CONTENTS Executive Chairman s Letter to Shareholders Directors Biographies 8 Strategic Report Directors Report Corporate Governance

Transcription

1 Annual Report and Financial Statements 2015 POSITIONED FOR GROWTH

2 CONTENTS 1 Executive Chairman s Letter to Shareholders 6 Directors Biographies 8 Strategic Report 14 Directors Report 17 Corporate Governance 19 Statement of Directors Responsibilities 20 Independent Auditor s Report to the Members of Journey Group plc 21 Consolidated Income Statement 22 Consolidated Statement of Comprehensive Income 23 Consolidated Statement of Financial Position 24 Consolidated Cash Flow Statement 25 Consolidated Statement of Changes in Equity 26 Notes to the Consolidated Financial Statements 50 Company Statement of Financial Position 51 Company Cash Flow Statement 52 Company Statement of Changes in Equity 53 Notes to the Company Financial Statements 63 Shareholder Information 64 Notice of Annual General Meeting 68 Explanatory Notes to the Notice of Annual General Meeting 2 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

3 EXECUTIVE CHAIRMAN S LETTER TO SHAREHOLDERS INTRODUCTION Journey has had a transformational year strategically in which Air Fayre demonstrated that our model could be replicated and moved beyond the boundaries of California whilst at the same time strengthening our relationship with United Airlines Inc. ( United ) at Los Angeles International Airport ( LAX ). Financially, within the US Division we have also continued to make both good profit progression and cash generation with results in line with expectations notwithstanding the previously announced challenges in the US from the change in the mix of types of aircraft utilised and adverse weather in the first quarter at LAX. FINANCIAL HIGHLIGHTS: Revenue of $63.6 million (2014: $64.3 million) Profit before tax from operations of $3.3 million (2014: $3.3 million) Basic earnings per share from operations of cents (2014: cents) Net cash at 31 December 2015 of $3.6 million ($7.8m before the share buyback) (2014: $6.7 million) Bought back a total of 1,523,035 shares for $4.2 million ( 2.75 million). Following the repurchases the total number of shares held in treasury is 1,787,948 An interim dividend of 3.4 pence per share in respect of the year ending 31 December 2016 OPERATIONAL HIGHLIGHTS: US Division Air Fayre Awarded a five year contract by Federal Express ( Fedex ) to provide in-flight catering and lounge services for all of their crew members at its main hub, Memphis International Airport. Successfully launched 1 September Awarded a three year contract extension with United Airlines Inc. ( United ) for their entire international and domestic in-flight catering needs out of Los Angeles International ( LAX ). Commenced 1 January Awarded a three year contract extension with JetBlue for Long Beach and LAX. Commenced 1 January Products Division Watermark Awarded crockery business with United Airlines, a new customer for Watermark. Anticipated launch in Q Exclusive deals with leading brands combined with Watermark leading edge design winning business and obtaining media recognition e.g. Qantas amenity kit in conjunction with Country Road. MARKET CONDITIONS Global air passenger traffic grew by 6.5% in 2015 as a whole, well above the 10 year average annual growth of 5.5% with the global load factor reaching an all-time high of 80.3% according to the International Air Transport Association (IATA), the airline trade body. In IATA s Economic Performance of the Airline Industry end of year report for 2015, it noted that the Airline CFOs and Heads of Cargo had become more cautious about future growth in October 2015, but that consensus remains that 2016 should be slightly better than this year with growth in traffic of approximately 6.9%. This reflects consumers continuing to benefit from lower energy prices boosting consumer incomes and spending together with lower fares and more routes. Encouragingly for the Group, the report also notes that the strongest financial performance is anticipated by airlines in North America, our core market, where net post-tax profits are forecast to be $19.2bn significantly up from $11.2bn in 2014 and net margin predictions of 9.5% exceed the peak of the late 1990s. J O U R N E Y G R O U P P L C Annual Report & Financial Statements

4 EXECUTIVE CHAIRMAN S LETTER TO SHAREHOLDERS RESULTS The results for the year were as follows: Restated Year to 31 December $ 000 $ 000 Revenue 63,574 64,253 EBITDA 4,965 4,779 Depreciation and amortisation (1,592) (1,371) Operating profit 3,373 3,408 Finance costs (96) (65) Adjusted profit before tax from operations 3,277 3,343 Share based payments (23) - Profit before tax from operations 3,254 3,343 Income tax expense (954) (806) Profit attributable to equity shareholders 2,300 2,537 Basic earnings per share cents cents Diluted earnings per share cents cents * Earnings before interest, taxation, depreciation and amortisation ( EBITDA ) is a non IFRS measure which the Group uses to assess its performance. It is defined as earnings before interest, taxation, depreciation and amortisation. Overall, the Group had a good year of trading largely driven by the US division. Total revenue was down only 1% with the US Division s growth of $4.0 million offset by the Watermark s reduction of $4.7 million. EBITDA from operations increased by 4% to $5.0 million, mainly the net result of the US Division s improvement of $0.6 million, the Product s Division reduction of $0.1 million and a $0.3m reduction at the Head Office level due to an unusually high prior year s patent royalty income which included a one-off catch up amount. Operating profit and profit before tax broadly unchanged at $3.4 million and $3.3 million respectively, predominantly reflecting the increased depreciation charge from trucks purchased for new contracts. The tax charge of 29% is an average percentage that reflects a mix of trading profits chargeable at US corporate tax rates (40%) combined with patent income in the UK, which has been offset by non-trading losses. The previous year effective tax rate of 24% was unusually low, attributable to the backdated increase in patent royalty charges, which, being classed as non-trading income at Group level, were offset against brought forward non-trading losses. The resulting profit from operations after tax was $2.3 million. Net cash as at 31 December 2015 amounted to $3.6 million comprising cash of $6.4 million less debt under finance leases of $2.8 million. This compares with net cash at 31 December 2014 of $6.7 million and at 30 June 2015 of $7.2 million. The reduction in net cash reflects the share buyback purchase settlements of $3.1 million and the timing of payments at Memphis. 2 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

5 US DIVISION Year to 31 December $ 000 $ 000 Revenue 45,775 41,717 EBITDA 3,907 3,302 Operating profit 2,401 2,016 The US Division delivered a strong financial performance in line with expectations despite the challenges of an ongoing change in the mix of aircraft utilised by airlines to smaller planes and severe weather throughout the USA which caused significant delays and cancellations during the first quarter. Several milestones were achieved throughout the year. In California, this included the additional award of United Express in the second quarter and the subsequent extension of the initial United Airlines contract for three years from 1 January 2016, along with the JetBlue contracts in Long Beach and Los Angeles being extended for three years. The transformational event was the award and launch of Air Fayre s new facility to service all of Fedex flights with beverages and crew meals out of their main hub at Memphis International Airport, Tennessee under a five year agreement. The business serviced some 85,300 flights out of LAX, of which 68,200 were for United. Since the start of the contract we have serviced over 21,700 flights for Fedex out of Memphis. Revenue rose 10% in US$ terms to $45.8 million from $41.7 million reflecting the new contract with Fedex at Memphis, an enhanced food offering from United and a full year impact of JetBlue at LAX. EBITDA increased by 19% to $3.9 million with operating profit before share based payments increasing 19% from $2.0 million to $2.4 million. Profits are after expensing set up costs relating to ExpressJet Airlines at LAX and Fedex at Memphis, with underlying profits being slightly higher than stated. J O U R N E Y G R O U P P L C Annual Report & Financial Statements

6 EXECUTIVE CHAIRMAN S LETTER TO SHAREHOLDERS PRODUCTS DIVISION Year to 31 December $ 000 $ 000 Revenue 17,799 22,536 EBITDA Operating profit Watermark s year was impacted by reduced volumes from several customers with revenue for the full year down 21% to $17.8 million. The business reacted by improving cost efficiencies and more of a focus on R&D, technology and brand partnerships which resulted in an operating profit of $0.3 million. The successful investment in brands, design and procurement have resulted in the launches of several new products, namely the Qantas Country Road amenity kit programme for Premium Economy which brings together two iconic Australian brands, Air Tahiti Nui s and Air Calin s business class programmes and the upcoming launches for new customers across the Americas. Challenges do still persist but the business is now operating as a base line organisation with additional specialist resources bought in as required to deliver best in class whilst keeping costs project-based. CENTRAL COSTS Year to 31 December $ 000 $ 000 Central income Central income reduced 33% to $626,000 reflecting the unusually high net income in the previous year. During 2014 the patent royalty rates were increased and backdated royalty fees were recognised as additional income within the central unit. Underlying head office costs have also reduced and are continually reviewed. DIVIDEND POLICY Post-period end, an interim dividend in respect of the year ending 31 December 2016 has been declared of 3.4 pence per share which will be paid on 31 March 2016 to those who were on the register as at close of business 11 March This was deemed beneficial to shareholders ahead of the tax changes relating to dividends which take effect at the start of April As a consequence the Board will not be proposing to recommend the payment of a final dividend for the twelve months ended 31 December J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

7 TEAM In most instances, our success in being awarded and retaining contracts is the culmination of many years of dedication and hard work and I would like to express my gratitude to all staff for their ongoing support and contribution. OUTLOOK The Group s performance reflects our continued strategy of pursuing identified near-term opportunities in the US alongside a significant investment in the quality of our service offering to existing customers. In the interim, we remain committed to using our surplus resources effectively without constraining our future investment requirements. We ended 2015 as a very different business from the beginning of the year and entered 2016 with increased confidence in the Group s prospects. Stephen Yapp Executive Chairman 24 March 2016 J O U R N E Y G R O U P P L C Annual Report & Financial Statements

8 DIRECTORS BIOGRAPHIES Stephen Yapp Executive Chairman, Age 58 Stephen Yapp has been Executive Chairman since 4 June 2007, he currently holds a NED and Chairman designate at Pittards Plc and is Chairman of MNH Group Ltd. Since 2007 Stephen has also held the positions of Executive Chairman of Altitude Plc to April 2014, Redstone plc from September 2009 to September 2010 and Non-executive Director of Imagesound plc from December 2007 to December Previous to that he was Chief Executive of the DCS Group plc between 2001 and 2006 and held the position of Finance Director at SBG between 1997 and He has been a director of a number of private and public companies during the course of his career. He is also a Fellow Chartered Management Accountant and holds an MBA. Joseph Golio President US Division, Age 60 Joseph Golio joined in June 2008 and was instrumental in the start-up of Air Fayre CA Inc s Los Angeles facility. He became President of Air Fayre CA Inc shortly after joining and became a member of the Board on 22 December As an industry veteran, Joseph has held a number of key roles within the airline catering industry. He began his career with Dobbs International in 1978 and progressed to become Vice-President and Managing Director in 1998, responsible for thirty nine kitchens serving United Airlines. During 2000 to 2001 Joseph was Senior Vice-President of North America West operations for Gate Gourmet. In 2001 he became Executive Vice-President & Chief Operating Officer for Exhibit Group / Giltspur. Joseph has a B.Sc. in Business Administration and Economics from Wagner College. Alison Whittenbury Chief Financial Officer, Age 48 Alison Whittenbury is a chartered accountant who joined in October 2007 as Finance Director for the Services Division and during 2008 was part of the start-up team who set up the catering facility in Los Angeles for Air Fayre CA Inc. In 2009, Air Fayre Ltd entered into a joint venture with Alpha Ltd and Alison became Finance Director for the combined catering operations at Heathrow. She became Finance Director of the Products Division in Alison was appointed as Chief Financial Officer and became a member of the Board on 1st July Alison is a member of the Institute of Chartered Accountants in England and Wales and holds a B.Sc. Hons in Chemistry from Leeds University. Graham Bird Non-executive Director, Age 46 Graham Bird joined the Board on 4 January He has previously held senior management roles at PayPoint plc, including Executive Chairman of PayByPhone, Deputy Managing Director of Mobile and Online, and Director of Strategic Planning and Corporate Development. Prior to that his roles include Fund Manager for SVG Investment Managers Limited; Director, Corporate Finance at JP Morgan Cazenove and Head of Corporate Finance for Cazenove in South Africa. He is currently Managing Director, Investments and head of the Strategic Public Equity division at Gresham House plc. After training with Deloitte, he qualified as a Chartered Accountant in Dimitri Goulandris Non-executive Director, Age 48 Dimitri Goulandris is a Managing Partner of Cycladic Capital Management Limited, which he established in 2002 to focus on making public and private investments in small and medium sized companies, predominantly in Europe. He also serves as its Chief Investment Officer. He serves as a board member of Gemini Equipment and Rentals Pvt. Ltd, Knightsbridge Schools International (Malta) Ltd, MonuRent (UK) Limited and Premier Travels (India) Private Ltd. Dimitri s previous positions also include setting up and running the European operations of the private equity firm Whitney & Company and eight years at Morgan Stanley in its private equity group. 6 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

9 Christopher Mills Non-executive Director, Age 63 Christopher Mills founded Harwood Capital Management Ltd in 2011, a successor from its former parent company J O Hambro Capital Management Ltd, which he co-founded in He is Chief Executive of North Atlantic Smaller Companies Investment Trust plc, a Director and Investment Manager of Oryx International Growth Fund Ltd and Chief Investment Officer of Harwood Capital LLP. He is a Non-executive Director of several companies. Christopher was a Director of Invesco MIM, where he was head of North American investments and venture capital and of Samuel Montagu International. Member of the audit committee Member of the remuneration committee J O U R N E Y G R O U P P L C Annual Report & Financial Statements

10 STRATEGIC REPORT Strategic objectives Our overriding strategic aim remains to increase and improve our shareholder value. Specifically our main strategic objectives are: 1) Air Fayre continue building a multi-location and multi-client business across the US with our unique logistics-based model. 2) Watermark - focus on design-based contracts and brand partnerships to pursue longer-term and better margin business. 3) Maintain and use our balance sheet effectively 4) Continue to drive efficiencies at the corporate level Group s businesses The Group s operations are organised into two divisions, Products and US. The Products Division is based at the Group s headquarters, The Square near Heathrow. The US Division is based at its facility in Los Angeles, USA. The US Division provides in-flight catering principally to the domestic and international travel industry within the United States of America. The business model is predominantly a logistics operation under which the provision of catered products is outsourced to local specialist suppliers, then assembled in the Division s facilities in Los Angeles and Memphis and delivered to the aircraft. Gross profit is mainly earned from handling fees, which are charged to customers for each aircraft visited, less direct labour costs, although some gross profit is earned on supplies of catered products. The Products Division operates globally through companies incorporated in the United Kingdom, Hong Kong and Australia. Its principal activities are the provision of in-cabin travel supplies primarily for the international airline industry. Goods are sourced through regional procurement, covering China, Europe, India and South East Asia. Gross profit is earned on the difference between the amounts charged to customers and their cost from suppliers. Business objectives The Group s primary business objective is to increase shareholder value. The operations of each Division have been developed independently with Air Fayre focusing on airlines operating out of the US. However, as both divisions have the international airline industry as their client base, there are some cross selling opportunities which are developed at senior management level, where the customer relationships are held. The markets in which the Group operates are competitive. Business key performance indicators The Board considers that the following key performance indicators ( KPIs ) are the most effective measures of progress towards achieving the Group s primary business objective. Long term target Revenue $ values 63,574 64,253 Gross profit margin percentage 25% 25% 26% Operating profit margin percentage* 5%-10% 5.3% 5.3% *Calculated before share based payments 8 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

11 Financial performance Revenue decreased by 1% to $63.6 million with a gross margin percentage in line with our long term target of 25%. EBITDA from operations increased by 4% to $5.0 million with operating profit and profit before tax broadly unchanged at $3.4 million and $3.3 million respectively, predominantly reflecting the increased depreciation charge from trucks purchased for new contracts. Net finance costs rose to $0.1 million from $0.07 million again as a result of the trucks purchased and the associated finance costs. Share based payments of $0.02 million relating to the share option scheme introduced in January 2015 were also incurred, leading to a profit before tax of $3.25 million from $3.34 million in Income tax charges were $0.95 million versus $0.8 million in 2014 with the profit attributable to equity shareholders amounting to $2.30 million compared with $2.54 million in Revenue $ 000 $ 000 US Division 45,775 41,717 Products Division 17,799 22,536 Group 63,574 64,253 Revenue decreased by 1% overall, although this was the net result of an increase in the US Division driven by additional contracts in the year, with Express Jets and Fedex, offset by a fall in the Products Division due to reduced volumes from key customers. Gross margin percentage Group 25% 26% The Group achieved its target KPI of 25% although the result was slightly down on the previous year, mainly due to the changes in mix of aircraft types utilised by UAL during the year. J O U R N E Y G R O U P P L C Annual Report & Financial Statements

12 STRATEGIC REPORT Operating profit $ 000 $ 000 US Division 2,401 2,016 Products Division Unallocated corporate costs Group operating profit 3,373 3,408 Comprising: EBITDA 4,965 4,779 Depreciation and amortisation (1,592) (1,371) Group 3,373 3,408 Group operating profit margin percentage 5.3% 5.3% The Group made an operating profit of $3.37 million, being broadly unchanged with the prior year. The operating profit margin percentage remained at 5.3% and within the target KPI range of 5-10%. The US Division s increase in operating profit of $0.38 million is a combination of the full year of extra business with JetBlue and new contracts with ExpressJets and Fedex combined with the reduction in gross profit percentage attributable to the changes in mix of aircraft types. The reduction of $0.1 million in the Products Division s operating profit mainly reflected the lower volume of business in the current year. The unallocated corporate costs and income are shown as a net income of $0.63 million compared to the prior year of $0.94 million. The previous year s income included additional patent fees charge to the US Division, relating to a backdated increase in the patent rate. Depreciation and amortisation increased mainly due to depreciation on additional trucks purchased during the year to service the new contracts with ExpressJets and Fedex. Finance charges $ 000 $ 000 Loans and overdrafts 8 - Finance leases Total finance costs The increase in finance charges from loans and overdrafts and finance leases mainly related to the trucks purchased for servicing the new contracts awarded during the year. Taxation Income tax charges were $0.95 million versus $0.8 million in 2014 with the effective rate of tax at 29.3% up from the unusually low 24.0% in The prior year charge was unusually low due to the additional patent fee income in the Group s parent company which was offset with non-trading losses brought forward. Deferred tax assets continue not to be recognised in respect of UK tax losses. The Group had UK tax trading losses of approximately $13.8 million available for offset against future taxable profits arising from the same trades of the companies in which the losses arose. The Group also had non-trade UK tax losses of approximately $5.5 million that are available for offset against future non-trading gains. Further details of the tax expense/credit, deferred tax and tax losses are set out in Note 6 to the Group financial statements. 10 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

13 Earnings per share Cents Cents Basic earnings per share Adjusted basic earnings per share Diluted earnings per share Adjusted diluted earnings per share The decrease in basic and diluted earnings per share from operations reflect the flat profits along with increased tax charges of $0.3 million in the current year, in comparison with the unusually low tax rate in Additionally, the weighted average number of shares increased in 2015 due to the share options granted on 5th January The maximum no of shares that can be granted under the scheme is 1,379,864. Details of the calculations are set out in Note 7 to the Group financial statements. Cash flow Net cash as at 31 December 2015 amounted to $3.6 million comprising cash of $6.4 million less debt under finance leases of $2.8 million. This compares with net cash at 31 December 2014 of $6.7 million and at 30 June 2015 of $7.2 million. The reduction in net cash predominantly reflects the share buyback purchase settlements of $3.1 million, and the timing of receipts at Memphis. Capital management The Group s capital management objectives are to ensure the Group is appropriately funded to meet its operational requirements and strategic objectives, continue as a going concern and to provide an adequate return to shareholders commensurate with risk. The Group defines capital as being total shareholders equity. The Group s capital structure is periodically reviewed and, if appropriate, adjustments are made in the light of expected future funding needs, changes in economic conditions, financial performance and changes in Group structure. The Group s cash balances are reviewed and if large surpluses are held with no near term investment or funding needs, then share purchases may be made in order to return capital to shareholders should they wish to sell part or all of their holding. The Group s current and forecast net funds position along with available debt facilities is monitored with the intention of ensuring that, in the opinion of the Board, the Group has and will continue to have, bearing in mind risk, sufficient funds to meet the Group s current and forecast needs. The Group monitors its current and forecast financial performance and position for the purposes of financial covenants compliance $ 000 $ 000 Cash and short-term deposits 6,508 8,387 Bank overdraft (105) - Finance leases (2,761) (1,715) Net funds 3,642 6,672 J O U R N E Y G R O U P P L C Annual Report & Financial Statements

14 STRATEGIC REPORT Dividends A final dividend of 1.65 pence per share in respect of the year ended 31 December 2014 amounting to 0.22 million (approx. $0.34 million) was paid on 1 May An interim dividend of 3.4 pence per share has been announced for the year ending 31 December 2016, rather than a final dividend for the year ended 31 December 2015, as it is likely to be more beneficial to shareholders to pay the dividend prior to the finalisation of the Company s accounts for year ended 31 December 2015, given the tax changes relating to dividends that are to take effect at the start of April this year. Principal risks and uncertainties The Group s financial and operational performance is subject to a number of risks. The Board seeks to ensure that appropriate processes are put in place to manage, monitor and mitigate these risks. The Board considers the principal risks faced by the Group and the steps taken or that would be taken to mitigate such risks to be as follows: Risks Loss of major customers The Group has a small number of major customers. As contracts reach their expiry they are normally put out to tender in accordance with industry practice. Accordingly, there is a risk of loss of major clients that could result in a reduction in revenue. Customer failure The Group has a small number of major customers and, accordingly, is exposed to potentially significant bad debts should a major customer become insolvent. Competition The Group s competitors may offer superior products or services or lower prices, which could reduce the attractiveness of the Group s products and services and result in a reduction in revenue. Competition from suppliers The Products Division faces competition from suppliers seeking to contract directly with the Division s customers. Limited number of suppliers The Group operates with a limited number of key suppliers. The failure of a key supplier or disruption in supply could restrict the Group s ability to serve its customers leading to a loss of revenue or higher costs. Mitigation The Group endeavours to provide an excellent service at competitive pricing. In the event of the loss of a major customer, steps would be taken to reduce the Group s cost base. The Group operates a credit control policy to reduce the risk of customer failure, although the Group does not have credit insurance in place. The Group endeavours to provide an excellent service at competitive pricing. If revenue fell significantly steps would be taken to reduce the Group s cost base. The Products Division seeks to provide superior service by offering a range of products and design services at competitive prices. If revenues fell significantly steps would be taken to reduce the Division s cost base. The Group is aware of alternative sources of supply and would take immediate steps should a key supplier fail or cause material disruption in supply. 12 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

15 Risks Exchange rate risk The Group is exposed to foreign exchange risk arising from transactional exposures arising from purchases and sales in currencies other than the functional currencies of operating entities and from intercompany balances being denominated in currencies other than the functional currency of the entity concerned. Cost increases from suppliers The Products Division sources a large proportion of its products from China and is potentially subject to significant price increases from its Chinese suppliers. Attraction and retention of Directors and key employees The success of the Group depends on its Executive Directors and key employees. The loss of such personnel or inability to recruit replacements or further such personnel could have a significant adverse effect on the operations and development of the Group. Unforeseen events The Group s business models are based on passenger and flight numbers. Unforeseen events such as economic downturn, war, terrorist acts, natural disasters or disease could result in lower passenger and flight numbers leading to a reduction in revenue. Also, unforeseen events could adversely impact the business models of customers resulting in demands for lower prices that the Group may find difficult to resist. Mitigation Where possible the Group seeks to reduce its exposure by natural hedging. The Group may also enter into derivative transactions, principally forward exchange rate contracts to hedge exchange rate risks. The Products Division seeks to contract with its customers such that material price increases charged by suppliers can be passed on to customers. The Division also seeks to geographically diversify its supply base where products can be competitively sourced. The Group seeks to reward Executive Directors and key employees at appropriate levels, including the provision of equity incentive schemes, designed to attract and retain Executive Directors and key employees of appropriate calibre. These events would be outside the control of the Group. In the event of their occurrence, steps would be taken to reduce the Group s cost base. Going concern The Directors consider that the Group and the Company have sufficient financial resources to continue in operational existence for the foreseeable future and, therefore, that it is appropriate to adopt the going concern basis in preparing these financial statements. More details for adopting going concern basis have been provided in accounting policies in Note 2 of the consolidated financial statements. Alison Whittenbury Chief Financial Officer 24 March 2016 J O U R N E Y G R O U P P L C Annual Report & Financial Statements

16 DIRECTORS REPORT The Directors present their Annual Report on the affairs of the Group, together with the financial statements and auditor s report for the year ended 31 December The information given in the Directors Report includes the information given in the Directors Biographies, the Strategic Report, Corporate Governance and the Statement of Directors Responsibilities. Activities and results The Group s principal activities comprise the provision of catering and travel supplies to the international airline and travel industry. The Executive Chairman s Letter to Shareholders on pages 1 to 5 and the Strategic Report on pages 8 to 13 report on the principal activities of the Group, its financial and operating performance during the year and the future development of the business. These statements are incorporated into this report by reference to them. Dividends A final dividend of 1.65 pence per share in respect of the year ended 31 December 2014 amounting to 0.22 million (approx. $0.34 million) was paid on 1 May An interim dividend of 3.4 pence per share has been announced for the year ending 31 December 2016, rather than a final dividend for the year ended 31 December 2015, as it is likely to be more beneficial to shareholders to pay the dividend prior to the finalisation of the Company s accounts for year ended 31 December 2015, given the tax changes relating to dividends that are to take effect at the start of April this year. Derivatives and financial instruments The objectives of the Group s treasury policy are to manage financial risk, secure cost-effective funding and minimize the adverse effects of fluctuations in the financial markets on the value of financial assets and liabilities on reported profitability and on cash flows. The Group does not trade in financial instruments. We do not hedge balances or transactions. The Group s financial risk management objectives and policies are set out in Note 22 to the Group financial statements. Directors The Company s current Directors are listed on pages 6 and 7, together with their biographical details. The Directors who served at any time during the year and since the year end were as follows: Director Date of resignation Date of appointment Graham Bird Joseph Golio Dimitri Goulandris Max Lesser 5 January 2015 Christopher Mills 5 January 2015 Stephen Yapp Alison Whittenbury Under the Company s articles of association any Director who was not re-elected at either of the last two annual general meetings must retire at the next annual general meeting, although they may offer themselves for re-election. Notwithstanding the provisions of the articles of association the Directors have decided that they will all retire voluntarily and submit themselves for re-election. Directors indemnities In accordance with the articles of association, the Directors are granted an indemnity from the Company to the extent permitted by law in respect of liabilities incurred as a result of their office. The Company maintains insurance against certain liabilities which could arise from a negligent act or a breach of duty by its Directors and Officers in the discharge of their duties. 14 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

17 Employment policies The Group s employment policies are designed to create an employment environment that attracts, retains and motivates the best people. The Group recognises that this can only be achieved through an active policy of equal opportunity from selection and recruitment, through training and development, appraisal and promotion. The Group s policy is to ensure a working environment that is free from all types of discrimination and is one where all employees receive equal treatment regardless of gender, colour, ethnic or national origin, disability, age, marital status, sexual orientation or religion. Employees with disabilities, or who become disabled during their employment, are encouraged to develop their skills to their full potential and every effort is made to meet their individual needs. The Group welcomes applications from disabled people and will judge their application solely on their ability to perform the role applied for. The Group seeks to make all employees aware of its policies, business development and progress, including financial performance. Employees are encouraged to provide feedback through their performance reviews, during briefing meetings and directly to the Audit Committee if required. All views expressed by employees are reviewed and acted upon in confidence. Success for the Group is dependent upon the quality and performance of its employees. To encourage and motivate employees to contribute to the Group s performance, substantially all employees are eligible for annual bonuses that are subject to performance targets. Consideration is given to appropriate medium term incentive arrangements for senior management and the Executive Directors. Health, safety and the environment The Group is committed to the health, safety and welfare of its employees, clients and others. Accordingly, it is the Group s policy to manage its activities so as to avoid causing any unnecessary or unacceptable risk to health and safety and the environment. The Group recognises that safe operations depend not only on technically sound plant and equipment, but also on competent people and an active health, safety and environmental culture. It ensures that its employees, contractors and others are informed, engaged in and committed to the health, safety and environmental improvement process. Capital management The Group s capital management objectives have been discussed in detail in the strategic report on page 11. Share capital Details of the Company s share capital are set out in Note 14 to the Group financial statements. The authority given to the Directors to allot shares or grant rights to subscribe for, or to convert securities into, shares of up to a maximum of approximately 33.3% of the Company s issued ordinary share capital and the authority given to the Directors to allot equity securities for cash equivalent to approximately 5% of the Company s issued ordinary share capital otherwise than to existing shareholders on a pro rata basis, and to modify statutory pre-emption rights to deal with legal, regulatory or practical problems that may arise on a rights issue or other pre-emptive offer or issue, expire at the Annual General Meeting. The Company s authority to purchase its own shares of up to a maximum of approximately 15% of the Company s issued ordinary share capital has been approved, of which 5% was approved at a General Meeting in December 2015, expires at the Annual General Meeting. During 2015, a total of 1,523,035 ordinary shares (approximately 11% of the issued share capital) were purchased for $4.2 million ( 2.75 million). The nominal value of these shares was $0.58 million ( 0.38 million). The total number of shares held in treasury as at 31 December 2015 was 1,787,948 (2014: 264,913) representing 12.96% (2014: 1.92%) of issued share capital. J O U R N E Y G R O U P P L C Annual Report & Financial Statements

18 DIRECTORS REPORT The Directors recommend that the authority to purchase up to a further 281,848 of its own shares be renewed to expire on the earlier of the day before the anniversary of passing the resolution and the Annual General Meeting to be held in This authority would take the treasury holding up to the maximum of 15% of the Company s issued ordinary share capital. The Directors further recommend that both the authority to allot shares or grant rights to subscribe for, or to convert securities into, shares and the authority to allot equity securities for cash equivalent to approximately 5% of the Company s issued ordinary share capital otherwise than to existing shareholders on a pro rata basis be renewed so as to expire at the conclusion of the Annual General Meeting to be held in In accordance with S414c(11) of the Companies Act included in the Strategic Report is the review of the business, principal risks and uncertainties and key performance indicators. This information would have otherwise been required by Schedule 7 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 to be contained in the Directors report. Auditors RSM UK Audit LLP were appointed auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at Annual General Meeting. By order of the Board Building One The Square Southall Lane Southall Middlesex UB2 5NH Alison Whittenbury Chief Financial Officer 24 March J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

19 CORPORATE GOVERNANCE Introduction The Company is listed on the AIM market of the London Stock Exchange. Although the rules of AIM do not require the Company to comply with the Quoted Companies Alliance s Corporate Governance guidelines for small and mid-sized companies ( the Guidelines ), the Company supports the principles set out in the Guidelines and seeks to comply wherever reasonably practical, given both the size and resources available to the Company. The Company considers that this facilitates an environment in which growth in long term shareholder value can be fostered. The Board The Company is led and controlled by the Board. The Board currently comprises three Executive Directors and three Non-executive Directors. The names, functions and biographical details of the Directors are set out on pages 6 and 7. Stephen Yapp is the Executive Chairman, which incorporates the role of Chief Executive. The Company considers the combined role to be appropriate given the Group s size and its divisional structure. Both divisions have separate management teams. Stephen Yapp is supported by Executive Directors and Nonexecutive Directors who bring a wide range of skills, experience and independence of thought to the Board. The Executive Directors bring the necessary skills and experience relevant to their executive responsibilities and the Non-executive Directors bring a broad range of business and financial skills. Of the three Nonexecutive Directors, Graham Bird and Dimitri Goulandris are judged to be independent as the Board considers them to possess the necessary qualities of character and judgement and neither represents any of the Company s shareholders. Christopher Mills is not considered to be independent as he is a major shareholder of the Company. The Board is responsible for approving Group policy and strategy. The Executive Chairman is responsible for the effectiveness of the Board and ensuring communication with shareholders. The Executive Chairman is also accountable for the management of the Group. A full board meeting is normally held at least every quarter. In addition to full board meetings, other meetings are held to deal with specific issues as required and informal board calls are also periodically held as considered necessary. The Board has a schedule of matters specifically reserved to it for decision. Management supplies the Board with appropriate and timely information about the Group s activities and developments and the Directors are free to seek any further information they consider necessary. During the year there were four full board meetings. All Directors attended all meetings they were eligible to attend. Board committees There are two committees of the Board, being the audit and remuneration committees. Membership of these committees, and their principal terms of reference are set out below. The Board does not have a nominations committee as due to its size it does not consider a nominations committee to be necessary. Appointments to the Board are handled directly by the Board. The Board keeps under review the skills, knowledge and experience of its Directors with a view to ensuring that it remains appropriate for the Company s needs. Audit committee Membership: Graham Bird (Chairman) and Dimitri Goulandris. The audit committee reports to the Board. Its principal terms of reference are as follows: Overseeing preparation of the Group s financial statements. Monitoring the adequacy of financial controls and risk management processes. The selection, compensation, independence and performance of the Group s external auditors. The terms of reference of the audit committee are available on the Company s website: plc.uk. The audit committee meets a minimum of three times each year to consider the half year results, planning for the annual audit and the annual results. The external auditor is present during these meetings. At these and any other meetings the audit committee also considers matters relevant to its other areas of responsibility besides financial statement preparation. The Company does not have an internal audit function. The audit committee has considered the need for one and decided that it is not justified given the size of the Group and cost. J O U R N E Y G R O U P P L C Annual Report & Financial Statements

20 CORPORATE GOVERNANCE RSM UK Audit LLP, as the Company s external auditor, undertakes non-audit related work. Such work includes taxation and other related services. The audit committee has reviewed the nature and extent of non-audit services supplied by the external auditor to ensure that their objectivity and independence is maintained. Details of fees paid for such non-audit services are set out in Note 5 to the Group financial statements. In discharging its duties during the year the audit committee has had regard for the challenges arising from the current economic conditions. In particular, consideration has been given to the key risks faced by the Group and the reliance placed on estimates, assumptions and forecasts in the Group financial statements. Three meetings of the audit committee were held during the year. All members attended all meetings they were eligible to attend. Remuneration committee Membership: Dimitri Goulandris (Chairman), Graham Bird and Christopher Mills. The remuneration committee reports to the Board. Its principal terms of reference are as follows: Setting remuneration for Executive Directors, including share based incentives, pensions and other benefits. Monitoring the level and structure of remuneration for senior management below board level. Approving initial grants and subsequent exercise of all share based incentives. The terms of reference of the remuneration committee are available on the Company s website: www. journeygroup.plc.uk. The remuneration committee meets as required. Four meetings of the remuneration committee were held during the year. All members attended all meetings they were eligible to attend. Relations with shareholders The Board seeks and encourages engagement with all shareholders, including two-way communications with institutional investors, analysts and private investors. Meetings are held with institutional shareholders and analysts as appropriate. The Board considers the Annual Report and the Annual General Meeting to be important methods of communicating with shareholders and encourages shareholders to participate by submitting questions in advance of the Annual General Meeting. Maintenance of a sound system of internal control The Board is responsible for the Group s system of internal control and for reviewing its effectiveness. The system is designed to manage, rather than eliminate, risk of failure to achieve the business objectives and, as such, can provide only reasonable and not absolute assurance against material misstatement or loss. The Group s system of internal control includes the following: Preparation and approval of annual budgets and regularly updated forecasts; Preparation and regular reviews of monthly management accounts; Regular reviews of business performance; Clearly defined organizational structures and appropriate delegated authorities for executives throughout the Group; and Policies, standards and procedures relating to key business activities. There is a process for identifying, evaluating and managing the significant risks faced by the Group. The size of the Group is such that the establishment of a separate risk committee is not appropriate and so management reports directly to the Board. A system of business risk identification, assessment and evaluation is in place within the management process throughout the Group. Strategic risks are reviewed by the Board. 18 J O U R N E Y G R O U P P L C Annual Report & Financial Statements 2015

21 STATEMENT OF DIRECTORS RESPONSIBILITIES The Directors are responsible for preparing the Strategic Report, the Directors Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and company financial statements for each financial year. The Directors are required by the AIM Rules of the London Stock Exchange to prepare group financial statements in accordance with International Financial Reporting Standards ( IFRS ) as adopted by the European Union ( EU ) and have elected under company law to prepare the company financial statements in accordance with IFRS as adopted by the EU. The financial statements are required by law and IFRS adopted by the EU to present fairly the financial position of the group and the company and the financial performance of the group. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing the group and company financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether they have been prepared in accordance with IFRSs adopted by the EU; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group s and the company s transactions and disclose with reasonable accuracy at any time the financial position of the group and the company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the group and the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. J O U R N E Y G R O U P P L C Annual Report & Financial Statements