Half-year Report

RNS Number : 5287Y

SSP Group PLC

18 May 2016

 

18 May 2016

SSP GROUP PLC 2016 INTERIM RESULTS

SSP Group, a leading operator of food and beverage outlets in travel locations worldwide, announces its results for the first half of its 2016 financial year, covering the six months ended 31 March 2016.

Highlights:

·   Strong results with good progress on last year

·   Operating profit¹ of £30.9m: up 28.0% at constant currency, and 22.6% at actual exchange rates

·   Like-for-like sales up 3.3%*: driven by growth in air passenger travel and retailing initiatives

·   Net gains of 2.0%: strong performances in North America and the Rest of the World

·   Revenue of £897m: up 5.9% at constant currency; 4.4% at actual exchange rates

·   Operating margin¹ up 50 basis points to 3.4%: strategic initiatives delivering further improvements

·   Earnings per share¹ of 3.0 pence, up 43%

·   Interim dividend of 2.5 pence per share, up 19%

·   Brand and concept portfolio further strengthened

·   Encouraging pipeline of new contracts 

Commenting on the results, Kate Swann, CEO of SSP Group, said:

"SSP has made further good progress in the first half of 2016 and we continue to deliver our strategic initiatives. Constant currency operating profit was up 28% driven by good like-for-like sales growth in our existing business, new contract openings, which are building our presence across the world, and further operational improvements. I am particularly encouraged by the pace of development in our North America and Asia Pacific operations.

Looking forward, the second half has started in line with our expectations. Whilst a degree of uncertainty always exists around passenger numbers in the short term, we are well placed to benefit from the structural growth opportunities in our markets and to create further shareholder value."

			Change H1 2016 vs H1 2015
	H1 2016 £m	H1 2015 £m	Constant Currency	Actual FX Rates
Revenue	896.7	859.2	+5.9%	+4.4%
Like-for-like sales growth *	+3.3%	+3.0%	n/a	n/a
Operating profit 1	30.9	25.2	28.0%	+22.6%
Profit before tax 1	23.2	16.4	n/a	+41.5%
Earnings per share (p) 1	3.0	2.1	n/a	+42.9%
Dividend per share (p)	2.5	2.1	n/a	+19.0%
Operating cash outflow 2	(20.3)	(13.3)	n/a	-52.6%
Net debt	(374.7)	(381.4)	n/a	+1.8%

¹ Stated on an underlying basis, excluding amortisation of intangible assets arising on the acquisition of the SSP business.  Please refer to the consolidated income statement for a reconciliation from the underlying to the statutory reported basis

² Stated on an underlying basis after capital expenditure and tax, and excluding exceptional items

*Like-for-like (LFL) sales represent revenues generated in an equivalent period in each financial year in outlets which have been open for a minimum of 12 months and occupy a similar sales area. Like-for-like sales for H1 2016 are stated excluding the impact of the additional leap year day.

CONTACTS:

Investor and analyst enquiries

Sarah John, Director of Investor Relations, SSP Group plc

On 18 May: [phone]

Thereafter: [phone]

E-mail: [e-mail]

Media enquiries

Jenni Field, Head of Communications, SSP Group plc

On 18 May:  [phone]

Thereafter: [phone]

E-mail: [e-mail]

Peter Ogden / Lisa Kavanagh

Powerscourt

[phone]

E-mail: [e-mail]

 

NOTES TO EDITORS

About SSP

SSP is a leading operator of food and beverage concessions in travel locations, operating restaurants, bars, cafés, food courts, lounges and convenience stores in airports, train stations, motorway service stations and other leisure locations. With over 50 years of experience, today we have nearly 30,000 employees, serving approximately a million customers every day. We have business at approximately 130 airports and 290 rail stations, and operate approximately 2,000 units in 31 countries around the world.

SSP operates an extensive portfolio of approximately 400 international, national, and local brands. Among these are local heroes such as MASH in Copenhagen, James Martin Kitchen in London, and Hung's Delicacies in Hong Kong.  Our range also includes proprietary brands created for the travel sector including Upper Crust, Le Grand Comptoir and Ritazza, as well as international names such as Burger King, Starbucks and YO! Sushi.  We also create stunning bespoke concepts such as Junction Urban Street Food in London and Walter at Zurich.

www.foodtravelexperts.com

Business review

Overview

The Group delivered a strong performance in the first half of the year, driven by like-for-like sales growth, new contract openings across the world and the continued successful implementation of our programme of operational improvements. We are continuing to invest in the growth and development of the business and to bring new brands and concepts to our clients and customers. We are particularly pleased by the strong performances in the UK and North America and the expansion of our Asia Pacific business. Whilst the picture in Continental Europe remains mixed, we are continuing to improve operational performance in many of our larger countries.

Strong financial results

The Group delivered a strong financial performance in the first half of 2016, with underlying operating profit increasing by 28.0% (on a constant currency basis) to £30.9m, and with an increase in operating margin of 50 bps. The increase in profit was driven by the strong revenue growth and encouraging progress on our strategic initiatives.

Total revenue increased by 5.9% on a constant currency basis, including like-for-like sales growth of 3.3%, net contract gains of 2.0%, which were slightly ahead of our expectations, and a further 0.6% arising from the additional leap year day.

Like-for-like sales growth of 3.3% was driven by increased passenger numbers combined with the continued roll out of retailing best practices across the Group and our broad portfolio of brands. In the first quarter of the year like-for-like sales growth was 4.3% and in the second quarter, 2.4%. Like-for-like growth in the air sector was strong across most regions, whilst like-for-like growth in the rail sector, particularly in the UK and key European cities was more muted.

Like-for-like sales grew strongly in the UK and Continental Europe in the early part of the new financial year. This strong growth moderated following the geopolitical incidents in Paris and Brussels and we have seen a slightly weaker trading environment throughout the second quarter. In North America, like-for-like sales growth was strong in the first half helped by the positive trends in airport passenger numbers as well as the transfer of additional passengers into Terminal 4 at New York's JFK airport. In the Rest of the World, like-for-like sales growth was impacted by the sharp fall in passenger numbers in Egypt. Excluding this, like-for-like sales remained robust.

Net contract gains were 2.0%, with strong growth in North America, which benefitted from new business in Houston, Orlando and Toronto, and in the Rest of the World, helped by new openings in Australia, Beijing and Don Mueang Airport in Bangkok. 

The pipeline of new contracts is encouraging and during the first half of the year we won a number of significant new contracts, including at airports in Frankfurt, Dusseldorf and Abu Dhabi. We expect to begin operating these contracts progressively over the next 2-3 years.

We continue to focus on retaining profitable contracts and our contract renewal rate in the first half of 2016 was in line with our plans and slightly ahead of the historical average.

Operating profit increased by 28.0% on a constant currency basis, with a 50 bps improvement in the operating margin to 3.4%. This strong performance reflects good like-for-like sales growth, and improvements in the gross margin and the management of labour and overheads, partially offset by the ongoing increase in concession fees.

Strategy

Our strategy is focused on creating long term sustainable value for our shareholders, delivered through five key levers. We made further progress on each of these levers in the first half of the year:

1.    Driving our like-for-like sales growth

We are focused on the food and beverage markets in travel locations, which benefit from long term structural growth. We aim to use our retail skills and broad portfolio of brands to drive profitable like-for-like sales, ensuring that we benefit from the positive trends in these markets.

We continue to make good progress on rolling out our retailing basics programme, which is increasingly gaining traction and supporting growth in like-for-like sales. Our focus in the first half has been on ranging improvements. We are making progress to deliver the optimal range, and extend the distribution of our best sellers across our units. In addition to this, we are working hard to improve our product merchandising through, for example, digital screens to promote premium lines. We have introduced greater discipline to product promotions to ensure these are adding real value. Brands also help to drive like-for-like sales and we have seen good growth from the addition of new brands added last year such as Pret A Manger at Gare de Lyon in Paris and James Martin Kitchen at Stansted Airport.

2.    Growing profitable new space

The travel food and beverage market in airports and railway stations is characterised by long term structural growth and is valued at approximately £14bn. It offers excellent opportunities for SSP to expand its business across the globe.

In the first half of the year, net contract gains were 2.0%, driven by new unit openings and high levels of contract retention.  Furthermore, the pipeline of new contracts is encouraging.  The growth in net gains was driven by strong performances in North America and the Rest of the World, where net gains were 14.6% and 10.6% respectively. These large and growing markets (where we still have a relatively small share) represent an attractive growth opportunity. We have strong disciplines around the contract tendering process which support our ability to deliver attractive returns from new business.

Our ability to win business is underpinned by our track record of delivering attractive and effective food retail solutions at travel locations internationally. An important element of this is the brand line up we can offer. Our brands include both international brands which we franchise, such as Burger King and Starbucks, but also our own proprietary brands such as Upper Crust and Ritazza as well as local heroes and bespoke concepts. Our unique brand mix was an important element of the new contracts we won both at Don Mueang Airport in Thailand and at Luxembourg Airport. In Don Mueang, we delivered a mix of international brands like Burger King and Dairy Queen together with our own brand coffee shop, Ritazza and Bill Bentley's pub, alongside a number of attractive local Asian brands like Thai Express, Ajisen Ramen and the award winning Bonchon Chicken, a highly popular Korean fried chicken concept. In Luxembourg, again we combined international brands with local concepts like The Luxembourg Brewery, which focuses on Luxembourg's iconic traditional beers, the Moselier food led bar inspired by the wines of the Moselle Valley, as well as the locally gastronomically acclaimed Oberweis shop and restaurant.

In terms of brand development, we continue to invest in our own brands and we have created a new look Ritazza concept which brings a more modern look and feel to the brand, the first of which will be opened in Euston station in the Autumn. Internationally, we have signed an agreement with Costa Coffee to franchise the brand in China and we expect to open two new sites in the second half of the year. Furthermore, we are today announcing a new partnership with LEON to open a number of LEON stores in railway stations across the UK. We are hoping to open our first LEON units in the UK later this year.

Finally, we have extended our partnership with James Martin to provide first class catering on East Coast mainline trains from May this year.  

3.    Optimising gross margins

We increased gross margin by 50 bps in the first half of the year. We continue to make good progress on our margin initiatives across the regions. Procurement disciplines are becoming increasingly embedded into the business. Recipe rationalisation and improvement is progressing well and we continue to eliminate unnecessary duplication of products and ingredients in our supply chain. We have also brought significantly more focus to waste and loss management. To support these initiatives, we have invested in central and local resource and systems including strengthening our purchasing teams, and recruiting central waste and loss specialists.

Some examples of our gross margin initiatives include, in North America, using a new system called iTrade to support purchasing. iTrade captures purchasing data from our outlets and enables us to monitor compliance with approved product and supplier lists. Since using iTrade we have seen an approximately 20% increase in unit compliance. Furthermore, it delivers greater accuracy in supplier billing ensuring that we are paying the correct prices for the products ordered. We have also introduced a number of waste and loss programmes around the world. In partnership with Marks and Spencer Simply Food, in the UK we have developed a seasonal waste programme to better align our product supply to seasonal travel demand. As a result, we have made important savings in waste.

4.    Running an efficient and effective organisation

We have made good progress in our multi-year programme to improve operating efficiency. Labour efficiencies (including central labour) contributed 40 bps to our operating margin, (or 50 bps before absorbing the incremental costs of further share-based payment plans). 

We continue to develop systems to better align labour to sales allowing us to optimise service levels and labour costs. We have started to develop a more standardised, systematised process to ensure labour forecasting and scheduling becomes a core competence. In the first half of the year we have completed the development of a new forecasting tool which, in trials, delivered a significant improvement in the accuracy of sales forecasting. Following the success of this, we will start a pilot of the new tool in the UK over the summer months.

We also delivered efficiencies in our management of overheads, which contributed a further 10 bps improvement to our operating margin.

We continue to see many good opportunities for further improvement to the efficiency and effectiveness of the business.

5.    Optimising investment utilising best practice and shared resource

We have invested in further resources and improved capability to support business development and the implementation of best practice across the Group. We have strengthened the business development teams in North America and the Rest of the World. We have brought much greater discipline to the capital investment process and put in place dedicated teams to evaluate, review and oversee capital projects and concept design. As an example of the work we are doing in this area, we have made good improvements in driving greater efficiency in unit fit out costs, in some cases reducing the costs by around 15%. We have achieved this by, for example, building cabinets off site, aggregating purchases of capital items to ensure we are achieving the best prices and bringing much greater discipline into the entire build and fit out process. 

Summary and outlook

The Group delivered a strong financial performance in the first half of the year with robust like-for-like sales growth, net gains and improvement in operating margin. The second half of the financial year has started in line with our expectations. Like-for-like sales are expected to reflect the levels seen in the second quarter and the tough comparatives from the second half of last year. The pipeline of new contracts is encouraging, although it is always difficult to predict the precise timing of the opening of these new units. Whilst a degree of uncertainty always exists around global political events and passenger numbers in the short term, the geographical and sectoral diversity in our business, together with the significant structural growth opportunities and our programme to deliver operational improvements, leave us well placed to continue to deliver both to our customers and our shareholders.

Financial review

Group performance

	H1 2016 £m	H1 2015 £m	Change
			Reported	Constant Currency	LFL*
Revenue	896.7	859.2	4.4%	5.9%	3.3%
Underlying operating profit	30.9	25.2	22.6%	28.0%
Underlying operating margin	3.4%	2.9%	+0.5%

* Like-for-like sales growth excludes the impact of the additional leap year day, which contributed 0.6% to total revenue growth.

Revenue

First half revenue increased by 5.9% on a constant currency basis, including like-for-like growth of 3.3% and net contract gains of 2.0%. The impact of the additional leap year day added an additional 0.6% to first half revenue growth. At actual exchange rates, total revenue was 4.4% higher compared to the first half of 2015, at £896.7m. Revenue in the first half of the Group's financial year is typically lower than in the second half, as a significant part of our business serves the leisure sector of the travel industry, which is particularly active during the summer in the northern hemisphere.

In the first quarter of the year like-for-like sales growth was 4.3% and in the second quarter, 2.4%. Like-for-like growth in the air sector was strong across most regions, whilst like-for-like growth in the rail sector, particularly in the UK and other key European cities was more muted.

Like-for-like sales grew strongly in the UK and Continental Europe in the early part of the new financial year. This strong growth moderated in the aftermath of the geopolitical incidents in Paris and we have seen a slightly weaker trading environment throughout the second quarter. In North America, like-for-like sales growth was strong in the first half, helped by the positive trends in airport passenger numbers as well as the transfer of additional passengers into Terminal 4 at New York's JFK airport. In the Rest of the World, like-for-like sales growth was impacted by the sharp fall in passenger numbers in Egypt. Excluding this, like-for-like sales remained robust.

Looking forward, we anticipate that the level of like-for-like sales growth seen in the second quarter will continue into the second half of the year. In addition to this, we will also face tougher prior year comparatives, particularly in the fourth quarter when like-for-like sales growth was over 5% last year.

Net contract gains increased revenue by 2.0%, helped by strong contributions from North America, benefiting from the new business in Houston, Orlando and Toronto airports, and in the Rest of the World, driven by new openings across the Asia Pacific region. We expect the contribution from net gains in the second half and for the full year, to be towards 2%.

Trading results from outside the UK are converted into Sterling at the average exchange rates for the period. The overall impact on revenue of the movement of foreign currencies (principally the Euro, US Dollar, Swedish Krona and Norwegian Krone) during the first half of 2016 compared to the 2015 average was -1.5%. If the current spot rates were to continue for the rest of 2016, we would expect a positive effect for the full year of approximately +1.9%. However, with the forthcoming referendum on Britain leaving the EU, we expect foreign exchange rates to remain volatile.

Underlying operating profit

Underlying operating profit increased by 28.0% on a constant currency basis, and by 22.6% at actual exchange rates, to £30.9m. The improvement in underlying operating profit margin of 50 bps to 3.4% reflected further encouraging progress on our strategic programmes, which delivered benefits across all areas of our business.

Gross margin increased by 50 bps year-on-year, with particularly strong contributions from the UK and North America. The sales mix in the first half, with weaker sales in the rail sector, relative to the air sector, contributed approximately 10 bps of this improvement. Labour costs improved by 40 bps, or 50 bps before absorbing the incremental costs of further share-based payment plans. These improvements were partially offset by a 50 bps increase in concession fees. The sales mix in the first half, with weaker sales in the rail sector, where we typically pay lower concession fees relative to the air sector, contributed approximately 10 bps to this increase. Overheads improved by 10 bps year on year.

Looking forward, we expect the operating margin trends seen in the first half of the year to continue into the second half.

Operating profit

Operating profit was £29.9m, reflecting an adjustment for the amortisation of acquisition-related intangible assets of £1.0m (H1 2015: £2.6m). 

Regional performance

UK

	H1 2016 £m	H1 2015 £m	Change
			Reported	Constant Currency	LFL1
Revenue	351.2	342.7	+2.5%	+2.7%	+2.8%
Underlying operating profit	26.5	18.0	+47.2%	+47.2%
Underlying operating margin	7.5%	5.3%	+2.2%

¹ Like-for-like sales growth excludes the impact of the additional leap year day, which contributed 0.5% to total revenue growth.

Revenue increased slightly by 2.7% on a constant currency basis, including like-for-like growth of 2.8% and net contract losses of 0.6%. The impact of the additional leap year day added an additional 0.5% to first half revenue growth. Like-for-like growth was particularly strong in the air sector, driven by continued growth in UK airport passenger numbers and increased spend per passenger. The rail sector saw weaker trading, with lower passenger numbers and dwell times notably in London stations.  This was particularly marked following the Paris attacks in mid-November.

Underlying operating profit for the UK increased by 47.2% to £26.5m, while underlying operating margin increased by 2.2% to 7.5%, benefiting from good like-for-like sales growth in the air sector, and from the implementation of our strategic initiatives, particularly in the rail estate.

Continental Europe

	H1 2016 £m	H1 2015 £m	Change
			Reported	Constant Currency	LFL2
Revenue	346.9	351.3	-1.3%	+2.8%	+2.9%
Underlying operating profit	11.9	13.9	-14.4%	-7.6%
Underlying operating margin	3.4%	4.0%	-0.6%

² Like-for-like sales growth excludes the impact of the additional leap year day, which contributed 0.5% to total revenue growth.

Revenue increased by 2.8% on a constant currency basis, including like-for-like sales growth of 2.9% and net contract losses of 0.6%. The impact of the additional leap year day added an additional 0.5% to first- half revenue growth. Similar to the UK, like-for-like sales were much stronger in air than in rail, with good growth in the air businesses in the Nordic region and in Spain contrasting with more difficult trading conditions in the rail businesses, particularly in France and Belgium, both of which were impacted by geopolitical incidents.

Profit in Continental Europe in the first half was impacted by the sharp fall in like-for-like sales resulting from the geopolitical incidents in Paris, however we took quick action to reduce the cost base and hence contain the impact of this. Profit was also affected by costs related to the start of new contracts, notably in Luxembourg Airport. Reported underlying operating profit fell by 7.6% on a constant currency basis and the underlying operating margin decreased by 60 bps to 3.4%. 

North America

	H1 2016 £m	H1 2015 £m	Change
			Reported	Constant Currency	LFL3
Revenue	115.7	91.6	26.3%	+22.9%	+7.6%
Underlying operating profit	3.7	0.9	+311.1%	+300.0%
Underlying operating margin	3.2%	1.0%	+2.2%

³ Like-for-like sales growth excludes the impact of the additional leap year day, which contributed 0.7% to total revenue growth.

Revenue increased by 22.9% on a constant currency basis, including like-for-like growth of 7.6% and net contract gains of 14.6%. The impact of the additional leap year day added an additional 0.7% to first half revenue growth. Like-for-like growth benefited from positive trends in airport passenger numbers in the North American market, as well as the transfer of additional Delta passengers into Terminal 4 at New York's JFK airport, the anniversary of which we passed during the second quarter. We expect like-for-like sales to return to more normal levels in the second half of the year. Net contract gains were driven principally by new outlets opened in the prior year at a number of airports, including Houston, Orlando and Toronto. 

Underlying operating profit increased by £2.8m to £3.7m, and underlying operating margin made excellent progress, increasing from 1.0% to 3.2%, driven by the benefit of increased sales and good progress on a number of the Group's productivity initiatives.

Rest of the World

	H1 2016 £m	H1 2015 £m	Change
			Reported	Constant Currency	LFL4
Revenue	82.9	73.6	12.6%	+13.4%	+2.2%
Underlying operating profit	2.4	6.3	-61.9%	-61.3%
Underlying operating margin	2.9%	8.6%	-5.7%

⁴ Like-for-like sales growth excludes the impact of the additional leap year day, which contributed 0.6% to total revenue growth.

Revenue increased by 13.4% on a constant currency basis, including like-for-like growth of 2.2% and net contract gains of 10.6%. The impact of the additional leap year day added an additional 0.6% to first half revenue growth. Like-for-like sales were impacted by the sharp fall in passenger numbers in Egypt following the incident at Sharm-el-Sheikh in late October. Excluding this, we have seen good growth in the other regions, albeit there has been some slowing of growth in China. Excluding Egypt, like-for-like sales for the region remained robust and at broadly similar levels to historical trends. Net contract gains included new openings during the first half in Don Mueang Airport in Thailand and in Beijing Airport in China, as well as outlets opened in the prior year at a number of locations across the region, most notably in Australia.

Underlying operating profit for the Rest of the World was £2.4m, a year-on-year reduction of 61.3% on a constant currency basis, driven by the sharp fall in sales in Egypt, together with on-going pre-opening costs in both Dubai and Beijing airports. These two factors will continue to impact profit in the second half of the year.

Share of profit or loss of associates

The Group's share of the loss of associates was £0.2m (H1 2015: £0.2m).

Net finance costs

Net finance costs were £7.5m, a reduction of £1.1m compared to the first half of 2015, due to lower average levels of net debt and a reduction in margin following the "amend and extend" on our debt facilities, completed in July 2015.

Taxation

The Group's underlying tax charge was £5.2m (H1 2015: £3.0m) and the total tax charge was £5.0m (H1 2015: £3.0m). This is equivalent to an effective tax rate, based on the forecast rate for the year, of 22.5% (H1 2015: 21.5%) on reported profit before tax.

Non-controlling interests

The non-controlling interests' share of after tax profits increased by £0.4m to £3.6m. This increase primarily reflected the growth and improved profitability of our North America business, where our business partners will often have a minority interest in individual contracts.

Earnings per share

Underlying earnings per share was 3.0 pence per share (H1 2015 2.1 pence per share). Basic earnings per share was 2.9 pence per share (H1 2015: 1.6 pence per share).

Dividends

The Board has declared an interim dividend of 2.5 pence per share (H1 2015: 2.1 pence), consistent with the Board's intentions as stated in the IPO prospectus for a progressive dividend policy, with an initial pay-out ratio of approximately 30 to 40 per cent of annual underlying profit after tax, with the total annual payment to be split equally between the interim and final dividends.

The dividend will be paid on 1 July 2016 to shareholders registered on 3 June 2016.  The ex-dividend date will be 2 June 2016.

Cash flow

The table below presents a summary of the Group's cash flow for the first half of 2016:

	H1 2016 £m	H1 2015 £m
Underlying operating profit	30.9	25.2
Depreciation and amortisation	34.6	33.3
Working capital	(19.8)	(24.5)
Capital expenditure	(49.2)	(39.8)
Net tax	(9.2)	(7.6)
Investment in associate	(4.7)	-
Net cash flow to/from minorities/associates	(5.6)	(2.0)
Share based payments	2.7	2.1
Underlying operating cash flow	(20.3)	(13.3)
Net finance costs	(6.7)	(8.4)
Underlying free cash flow	(27.0)	(21.7)
Exceptional costs	-	(9.3)
Dividend paid	(10.5)	-
Net cash flow	(37.5)	(31.0)

The underlying operating cash outflow in the first half of 2016 was £20.3m.  This represents an increase of £7.0m compared to the first half of 2015, with capital expenditure up £9.4m, or 23.6% year-on-year. This reflects our success with new contract wins during the last twelve months, and our expectations for the full year are for capital expenditure of around £95m.  This is consistent with our expectation for net gains of towards 2% for the full year.

Underlying operating cash flow also included a £4.7m cash outflow relating to the initial capitalisation of our new joint venture with Aéroports de Paris, which commenced trading in February. The normal seasonal usage of working capital was £19.8m, a little better than the £24.5m in the first half of 2015.

Net finance costs paid of £6.7m were £1.7m lower than in the first half of 2015, mainly reflecting the "amend and extend" on our borrowing facilities in July 2015.

Net debt

Net debt increased by £54.9m in the first half of the year to £374.7m, reflecting the normal seasonal cash outflow, as well as £16.8m of net foreign exchange translation losses arising on the proportion of the Group's cash balances and bank debt that are denominated in currencies other than Sterling. The committed Revolving Credit Facility remained undrawn during the half year, and together with the cash on our balance sheet of £100.1m, provides sufficient headroom to meet future development and funding needs.

The table below explains the movement in net debt during the first half of 2016:

		£m
Opening net debt (30 September 2015)		(319.8)
Net cash flow		(37.5)
Impact of foreign exchange rates		(16.8)
Other		(0.6)
Closing net debt (31 March 2016)		(374.7)

Principal risks

The principal risks facing the Group for the remainder of the year are unchanged from those reported in the Annual Report and Accounts 2015.

These risks, together with the Group's risk management process, are detailed on pages 12 to 15 of the Annual Report and Accounts 2015, and relate to the following areas: strategic development, client relationships, senior management capability and retention, business environment, changing business model, brand portfolio, intensified competition, expansion in developing markets, implementation of efficiency programmes, cyber threats, and tax strategy.

Responsibility statement of the directors in respect of the half-yearly report

We confirm that to the best of our knowledge:

•            The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

•            The interim management report includes a fair review of the information required by:

a)           DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)          DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the board

Kate Swann                                                                    Jonathan Davies

Chief Executive Officer                                                 Chief Financial Officer

17 May 2016                                                                  17 May 2016

Independent review report to SSP 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 31 March 2016 which comprises the condensed consolidated income statement, the condensed consolidated statement of other comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows, and the related explanatory notes.  We have read the other information contained in the half-yearly financial report 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 the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this 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 conclusions we have reached. 

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 half-yearly financial report in accordance with the DTR of the UK FCA. 

The annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. 

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 UK.  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 31 March 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 

John Cain

for and on behalf of KPMG LLP 

Chartered Accountants 

15 Canada Square, London, E14 5GL  

17 May 2016

Condensed consolidated income statement

for the six months ended 31 March 2016

	Notes	Six months ended 31 March 2016			Six months ended 31 March 2015
		Underlying *	Adjustments	Total	Underlying *	Adjustments	Total
		£m	£m	£m	£m	£m	£m
Revenue	2	896.7	-	896.7	859.2	-	859.2
Operating costs	4	(865.8)	(1.0)	(866.8)	(834.0)	(2.6)	(836.6)
Operating profit		30.9	(1.0)	29.9	25.2	(2.6)	22.6
Share of loss of associates		(0.2)	-	(0.2)	(0.2)	-	(0.2)
Finance income	5	0.3	-	0.3	0.4	-	0.4
Finance expense	5	(7.8)	-	(7.8)	(9.0)	-	(9.0)
Profit  before tax		23.2	(1.0)	22.2	16.4	(2.6)	13.8
Taxation		(5.2)	0.2	(5.0)	(3.0)	-	(3.0)
Profit for the period		18.0	(0.8)	17.2	13.4	(2.6)	10.8
Profit attributable to:
Equity holders of the parent		14.4	(0.8)	13.6	10.2	(2.6)	7.6
Non-controlling interests		3.6	-	3.6	3.2	-	3.2
Profit  for the period		18.0	(0.8)	17.2	13.4	(2.6)	10.8
Earnings per share (pence):
-          Basic	3	3.0		2.9	2.1		1.6
-          Diluted	3	3.0		2.9	2.1		1.6

*   The underlying numbers exclude non-cash accounting adjustments relating to amortisation of intangible assets arising on acquisition of the SSP business in 2006. 

.

Condensed consolidated statement of other comprehensive income

for the six months ended 31 March 2016

		Six months ended 31 March 2016	Six months ended 31 March 2015
		£m	£m
Other comprehensive income / (expense)
Items that will never be reclassified to the income statement
Remeasurements on defined benefit pension schemes		0.5	(0.7)
Items that are or may be reclassified subsequently to the income statement
Net (loss) / gain on hedge of net investment in foreign operations		(19.8)	21.1
Other foreign exchange translation differences		27.7	(22.0)
Effective portion of changes in fair value of cash flow hedges		(4.2)	(7.9)
Cash flow hedges - reclassified to the income statement		1.1	0.2
Income tax credit  relating to items that have or may be reclassified		0.3	1.8
Other comprehensive income / (expense) for the period		5.6	(7.5)
Profit  for the period		17.2	10.8
Total comprehensive income for the period		22.8	3.3
Total comprehensive income / (expense) attributable to:
Equity shareholders		17.8	(1.7)
Non-controlling interests		5.0	5.0
Total comprehensive income for the period		22.8	3.3

Condensed consolidated balance sheet

as at 31 March 2016

		31 March 2016	30 September 2015
		£m	£m
Non-current assets
Property, plant and equipment		239.1	212.7
Goodwill and intangible assets		657.0	632.1
Investments in associates		8.2	5.4
Deferred tax assets		14.2	11.4
Other receivables		29.6	26.6
		948.1	888.2
Current assets
Inventories		26.4	26.0
Tax receivable		1.8	0.7
Trade and other receivables		93.4	89.5
Cash and cash equivalents	8	100.1	134.7
		221.7	250.9
Total assets		1,169.8	1,139.1
Current liabilities
Short term borrowings	8	(29.5)	(27.7)
Trade and other payables		(328.6)	(329.3)
Tax payable		(13.6)	(14.6)
		(371.7)	(371.6)
Non-current liabilities
Long term borrowings	8	(445.3)	(426.8)
Post employment benefit obligations		(13.5)	(13.7)
Provisions		(15.6)	(16.0)
Derivative financial liabilities	8	(12.9)	(9.8)
Deferred tax liabilities		(10.3)	(9.5)
		(497.6)	(475.8)
Total liabilities		(869.3)	(847.4)
Net assets		300.5	291.7
Equity
Share capital		4.7	4.7
Share premium		461.2	461.2
Capital redemption reserve		1.2	1.2
Other reserves		(2.6)	(6.3)
Retained earnings		(183.9)	(190.6)
Total equity shareholders' funds		280.6	270.2
Non-controlling interests		19.9	21.5
Total equity		300.5	291.7

Condensed consolidated statement of changes in equity

for the six months ended 31 March 2016

	Share capital	Share premium	Capital redemp-tion reserve	Other reserves 1	Retained earnings	Total parent equity	Non-controlling interests	Total equity
	£m	£m	£m	£m	£m	£m	£m	£m
At 1 October 2014	5.9	461.2	-	5.6	(241.4)	231.3	19.1	250.4
Profit for the period	-	-	-	-	7.6	7.6	3.2	10.8
Other comprehensive (expense) / income for the period	-	-	-	(8.6)	(0.7)	(9.3)	1.8	(7.5)
Cancellation of deferred shares	(1.2)	-	1.2	-	-	-	-	-
Capital contributions from non-controlling interests	-	-	-	-	-	-	1.1	1.1
Dividends paid to non-controlling interests	-	-	-	-	-	-	(2.4)	(2.4)
Share-based payments	-	-	-	-	2.1	2.1	-	2.1
At 31 March 2015	4.7	461.2	1.2	(3.0)	(232.4)	231.7	22.8	254.5
At 1 October 2015	4.7	461.2	1.2	(6.3)	(190.6)	270.2	21.5	291.7
Profit for the period	-	-	-	-	13.6	13.6	3.6	17.2
Other comprehensive income for the period	-	-	-	3.7	0.5	4.2	1.4	5.6
Acquisition of additional share in subsidiary	-	-	-	-	0.4	0.4	(0.5)	(0.1)
Dividends paid to equity shareholders	-	-	-	-	(10.5)	(10.5)	-	(10.5)
Dividends paid to non-controlling interests	-	-	-	-	-	-	(6.1)	(6.1)
Share-based payments	-	-	-	-	2.7	2.7	-	2.7
At 31 March 2016	4.7	461.2	1.2	(2.6)	(183.9)	280.6	19.9	300.5

¹ The increase of £3.7m (2015: decrease of £8.6m) comprises an increase to the translation reserve of £6.2m (2015: decrease of £1.9m) and a decrease to the cash flow hedging reserve of £2.5m (2015: decrease of £6.7m).

Condensed consolidated cash flow statement

for the six months ended 31 March 2016

	Notes	Six months ended 31 March 2016	Six months ended 31 March 2015
		£m	£m
Cash flows from operating activities
Cash flow from operations	6	48.4	36.1
Exceptional redundancy and restructuring costs		-	(2.2)
Tax paid		(9.2)	(7.6)
Net cash flows from operating activities		39.2	26.3
Cash flows from investing activities
Acquisition of investment in associate		(4.7)	-
Dividends received from associates		1.3	0.4
Interest received		0.2	0.3
Purchase of property, plant and equipment		(48.3)	(40.5)
Purchase of other intangible assets		(0.9)	(0.4)
Net cash flows from investing activities		(52.4)	(40.2)
Cash flows from financing activities
Repayment of finance leases and other loans		(0.1)	(0.6)
Interest paid		(6.9)	(8.7)
Dividends paid to equity shareholders		(10.5)	-
Dividends paid to non-controlling interests		(6.1)	(2.4)
Acquisition of increased share of subsidiary		(0.8)	-
Capital contribution from non-controlling interests		-	1.1
Exceptional IPO related transaction costs		-	(7.1)
Net cash flows from financing activities		(24.4)	(17.7)
Net decrease in cash and cash equivalents		(37.6)	(31.6)
Cash and cash equivalents at beginning of the period		134.7	133.3
Effect of exchange rate fluctuations on cash and cash equivalents		3.0	0.3
Cash and cash equivalents at end of the period		100.1	102.0
Reconciliation of net cash flow to movement in net debt
Decrease  in cash in the period		(37.6)	(31.6)
Cash outflow from decrease in debt and finance leases		0.1	0.6
Change in net debt resulting from cash flows		(37.5)	(31.0)
Translation differences		(16.8)	21.4
Other non-cash changes		(0.6)	(0.7)
Increase in net debt in the period		(54.9)	(10.3)
Net debt at beginning of the period		(319.8)	(371.1)
Net debt at end of the period		(374.7)	(381.4)

Notes

1              Preparation

 

Basis of preparation and statement of compliance

The condensed consolidated half-yearly financial statements of SSP Group plc ("the Group") have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting as adopted by the EU.  The annual consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") and the Companies Act 2006 applicable to companies reporting under IFRS. These condensed consolidated half-yearly financial statements do not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006, and should be read in conjunction with the Annual Report and Accounts 2015. The comparative figures for the year ended 30 September 2015 are not the Group's statutory accounts for that financial year. Those accounts were reported upon by the Group's auditors and delivered to the registrar of companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006.

Except as described below, the accounting policies adopted in the preparation of these condensed consolidated half-yearly financial statements to 31 March 2016 are consistent with the accounting policies applied by the Group in its consolidated financial statements as at, and for the year ended, 30 September 2015 as required by the Disclosure and Transparency Rules of the UK's Financial Conduct Authority.

Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous period.

There are no EU-endorsed IFRS or IFRIC interpretations that are not yet effective that are expected to have a material impact on the Group.  

IFRS 16, Leases, issued in January 2016 with an effective date of 1 January 2019 is not yet EU endorsed.  Management is in the process of reviewing the impact that this will have on the Group.

2              Segmental reporting

SSP operates in the food and beverage travel sector, mainly at airports and railway stations.

Management monitors the performance and strategic priorities of the business from a geographic perspective, and in this regard has identified the following four key 'reportable segments': the UK, Continental Europe, North America and Rest of the World ("RoW").  The UK includes operations in the United Kingdom and the Republic of Ireland; Continental Europe includes operations in the Nordic countries and in Western and Southern Europe; North America includes operations in the United States and Canada; and RoW includes operations in Eastern Europe, the Middle East and Asia Pacific.

The Group's management assesses the performance of the operating segments based on revenue and underlying operating profit. Interest income and expenditure are not allocated to segments, as they are managed by a central treasury function, which oversees the debt and liquidity position of the Group. The non-attributable segment comprises costs associated with the Group's head office function and depreciation of central assets.

Six months ended 31 March 2016	UK	Continental Europe	North America	RoW	Non-attributable	Total
	£m	£m	£m	£m	£m	£m
Revenue	351.2	346.9	115.7	82.9	-	896.7
Underlying operating profit/(loss)	26.5	11.9	3.7	2.4	(13.6)	30.9
Six months ended 31 March 2015	UK	Continental Europe	North America	RoW	Non-attributable	Total
	£m	£m	£m	£m	£m	£m
Revenue	342.7	351.3	91.6	73.6	-	859.2
Underlying operating profit/(loss)	18.0	13.9	0.9	6.3	(13.9)	25.2
The following amounts are included in underlying operating profit:
	UK	Continental Europe	North America	RoW	Non-attributable	Total
	£m	£m	£m	£m	£m	£m
Six months ended 31 March 2016
Depreciation and amortisation*	(8.4)	(14.7)	(7.4)	(3.1)	(1.0)	(34.6)
Six months ended 31 March 2015
Depreciation and amortisation*	(8.1)	(14.5)	(6.4)	(2.2)	(2.1)	(33.3)

*Excludes amortisation of acquisition-related intangible assets.

A reconciliation of underlying operating profit to profit before and after tax is provided as follows:

	Six months ended 31 March 2016 £m	Six months ended 31 March 2015 £m
Underlying operating profit	30.9	25.2
Adjustments to operating costs	(1.0)	(2.6)
Share of loss from associates	(0.2)	(0.2)
Finance income	0.3	0.4
Finance expense	(7.8)	(9.0)
Profit before tax	22.2	13.8
Taxation	(5.0)	(3.0)
Profit after tax	17.2	10.8

3              Earnings per share

Basic earnings per share is calculated by dividing the result for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the result for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period adjusted by potentially dilutive outstanding share options.

Underlying earnings per share is calculated the same way except that the result for the period attributable to ordinary shareholders is adjusted for specific items as detailed below:

	Six months ended 31 March 2016		Six months ended 31 March 2015
	£m		£m
Profit attributable to ordinary shareholders	13.6		7.6
Adjustments:
Amortisation of acquisition-related intangibles	1.0		2.6
Tax effect of adjustments	(0.2)		-
Underlying profit attributable to ordinary shareholders	14.4		10.2
Basic weighted average number of shares	475,150,145		475,005,914
Dilutive potential ordinary shares	1,669,650		1,143,293
Diluted weighted average number of shares	476,819,795		476,149,207
The number of ordinary shares in issue as at 31 March 2016 was 475,173,035 (30 September 2015: 475,113,354).
		Six months ended 31 March 2016	Six months ended 31 March 2015
Earnings per share (pence):
-          Basic		2.9	1.6
-          Diluted		2.9	1.6
Underlying earnings per share (pence):
-          Basic		3.0	2.1
-          Diluted		3.0	2.1

4              Operating costs

		Six months ended 31 March 2016	Six months ended 31 March 2015
		£m	£m
Cost of food and materials:
Cost of inventories consumed in the period		(293.7)	(286.2)
Labour cost:
Employee remuneration		(275.1)	(267.0)
Overheads:
Depreciation of property, plant and equipment		(32.5)	(31.5)
Amortisation of intangible assets - software		(2.1)	(1.8)
Amortisation of acquisition-related intangible assets		(1.0)	(2.6)
Rentals payable under operating leases		(156.4)	(145.6)
Other overheads		(106.0)	(101.9)
		(866.8)	(836.6)
Adjustments to operating costs
Amortisation of intangible assets arising on acquisition		(1.0)	(2.6)
		(1.0)	(2.6)

For the periods presented above, underlying operating profit excludes non-cash accounting adjustments relating to amortisation of intangible assets arising on acquisition of the SSP business in 2006.

5              Finance income and expense

	Six months ended 31 March 2016	Six months ended 31 March 2015
	£m	£m
Finance income
Interest income	0.2	0.3
Net foreign exchange gains	0.1	0.1
Total finance income	0.3	0.4
Finance expense
Total interest expense on financial liabilities measured at amortised cost	(5.6)	(7.6)
Net change in fair value of cash flow hedges utilised in the period	(1.1)	(0.2)
Unwind of discount on provisions	(0.3)	(0.6)
Net interest expense on defined benefit pension obligations	(0.3)	(0.3)
Other	(0.5)	(0.3)
Total finance expense	(7.8)	(9.0)

6           Cash flow from operations

		Six months ended 31 March 2016	Six months ended 31 March 2015
		£m	£m
Profit for the period		17.2	10.8
Adjustments for:
Depreciation		32.5	31.5
Amortisation		3.1	4.4
Share-based payments		2.7	2.1
Finance income		(0.3)	(0.4)
Finance expense		7.8	9.0
Share of loss of associates		0.2	0.2
Taxation		5.0	3.0
		68.2	60.6
(Increase) / decrease in trade and other receivables		(6.9)	7.5
Decrease / (increase) in inventories		0.6	(1.1)
Decrease in trade and other payables, and in provisions		(13.5)	(30.9)
Cash flow from operations		48.4	36.1

7              Dividends

The final dividend of 2.2p per share in respect of 2015, totalling £10.5m was paid and recognised as a dividend in the period (2015: £nil).

The proposed interim dividend of 2.5p per share (2015: 2.1p per share), totalling £11.9m (2015: £10.0m), will be paid on 1 July 2016 to shareholders on the register on 3 June 2016.

 

8              Fair value measurement

Certain of the Group's financial instruments are held at fair value.

The fair values of financial instruments held at fair value have been determined based on available market information at the balance sheet date, and the valuation methodologies detailed below:

-      the fair values of the Group's borrowings are calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date; and

-     the derivative financial liabilities relate to interest rate swaps.  The fair values of interest rate swaps have been determined using relevant yield curves and exchange rates as at the balance sheet date.

Carrying amounts and fair values of certain financial instruments

The following table shows the carrying amounts of financial assets and financial liabilities.  It does not include information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

	Carrying amounts
	31 March 2016	30 September 2015
	£m	£m
Financial instruments measured at fair value:
Non-current
Derivative financial liabilities	(12.9)	(9.8)
Financial instruments not measured at fair value:
Non-current
Long term borrowings	(445.3)	(426.8)
Current
Cash and cash equivalents	100.1	134.7
Short term borrowings	(29.5)	(27.7)

Financial assets and liabilities in the Group's consolidated balance sheet are either held at fair value, or their carrying value approximates to fair value, with the exception of loans, which are held at amortised cost.  The fair value of total borrowings estimated using market prices at 31 March 2016 is £478.8m (30 September 2015: £459.0m).

All of the financial assets and liabilities measured at fair value are classified as level 2 using the fair value hierarchy, whereby inputs which are used in the valuation of these financial assets and liabilities and have a significant effect on the fair value are observable, either directly or indirectly.  There were no transfers during the period.

9              Forward looking statement

This announcement contains certain forward looking statements with respect to the operations, strategy, performance and the financial condition of the Group.  By their nature, these statements involve uncertainty since future events and circumstances can cause results to differ from those anticipated.  Nothing in this announcement should be construed as a profit forecast.  Except where required to do so under applicable law or regulatory obligations, we undertake no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

 

END

 

 

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