JNY.L Regulatory News (JNY)

22 September 2015

Embargoed 0700hrs

Journey Group plc

Interim Results

for the six months ended 30 June 2015

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 interim results for the six months ended 30 June 2015.

A solid performance and focussing on near term growth

Financial Highlights:

· Revenue of $30.5m (H1 2014 $31.3m)

· EBITDA increased by 6% to $1.8m (H1 2014 $1.7m)

· Profit before tax from continuing operations of $1.0m (H1 2014: $1.0m)

· Basic earnings per share from continuing operations of 5.27 cents (H1 2014: 3.30 cents)

· Net cash at 30 June 2015 of $7.2m and at 31 August 2015 of $7.5m

Operational Highlights:

· Air Fayre:

o Successfully launched the catering contract for ExpressJet in Los Angeles for 30 flights per day

o Post the half year end, announced a new contract win with FedEx to provide in-flight catering services for all of their crew out of Memphis International Airport ("MEM") in Tennessee. This was successfully launched on 1st September 2015

· Watermark:

o Secured a number of exclusive brand partnerships and worked with some leading third party designers

Stephen Yapp, Executive Chairman commented:

"We have come a long way in the last couple of years with Air Fayre's addition of several new customers and the successful launch of a range of associated services.

The Group had a solid first half whilst dealing with challenges in Air Fayre in Los Angeles arising from an ongoing shift in the mix of the types of aircraft utilised by customers and adverse weather conditions in the first quarter which reduced flight numbers. Whilst we expect some recovery in flight and passenger volumes in the seasonally-weighted second half of the year, we anticipate that the lower average number of flights and new mix of aircraft utilised will become the norm and will consequently impact the second half performance in Los Angeles.

We remain focused on delivering our strategy of growth and operational excellence, demonstrated by the recent award and successful launch of our new contract with FedEx out of MEM. This reinforces the strength of our unique business model and begins to prove its ability to be transferred to different locations, the benefits from which will positively impact our results from 2016 onwards.

We remain confident in the Group's strategy with its two-pronged approach of providing our existing customers with an outstanding service whilst pursuing opportunities matched to our capabilities within Air Fayre".

For further information please contact: 

Stephen Yapp

Alison Whittenbury

Journey Group plc

Tel: +44 (0) 20 8744 7080

info@journeygroup.plc.uk 

N+1 Singer (Nominated Advisor & Broker)

Nic Hellyer

Lauren Kettle

James Maxwell

Tel: +44 (0) 20 7496 3000

EXECUTIVE CHAIRMAN'S LETTER TO SHAREHOLDERS

INTRODUCTION

The Group delivered a solid performance in the first half of the year whilst dealing with certain challenges in the US Division in Los Angeles. These were mainly as a result of changes in the mix of the types of aircraft utilised by customers and adverse weather in the first quarter. These factors culminated in lower flight and passenger volumes and lower associated revenue.

The key highlights for the half year were:

Financial Highlights:

· Revenue of $30.5m (H1 2014 $31.3m)

· EBITDA increased by 6% to $1.8m (H1 2014 $1.7m)

· Profit before tax from continuing operations of $1.0m (H1 2014: $1.0m)

· Basic earnings per share from continuing operations of 5.27 cents (H1 2014: 3.30 cents)

· Net cash at 30 June 2015 of $7.2m and at 31 August 2015 of $7.5 m

Operational Highlights:

· Air Fayre:

o Successfully launched the catering contract for ExpressJet operating as United Express in Los Angeles for 30 flights per day

o Post the half year end, announced a new contract win with FedEx to provide in-flight catering services for all of their crew out of Memphis International Airport in Tennessee. This was successfully launched on 1st September 2015

· Watermark:

o Secured a number of exclusive brand partnerships and worked with some leading third party designers

MARKET CONDITIONS

IATA, the airline trade body reported that Q2 2015 airline profits had greatly improved, particularly from North American airlines, Journey Group's core market, where consolidation and lower fuel costs have resulted in a significant boost to profitability.

Improved profits come off a backdrop where growth in the global airline industry in the first half of 2015 moderated in comparison with the highs seen in 2014. Passenger loads dipped slightly as growth in capacity surpassed expansion in demand although the trend for 2015 air transport volume growth remains robust. Passenger yields in the US continue to fall and levels remain 13% down on a year ago. The weakness in yields and fares reflects downward pressure from declines in fuel costs, stronger growth in capacity relative to demand as well as exchange rate distortions.

RESULTS

The Board has decided to change the Group's reporting currency to US Dollars. Accordingly, the key financial information for 2014 has been represented in US Dollars for comparative purposes.

The results for the half year were as follows:

The Group had a solid first half trading, dealing with some economic challenges in the US Division in Los Angeles whilst Watermark delivered a creditable performance.

Overall revenue was down by 2.7% at $30.5m, reflecting growth in the US Division of 2.5% and a decrease in the Products Division of 12.2%. However, the Group as a whole achieved a 7% improvement in EBITDA, which grew to $1,800,000 from $1,682,000 in the same period last year. Head office showed improvements in costs as a result of prior year non-recurring items and savings related to salary, travel costs and professional fees.

Both the Operating profit and Profit before tax were broadly flat year on year at $1,043,000 and $995,000 respectively.

The tax charge of $282,000 was significantly lower than the previous year of $566,000. This was a result of two factors. Firstly, the previously announced changes to the intercompany royalty charges, from the UK to US as per the patent agreement and secondly, a decrease in operating profit of the US Division. This resulted in a Profit after tax for the Group of $713,000, up from $435,000 the previous year.

The Basic earnings per share amounted to 5.27 cents compared with 3.30 cents last year.

Net cash as at 30 June 2015 amounted to $7,192,000 comprising cash of $9,722,000 less debt under finance leases of $2,530,000. This compares with net cash at 31 December 2014 of $6,671,000 and at 30 June 2014 of $6,105,000. This increase in net cash of $521,000 for the first half year reflects a combination of profits generated and working capital improvements offset by capital expenditure and dividend payments.

US DIVISION

"Air Fayre", the US Division performed well operationally and delivered a solid financial performance despite a challenging first half, resulting from several factors.

The market itself has experienced a slow down in growth, with passenger loads and yields dipping, as previously mentioned. Airlines have responded to these revenue pressures by changing their hub schedules and juggling their fleets. United Airlines has introduced a flexible schedule and been purchasing used narrow-bodied aircraft as well as increasing its Embraer fleet to the maximum count permissible. This shift within their operating model has been felt by Air Fayre, which for the first half of the year catered a lower volume of flights as well as a disproportionate number of smaller narrow bodied aircraft compared to original forecasts. These narrow-bodied aircraft carry fewer passengers and less food than wider-bodied aircraft. With summer holidays and Thanksgiving, passenger numbers are expected to increase in the second half of the year, however, we anticipate that a lower average number of flights and this new mix of aircraft will become the norm and will have a consequent impact on the second half.

Another factor during the first quarter was that the US was hit with major winter storms that caused airlines to cancel several thousand flights each month. This was an unprecedented occurrence and resulted in significant lost revenue.

In April, Air Fayre successfully launched a new service for ExpressJet out of LAX for 30 flights per day. This service is expected to increase over the remainder of the year.

Revenue rose 2.5% to $20,802,000 from $20,287,000 although EBITDA decreased to $1,438,000 from $2,080,000. Of the $731,000 decrease in EBITDA, $324,000 is attributable to inter-company royalty charges this year as per the patent agreement whilst the balance reflects the change in aircraft mix and lower flight volumes, business and market factors outlined above.

In July 2015, we were delighted to announce the new contract win with FedEx to provide in-flight catering for crew and on site catering for the staff lounges at Memphis International Airport ("MEM"). On average, FedEx operates more than 1,100 flights per week. This strategically significant contract was successfully launched on 1 September and begins to prove the model can be transferred to new locations. The benefits from this new contract will impact our results from 2016 onwards.

PRODUCTS DIVISION

The Products Division "Watermark" had a creditable first half of the year, although revenue decreased 12.2% from $11,039,000 to $9,692,000. However, gross margin percentage showed a modest increase through improved purchasing as the regional sourcing strategy brought some positive outcomes within the Eastern European market.

Notwithstanding the fall in revenues, EBITDA improved significantly to $247,000 from $35,000. This resulted from an earlier than expected increase in the orders for higher margin products and savings across the business reflecting the positive outcomes from the re-structuring that took place through 2014 and into 2015. Given the early orders, we anticipate an associated reduction in volumes in the second half of the year.

During H1, the business was awarded a large meal service contract out of the US (due to launch in 2016), an amenity programme in the Pacific Islands and also secured a further two-year contract extension with Air Calin.

Watermark's mission statement is to deliver first to market product innovations and brand partnerships that are competitively priced, to the airline industry. To achieve this, Watermark has entered into an exciting phase where it is working with leading third party designers and agencies and has secured a number of exclusive brand partnerships from which it is seeing positive results.

BOARD CHANGES

As previously announced Christopher Mills joined the Board as a non-executive Director in January 2015 replacing Max Lesser. Christopher is the Chief Executive of Harwood Capital LLP, the largest shareholder of Journey Group plc.

OUTLOOK

We have come a long way in the last couple of years with Air Fayre's addition of several new customers and the successful launch of a range of associated services.

The Group had a solid first half whilst dealing with challenges in Air Fayre in Los Angeles arising from an ongoing shift in the mix of the types of aircraft utilised by customers and adverse weather conditions in the first quarter. Whilst we expect some recovery in flight and passenger volumes in the seasonally-weighted second half of the year, we anticipate that the lower average number of flights and new mix of aircraft utilised will become the norm and will consequently impact the second half performance in Los Angeles.

We remain focused on delivering our strategy of growth and operational excellence, demonstrated by the recent award and successful launch of our new contract with FedEx out of MEM. This reinforces the strength of our unique business model and begins to prove its ability to be transferred to different locations, the benefits from which will impact our results from 2016 onwards.

We remain confident in the Group's strategy with its two-pronged approach of providing our existing customers with an outstanding service whilst pursuing opportunities matched to our capabilities within Air Fayre.

Stephen Yapp

Executive Chairman

22 September 2015

UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

The interim condensed consolidated financial statements on pages 5 to 15 were approved by the Board on 22 September 2015 and signed on its behalf by

Stephen Yapp

Executive Chairman 

UNAUDITED CONDENSED CONSOLIDATED CASHFLOW STATEMENT

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Condensed consolidated statement of changes in equity for the 6 months to 30 June 2015

Restated condensed consolidated statement of changes in equity for the 6 months to 30 June 2014

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Restated condensed consolidated statement of changes in equity for the 12 months to 31 December 2014

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 principal activities of the Group are described in Note 3.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

i. Basis of preparation

The interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's financial statements for the year ended 31 December 2014, which were prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB (together "IFRS") as adopted by the European Union, and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.

The information relating to the six months ended 30 June 2015 and the six months ended 30 June 2014 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2014 have been reported on by its auditor and delivered to the Registrar of Companies except that they have been restated as explained in note 2(ii). The report of the auditor was unqualified and did not draw attention to any matters by way of emphasis, or contain a statement under section 498(2) or (3) of the Companies Act 2006. The interim condensed consolidated financial statements have been reviewed by the auditor and their report to the Board of Journey Group plc is included within this interim report.

ii. Change in presentation currency

On 1 January 2015 the Group decided to change its presentation currency to US Dollars. Hence, the effective date of change in presentation currency is 1 January 2014. Comparative information has been restated in US Dollars in accordance with the guidance defined in IAS 21 and IAS 8. The 2014 interim and full year income statements and associated notes have been retranslated from pounds sterling to US Dollars using the procedures outlined below:

· Assets and liabilities were translated into US Dollars at closing rates of exchange. Trading results were translated into US Dollars at average rates of exchange. Differences resulting from the retranslation on the opening net assets and the results for the year have been taken to reserves.

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. 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.

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 2015

Restated segmental information by business segment for 6 months to 30 June 2014

Restated segmental information by business segment for 12 months to 31 December 2014

4. FINANCE COSTS

5. INCOME TAX

The Group is organised into two primary segments, the Products and the US Divisions. Geographically, the subsidiaries in Products Division are based in United Kingdom, Australia and Hong Kong and the subsidiaries in the US Division are based in United States of America. The operating income of divisions is subject to income tax in their respective geographical territories. The movement in income tax expense is the result of movement in divisional profits applicable to different tax rates.

6. 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 period (denominator).

The diluted earnings per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options. The dilutive effect of share options for the six months period to 30 June 2015 reflects the number of ordinary shares that would have been issuable at that date under the management incentive scheme.

7. PROPERTY, PLANT AND EQUIPMENT

During the period plant and equipment has been purchased amounting to $370,000 (6 months to 30 June 2014: $193,000). There were no asset disposals in the reporting period. Capital commitments contracted for but not provided for at 30 June 2015 amounted to $nil (30 June 2014: $nil).

8. GOODWILL

There was no addition or disposal of goodwill during the current and earlier reported periods. The balance of goodwill $3,960,000 (£2,518,000) is denominated in GBP. The movement in goodwill during current and earlier reported periods is due to fluctuation of exchange rate as the Group's reporting currency is USD.

9. NET CASH

10. Posting of Interim Report

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