Interim Results 2013

18 September 2013

Embargoed 0700hrs

Journey Group plc

Half Year Results

for the six months ended 30 June 2013

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 2013.

A considerable improvement in profitability and payment of an interim dividend:

Financial highlights:

• Revenue of £22.1 million (H1 2012: £20.1 million)

• Adjusted profit before tax of £0.94 million (H1 2012: £0.34 million)

• Adjusted basic earnings per share of 4.32p (H1 2012: 2.27p)

• Net cash at 30 June 2013 of £2.54 million and at 31 August 2013 of £4.0 million

• Interim dividend of 1.25p per share

Operational highlights:

• US Division successfully transitioned Continental Airlines and JetBlue Airways business to become a fully fledged operation serving multiple customers, each with separate specific service requirements

• Watermark renewed two key contracts with Delta Air Lines and British Airways

• MNH Sustainable Cabin Services renewed its key contract with Qantas Airways

Stephen Yapp, Executive Chairman commented 

"In addition to delivering these strong results, strategically important contracts have been renewed in the Products Division, whilst the US Division has been transitioned into a multi-customer business serving two airports from our facility in Los Angeles.

The Group remains focussed on maintaining the growth momentum within both Divisions through targeting specific opportunities. H2 has started in line with our expectations and, accordingly, the Board is confident of meeting its expectations for the year."

For further information please contact:

Stephen Yapp

Carl Fry

Journey Group plc

Tel: +44 (0) 20 8606 2000

[email protected]

N+1 Singer (Nominated Advisor & Broker)

Jonny Franklin-Adams

Matt Thomas

Tel: +44 (0) 20 7496 3000

EXECUTIVE CHAIRMAN'S LETTER TO SHAREHOLDERS

INTRODUCTION

I am pleased to report that your Group has continued the significant progress made last year in growing profits and in building a stable highly cash generative business that is strategically well positioned and financed to exploit growth opportunities in its main markets, but specifically within in-flight catering in the USA. As a consequence of the progress made, the Group's strong financial position and the Board's confidence in the prospects for the Group, I am also delighted to inform shareholders that the Board has decided to pay an interim dividend revising its earlier intention to pay final dividends only.

The key highlights for the half year were as follows:

Financial highlights:

• Revenue of £22,077,000 (H1 2012: £20,093,000)

• Adjusted profit before tax of £937,000 (H1 2012: £338,000)

• Adjusted basic earnings per share of 4.32p (H1 2012: 2.27p)

• Net cash at 30 June 2013 of £2,537,000 and at 31 August 2013 of £4,013,000

• Interim dividend of 1.25p per share

Operational highlights:

• US Division successfully transitioned Continental Airlines and JetBlue Airways business to become a fully fledged operation serving multiple customers, each with separate specific service requirements

• Watermark renewed two key contracts with Delta Air Lines and British Airways

• MNH Sustainable Cabin Services renewed its key contract with Qantas Airways

MARKET CONDITIONS

With generally improving, though still fragile, global economic conditions, 2013 is proving to be a positive year within the Group's principal market, the global airline industry. The outlook for industry net profits has been recently upgraded by IATA to $12.7 billion from $7.6 billion in 2012. The main drivers of the increased profitability are twofold. The first is the continued trend towards more efficient asset utilisation, with the passenger load factor now 6% above the level of 5 years ago. Secondly, passenger numbers have continued to grow, which in 2013 is forecast for the first time to exceed the 3 billion level. In the Group's principal operating markets of North America, Asia Pacific and the Middle East and amongst its core customer base, growth is encouraging and expected to continue into 2014.

The Group had a strong H1in terms of revenue and profits with both Divisions performing substantially ahead of the same period last year. In the US Division, this performance was due to the impact of the Continental Airlines and JetBlue Airways business that commenced in Q4 2012. Much of the Products division's better performance was due to the strengthening of gross margins in Watermark and non-recurring income items in MNH Sustainable Cabin Services. Central costs were marginally down on H1 2012.

Revenue grew by 10% to £22,077,000 reflecting growth in the US Division offset by the anticipated lower revenue in the Products Division. EBITDA before share based payments expanded by 75% to £1,416,000, leading to an EBITDA margin of 6.4% versus 4.0% in H1 2012. Depreciation and amortisation rose 13% primarily due to the additional trucks purchased to service the Continental Airlines and JetBlue Airways business in the US Division. Operating profit before share based payments stepped up by 130% to £987,000. Finance costs fell by 46% mostly reflecting the expiry of the sales finance facility. Adjusted profit before tax increased by 177% to £937,000. On a statutory basis, profit before tax was also £937,000.

There was a tax charge of £394,000. This substantially related to the US Division's operations in respect of which deferred tax was recognised in H2 2012. The tax rate of 42% substantially reflects the tax rate in the USA of 40%. The profit attributable to shareholders was higher by 176% at £543,000. Adjusted basic earnings per share amounted to 4.32 pence compared with 2.27 pence last year. Basic earnings per share amounted to 4.32 pence compared with 1.59 pence last year. The Board considers the adjusted profit before tax and adjusted earnings per share provide a better guide to the underlying performance of the Group.

Net cash as at 30 June 2013 amounted to £2,537,000 comprising cash of £3,347,000 less debt under finance leases of £810,000. This compares with net cash at 31 December 2012 of £3,111,000 and at 30 June 2012 of £1,830,000. The £574,000 reduction in net cash during H1 was driven by high capital expenditure of £681,000, mainly reflecting truck purchases in the US Division, and the dividend payment of £320,000, which together exceeded net cash flows generated from operating activities of £256,000 and £102,000 received in respect of the exercise of warrants. Net cash flows generated from operating activities was adversely impacted by higher working capital of £1,084,000, which mostly reflects timing, but also includes the impact of higher underlying working capital in the US Division.

The US Division has had a very busy and successful H1. With the addition of the Continental Airlines traffic out of Los Angeles International Airport in early November 2012 and the start-up of the JetBlue Airways traffic out of Long Beach International Airport in mid November 2012, in H1 the Los Angeles facility served near to double the number of flights per day compared with H1 2012. The team at the Los Angeles facility has successfully worked with United Airlines and its merger partner, Continental Airlines, as the merged airline continues to change its processes by marrying policies and procedures to become a single service airline. JetBlue Airways has expressed its satisfaction with the service provided since start-up and has indicated its interest in expanding the relationship as and when a suitable opportunity arises. North American Airlines, a charter airline for the military and other private clients, was added as a customer in early 2013 and the Federal Express traffic was won in June 2013.

The US Division, which operates under the Air Fayre brand, has over the last nine months successfully transitioned from a facility predominantly serving a single customer, United Airlines, to become a fully fledged operation serving multiple customers at two airports from our facility in Los Angeles, with each customer having its separate specific service requirements.

Revenue rose 48% to £12,375,000 primarily reflecting the new Continental Airlines and JetBlue Airways business. EBITDA before share based payments increased by 39% to £1,288,000, which again mainly reflected the new business, and the EBITDA margin fell modestly to 10.4% from 11.1% in H1 2012. Depreciation rose 16% to £381,000 reflecting truck purchases and led to operating profit before share based payments rising 52% to £907,000.

Looking ahead to H2, the US Division, with its increased level of business well bedded down, will be focusing on identified potential opportunities to expand its footprint, although by nature the industry has long lead times.

The Products Division performed strongly with both Watermark and MNH Sustainable Cabin Services exceeding expectations. Watermark's strategy to focus on higher quality, stronger gross margin business continued to strengthen and stabilise its earnings base, although this led to the anticipated decline in revenue as it exited underperforming contracts. MNH Sustainable Cabin Services benefitted from non-recurring income items. Consequently, whilst revenue fell by 17% to £9,702,000, EBITDA before share based payments rose 126% to £416,000 and the EBITDA margin increased to 4.3% from 1.6% in H1 2012. Depreciation fell 8% to £48,000. Operating profit before share based payments increased by 179% to £368,000.

Watermark's attention during H1 was focused on two key areas of activity. The first was the renewal in August 2013 of both Delta Air Lines and British Airways, two of Watermark's key contracts. These were extended into 2015 and 2016, respectively. The second is the continued repositioning of the business towards meal service contracts and other business lines with unique design elements, both of which generally benefit from longer contract periods than Watermark's traditional amenity kit business. The operations team also continued to focus their attention on broadening the supply chain reach beyond China with some new supply options identified in the Middle East, other parts of Asia and the Indian subcontinent. During H2 Watermark will be focusing on a number of new opportunities identified in the Asia Pacific and US regions whilst bedding down the contract renewals.

During H1, MNH Sustainable Cabin Services renewed its key contract with Qantas Airways. This contract to control laundry and headset refurbishing network-wide was renewed for a minimum period of 3 years and operations under the new contract commenced in July 2013. The previous contract was principally a management and profit sharing arrangement relating to savings, whereas under the new contract MNH will directly assume all business operations giving it greater control and security of earnings. The next 12 months will see the consolidation of the new Qantas contract along with efforts to expand into other continents as MNH seeks to assert its strong position in recycling aviation headsets. In its bundled product sales division serving the rail and ferry sectors, MNH suffered a contract loss that will affect MNH's H2, although this has been partially mitigated through some cost savings.

Central costs before depreciation and share based payments were similar to H1 2012, benefitting from continued close cost control.

BOARD CHANGES

I am delighted that Dimitri Goulandris has rejoined the Board. His experience and knowledge will prove valuable whilst strengthening the existing skills and experience of the Board.

DIVIDEND POLICY

In my letter to shareholders accompanying the 2012 full year results I set out the Board's dividend policy, which included its intention to pay dividends as a single final dividend. As a consequence of the significant progress made during H1, the Group's strong financial position and the Board's confidence in the prospects for the Group, the Board has decided to pay an interim dividend of 1.25p per share. This will cost £160,000 and will be covered 3.4 times by profit attributable to equity shareholders. The interim dividend will be payable to shareholders on the register as at the close of business on 4 October 2013, giving an ex-dividend date of 2 October 2013, and paid on 6 December 2013.

OUTLOOK

In addition to delivering these strong results, strategically important contracts have been renewed in the Products Division, whilst the US Division has been transitioned into a multi-customer business serving two airports from our facility in Los Angeles.

The Group remains focussed on maintaining the growth momentum within both Divisions through targeting specific opportunities. Profitability within the airline industry is showing some improvement and this augurs well for future growth opportunities. H2 has started in line with our expectations and, accordingly, the Board is confident of meeting its expectations for the year.

Stephen Yapp

Executive Chairman

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET 

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

Condensed consolidated statement of changes in equity for the 6 months to 30 June 2013

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

Condensed consolidated statement of changes in equity for the 12 months to 31 December 2012

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED ACCOUNTS

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 2012 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 2013 are unchanged from those adopted in the financial statements for the year ended 31 December 2012.

ii. Statement of compliance

These interim consolidated financial statements are for the six months ended 30 June 2013. 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 2012.

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 financial information is provided to the chief operating decision maker.

The US Division is a supplier of catering and beverages 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. Although MNH Sustainable Cabin Services and Watermark are monitored by the chief operating decision maker, they are aggregated due to their products and customers being similar.

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 2013

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

Segmental information by business segment for 12 months to 31 December 2012

4. FINANCE COSTS

5. EARNINGS PER SHARE

The basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period.

The diluted earnings per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options and warrants. The dilutive effect of share options for the six months period to 30 June 2013 reflects the number of ordinary shares that would have been issuable at that date under the management incentive scheme. At 30 June 2012 and at 31 December 2012 no ordinary shares would have been issuable under the management incentive scheme and, accordingly, there are no dilutive effects for the periods ended on those dates.

The adjusted earnings per share uses the denominator described above with the numerator adjusted to remove the post tax impact of share based payments and the deferred tax credit arising in respect of tax losses from previous years from the Group's US operations.

The weighted average number of shares has been revised in the comparative figures following the consolidation of Company's ordinary share capital on the basis of 1 ordinary share for every 25 existing ordinary shares.

6. PROPERTY, PLANT AND EQUIPMENT

During the period plant and equipment has been purchased amounting to £670,000 (6 months to 30 June 2012: £131,000). There were no asset disposals in the reporting period. Capital commitments contracted for but not provided for at 30 June 2013 amounted to £nil (30 June 2012: £nil).

7. NET CASH

8. 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 2013 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 7. 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.

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'. 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 2013 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.

GRANT THORNTON UK LLP

REGISTERED AUDITORS

CHARTERED ACCOUNTANTS

LONDON