JNY.L Regulatory News (JNY)

30 Sep 2009 07:00



30 September 2009

Embargoed, 0700hrs

Journey Group PLC

Interim Results

for the six months ended 30 June 2009

Journey Group plc ("Journey Group" or the "Group"), a leading provider of in-flight products, catering and cabin management services to the airline and travel industry today announces its results for the six month ended 30 June 2009.

Highlights

EBITDA profitability remained despite deteriorating and challenging conditions

Tight control over working capital with net debt reduced to £5.2 million from £5.6 million at 31 December 2008

Los Angeles operations EBITDA profit of £0.6 million in its first full half year

Services Division increased EBTIDA profit of £0.7 million compared with £0.6 million (excluding non-recurring income) in H1 2008

Stephen Yapp, Chairman commented, "Considerable progress continues to be made in re-positioning the Group's businesses to lay the foundations for future growth while taking the steps required to mitigate the worst effects of the present challenging market conditions. The near term future continues to be difficult to predict and the Group is exposed to a number of uncertainties beyond its control, but I believe that it is increasingly well equipped to meet the challenges ahead and deliver value in the long term."

For further information please contact:

Stephen Yapp

Journey Group plc

Tel: +44 (0) 20 8606 2000

info@journeygroup.plc.uk

KBC Peel Hunt Ltd (Nominated Advisor & Broker)

David Anderson / Daniel Harris

Tel: +44 (0) 20 7418 8900

  CHAIRMAN'S LETTER TO SHAREHOLDERS

INTRODUCTION

In the first half year your Group has continued to make significant progress towards building the foundations for creating significant future value for shareholders. Growth opportunities have been created and the Group's businesses have been re-positioned with an attactive and competitive product range and service offering together with a lean cost structure. This progress has been made through a clear strategic focus, which has directed management's efforts towards driving change across the Group and creating new opportunities. 

Key financial achievements during the period were: 

EBITDA profitability remained despite deteriorating and challenging conditions.

Tight control over working capital with net debt reduced to £5.2 million from £5.6 million at 31 December 2008.

Los Angeles operations EBITDA profit of £0.6 million in its first full half year.

Services Division increased EBTIDA profit of £0.7 million compared with £0.6 million (excluding non-recurring income) in H1 2008.

I noted in my 2008 year end report that the airline industy, which is the Group's principal marketplace, continues to face tough challenges in the current economic environment and exposes the Group's businesses to further pricing and volume pressures. The International Air Transport Association estimate that global airline losses are expected to widen to $11 billion for 2009, which compares with their previous estimate of $9 billion. They attribute the increase to higher oil prices for the latter part of the year and continued weak business travel. The progress made during the half year was achieved nothwithstanding these challenging conditions, although not without a significant adverse impact on the Products Division. I expect that the challenging conditions that prevailed during the first half year will remain with us well into 2010. 

An important part of the Group's strategy has been to review its portfolio of businesses and to develop a strategy for maximising their longer term value to shareholders. As part of this approach, the Company's wholly owned subsidiary, Air Fayre Limited, entered into a letter of intent with a competitor, Alpha Flight UK Limited, which is part of Autogrill S.p.A., one of the world's largest providers of food and beverage and retail services for travellers. The letter of intent provides for exclusive discussions for the purpose of creating a joint venture of their flight catering operations at London Heathrow. The creation of the proposed joint venture would considerably enhance the competitive position of the combined business and enable a much enhanced range of services, along with superior delivery, to be offerred to its combined customer base. Significant progress has been made towards this transaction and, although there can be no certainty, the Board is optimistic regarding its successful outcome materially in line with the terms currently being negotiated.

RESULTS

The results for the half year were as follows:

The results for the half year reflect the challenging market conditions that prevailed during the period. EBITDA (before exceptional items and share based payments) fell to £0.1 million from £0.8 million in H1 2008, although included in the comparative figure there was non-recurring income of £0.4 million. The reduction in EBITDA of £0.3 million (excluding the benefit of the non-recurring income in H1 2008) was due to the Products Division where EBITDA fell by £0.8 million plus increased head office costs of £0.2 million offset by an initial EBITDA contribution from Los Angeles of £0.6 million and an improvement in the Services Division of £0.1 million.

At the operating profit level prior to exceptional items and share based payments the Group incurred a loss of £1.0 million compared with a profit of £0.1 million in H1 2008. Exceptional items of £1.1 million comprised start-up costs relating to the Los Angeles facility of £0.5 million, re-organisation costs of £0.4 million and costs of re-financing of £0.2 million. Finance costs fell to £0.4 million from £0.9 million in H1 2008, but of this £0.6 million related to the convertible bonds now converted into ordinary shares. 

There was a net loss before taxation of £2.6 million compared with a loss of £2.2 million in H1 2008. The basic loss per share was 0.9 pence per share compared with 4.7 pence per share in H1 2008. The improvement substantially arose from the increase in the weighted average number of ordinary shares in issue following the placing of ordinary shares and conversion of convertible bonds into ordinary shares in H2 2008.

Net debt fell by £0.4 million to £5.2 million from £5.6 million at 31 December 2008, which reflects our continued management of working capital. On 31 August 2009 the Company's existing facilities with Barclays Bank, comprising a term loan of £4,610,500 and a £1,500,000 multi-option facility, were due to expire and on 27 August 2009 they were cancelled and replaced by a new multi-option facility of £5,820,500 and a bank guarantee facility of £290,000. The total facilities available under the new arrangements initially remained the same as under the previous position, although the multi-option facility was subsequently reduced to £4,750,000. The new facilities are repayable on demand and expire on 31 August 2010.

SERVICES DIVISION

The major element of the reduction in the Division's revenue was due to a change in the business model of the Encompass business to an agency basis, which had minimal profit impact. Divisional EBITDA (excluding the benefit of the non-recurring income in H1 2008) increased by £0.1 million.

Air Fayre Limited, the principal business within the Division, delivered solid financial results in H1 and is on target to continue to deliver positive EBITDA in H2. This performance is especially commendable given the harsh trading conditions, which has seen airlines both combine and cancel flights on a daily basis in line with changing passenger numbers. Success has been driven through innovation and firm cost controls. The inevitable reductions in flight numbers required Air Fayre to refine the manner of support extended to airlines. In the Spring, a major restructuring exercise removed excess direct labour; a level of management was also removed and smarter LEAN working practices were adopted. Daily activity was managed through a 6 sigma measurement approach. This, when combined with greater empowerment and better direction passed down to management and staff, led to improved On-Time and In-Full performance figures to customers, retaining the highest performance at Heathrow (99.95%), whilst reducing operating costs.

These improvements have enabled Air Fayre to retain all of its customers and win new business. Kingfisher was brought on stream in July with 2 flights daily to India. The Division also enjoyed an encouraging market response to its wider service offering. Media on the Move started three new onboard retail programmes mid summer, bringing new revenue streams to the business. Elev8 Retail launched its marketing campaign in July to take its now proven offering to the wider market. 

LOS ANGELES DIVISION

In its first full six months of operations the Los Angeles facility achieved an EBITDA profit of £0.6 million and has demonstrated continuous improvement in stabilising its operations. Flight activity increased during this period from approximately 64 flights per day up to 83 flights per day whilst consistently delivering a high standard of service to its customer, United Airlines. With our model now settled in the USA, the team have begun the process of introducing new potential customers to our offering. 

.

North America has been identified as a main strategic opportunity for the Air Fayre catering business model. The signing of the contract with United Airlines was the first step in realising this strategy. As new customers are secured for the facility, the business model will be further validated in the USA and the benefits of change demonstrated within this large geographic market. This will create the basis for expanding into other US cites.

PRODUCTS DIVISION

Despite a very difficult half year, the Division has continued to refine its strategic focus and take the steps necessary towards re-building its profit potential.

The reduction in the Division's revenue and EBITDA reflects the impact of a combination of factors driven by the difficult economic environment facing its airline customers. Lower passenger traffic, particularly in the premium cabins, the continuing deferral of product launches, the utilisation of existing inventories by airlines and pressure for price reductions all contributed to the reduced revenues. Whilst gross margins were successfully maintained, the savings achieved through greatly improved procurement activities were largely applied to fund customer mandated pricing discounts. Work continues to improve further the efficiencies in the Division's supply chain activities.

Overheads were reduced in response to revenue shortfalls. A major restructuring exercise was implemented in Europe and Asia, which has seen a reduction in headcount of some 30%. Whilst this was necessary to meet the challenge of the aviation market this year, it has allowed a stronger more flexible platform to be established ready for the return of growth in the market segments served by the Division and expected in 2010.

Notwithstanding the difficult conditions, the Division was successful during the period in renewing and extending contracts with British Airways, Etihad and Virgin Atlantic. The MNH Sustainable Cabin Services business entered into a new agreement with Qantas to develop a sustainable cabin service model across their network. We believe that the MNH model has rewarding applications across a number of customers and we intend to continue to grow this segment of the Division.

OUTLOOK

As set out in note 2ii to the interim results, in applying the going concern assumption, the Directors have made certain assumptions and enquiries and have considered the uncertainties, and on the basis of this consider that there is a reasonable expectation that the Group will have adequate financial resources to continue in operational existence for the foreseeable future.

Considerable progress continues to be made in re-positioning the Group's businesses to lay the foundations for future growth while taking the steps required to mitigate the worst effects of the present challenging market conditions. The near term future continues to be difficult to predict and the Group is exposed to a number of uncertainties beyond its control, but I believe that it is increasingly well equipped to meet the challenges ahead and deliver value in the long term.

Stephen Yapp

Chairman

29 September 2009  UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT

for the 6 months to 30 June 2009

  UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the 6 months to 30 June 2009

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 June 2009

  UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the 6 months to 30 June 2009

  UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the 6 months to 30 June 2009

Consolidated condensed statement of changes in equity for the 6 months to 30 June 2009

Restated consolidated condensed statement of changes in equity for the 6 months to 30 June 2008 

Consolidated condensed statement of changes in equity for the 12 months to 31 December 2008

  NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED ACCOUNTS

from the 6 months to 30 June 2009

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 2008 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 record or returns inadequate, accounts not agreeing with records and returns or failure to obtain necessary information and explanations) of the Companies Act 2006, but which did include a reference to an emphasis of matter regarding the Group's ability to continue as a going concern. The interim results are unaudited. 

The principal activities of the Group are described in Note 4.

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 2009 are unchanged from those adopted in the financial statements for the year ended 31 December 2008.

ii. Going concern

The Group incurred a loss after tax attributable to equity shareholders of £2.6 million for the 6 months to 30 June 2009. The Company's existing borrowing facilities, comprising a multi-option facility of £4.75 million and a bank guarantee facility of £0.29 million, are repayable on demand and have an expiry date of 31 August 2010. Taking these facilities into consideration, in the absence of additional cash resources becoming available, the Group's forecasts, allowing for reasonably possible changes in trading performance, show that during the next 12 months it will not have sufficient financial resources to enable it to continue in operational existence in its current form. The Directors have concluded that the combination of these circumstances represent a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern.

In order to reduce the extent of the required additional cash resources, the Group is in negotiations in relation to a corporate transaction that, if successful, would lead to significant cash resources becoming available. On 30 July 2009 the Company announced that Air Fayre Limited, its wholly owned subsidiary, had entered into a letter of intent with Alpha Flight UK Limited, part of Autogrill S.p.A., for exclusive discussions for the purpose of creating a joint venture of their flight catering operations at London Heathrow. Significant progress has been made towards this transaction and, although there can be no certainty, the Directors are optimistic regarding its successful outcome materially in accordance with the terms currently being negotiated. In order for the transaction to be completed the agreement of the Company's bankers will be required to release the charges currently held by them over the trade and assets of Air Fayre Limited and its subsidiaries. Discussions are in progress with the Company's bankers to establish terms under which such security would be released.

Measures have also been taken to maintain appropriate cash headroom under the Company's existing borrowing facilities pending completion of the foregoing corporate transaction by the deferral of payment of certain amounts owing to a small number of creditors to whom significant balances are outstanding. The total amount overdue to such creditors at 31 August 2009 amounted to £2.5 million, although this amount will progressively reduce in accordance with the understandings and agreements reached with them.

In assessing the financing requirements of the Group the Directors have prepared forecasts incorporating the measures taken in relation to the deferral of creditors and have determined the levels and period of availability of bank facilities required to maintain the Group in operational existence in its current form assuming that the corporate transaction currently under negotiation is completed, and that the amount realised and the completion date are materially in line with the terms currently being negotiated. In such event, the Directors consider they would have a reasonable expectation that such facilities will be available, although inherently there is no certainty that they will be available. Following completion of the foregoing corporate transaction the Directors intend to take steps to secure such facilities.

In considering the going concern position of the Group the Directors have made the following principal assumptions:

1. The agreement of the Company's bankers to release the charges currently held by them over the trade and assets of Air Fayre Limited and its subsidiaries is received allowing the corporate transaction under negotiation to proceed and that such transaction is completed and the amount realised and its completion date are materially in line with the terms currently being negotiated.

2. Payments to the creditors referred to above to which significant balances are presently outstanding are in accordance with the understandings and agreements reached with them.

3. The Company's existing borrowing facilities, comprising a multi-option facility of £4.75 million and a bank guarantee facility of £290,000, which are repayable on demand and have an expiry date of 31 August 2010, are not withdrawn or amended except in conjunction with the corporate transaction under negotiation. Appropriate new borrowing facilities become available prior to the expiry of the Company's existing borrowing facilities on 31 August 2010.

4. The forecasts as referred to above prepared by the Directors for the purposes of assessing the financing requirements of the Group are accurate in all material respects.

On the basis of the foregoing assumptions and having made enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate financial resources to continue to adopt the going concern basis. Failing the foregoing assumptions being met, the Group may not have adequate financial resources to continue in operational existence for the foreseeable future and, in such circumstances, it may not be appropriate to continue to adopt the going concern basis. The financial statements do not include any of the adjustments that would result if the Group was unable to continue as a going concern, which would include writing down the carrying value of assets, including goodwill, to their recoverable amount and providing any further liabilities that may arise.

iii. Statement of compliance

This financial information has been prepared on the basis of the recognition and measurement requirements of IFRSs in issue that are adopted by the EU and expected to be effective at 31 July 2009. The new standards adopted in the preparation of these financial statements include IAS 1 'Presentation of Financial Statements' (revised 2007) and IFRS 8 'Operating Segments'. Neither of these standards has resulted in any measurement changes. The Group has also complied with International Accounting Standard 34 "Interim Financial Reporting".

3. RESTATEMENT OF PRIOR YEAR RESULTS

During the year ended 31 December 2005 the Company entered into a contract under which income arose of £1,000,000 that was credited wholly to revenue in that year. As the terms of the contract provide that services would be provided over a five year period, the income arising under the contract is more appropriately accounted for by crediting it evenly to revenues over the period of the contract and, accordingly, the results for the 6 months ended 30 June 2008 have been restated. 

The effect of the restatement on the financial statements is summarised in the table below:

As a result of the prior year adjustment, the basic and diluted loss per share has reduced by 0.2 pence from 4.9 pence to 4.7 pence and the adjusted basic and adjusted diluted loss per share has reduced by 0.2 pence from 2.6 pence to 2.4 pence.

4. SEGMENTAL REPORTING

Historically, Journey Group was organised into two primary business segments, namely the Products and Services Divisions. Following the award of the United Airlines contract and the successful commencement of operations at the Los Angeles facility in November 2008, the Los Angeles have been treated as a separate division with effect from 1 January 2009. These reportable segments are the three strategic divisions for which monthly 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 Services Division is a supplier of catering to the international travel industry within the United Kingdom and of media services to the international travel industry within the United Kingdom. The Services Division is also engaged in supply chain management. Both divisions provide marketing, design and consultancy services. The Los Angeles Division is a supplier of catering services to the domestic and international travel industry in the USA.

Information on primary reporting by business segment is shown below.

Segment revenues, expenses and results include transfers and transactions between business 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.

Segmental information by business segment for 6 months to 30 June 2009

Restated segmental information by business segment for 6 months to 30 June 2008

Segmental information by business segment for 12 months to 31 December 2008

5. EXCEPTIONAL ITEMS

The exceptional items incurred during the period were as follows:

The costs of refinancing relate to bank fees in respect of amendments to bank covenants and legal costs incurred in bringing  certain US subsidiaries within the bank's security structure.

The Los Angeles start-up costs relate to excess direct labour costs incurred in the first quarter of the year.

The re-organisation costs relate to redundancies.

6. LOSS PER SHARE

The basic loss per share is calculated by dividing after tax loss for the period attributable to equity shareholders (numerator) by the weighted average number of ordinary shares in issue during the period (denominator).

The diluted loss per share is calculated using the same numerator with the denominator adjusted for the dilutive effects of share options and shares to be issued. As the Group has made a loss for the first 6 months of the year, no adjustment is made to the denominator for the impact of share options and shares to be issued because the potential shares are anti-dilutive.

The adjusted loss per share, both basic and diluted, use the denominator described in the appropriate paragraphs above. For both adjusted basic loss per share and adjusted diluted loss per share, the numerator is adjusted to remove the post tax impact of exceptional items from the calculations.

The following represents loss and share data used to calculate basic, diluted and adjusted earnings per share:

7. FINANCE COSTS

8. PROPERTY, PLANT AND EQUIPMENT

During the period plant and equipment has been purchased amounting to £0.2m (6 months to 30 June 2008: £0.7m). There were no asset disposals in the reporting period.

9. CAPITAL COMMITMENTS

Capital commitments contracted for but not provided for at 30 June 2009 amounted to nil (30 June 2008 £3.7m). 

10. EVENTS AFTER THE BALANCE SHEET DATE

a) Joint venture with Alpha Flight UK Ltd

On 30 July 2009, the Group announced that Air Fayre Ltd, the Group's wholly owned subsidiary which provides in-flight catering to the airline industry, and Alpha Flight UK Ltd, part of Autogrill S.p.A, one of the world's largest providers of food & beverage and retail services for travellers, have entered into a Letter of Intent providing for exclusive discussions for the purpose of creating a joint venture of their flight catering operations at London Heathrow. Significant progress has been made towards this transaction and the Directors are optimistic regarding its successful outcome materially in accordance with the terms currently being negotiated.

b) Bank facilities

On 31 August 2009 the Company's existing facilities with Barclays Bank, comprising a term loan of £4,610,500 and a £1,500,000 multi-option facility, were due to expire and on 27 August 2009 they were cancelled and replaced by a new multi-option facility of £5,820,500 and a bank gaurantee facility of £290,000. The total facilities available under the new arrangements remained the same as under the previous position. The new facilities are repayable on demand and expire on 31 August 2010. As part of these arrangements a warrant is to be issued to Barclays Bank over 5% of the existing share capital at an exercise price of 2 pence per share.

  INDEPENDENT REVIEW REPORT TO JOURNEY GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 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 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 those matters we are required to state to them in a 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, 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 to the Company 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 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules.

Emphasis of matter - Going concern

In forming our conclusion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 2(ii) to the financial statements concerning the Group's ability to continue as a going concern. As more fully explained in note 2, the Group has prepared cash flow forecasts that include certain cash flow assumptions relating to the implications of the Group's existing borrowing facilities and the ability of the Group to generate further cash from the creation of a new joint venture which is subject to the agreement of the Company's bankers to release the charges currently held by them in order to allow the transaction under negotiation to proceed. These conditions, along with the other matters referred to in note 2(ii) indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.

GRANT THORNTON UK LLP

AUDITOR

LONDON