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RNS
SSP Group PLC   -  SSPG   

Full Year Results

Released 07:00 20-Nov-2019

RNS Number : 9731T
SSP Group PLC
20 November 2019
 

    LEI:213800QGNIWTXFMENJ24

20 November 2019

SSP GROUP PLC

Results for year ended 30 September 2019

"Strong full year results and another year of significant expansion" 

SSP Group, a leading operator of food and beverage outlets in travel locations worldwide, announces its financial results for the year ended 30 September 2019.

Highlights:                                                                                                                                                        

·    Underlying operating profit1 of £221.1m: up 12.1% at constant currency2, and 13.3% at actual exchange rates.

·    Revenue of £2,794.6m: up 7.8% at constant currency, and 9.0% at actual exchange rates.

·    Strong net gains3 of 5.6%: driven by North America and Continental Europe.

·    Like-for-like sales4 up 1.9%: driven by growth in passenger numbers, both in air and rail.

·    Underlying operating margin1 up 30 basis points at constant currency, driven by further progress on our strategic initiatives.

·    Underlying profit before tax5 of £203.2m: up 10.2%. Reported profit before tax of £197.2m, up 7.8%.

·    Underlying basic earnings per share5 of 29.1 pence: up 15.9%. Reported basic earnings per share of 28.1 pence, up 12.9%.

·    Final dividend of 6.0 pence per share, bringing the full year ordinary dividend to 11.8 pence per share: up 15.7%, reflecting a payout ratio of 40%.

·    Underlying operating cash inflow6 of £67.9m, after another year of record capital investment of £185.0m.

·    Encouraging pipeline, with significant new contracts underpinning future growth, including in North America at LaGuardia, San Jose and Ottawa Airports and in the Rest of the World at Brisbane, Shenzhen, and Hongqiao Airports; and entry into three new markets next year: Bahrain, Bermuda and Malaysia.

·    Share buyback of up to £100m, underpinning our confidence in the business and our commitment to maintain an efficient balance sheet.

 

Commenting on the results, Simon Smith, CEO of SSP Group, said:

"SSP has delivered another strong performance in 2019. Operating profit was up 12% at constant currency, driven by solid like-for-like sales growth despite some external headwinds, significant new contract openings and further operational improvements. We continue to grow our business in North America, and have made good progress expanding in Continental Europe. In the Rest of the World, we have grown in India and the Philippines, and have entered Brazil, a new market for us, with further market entries planned in Bermuda, Bahrain and Malaysia. The new business pipeline is strong across all our geographies both this year and next, and we've announced a £100m share buyback which further demonstrates our confidence in the future of the business.

 

"The new financial year has started in line with our expectations and, whilst a degree of uncertainty always exists around passenger numbers in the short-term, we continue to be well placed to benefit from the structural growth opportunities in our markets and to create value for our shareholders."

 

Financial highlights:

 

 

 

Year-on-year change

 

2019

£m

2018

£m

Actual FX

Rates

Constant

currency2

Revenue

2,794.6

2,564.9

+9.0%

+7.8%

Like-for-like sales growth4

+1.9%

+2.8%

n/a

n/a

Underlying operating profit1

221.1

195.2

+13.3%

+12.1%

Underlying operating margin1

7.9%

7.6%

+30 bps

+30 bps

Underlying profit before tax5

203.2

184.4

+10.2%

n/a

Underlying basic earnings per share (p)5

29.1

25.1

+15.9%

n/a

Underlying diluted earnings per share (p) 5

28.7

24.8

+15.7%

n/a

Dividend per share (p)

11.8

10.2

+15.7%

n/a

Underlying operating cash inflow6

67.9

90.2

-24.7%

n/a

Net debt

(483.4)

(334.7)

-44.4%

n/a

 

Statutory reported results:

The table below summarises the Group's statutory reported results (where the financial highlights above are adjusted).

 

2019

£m

2018

£m

Year-on-year change

 

Operating profit

219.2

193.3

+13.4%

 

Operating margin

7.8%

7.5%

+30 bps

 

Profit before tax

197.2

182.9

+7.8%

 

Basic - Earnings per share (p)

28.1

24.9

+12.9%

 

Diluted - Earning per share (p)

27.7

24.5

+13.1%

 

 

 

1 Stated on an underlying basis, which excludes the amortisation of intangible assets arising on the acquisition of the SSP business in 2006. This is consistent with the prior period.

2 Constant currency is based on average 2018 exchange rates weighted over the financial year by 2018 results.

3 Net contract gains / (losses) represent the net year-on-year revenue impact from new outlets opened and existing units closed in the past 12 months. Net contract gains / (losses) are presented on a constant currency basis.

4 Like-for-like sales represent revenues generated in an equivalent period in each financial year in outlets which have been open for a minimum of 12 months. Like-for-like sales are presented on a constant currency basis.

5 Stated on an underlying basis, which excludes the amortisation of intangible assets arising on the acquisition of the SSP business in 2006, the revaluation of the obligation to acquire an additional 16% shareholding in the TFS business in India, and the additional non-cash interest as a result of debt modifications arising on the adoption of IFRS 9.

6 Stated on an underlying basis after capital expenditure, net cash flows to/from associates and non-controlling interests, acquisitions and tax.

 

Please refer to page 16 for supporting reconciliations from the Group's statutory reported results to these performance measures.

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

CONTACTS:

 

Investor and analyst enquiries

 

Sarah John, Director of Investor Relations, SSP Group plc

On 20 November 2019: +44 (0) 7736 089218

Thereafter: +44 (0) 203 714 5251

E-mail: sarah.john@ssp-intl.com

 

Media enquiries

 

Peter Ogden / Lisa Kavanagh

Powerscourt

+44 (0) 207 250 1446

E-mail: ssp@powerscourt-group.com

 

SSP Group plc's Full Year Results 2019 are available at www.foodtravelexperts.com.

 

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 more than 39,000 employees, serving approximately one and a half million customers every day. We have business at approximately 180 airports and 300 rail stations, and operate more than 2,800 units in 35 countries around the world.

 

SSP operates an extensive portfolio of more than 550 international, national, and local brands. Among these are local heroes such as Brioche Dorée in Paris, LEON in London, and Hung's Delicacies in Hong Kong. Our range also includes proprietary brands created for the travel sector including Upper Crust, Cabin Bar and Ritazza, as well as international names such as M&S, Burger King, Starbucks, Jamie's Deli and YO! Sushi. We also create stunning bespoke concepts such as Five Borough Food Hall in JFK, New York and Norgesglasset Bar in Oslo Airport.

               

www.foodtravelexperts.com

Business review

The Group achieved a strong performance in the year, driven by solid like-for-like sales growth, despite some external headwinds, significant new contract openings across the world and further progress on the implementation of our programme of strategic initiatives. We are continuing to invest in the growth and development of the business, bringing new brands, concepts and technology to meet the evolving needs of our customers, clients and brand partners, and to drive operating performance.

 

Cash flow has been healthy, funding another year of record investment in the business. The increase in the ordinary dividend, which again represents a payout ratio of 40%, and the announcement of a share buyback of up to £100m, reflect our confidence in the business and our desire to maintain an efficient balance sheet.

 

Performance highlights

The financial performance of the Group is presented on an underlying basis, for which the statutory reported results are adjusted to exclude the impacts of the amortisation of intangible assets created on the acquisition of the SSP business in 2006, the additional interest expense as a result of debt modifications upon the adoption of IFRS 9 and the revaluation of the obligation to acquire the additional share of the TFS business in India. The statutory reported performance of the Group is explained in the financial review, with a detailed reconciliation between statutory and underlying performance provided on page 16.

 

The Group delivered a strong financial performance in 2019, with underlying operating profit increasing by 12.1% (on a constant currency basis) to £221.1m. Total revenue increased by 7.8% (on a constant currency basis), comprising like-for-like sales growth of 1.9%, net contract gains of 5.6% and revenue from acquisitions of 0.3%.

 

Like-for-like sales growth for the full year was 1.9%, driven by increasing passenger numbers across the air and rail sectors. Like-for-like sales in the air sector grew more strongly than in the rail sector, although the latter benefited from a lower level of disruption compared to the prior year. We faced an unusual number of external headwinds during the year, including disruption from the 'Gilets Jaunes' protests in France, slower passenger growth and the impact of a number of airport redevelopments in the Nordic countries and in Spain, the grounding of Boeing Max 737 aircraft in North America, and weaker Chinese passenger numbers and the cessation of operations of Jet Airways in the Asia Pacific region. Looking ahead to 2020, many of these challenges will continue, particularly in the first half year, and with the prospect of ongoing political uncertainty and the expectation of airline capacity cuts, we continue to plan cautiously, anticipating full year like-for-like sales growth at a similar level to 2019 of just below 2%.    

 

Net gains remained very strong at 5.6%, with good contributions from North America and Continental Europe.  North America had another very strong year, with net gains of 13.0%, including new openings at LaGuardia, Seattle, LAX and Oakland Airports. The net gains in Continental Europe at 6.6% were unusually strong, driven by new contracts at Charleroi Airport in Belgium, Montparnasse Railway Station in Paris, 22 new Motorway Service Areas in Germany and 29 new Starbucks outlets in railway stations in the Netherlands. Net gains in the Rest of the World were driven by India, including new openings at Delhi and Bangalore Airports, and in the Philippines at Cebu Airport, and towards the end of the year we commenced operations in Brazil, a new market for us, although these gains were offset by our exit from some units in Hong Kong and Shanghai Airports.

 

During the year, we won a number of important new contracts, including in North America at LaGuardia, San Jose and Vancouver Airports. In Continental Europe, we have won contracts at Bodo Airport in Norway, Alicante Airport in Spain and Stuttgart Station in Germany, and in the Rest of the World we have secured new business at Bangalore Airport in India, Shenzhen Airport in China and Changi Airport in Singapore. In the UK, we acquired all of the Jamie Oliver units at Gatwick Airport, significantly expanding our presence there. We have also won new contracts in Bermuda and Malaysia and once we start operating in these new markets, as well as in Bahrain, which is scheduled for next year, our global footprint will increase to 38 countries. We are announcing today our proposed acquisition of Red Rock's food and beverage operations in Perth and Melbourne airports. These 14 units generated sales of approximately £15m in FY 2019. In 2020, our expectation is for net gains of between 4% and 5%, underpinned by the strong pipeline of new contracts and the inclusion of our proposed acquisition of Red Rock's food and beverage operations.

 

The underlying operating margin improvement of 30 bps was driven by further encouraging progress on our strategic initiatives, in particular in gross margin, which more than offset ongoing cost inflation.

 

Looking forward to 2020, we expect to make further good progress on our strategic initiatives and deliver another year of significant expansion. The overall operating margin is expected to remain at a similar level to this year, as we anticipate higher pre-opening and start-up costs associated with another year of strong net gains, our expansion into new territories and our proposed acquisition of the Red Rock operations, as well as a slight increase in the rate of depreciation, reflecting the timing of our investment programme.

 

During the year we generated £50.5m of free cash flow, after investing £185.0m in capital projects, £40.8m higher than the previous year, as a result of our strong net contract gains, as well as our investment in rebranding programmes in airports where we had taken over business in previous years. We have also invested a further £22.4m on the acquisition of the remaining 16% stake in TFS in India. Net debt increased to £483.4m, the increase from last year largely reflecting the payment of the £149.8m special dividend in April 2019, leaving leverage at the year end at 1.5x Net Debt: EBITDA.

 

Use of cash

Our priorities for the use of cash remain unchanged. Our primary focus is organic growth, with selective bolt-on acquisitions where they deliver returns in line with our investment criteria and align with our strategy.

Having reviewed our medium-term capital requirements, we have taken the decision to increase the ordinary dividend for the 2019 financial year to 11.8p, maintaining a payout ratio of 40% of net income (the top of the range of 30% to 40% we gave at the IPO). Furthermore, we have today announced our intention to return up to £100m of cash to shareholders in the form of a share buyback which we intend to complete over the next 12 months. This reflects the confidence we have in the future of the business and our commitment to maintaining balance sheet efficiency, with leverage broadly within the 1.5x-2.0x Net Debt:EBITDA range over the medium term.

 

Summary and outlook

Despite the external headwinds, the Group delivered a strong performance in the year. Looking ahead to 2020, the new financial year has started in line with our expectations and we remain confident of delivering another year of strong growth.

 

Whilst a degree of uncertainty always exists around passenger numbers in the short-term, we continue to be well placed to benefit from the significant structural growth opportunities in our markets and to create ongoing value for our shareholders.

 

Strategy
 

We aim to be the leading provider of food and beverage in travel locations worldwide, delivering across all our stakeholder groups: our customers, clients, brand partners, investors and importantly our colleagues. To achieve this, we will continue to focus on our successful five-lever strategy, underpinned by a strong focus on corporate governance and on our environmental and social responsibilities. Further information on the progress we have made in this area can be found on our website (foodtravelexperts.com) and we will also provide further details in our 2019 Annual Report and Accounts.

Below is an overview of the progress we have made on each of our strategic levers in the period:

 

1.    Optimising our offer to benefit from the positive trends in our markets and drive profitable LFL sales

 

We are focused on the food and beverage markets in travel locations which benefit from long-term structural growth. We aim to use our broad portfolio of brands and retailing skills including our focus on range, pricing, promotions, upselling and space management, to drive profitable like-for-like sales, ensuring that we benefit from the positive trends in the travel market.

As our customers' needs evolve we are increasingly providing offers to meet these needs. We have made further good progress in developing a number of premium products, both for our own brands and in conjunction with our brand partners, and have also expanded our range of locally sourced, meat free and healthier menu items, which gives our customers more choice. Increasingly, we are using technology to improve the service experience for our customers, as well as to generate operational efficiencies, including further rolling out self-order kiosks across our estate and successfully trialling 'order at table' technology for our larger table service bars and restaurants.

 

2.    Growing profitable new space

 

The travel food and beverage market in airports and railway stations is valued at approximately £22bn and is characterised by long-term structural growth. It offers excellent opportunities for us to expand our business across the globe.

We are continuing to expand our business through new unit openings and high levels of contract retention. We have seen significant growth in North America and in the Rest of the World which together now account for one-third of our business.  These large and growing markets (where we still have a relatively small share), provide attractive expansion opportunities and the pipeline of new contracts is encouraging. 

In addition to our recent entry into the large and growing Indian market, we have now entered the Latin American market with operations in three airports in Brazil (having won a third contract at Salvador), and from next year, we will expand our global footprint to 38 countries, once operations begin at airports in Bahrain, Bermuda and Malaysia. We see further opportunities in all of our new markets.

Our new business growth is underpinned by our ability to deliver food and beverage choices that meet the needs of our customers. An important element of this is the brand line up that we can offer, which includes both national and international brands which we franchise, such as Burger King and Starbucks, and our own proprietary brands such as Upper Crust and Ritazza, which we operate in several countries. This year, we secured several important contract wins at airports with our own brands, including with Ritazza in Abu Dhabi, and with Mi Casa and Nippon Ramen in Brisbane.

 

We also create bespoke concepts and partner with 'local hero' brands to create a sense of place to the travel locations we serve. Some examples from the year include Dean & David in Germany, Archipelago in Singapore, Bastard Burger in Sweden and Manufactory in San Francisco, a bespoke food hall created in partnership with four leading local chefs.

 

Finally, we will continue to look for opportunities for bolt-on acquisitions which meet our returns criteria and align with our strategy, such as our acquisitions of the Jamie Oliver units at Gatwick Airport in June and Red Rock's units at Perth and Melbourne Airports, announced today.

 

3.    Optimising gross margins and leveraging scale benefits

Gross margin has been a significant driver of value for the group. The roll out of gross margin initiatives is progressing well across our regions. Key areas of focus include range and recipe rationalisation, procurement disciplines and the management of waste and losses. We continue to make good progress introducing equipment that automates food preparation in our kitchens and helps to improve the product consistency and reduce waste.

 

We have also identified further opportunities to bring greater efficiency into the supply chain and have made good progress in optimising delivery frequency to better align with product demand. To support all of these initiatives, we continue to invest in both central and local resources.

 

4.    Running an efficient and effective business

We have a multi-year programme of initiatives to improve operating efficiency, which is important to the Group given the backdrop of ongoing labour cost inflation and rising concession fees.

 

Our increasing use of technology in food production and food service is contributing both to improving the customer experience as well as driving greater labour efficiency. This year we have introduced a range of new equipment, including automatic sushi machines, which cut preparation time by 60%, a pizza dough press, which improves production speed with no wastage, and burger ovens, which produce a superior product, using less energy. In addition to this, we have made good progress in driving energy efficiencies and have introduced a number of programmes which have helped to reduce overall energy usage. For example, throughout the course of the past year, we have implemented aerofoil technology in our grab 'n' go refrigeration units, which helps retain cold air within the chillers so that less is wasted.

 

5.    Optimising investment using best practice and shared resources

We have maintained our focus on optimising investment using best practice and shared resources to help drive returns. We are continuing to look at how shared back office services can reduce cost and drive simpler, more efficient processes. We have two outsourced shared service centres in Pune in India and Lodz in Poland which are used by 19 of SSP's countries for financial transaction processing and administrative tasks.

 

This year, we also established an outsourced design centre in India to support our unit development around the world, initially for our lower complexity schemes in the UK, Spain, Asia Pacific and Eastern Europe and Middle East. We will extend these trials to other countries, whilst at the same time testing higher capex projects in the UK.

Financial review

 

Group performance

 

 

2019

£m

2018

£m

Change

Reported

Constant currency

LFL

Revenue

2,794.6

2,564.9

+9.0%

+7.8%

+1.9%

Underlying operating profit

221.1

195.2

+13.3%

+12.1%

 

Underlying operating margin

7.9%

7.6%

+30 bps

+30 bps

 

Operating profit

219.2

193.3

+13.4%

 

 

Operating margin

7.8%

7.5%

+30 bps

 

 

 

Revenue

Revenue increased by 7.8% on a constant currency basis, comprising like-for-like sales growth of 1.9%, net contract gains of 5.6%, and a further 0.3% from acquisitions. At actual exchange rates, total revenue grew by 9.0%, to £2,794.6m.

 

Like-for-like sales growth of 1.9% was broadly consistent across the first and second halves of the year. The growth in the air channel has again been stronger than in rail, driven by increasing passenger numbers in most of our major markets. The overall like-for-like sales growth has been achieved in spite of a number of external challenges faced during the year, particularly during the second half, across a number of our regions, and these headwinds are further explained within the regional performance summaries below. Looking ahead to 2020, many of these challenges will continue, particularly in the first half year, and with the prospect of ongoing political uncertainty and the expectation of airline capacity cuts, we continue to plan cautiously, anticipating full year like-for-like sales at a similar level to 2019 of just below 2%.    

 

Net gains contributed 5.6% to full year revenue growth. We saw strong performances from North America with net gains of 13.0%, including new openings in Seattle, LAX, Oakland and LaGuardia Airports, and Continental Europe where the unusually strong net gains of 6.6% were driven by new contracts at Charleroi Airport in Belgium, Montparnasse Railway Station in Paris, 22 new motorway service areas in Germany and a new contract for 29 Starbucks units in railway stations in the Netherlands. For 2020, the pipeline looks strong, and our expectation is for net gains, including acquisitions, of between 4% and 5%.    

 

Trading results from outside the UK are converted into sterling at the average exchange rates for the year. The overall translation impact on revenue of the movement of foreign currencies (principally the Euro, US Dollar, Indian Rupee, Swedish Krona and Norwegian Krone) in 2019 compared to the 2018 average was 1.2%. If the current spot rates were to continue through 2020, we would expect a negative currency impact on revenue of around -2% compared to the average rates used for 2019. This is only a translation impact.

 

Underlying operating profit

Underlying operating profit increased by 12.1% on a constant currency basis and by 13.3% at actual exchange rates to £221.1m. The underlying operating margin improved by 30 bps, driven by further progress on our strategic initiatives.

 

Gross margin increased by 80 bps year-on-year on a constant currency basis. This improvement reflected the ongoing roll-out of our strategic initiatives to optimise gross margin, including ranging and mix management, food and drink procurement and waste and loss reduction.

 

This was partially offset by an increase in the labour cost ratio of 20 bps year-on-year reflecting the scale and complexity of the new opening and rebranding programme, together with the significant inflationary pressure on labour rates in the UK and North America. Labour cost ratios were also impacted by several of the sales headwinds faced during the year, particularly those relating to political protests in France and Hong Kong that resulted in sharp and unplanned falls in sales.

 

Concession fees rose by 60 bps during the year, very much in line with recent trends, once again impacted by the stronger like-for-like sales growth in the air sector, which typically has higher concession fees but also higher gross margins compared to rail. The improvement in overheads of 30 bps on a constant currency basis was driven by ongoing strategic initiatives, including improved energy efficiency. The rate of depreciation remained flat at 3.8%, slightly below the historical average of around 4%.

 

Looking forward to 2020, we expect to make further good progress on our strategic initiatives and deliver another year of significant expansion. The overall operating margin is expected to remain at a similar level to this year, as we anticipate higher pre-opening and start-up costs associated with another year of strong net gains, our expansion into new territories and our proposed acquisition of the Red Rock operations, as well as a slight increase in the rate of depreciation, reflecting the timing of our investment programme.

 

Operating profit

Operating profit of £219.2m (2018: £193.3m) included an adjustment for the amortisation of acquisition-related intangible assets of £1.9m (2018: £1.9m).

 

 

Regional performance

 

UK (including Republic of Ireland)

 

 

2019

£m

2018

£m

Change

Reported

Constant currency

LFL

Revenue

840.5

798.1

+5.3%

+5.3%

+2.4%

Underlying operating profit

101.8

89.5

+13.7%

+13.7%

 

Underlying operating margin

12.1%

11.2%

+90 bps

+90 bps

 

Note - Statutory reported operating profit was £100.3m (2018: £88.0m) and operating margin was 11.9% (2018: 11.0%) reflecting an adjustment for the amortisation of acquisition related intangible assets of £1.5m (2018: £1.5m).

 

Revenue increased by 5.3% on a constant currency basis, comprising like-for-like sales growth of 2.4% and net contract gains of 2.9%. The like-for-like sales reflected solid growth in the air sector and a slightly stronger performance from the rail sector, which benefited from a lower level of disruption in the rail network during the summer. Looking forward to 2020, with ongoing political and economic uncertainty and the expectation of airline capacity cuts, most notably from the failure of Thomas Cook, we continue to plan cautiously, expecting like-for-like sales in the UK to be around 1%.

The net contract gains included contributions from new M&S Simply Food units in two major London stations, as well as the three Jamie Oliver restaurants at Gatwick airport which we began operating in early summer.

Underlying operating profit for the UK increased by 13.7% on a constant currency basis, and underlying operating margin increased by 90 bps to 12.1%, driven by the stronger like-for-like sales growth and by the continued roll out of our operational efficiency initiatives.

 

Continental Europe

 

 

2019

£m

2018

£m

Change

Reported

Constant currency

LFL

Revenue

1,036.9

971.7

+6.7%

+7.2%

-0.2%

Underlying operating profit

79.3

79.5

-0.3%

+0.6%

 

Underlying operating margin

7.6%

8.2%

-60 bps

-50 bps

 

Note - Statutory reported operating profit was £78.9m (2018: 79.1m) and operating margin was 7.6% (2018: 8.1%) reflecting an adjustment for the amortisation of acquisition related intangible assets of £0.4m (2018: £0.4m).

 

Revenue increased by 7.2% on a constant currency basis, comprising a like-for-like sales decline of 0.2%, net contract gains of 6.6% and the impact of the acquisition of the Stockheim business in Germany of 0.8%. The lower like-for-like sales reflected slower passenger growth across the Nordic countries and Spain, and the impact of major redevelopments in a number of airports, including Copenhagen, Malaga and Las Palmas. Like-for-like sales were also impacted by the 'Gilets Jaunes' protests in France during the first half of the year.

The net contract gains in Continental Europe were unusually strong, driven by new contracts at Charleroi Airport in Belgium, Montparnasse Railway Station in Paris, 22 new motorway service areas in Germany and the new contract for 29 Starbucks units in railway stations in the Netherlands.

Underlying operating profit increased by 0.6% on a constant currency basis. The 50 bps reduction in operating margin on a constant currency basis reflected the impact of the pre-opening costs relating to the new contracts, together with the disruption caused by the airport redevelopments in Denmark and Spain and the protests in France.

 

North America

 

 

2019

£m

2018

£m

Change

Reported

Constant currency

LFL

Revenue

533.4

436.3

+22.3%

+16.5%

+3.5%

Underlying operating profit

41.9

27.7

+51.3%

+44.9%

 

Underlying operating margin

7.9%

6.3%

+160 bps

+150 bps

 

Note - There are no adjustments between underlying operating profit and statutory reported operating profit.

 

North America had a very good year, with revenue increasing by 16.5% on a constant currency basis, comprising like-for-like sales growth of 3.5% and net contract gains of 13.0%. Like-for-like growth was stronger during the first half year, benefiting from positive trends in airport passenger numbers in the North American market, with growth during the second half affected by the grounding of Boeing Max 737 aircraft, and by the transfer of passengers away from our terminals at some airports. Net gains included new openings in Seattle, LAX, Oakland and LaGuardia Airports.

 

Underlying operating profit increased by £14.2m to £41.9m, an increase of 44.9% at constant currency. The underlying operating margin increased by 150 bps on a constant currency basis, largely reflecting this region's increasing scale and its greater focus on operating efficiencies and a lower rate of depreciation. The strong results were particularly pleasing given the lower level of like-for-like sales growth in the second half, and the significant new opening programme. 

 

Rest of the World

 

 

2019

£m

2018

£m

Change

Reported

Constant currency

LFL

Revenue

383.8

358.8

+7.0%

+4.5%

+4.5%

Underlying operating profit

35.9

35.7

+0.6%

-2.3%

 

Underlying operating margin

9.4%

9.9%

-50 bps

-60 bps

 

Note - There are no adjustments between underlying operating profit and statutory reported operating profit.

 

Revenue increased by 4.5% on a constant currency basis, driven entirely by like-for-like sales growth. As in North America, this like-for-like growth was stronger during the first half year, driven by ongoing passenger growth in India, China and Egypt. The softer growth during the second half year reflected impacts from a number of external headwinds, including the cessation of operations at Jet Airways in India, weaker Chinese passenger numbers, which impacted the wider Asia Pacific region, and more recently the protests in Hong Kong. Contract gains came primarily from new units at airports in India and in the Philippines, but were offset by the closure of units in Hong Kong and Shanghai.


Underlying operating profit for the Rest of the World was £35.9m, a fall of 2.3% on a constant currency basis. Underlying operating margin fell by 60bps, with the second half performance impacted by the lower LFL sales growth and the external headwinds highlighted above, as well as the closure of units in Hong Kong and Shanghai and the cost of entering new markets such as the Philippines and Brazil.

 

Share of profit of associates

The Group's share of profit from associates was £4.1m (2018: £4.8m), the year on year reduction reflecting one-off costs in our joint venture operations in France. In 2020, we expect the Group's share of profit from associates to increase to around £7.0m.  

 

Net finance costs

Underlying net finance costs increased by £6.4m year-on-year to £22.0m, largely reflecting the higher average levels of net debt compared to 2018 as a result of the payment of the £149.8m special dividend in April 2019, together with the full year impact of the £100.1m special dividend paid in April 2018. Reported net finance costs were £26.1m (2018: £15.2m), reflecting adjustments of £1.9m for the revaluation and discount unwind of the financial liability to acquire the remaining 16% stake in TFS, and a further £2.2m of non-cash interest charges arising from the adoption of the new debt modification rules under IFRS 9.  

 

Next year, we expect the underlying net finance costs to be around £25m, reflecting a full year's impact of the April 2019 special dividend and the share buyback programme in 2020.

 

Taxation

The Group's underlying tax charge for the year was £45.1m (2018: £40.5m), equivalent to an effective tax rate of 22.2% (2018: 22.0%) of the underlying profit before tax. We expect the underlying effective tax rate to remain at around 22% in 2020.

 

Non-controlling interests

The non-controlling interests increased year-on-year by £1.1m to £26.6m. This increase was lower than in previous years, largely as a result of a reduction in our joint venture partner's share of profit in the TFS business in India, following our acquisition of an additional 16% of the shares during the year. The non-controlling interests' share of profit in our other joint ventures in North America and the Rest of the World continued to grow broadly in line with recent trends.

 

Looking forward to 2020, non-controlling interests are expected to increase to around £30m at current exchange rates, reflecting the expected growth in our joint ventures in these regions.

 

Earnings per share

Underlying basic earnings per share increased by 15.9% to 29.1 pence per share (2018: 25.1 pence per share). Reported basic earnings per share was 28.1 pence per share (2018: 24.9 pence per share).

 

Dividends

In line with the Group's stated priorities for the uses of cash and after careful review of its medium term investment requirements, the Board is proposing to maintain the dividend payout ratio for this year at 40%, the top end of the range stated in the IPO prospectus. This will equate to a final dividend of 6.0 pence per share (2018: 5.4 pence per share), which is subject to shareholder approval at the Annual General Meeting. If approved, this will result in a total ordinary dividend per share for the year of 11.8 pence (2018: 10.2 pence), an increase of 15.7%.

 

The final dividend will be paid, subject to shareholder approval, on 27 March 2020 to shareholders on the register on 6 March 2020. The ex-dividend date will be 5 March 2020.

 

Cash flow

The table below presents a summary of the Group's cash flow for 2019:

 

 2019

£m

 2018

£m

Underlying operating profit1

221.1

195.2

Underlying depreciation and amortisation

105.3

97.7

Working capital

3.7

12.8

Net tax

(37.1)

(37.2)

Other

8.2

11.7

Net cash flow from operating activities

301.2

280.2

Capital expenditure2

(185.0)

(144.2)

Acquisitions in the year

(25.8)

(19.0)

Net cash flows to/from non-controlling interests/associates

(22.5)

(22.5)

Other

-

(4.3)

Operating cash flow

67.9

90.2

Net finance costs

(17.4)

(13.6)

Free cash flow2

50.5

76.6

Dividends paid

(200.8)

(145.8)

Net cash flow2

(150.3)

(69.2)

1 Presented on an underlying basis (refer to page 16 for details).

2 Capital expenditure is net of capital contributions from non-controlling interests of £9.0m (2018: £12.4m).

 

The Group's cash flow remained healthy, generating net cash flow from operating activities of £301.2m (2018: £280.2m), which was an increase of £21.0m year-on-year, and free cash flow of £50.5m (2018: £76.6m).

 

Capital expenditure increased by £40.8m to £185.0m, the higher capex reflecting our net contract gains in the year, as well as the investment in rebranding programmes at airports where we had taken over the business in previous years, for example at Chicago Midway and LaGuardia Airports. Capital expenditure in 2020 is expected to be between £160m and £170m, excluding our proposed acquisition of the Red Rock outlets.

 

Acquisitions in the year used £25.8m of cash flow, principally reflecting the £22.4m paid for the additional 16% stake in the TFS business in India. Net cash outflows to non-controlling interests, net of cash inflows from associates, amounted to £22.5m.  

 

Net finance costs paid of £17.4m were higher than in 2018, primarily due to the higher levels of net debt following the payment of the £149.8m special dividend in April 2019 in addition to the £100.1m paid in April 2018, together with slightly higher interest costs arising from our US Private Placement programme.

 

The dividends paid of £200.8m reflected the cost of the 2018 final dividend of 5.4 pence per share, the 2019 interim dividend of 5.8 pence per share and the special dividend of £149.8m.

 

Overall, the Group used net cash of £150.3m during the year.

 

 

Balance sheet and net debt

The Group's balance sheet remains in a strong position with the net debt of £483.4m (2018: £334.7m) and net assets of £415.6m (2018: £458.3m).

 

 

£m

Opening net debt (1 October 2018)

(334.7)

Net cash flow

(150.3)

Impact of foreign exchange rates

(0.6)

Other

2.2

Closing net debt (30 September 2019)

(483.4)

 

The increase in net debt of £148.7m was primarily a result of the dividend payments of £200.8m, including the special dividend of £149.8m paid in April 2019.

 

Leverage (Net Debt:EBITDA) at the year end was at 1.5x, compared with 1.1x at the end of the prior year. Having reviewed our medium term capital requirements, and with leverage remaining well below our target range of 1.5x-2.0x Net Debt:EBITDA, we are planning to return up to £100m of cash to shareholders in the form of a share buyback. The buyback programme will begin immediately and will end no later than 20 November 2020.  

We will continue to keep the balance sheet under review, with the intention of maintaining leverage broadly within the 1.5x-2.0x Net Debt:EBITDA range over the medium term.

  

Future reporting

IFRS 16, the new financial reporting standard on accounting for leases, is effective for all accounting periods beginning on or after 1 January 2019. As such, SSP's first reported accounting period under IFRS 16 will be the 2019/20 financial year, commencing 1 October 2019.The Group has elected to use the modified retrospective transition approach, and therefore the cumulative effect of the initial adoption will be recognised in the Group's balance sheet at the same date, with no restatement of comparative information.

The new standard has no economic impact on the Group, or its cash flows, and does not affect how the business is run. It does, however, have a significant impact on the presentation of the Group's assets and liabilities, as well as its income statement. In summary, IFRS 16 seeks to align the presentation of leased assets more closely with owned assets. In doing so, a right of use asset and a lease liability are brought on to the balance sheet, with the lease liability recognised at the present value of the future fixed rental payments.

Whilst the right of use asset is matched to the lease liability at inception, it will differ in value over the life of the lease. From an income statement perspective, the pre-IFRS 16 fixed rental charge is replaced by depreciation and interest. IFRS 16 therefore results in an increase in EBITDA and operating profit, which are reported prior to interest being deducted. While depreciation reduces on a straight line basis, interest is charged on outstanding lease liabilities and is therefore highest in the early years of a lease and decreases over time.

For SSP, which operates under concession contracts for nearly all of its business (in which it pays rent as a percentage of sales), this means that the fixed minimum guaranteed rent, which is a constituent of most contracts, is capitalised and depreciated, while the variable concession fee will continue to be expensed to the income statement as a rental charge.

On transition, SSP expects to recognise a right of use asset and a lease liability, each of approximately £1.6bn. From an income statement perspective based on our existing portfolio of leases, operating profit is expected to increase by approximately £10m, with profit before tax expected to be around £25m lower than under current IAS 17 accounting practice.

In the near term, the Group will continue to report its financial results both pre and post the impact of IFRS 16. Further details on the impact of IFRS 16 are provided on page 23.  

 

Post balance sheet events

The Company has announced its intention to return up to £100m to its shareholders through a share buyback programme underpinning its confidence in the business and commitment to maintain an efficient balance sheet. The buyback programme will begin immediately and will end no later than 20 November 2020.

 Alternative Performance Measures

The Directors use alternative performance measures for analysis as they believe these measures provide additional useful information on the underlying trends, performance and position of the Group. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' performance measures and are not intended to be a substitute for IFRS measures.  

 

Revenue growth

As the Group operates in over 30 countries, it is exposed to translation risk on fluctuations in foreign exchange rates, and as such the Group's reported revenue and operating profit will be impacted by movements in actual exchange rates.  The Group presents its financial results on a constant currency basis in order to eliminate the effect of foreign exchange rates and to evaluate the underlying performance of the Group's businesses. The table below reconciles reported revenue to constant currency sales growth, like-for-like sales growth, net contract gains / (losses), and the impact of acquisitions.

 

 

UK

Continental Europe

North America

RoW

Total

2019 Revenue at actual rates by segment (£m)

840.5

1,036.9

533.4

383.8

2,794.6

Impact of foreign exchange (£m)

0.2 

4.9

(24.9)

(8.7)

(28.5)

2019 Revenue at constant currency1 (£m)

840.7

1,041.8

508.5

375.1

2,766.1

 

 

 

 

 

 

2018 Revenue at actual rates (£m)

798.1

971.7

436.3

358.8

2,564.9

 

 

 

 

 

 

Constant currency sales growth

5.3%

7.2%

16.5%

4.5%

7.8%

 

 

 

 

 

 

Which is made up of:

 

 

 

 

 

Like-for-like sales growth 2

2.4%

-0.2%

3.5%

4.5%

1.9%

Net contact gains / (losses) 3

2.9%

6.6%

13.0%

-

5.6%

Acquisitions 4

-

0.8%

-

-

0.3%

Total constant currency sales growth  

5.3%

7.2%

16.5%

4.5%

7.8%

1 Constant currency is based on average 2018 exchange rates weighted over the financial year by 2018 results.

2 Like-for-like sales represent revenues generated in an equivalent period in each financial year in outlets which have been open for a minimum of 12 months. Like-for-like sales are presented on a constant currency basis.

3 Revenue in outlets which have been open for less than 12 months and prior period revenues in respect of closed outlets are excluded from like-for-like sales and classified as contract gains. Net contract gains/(losses) are presented on a constant currency basis.

4 The acquisition impact of Stockheim has been presented separately from net contract gains/(losses) from existing SSP business.

 

 

Underlying profit measures

The Group presents underlying profit measures, including operating profit, profit before tax and earnings per share, which exclude amortisation of intangible assets arising on the acquisition of the SSP business in 2006 and the revaluation of the obligation to acquire an additional 16% ownership share of TFS and the additional non-cash interest as a result of debt modifications arising from the adoption of IFRS 9. A reconciliation from the underlying to the statutory reported basis is presented below.

 

2019

2018

 

Underlying

Adjustments

Total

Underlying

Adjustments

Total

Operating profit (£m)

221.1

(1.9)

219.2

195.2

(1.9)

193.3

Operating margin

7.9%

(0.1)%

7.8%

7.6%

(0.1)%

7.5%

Profit before tax (£m)

203.2

(6.0)

197.2

184.4 

(1.5)

182.9

Earnings per share (p)

29.1

(1.0)

28.1

25.1

(0.2)

24.9

 

 

Consolidated income statement

for the year ended 30 September 2019

 

 

 

2019

2018

 

Notes

Underlying*

Adjustment

Total

Underlying*

Adjustment

Total

 

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

Revenue

2

2,794.6

-

2,794.6

2,564.9

-

2,564.9

Operating costs

4

(2,573.5)

(1.9)

(2,575.4)

(2,369.7)

(1.9)

(2,371.6)

 

 

 

 

 

 

 

 

Operating profit

 

(1.9)

219.2

195.2

(1.9)

193.3

 

 

 

 

 

 

 

 

Share of profit of associates

 

4.1

-

4.1

4.8

-

4.8

Finance income

5

2.3

-

2.3

1.9

0.9

2.8

Finance expense

5

(24.3)

(4.1)

(28.4)

(17.5)

(0.5)

(18.0)

 

 

 

 

 

 

 

 

Profit before tax

 

203.2

(6.0)

197.2   

184.4

(1.5)

182.9   

 

 

 

 

 

 

 

 

Taxation

 

(45.1)

1.4

(43.7)

(40.5)

0.3

(40.2)

 

 

 

 

 

 

 

 

Profit for the year

 

158.1

(4.6)

153.5

143.9

(1.2)

142.7

 

 

 

 

 

 

 

 

Profit attributable to:

Equity holders of the parent

 

131.5

(4.6)

126.9

118.4

(1.2)

117.2

Non-controlling interests

 

26.6

-

26.6  

25.5

-

25.5  

 

 

 

 

 

 

 

 

Profit  for the year

 

158.1

(4.6)

153.5

143.9

(1.2)

142.7

 

 

 

 

 

 

 

 

Earnings per share (p):

-          Basic

3

29.1

 

28.1

25.1

 

24.9

-          Diluted

3

28.7

 

27.7

24.8

 

24.5

 

*Presented on an underlying basis, refer to page 16 for details 

 

Consolidated statement of other comprehensive income

for the year ended 30 September 2019

 

 

 

2019

2018

 

 

£m

£m

 

 

 

 

Other comprehensive income/(expense)

 

 

 

 

 

 

 

Items that will never be reclassified to the income statement

 

 

 

 

 

 

 

Remeasurements on defined benefit pension schemes

 

(6.2)

0.1

Tax credit/(charge) relating to items that will not be reclassified

 

1.9

(0.5)

 

 

 

 

Items that are or may be reclassified subsequently to the income statement

 

 

 

 

 

 

 

Net loss on hedge of net investment in foreign operations

 

(4.3)

(1.0)

Other foreign exchange translation differences

 

16.0

(6.8)

Effective portion of changes in fair value of cash flow hedges

 

(5.9)

1.3

Cash flow hedges - reclassified to the income statement

 

3.8

4.5

Tax credit/(charge) relating to items that are or may be reclassified

 

0.2

(0.2)

 

 

 

 

Other comprehensive income/(expense) for the year

 

5.5

(2.6)

Profit for the year

 

153.5

142.7

 

 

 

 

Total comprehensive income for the year

 

159.0

140.1

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Equity shareholders

 

129.1

115.8

Non-controlling interests

 

29.9

24.3

 

 

 

 

Total comprehensive income for the year

 

159.0

140.1

 

Consolidated balance sheet

as at 30 September 2019

 

 

Notes

2019

2018

 

 

£m

£m

Non-current assets

 

 

 

Property, plant and equipment

 

466.5

371.4

Goodwill and intangible assets

 

747.1

731.2

Investments in associates

 

17.3

10.6

Deferred tax assets

 

28.2

23.7

Other receivables

 

54.3

49.2

Other financial assets

8

-

5.1

 

 

1,313.4

1,191.2

Current assets

 

 

 

Inventories

 

38.7

35.1

Tax receivable

 

0.8

2.0

Trade and other receivables

 

205.4

178.0

Cash and cash equivalents

8

233.3

147.8

 

 

478.2

362.9

 

 

 

 

Total assets

 

1,791.6

1,554.1

 

 

 

 

Current liabilities

 

 

 

Short-term borrowings

8

(128.8)

(31.5)

Trade and other payables

 

(551.9)

(499.7)

Tax payable

 

(30.9)

(25.5)

Provisions

 

(4.6)

(3.4)

Obligation to acquire additional share of subsidiary undertaking

 

-

(20.5)

 

 

(716.2)

(580.6)

Non-current liabilities

 

 

 

Long-term borrowings

8

(587.9)

(456.1)

Post-employment benefit obligations

 

(19.6)

(13.0)

Other payables

 

(4.1)

(2.5)

Provisions

 

(29.9)

(28.0)

Derivative financial liabilities

8

(4.6)

(3.2)

Deferred tax liabilities

 

(13.7)

(12.4)

 

 

(659.8)

(515.2)

 

 

 

 

Total liabilities

 

(1,376.0)

(1,095.8)

 

 

 

 

Net assets

 

415.6

458.3

 

 

 

 

Equity

 

 

 

Share capital

 

4.8

4.8

Share premium

 

461.2

461.2

Capital redemption reserve

 

1.2

1.2

Other reserves

 

12.9

(13.0)

Retained losses

 

(152.1)

(77.7)

Total equity shareholders' funds

 

328.0

376.5

Non-controlling interests

 

87.6

81.8

 

 

 

 

Total equity

 

415.6

458.3

 

 

Consolidated statement of changes in equity

for the year ended 30 September 2019

 

 

Share capital

Share premium

Capital redemption reserve

Other reserves

Retained earnings

Total parent equity

NCI

Total equity

 

£m

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

 

At 1 October 2017

4.7

461.2

1.2

(11.5)

(55.3)

400.3

64.7

465.0

Profit for the year

-

-

-

-

117.2

117.2

25.5

142.7

Other comprehensive expense for the year

-

-

-

(1.0)

(0.4)

(1.4)

(1.2)

(2.6)

Increase in NCI equity

-

-

-

(0.5)

-

(0.5)

2.0

1.5

Issue of shares

0.1

-

-

-

-

0.1

-

0.1

Capital contributions from NCI

-

-

-

-

-

-

12.4

12.4

Dividends paid to equity shareholders

-

-

-

-

(145.8)

(145.8)

-

(145.8)

Dividends paid to NCI

-

-

-

-

-

-

(21.6)

(21.6)

Share-based payments

-

-

-

-

4.6

4.6

-

4.6

Tax on share-based payments

-

-

-

-

2.0

2.0

-

2.0

At 30 September 2018

4.8

461.2

1.2

(13.0)

(77.7)

376.5

81.8

458.3

IFRS 9 Opening balance sheet adjustment (see note 1)

-

-

-

-

7.7

7.7

-

7.7

Tax on IFRS 9 Opening balance sheet adjustment (see note 1)

-

-

-

-

(1.5)

(1.5)

-

(1.5)

Revised balance at 1 October 2018

4.8

461.2

1.2

(13.0)

(71.5)

382.7

81.8

464.5

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

126.9

126.9

26.6

153.5

Other comprehensive income/(expense) for the year

-

-

-

6.5

(4.3)

2.2

3.3

5.5

Capital contributions from NCI

-

-

-

-

-

-

9.0

9.0

Reclassification of obligation to purchase additional stake in subsidiary

-

-

-

10.4

(10.4)

-

-

-

Dividends paid to equity shareholders

-

-

-

-

(200.8)

(200.8)

-

(200.8)

Dividends paid to NCI

-

-

-

-

-

-

(24.7)

(24.7)

Purchase of additional stake in subsidiary

-

-

-

8.3

-

8.3

(8.3)

-

Transactions with NCI

-

-

-

0.7

-

0.7

(0.1)

0.6

Share-based payments

-

-

-

-

8.2

8.2

-

8.2

Tax on share-based payments

-

-

-

-

(0.2)

(0.2)

-

(0.2)

At 30 September 2019

4.8

461.2

1.2

12.9

(152.1)

328.0

87.6

415.6

 

 

Consolidated cash flow statement

for the year ended 30 September 2019

 

 

Notes

2019

2018

 

 

£m

£m

Cash flows from operating activities

 

 

 

Cash flow from operations

6

338.3

310.1

Tax paid

 

(37.1)

(37.2)

Net cash flows from operating activities

 

301.2

272.9

 

 

 

 

Cash flows from investing activities

 

 

 

Dividends received from associates

 

5.2

3.9

Interest received

 

2.4

1.9

Purchase of property, plant and equipment

 

(175.9)

(146.6)

Purchase of other intangible assets

 

(18.1)

(10.0)

Acquisitions in the year, net of cash and cash equivalents acquired

 

(3.4)

(19.0)

Investment in associate

 

(3.0)

(2.6)

Net cash flows from investing activities

 

(192.8)

(172.4)

 

 

 

 

Cash flows from financing activities

 

 

 

Repayment of borrowings

 

(32.0)

(31.5)

Drawdown on revolving credit facility

 

27.5

70.0

Purchase of additional 16% stake in TFS

 

(22.4)

-

Drawdown on USPP debt

 

239.8

-

Repayment of finance leases and other loans

 

(3.2)

(1.7)

Realisation of other financial assets

 

-

5.2

Refinancing fee paid

 

(1.3)

(2.0)

Interest paid

 

(18.5)

(13.5)

Dividends paid to equity shareholders

 

(200.8)

(145.8)

Dividends paid to non-controlling interests, net of equity issued to them

 

(24.7)

(19.6)

Loan to associate

 

-

(4.2)

Capital contribution from non-controlling interests

 

9.0

12.4

Net cash flows from financing activities

 

(26.6)

(130.7)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

81.8

(30.2)

 

 

 

 

Cash and cash equivalents at beginning of the year

 

147.8

178.1

Effect of exchange rate fluctuations on cash and cash equivalents

 

3.7

(0.1)

 

 

 

 

Cash and cash equivalents at end of the year

 

233.3

147.8

 

 

 

 

Reconciliation of net cash flow to movement in net debt

 

 

 

Net increase/(decrease) in cash in the year

 

81.8

(30.2)

Cash inflow from movement in debt and finance leases

 

(232.1)

(36.8)

Cash inflow from movement in other financial assets

 

(5.1)

(5.2)

Change in net debt resulting from cash flows

 

(155.4)

(72.2)

Translation differences

 

(0.6)

(1.0)

Other non-cash changes

 

7.3

0.7

Increase in net debt in the year

 

(148.7)

(72.5)

Net debt at beginning of the year

 

(334.7)

(262.2)

Net debt at end of the year

 

(483.4)

(334.7)

 

Notes

1       Preparation

Basis of preparation and statement of compliance

SSP Group plc (the Company) is a company incorporated in the United Kingdom under the Companies Act 2006. The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the Group) and equity-account the Group's interest in its associates. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and the Companies Act 2006 applicable to companies reporting under IFRS.

 

The financial statements are presented in Sterling, which is the Company's functional currency. All information is given to the nearest £0.1m.

 

The financial statements are prepared on the historical cost basis, except in respect of the derivative financial instruments that are stated at their fair value.

 

New accounting standards adopted by the Group

There have been significant changes to accounting under IFRS which have affected the Group's financial statements. New standards and interpretations effective for periods commencing on or after 1 January 2018 and therefore applicable to the Group's financial statements for the financial year ended 30 September 2019 are listed below:

 

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaced IAS 39 'Financial Instruments: Recognition and Measurement'. The standard introduces changes to four key areas:

-      New requirements for the classification and measurement of financial instruments;

-      A new impairment model based on expected credit losses for recognising provisions;

-      Debt revaluations for all debt modifications, rather than only significant modifications; and

-      Simplified hedge accounting through closer alignment with an entity's risk management methodology.

IFRS 9 was adopted using the modified transition approach without restating comparative information. Hedge accounting relationships within the scope of IFRS 9 have transitioned prospectively. The adoption of the standard has not had a material impact either the consolidated income statement or the consolidated balance sheet. Adjustments as a result of the adoption of the standard are reflected in the opening balance sheet as of 1 October 2018. These relate to the new debt modification rules and are not reflected in the comparative balance sheet. As shown in the consolidated statement of changes in equity, the total impact on the Group's retained earnings was an increase of £6.2m, reflecting a £7.7m impact of IFRS 9 itself less a related tax charge of £1.5m. The change also reduced opening borrowings by £7.7m, increased current tax liabilities by £1.5m and increased interest expense for the 12 months ended 30 September 2019 by £2.2 million.

 

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers provides a five-step revenue recognition model, applicable to all sales contracts, which is based on the principle that revenue is recognised when control of goods or services is transferred to the customer. The standard provides a single, principles-based five-step model to be applied to all contracts with customers to determine whether, how much and when revenue is recognised. IFRS 15 replaces the separate models for goods, services and construction contracts under IAS 11 'Construction Contracts' and IAS 18 'Revenue'.

The Group has adopted IFRS 15 using the cumulative catch-up ('modified') transition method with the effect of first applying this standard at the date of the initial application. The Group has analysed all material revenue streams and concluded that the application of IFRS 15 will result in the same timing and amount of revenue recognition as its previous accounting policy. Consequently, no separate presentation of its impact on the financial statements is given.

Accounting standards issued but not yet effective


IFRS 16 Leases

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right of use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify leases as finance or operating leases.

IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The Group plans to apply IFRS 16 initially on 1 October 2019, using the modified retrospective approach. Therefore the cumulative effect of the initial adoption of IFRS 16 will be recognised in the Consolidated Balance Sheet at the same date, with no restatement of comparative information.

The Group will recognise new assets and liabilities for its concession contracts, buildings and other leases. The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right of use assets and interest expense arising on the unwinding of the discount on lease liabilities. Previously the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference between actual lease payments and the expense recognised.

In addition, the Group will no longer recognise provisions for operating leases that it assesses to be onerous. Instead, the Group will include the payments due under the lease in its lease liability.

No significant impact is expected for the Group's finance leases.

Based on the information currently available and our existing portfolio of leases, the Group estimates that it will recognise a right of use asset and a corresponding lease liability, each of approximately £1.6bn, and an onerous lease provision of £3.8m will be derecognised. The impact on other working capital balances on a net basis is not expected to be material. From an income statement perspective, the indicative impact is:

-   EBITDA is expected to increase by approximately £345m being the reduction in the lease charge;

-   Depreciation and interest arising on the right of use asset and unwind of the lease liability is expected to be approximately £370m; and

-   Profit before tax is expected to be approximately £25m lower than under current IAS 17 accounting practice.

The impact on the Group cash flow will be neutral with reclassification of cash flow from operations to net cash flows from financing activities.

 

The impact assessment and oversight of the implementation of IFRS 16 has been carried out by a working group which includes senior members of Group and divisional finance teams. Progress has been monitored throughout by the Group Audit and Risk committees. The adoption of the new standard is in the final stages of completion.

Other standards

The following amended standards and interpretations are not expected to have a significant impact on the Group's consolidated financial statements:

-   IFRIC 23 Uncertainty over Tax Treatments.

-   Prepayment Features with Negative Compensation (Amendments to IFRS 9).

-   Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28).

-   Plan Amendment, Curtailment or Settlement (Amendments to IAS 19).

-   Annual Improvements to IFRS Standards 2015-2017 Cycle-various standards.

-   Amendments to References to Conceptual Framework in IFRS Standards.

-   IFRS 17 Insurance Contracts.

 

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 the 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, Western Europe and Southern Europe; North America includes operations in the United States and Canada; and RoW includes operations in Eastern Europe, the Middle East, Asia Pacific and India. These segments comprise countries which are at similar stages of development and demonstrate similar economic characteristics.

 

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. Revenue is measured in a manner consistent with that in the income statement.

 

2019

UK

Continental Europe

North America

RoW

Non-attributable

Total

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

Revenue

840.5

1,036.9

533.4

383.8

-

2,794.6

 

 

 

 

 

 

 

Underlying operating profit/(loss)

101.8

79.3

41.9

35.9

(37.8)

221.1

 

2018

 

 

 

 

 

 

Revenue

798.1

971.7

436.3

358.8

-

2,564.9

 

 

 

 

 

 

 

Underlying operating profit/(loss)

89.5

79.5

27.7

35.7

(37.2)

195.2

 

The following amounts are included in underlying operating profit:

 

UK

Continental Europe

North America

RoW

Non-attributable

Total

 

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

Depreciation and amortisation*

(15.2)

(35.6)

(31.3)

(18.6)

(4.6)

(105.3)

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

Depreciation and amortisation*

(12.9)

(34.5)

(28.0)

(17.0)

(5.3)

(97.7)

* Excludes amortisation of acquisition related intangible assets.

 

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

 

2019
£m

2018
£m

Underlying operating profit

221.1

195.2

Adjustments to operating costs

(1.9)

(1.9)

Share of profit from associates

4.1

4.8

Finance income

2.3

2.8

Finance expense

(28.4)

(18.0)

Profit before tax

197.2

182.9

Taxation

(43.7)

(40.2)

Profit after tax

153.5

142.7

 

3       Earnings per share

Basic earnings per share is calculated by dividing the result for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the result for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted by potentially dilutive outstanding share options. Underlying earnings per share is calculated the same way except that the result for the year attributable to ordinary shareholders is adjusted for specific items as detailed in the below table.

 

On 15 April 2019, the Company completed a share consolidation to maintain the comparability of the Company's share price before and after the special dividend to be paid on 26 April 2019. Each shareholder received 20 new ordinary shares in substitution for every 21 existing ordinary shares held at the record date. Following this, on 26 April 2019, a special dividend of 32.1 pence per share was paid to shareholders, equating to a total payment of £149.8m.

 

2019

2018

 

£m

£m

Profit attributable to ordinary shareholders

126.9

117.2

 

 

 

Adjustments:

 

 

Amortisation of acquisition-related intangibles

1.9

1.9

Net revaluation and unwind of discount on obligation to acquire shareholding from non-controlling interest (note 5)


1.9


(0.4)

Interest expense arising from the adoption of IFRS 9 (notes 1 and 5)

2.2

-

Tax effect of adjustments

(1.4)

(0.3)

Underlying profit attributable to ordinary shareholders

131.5

118.4

 

 

 

Basic weighted average number of shares

452,360,460

471,499,626

Dilutive potential ordinary shares

5,953,867

6,515,410

Diluted weighted average number of shares

458,314,327

478,015,036

 

The number of ordinary shares in issue as at 30 September 2019 was 444,852,520 (2018: 464,008,266).

 

 

2019

2018

Earnings per share (p):

 

 

-          Basic

28.1

24.9

-          Diluted

27.7

24.5

 

 

 

Underlying earnings per share (p):

 

 

-          Basic

29.1

25.1

-          Diluted

28.7

24.8

 

4      Operating costs

 

2019

2018

£m

£m

Cost of food and materials:

 

 

 

Cost of inventories consumed in the year

 

(806.7)

(763.5)

Labour cost:

 

 

 

Employee remuneration

 

(809.3)

(736.3)

Overheads:

 

 

Depreciation of property, plant and equipment

 

(98.3)

(90.3)

Amortisation of intangible assets

 

(8.9)

(9.3)

Rentals payable under operating leases

 

(551.8)

(489.6)

Other overheads

 

(300.4)

(282.6)

 

 

(2,575.4)

(2,371.6)

 

 

 

 

Adjustments to operating costs

 

 

 

Amortisation of intangible assets arising on acquisition

 

(1.9)

(1.9)

 

 

(1.9)

(1.9)

5       Finance income and expense

 

2019

2018

 

£m

£m

Finance income

 

 

Interest income

2.3

1.9

Foreign exchange gains on revaluation of obligation to acquire additional share of subsidiary undertaking

 

-

 

0.9

Total finance income

2.3

2.8

 

 

 

Finance expense

 

 

Total interest expense on financial liabilities measured at amortised cost

(18.1)

(9.4)

Net change in fair value of cash flow hedges utilised in the year

(3.8)

(4.5)

Unwind of discount on provisions

(0.4)

(0.6)

Net interest expense on defined benefit pension obligations

-

(0.3)

Unwind of discount on obligation to acquire additional share of subsidiary undertaking


(0.3)


(0.5)

Foreign exchange losses on revaluation of obligation to acquire additional share of subsidiary undertaking


(1.6)


-

Other net foreign exchange losses

(0.7)

(0.8)

Other

(3.5)

(1.9)

Total finance expense

(28.4)

(18.0)

 

Adjustments to finance expense

The adjustments to finance expense comprise adjustments to the financial liability recognised in respect of the obligation to acquire an additional 16% ownership share of TFS. This liability was settled in April 2019. Furthermore, in 2019, an adjustment has also been made to record additional non-cash interest expense arising as a result of changes to the effective interest rate following the adoption of IFRS 9.

 

 

2019

2018

 

      £m

£m

Unwind of discount on obligation to acquire additional share of subsidiary undertaking

 

(0.3)

 

(0.5)

Foreign exchange (losses)/gains on revaluation of obligation to acquire additional share of subsidiary undertaking

 

(1.6)

 

0.9

Total adjustments to the TFS financial liability

(1.9)

0.4

Additional interest expense from adoption of IFRS 9

(2.2)

-

Total adjustments to finance income and expense

(4.1)

0.4

 

 

 

 

         

6       Cash flow from operations

 

2019

2018

 

£m

£m

Profit for the year

153.5

142.7

Adjustments for:

 

 

Depreciation

98.3 

90.3 

Amortisation

8.9

9.3

Share-based payments

8.2

11.7

Finance income

(2.3)

(2.8)

Finance expense

28.4

18.0

Share of profit of associates

(4.1)

(4.8)

Taxation

43.7

40.2

 

334.6

304.6

 

 

 

Increase in trade and other receivables

(30.4)

(54.1)

Increase in inventories

(3.6)

(2.5)

Increase in trade and other payables (including provisions)

37.7

62.1

Cash flow from operations

338.3

310.1

7       Dividends

 

2019

2018

 

£m

£m

Interim dividend paid in the year of 5.8p per share (2018: 4.8p)

(25.8)

(22.2)

Special dividend paid in the year of 32.1p per share (2018: 20.9p)

(149.8)

(100.1)

Prior year final dividend of 5.4p per share paid in the year (2018: 4.9p)

(25.2)

(23.5)

 

(200.8)

(145.8)

The proposed dividend of 6.0 pence per share, amounting to a final dividend of £26.7m, is not included as a liability in these financial statements and, subject to shareholder approval, will be paid on 27 March 2020 to shareholders on the register on 6 March 2020.

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

 

2019

2018

 

£m

£m

Financial instruments measured at fair value:

 

 

Non-current

 

 

Derivative financial liabilities

(4.6)

(3.2)

 

 

 

Financial instruments not measured at fair value:

 

 

Non-current

 

 

Other financial assets

5.1 

Long-term borrowings

(587.9)

(456.1)

Current

 

 

Cash and cash equivalents

233.3

147.8

Short-term borrowings

(128.8)

(31.5)

 

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 (excluding finance lease liabilities) estimated using market prices at 30 September 2019 is £727.1m (30 September 2018: 490.4m).

 

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 year.

9       Post balance sheet event

The Company has announced its intention to return up to £100m to its shareholders through a share buyback programme underpinning its confidence in the business and commitment to maintain an efficient balance sheet. The buyback programme will begin immediately and will end no later than 20 November 2020.

 

10     Annual General Meeting

The Group's Annual General Meeting will be held on 26 February 2020. Details of the resolutions to be proposed at that meeting will be included in the notice of Annual General Meeting that will be sent to shareholders in January 2020.

11     Other information

The financial information for the year ended 30 September 2019 contained in this preliminary announcement was approved by the Board on 19 November 2019. This announcement does not constitute the statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.

 

Statutory accounts for the year ended 30 September 2018 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 30 September 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

The auditor has reported on the 2019 accounts. Their report was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The Company's Annual Report and Accounts for the year ended 30 September 2019 will be posted and made available to shareholders on the Company's website in January 2020.

12     Forward looking statement

This document contains forward-looking statements. These forward-looking statements include all matters that are not historical facts. Statements containing the words "believe", "expect", "intend", "may", "estimate", "anticipate", or, in each case their negative, and words of similar meaning are forward-looking. By their nature, forward-looking statements involve risks and uncertainties because they relate to events that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that the Group's actual financial condition, results of operations and cash flows, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this document or any other document, made by us or on the Group's behalf. In addition, even if the Group's financial condition, results of operations and cash flows, and the development of the industry in which we operate are consistent with the forward-looking statements in this document, those results or developments may not be indicative of results or developments in subsequent periods. 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.


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