p (H1 2011: 0.02p)

·; Net cash at 30 June 2012 of £1,830,000 and at 31 August 2012 of £3,250,000

·; Improved financial results driven by the US Division

·; Award by United Airlines of the former Continental traffic bringing the average number of United Airlines flights up to approaching 100 flights per day positions the US Division for significant growth in 2013

·; Capital reduction completed and expected to restore the ability to pay dividends

MARKET CONDITIONS

Total year on year passenger traffic growth to 30 June 2012 amounted to 6.1%, but this masks a significant slow down in growth, particularly over Q2 2012 and continuing into Q3, driven by poor economic conditions and declining business confidence. In the zones most served by the Group, growth in total passenger traffic was mixed with North America up just 1.1%, but Asia Pacific up 6.3% and Europe up 7.0%. In response to the lower growth, airlines have reduced capacity growth with resulting stronger passenger load factors, which have reached relatively high levels and provide some support for profitability despite high aviation fuel prices. Whilst the USA continues to show evidence of some economic recovery, most other major economies worldwide have slipped steadily into slower growth. Whilst these circumstances prevail and uncertainty remains over the stability of the Eurozone, growth in passenger traffic and freight seems likely to continue to be restrained leading to competitive conditions in the Group's markets remaining at elevated levels.

REDUCTION OF CAPITAL

With the Group's turnaround complete, its transition to a focus on growth and present strong financial position, steps have been taken to remove the final legacy of its earlier financial difficulties that led to the Company's negative retained earnings at 31 December 2011 of £26,276,000 and so created a block to any possible payment of dividends to shareholders. On 28 May 2012 a reduction of capital was announced under which the Company's share premium account and capital redemption reserve, which at 31 December 2011 totalled £36,521,000, would be cancelled and, subject to measures being taken for the protection of the Company's creditors, create positive distributable reserves that may in due course be used to facilitate the payment of dividends. The proposals were approved by shareholders on 27 June 2012 and became effective on 26 July 2012 following approval by the High Court and filing at Companies House. It is expected that measures for the protection of the Company's creditors will be in place by 31 December 2012, which will lead to substantial positive retained earnings at that date. With dividend capacity established the Board will have an additional avenue through which to deliver value to shareholders in future.

RESULTS

The results for the half year were as follows:

Driven by the US Division, the Group's financial results improved significantly over H1 2011. The Products Division produced a mixed trading performance.

Revenues from continuing operations were almost unchanged at £20,093,000, but EBITDA before exchange differences increased 33% to £821,000. Operating profit before share based payments increased 108% to £430,000. Adjusted profit before tax from continuing operations improved considerably to £338,000 compared with £74,000 in H1 2011. Adjusted earnings per share from continuing operations amounted to 0.09 pence compared with 0.02 pence in H1 2011. The Board considers that adjusted profit before tax and adjusted earnings per share provide a better guide to the underlying performance of the Group.

The reduction in the charge for share based payments to £84,000 from £376,000 in H1 2011 was due to the absence of the £292,000 charge in H1 2011 in respect of the prior period vesting. These charges relate to the management incentive scheme for the Company's Executive Directors and are non-cash fair value charges. A final charge of £84,000 will be made in H2 2012. On a statutory basis, profit before tax from continuing operations was £254,000 compared with a loss of £302,000 in H1 2011. There was a profit attributable to equity shareholders of £197,000 compared with a loss of £1,372,000 in H1 2011, which included a loss from discontinued operations of £1,064,000.

Net cash at the half year end amounted to £1,830,000, comprising cash of £2,104,000 less debt under finance leases of £274,000, compared with net cash of £2,055,000 at 31 December 2011. The reduction in net cash of £225,000 was due to an increase in working capital of £707,000, which mainly arose from the timing of sales resulting in significantly higher trade receivables in June 2012 than in December 2011. At 31 August 2012, net cash had risen to £3,250,000.

US DIVISION

The US Division produced a strong performance ahead of its expectations and in an environment of slow growth coupled with its largest customer, United Airlines, dealing with the complexity of its merger with the former Continental.

Revenues increased by 15% to £8,364,000 through a combination of increased food sales arising from a higher proportion of cater sourced food and higher handling fees driven by improved pricing. EBITDA before exceptional items and share based payments grew by 24% to £925,000 leading to operating profit before exceptional items and share based payments being 39% better at £597,000.

Following the merger of United Airlines and Continental, the US Division has recently been awarded the former Continental traffic. These additional flights, which are expected to commence in early November 2012, will bring the average number of United Airlines flights up to approaching 100 flights per day compared with an average of 69 flights a day in 2011. During high season there will be approximately 115 flights a day and approximately 90 flights a day in low season. The US Division was delighted to be awarded this business, which represents a substantial step forward, positions the US Division for significant growth during 2013, and further underlines the benefits to both customer and the US Division of its unique business model.

For the fourth consecutive half year the Los Angeles facility has met or exceeded all of its performance goals of reliability and food quality as perceived by passenger ratings. It was once again recognised by United Airlines for its outstanding service and awarded best hub worldwide for on-time performance and food quality.

Los Angeles International Airport measured in passenger traffic is one of the most visited international airports in the USA and is the 6th largest airport worldwide. The US Division has a significant share of the LAX catering market and has demonstrated its ability to deliver high quality service at competitive pricing. The US Division's patented business model continues to receive interest from international and domestic airlines and its focus remains on filling the remaining capacity at the Los Angeles facility and developing new business opportunities and strategic partnerships. With opportunities identified to execute on these objectives, the US Division has become the key focus of growth.

PRODUCTS DIVISION

It has been a mixed trading period for the Products Division. Two major product launches in Watermark during 2011 saw inflated volumes in that year, which has led to the fall in revenues of 9% in the current period. However, as the airlines work through the impact of these launches we anticipate that more normalised activity will return in 2013.

EBITDA fell significantly to £79,000 before taking into account non-recurring items amounting to a credit of £111,000. This credit comprised the release of accruals and inventory provision of £208,000 less a bad debt write off of £97,000. The accruals and inventory provision arose primarily in the previous year mainly as a consequence of uncertainties relating to contract terms and renewals that have been resolved and, accordingly, are no longer considered necessary.

Further consolidation in the Products Division's market has reduced competitor numbers and extended the reach and size of the major player. This along with the general economic uncertainty has led to a reduction in overall contract activity and wins for Watermark.

MNH Sustainable Cabin Services faced more benign conditions, although it suffered a bad debt of £97,000 through the insolvency of a distributor of certain products. The distributor was quickly replaced with only a minimal loss to on-going revenues.

Looking forward from a tactical and operational standpoint, Watermark will continue to pursue its stated plans of targeted opportunities in the airline sector whilst strategically working through options to counter the recent significant shift in its market place.

MNH expects stable conditions through the remainder of 2012. It continues to focus on its unique price per seat model for headsets and amenity kits, both within the existing customer base and prospectively to other carriers in the Asia Pacific and USA regions.

CENTRAL COSTS

Central EBITDA before exchange differences was 21% lower than in H1 2011, benefitting from continued close control and the reduction of £53,000 in an historic accrual in accordance with a revised estimate.

BOARD

As announced earlier in the year, Max Lesser has been appointed as a Non-executive Director. Max's appointment extends the Board's skill set and creates a better balance in pursuing the Company's objective of creating shareholder value.

OUTLOOK

The financial results for the first half of this financial year demonstrate the resilience of the Group's businesses, particularly the US model, and the capability of its management teams in challenging conditions. Trading in the second half of the year continues to be in line with market expectations and the prospects for 2013 are positive following the award to the US Division by United Airlines of the former Continental flight traffic. In these circumstances and from a solid platform, your Board looks forward with confidence to delivering shareholder value.

Stephen Yapp

Executive Chairman

UNAUDITED CONDENSED CONSOLIDATED INCOME 

STATEMENT

for the 6 months to 30 June 2012

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

for the 6 months to 30 June 2012

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2012

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW

STATEMENT

for the 6 months to 30 June 2012

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY

for the 6 months to 30 June 2012

Condensed consolidated statement of changes in equity for the 6 months to 30 June 2012

Condensed consolidated statement of changes in equity for the 6 months to 30 June 2011

Condensed consolidated statement of changes in equity for the 12 months to 31 December 2011

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

ACCOUNTS

for the 6 months to 30 June 2012

1. CORPORATE INFORMATION

Journey Group plc is a public limited company incorporated and domiciled in England & Wales. The Company's shares were publicly traded on the AIM market of the London Stock Exchange during the reporting period.

The comparative figures for the year ended 31 December 2011 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. Those accounts received an unqualified audit report, which did not contain statements under sections 498(2) or (3) (accounting records or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006. The interim results are unaudited.

The principal activities of the Group are described in Note 3.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

i. Basis of preparation

The accounting policies applied in preparing the interim results for the period ended 30 June 2012 are unchanged from those adopted in the financial statements for the year ended 31 December 2011.

ii. Statement of compliance

These interim consolidated financial statements are for the six months ended 30 June 2012. They have been prepared in accordance with IFRSs as adopted by the European Union and IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2011.

3. SEGMENTAL REPORTING

The Group is organised into two primary business segments, the US and Products Divisions. These reportable segments are the strategic divisions for which monthly financial information is provided to the Chief Operating Decision Maker.

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

Segmental 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 across segments is not possible, they are classified as unallocated corporate assets.

Segmental information by business segment for 6 months to 30 June 2012

Segmental information by business segment for 6 months to 30 June 2011

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

4. EXPENSES

The reduction in the charge for share based payments to £84,000 from £376,000 in H1 2011 was due to the absence of the £292,000 charge in H1 2011 in respect of the prior period vesting under the management incentive scheme.

5. EARNINGS/(LOSS) PER SHARE

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

The diluted earnings/(loss) per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options and warrants.

The adjusted basic earnings per share uses the denominator described above with the numerator adjusted to remove the post tax impact of share based payments.

The following represents the profit/(loss) and share data used to calculate basic, diluted and adjusted earnings per share:

6. FINANCE COSTS

7. PROPERTY, PLANT AND EQUIPMENT

During the period plant and equipment has been purchased amounting to £131,000 (6 months to 30 June 2011: £73,000). There were no asset disposals in the reporting period. Capital commitments contracted for but not provided for at 30 June 2012 amounted to £nil (30 June 2011: £nil).

8. NET FUNDS

9. SUBSEQUENT EVENT

Subsequent to 30 June 2012, the Company completed a reduction of capital under which its share premium account amounting to £36,497,000 and capital redemption reserve amounting to £24,000 were cancelled. The total amount cancelled of £36,521,000 after deducting the Company's deficit on retained earnings has been transferred to a special non-distributable reserve.

10. INTERIM REPORT

The Interim Report will be posted to all shareholders shortly and, in accordance with AIM Rules 20 and 26, copies of the Interim Report will be available at the Company's website www.journeygroup.plc.uk.

INDEPENDENT REVIEW REPORT TO JOURNEY GROUP PLC

Introduction

We have reviewed the condensed set of financial statements in the half yearly financial report of Journey Group plc for the six months ended 30 June 2012 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity and notes 1 to 9. We have read the other information contained in the half yearly financial report which comprises only the Executive Chairman's Letter to Shareholders and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the AIM Rules.

As disclosed in Note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half yearly financial report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union, and the AIM Rules.

GRANT THORNTON UK LLP

REGISTERED AUDITORS

CHARTERED ACCOUNTANTS

LONDON