LEI:213800QGNIWTXFMENJ24

22 November 2017

SSP GROUP PLC

Results for year ended 30 September 2017

SSP Group, a leading operator of food and beverage outlets in travel locations worldwide, announces its financial results for the year ended 30 September 2017.

Highlights:                                                                                                                                                     

·   Underlying operating profit¹ of £162.9m: up 27.0% at constant currency², and 34.2% at actual exchange rates

·   Revenue of £2,379.1m: up 11.7% at constant currency, and 19.5% at actual exchange rates

·   Like-for-like sales³ up 3.1%: driven by growth in air passenger travel and retailing initiatives

·   Significant net gains⁴ of 6.0%: strong performances in North America and the Rest of the World

·   Underlying operating margin (excluding Indian joint venture, TFS) up 50 basis points at constant currency to 6.5%: as our strategic initiatives continue to deliver

·  Indian joint venture, TFS, added 2.9% to revenue and £12.9m to operating profit: resulting in a combined group underlying operating margin of 6.8%

·   Underlying profit before tax of £148.7m: up 38.3%. Reported profit before tax of £144.8m, up 37.1%

·   Underlying earnings per share of 20.3 pence: up 31.0%. Reported earnings per share of 19.5 pence, up 28.9%

·   Final dividend of 4.9 pence per share, bringing the full year dividend to 8.1 pence per share: up 50.0%, reflecting an increase in the payout ratio to 40%

·   Underlying operating cash inflow⁵ of £103.5m, after our highest level of  investment in the business to date

·   Proposed c.£100m special dividend and share consolidation

·   Encouraging pipeline of new contracts

 

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

"SSP has delivered another good performance in 2017. Operating profit was up 27.0% at constant currency, driven by good like-for-like sales growth, substantial new contract openings and further operational improvements. We have grown our presence across the world, particularly in North America and Asia and we are pleased with the performance of our new business in India. We have invested significant capital in the business this year, our highest to date, and at the same time we are returning cash to shareholders.

 

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."
 

Financial highlights:

			Year-on-year change
	2017 £m	2016 £m	Actual FX rates	Constant currency2
Revenue	2,379.1	1,990.3	+19.5%	+11.7%
Like-for-like sales growth3	+3.1%	+3.0%	n/a	n/a
Underlying operating profit1	162.9	121.4	+34.2%	+27.0%
Underlying operating margin1	6.8%	6.1%	+70 bps	+80 bps
Underlying profit before tax1	148.7	107.5	+38.3%	n/a
Underlying earnings per share (p)1	20.3	15.5	+31.0%	n/a
Dividend per share (p)	8.1	5.4	+50.0%	n/a
Underlying operating cash inflow5	103.5	78.3	+32.2%	n/a
Net debt	(262.2)	(317.4)	+17.4%	n/a

 

Statutory reported results:

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

	2017 £m	2016 £m	Year-on-year change
Operating profit	161.0	119.5	+34.7%
Operating margin	6.7%	6.0%	+70 bps
Profit before tax	144.8	105.6	+37.1%
Earnings per share (p)	19.5	15.2	+28.9%

 

 ¹ Stated on an underlying basis which excludes the revaluation of the obligation to acquire an additional 16% ownership share of TFS by the end of calendar year 2018 and the amortisation of intangible assets arising on the acquisition of the SSP business in 2006. In the prior year the underlying basis only excluded the amortisation of intangible assets arising on the acquisition of the SSP business in 2006.  

² Constant currency is based on average 2016 exchange rates weighted over the financial year by 2016 results.

³ 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.

⁴ 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.

⁵ Stated on an underlying basis after capital expenditure, net cash flows to/from associates and non-controlling interests, acquisitions and tax, and excluding underlying items.

 

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

CONTACTS:

 

Investor and analyst enquiries

 

Sarah John, Director of Investor Relations, SSP Group plc

On 22 November: +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 Preliminary Results 2017 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 nearly 35,000 employees, serving approximately a million customers every day. We have business at approximately 140 airports and 280 rail stations, and operate more than 2,500 units in over 30 countries around the world.

SSP operates an extensive portfolio of more than 450 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, Hard Rock Café and YO! Sushi. We also create stunning bespoke concepts such as Five Borough Food Hall in JFK, New York and Walter at Zurich.

 

www.foodtravelexperts.com 

 

 

Business review

 

Overview

The Group delivered a good performance in the year, driven by like-for-like sales growth, new contract openings across the world and the ongoing 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 have made further good progress in the development of the business in North America and Asia Pacific and the first year's performance of TFS, our joint venture in India, has been encouraging. We have delivered another year of margin growth driven by good like-for-like growth and the ongoing roll out of our strategic initiatives. Cash flows have been strong funding the Group's highest level of investment to date. The increase in the ordinary dividend payout ratio to 40% and the proposed c.£100m special dividend will both contribute to maintaining balance sheet efficiency and underpin our confidence in the business.

 

Financial results

The financial performance of the Group is presented on an underlying basis, for which the statutory reported results are adjusted for the impact of foreign exchange, the amortisation of intangible assets created on the acquisition of the SSP business in 2006 and the revaluation of the obligation to acquire an additional  share of TFS by the end of calendar year 2018. The statutory reported performance of the Group is explained in the financial review, with detailed reconciliation between statutory and underlying performance provided on page 16.

 

The Group delivered a strong financial performance in 2017, with underlying operating profit increasing by 27.0% (on a constant currency basis) to £162.9m, and with a constant currency increase, excluding TFS, in the operating margin of 50 bps. The consolidation of TFS added a further 30 bps, bringing the group margin to 6.8%.

 

Total revenue increased by 11.7% on a constant currency basis, including like-for-like sales growth of 3.1%, net contract gains of 6.0% and a negative impact of 0.3% from the additional leap year day in 2016. TFS contributed a further 2.9% to revenue.

 

Like-for-like growth in the air sector has again been stronger than the rail sector, driven by increasing passenger numbers in most of our markets. 

 

Net contract gains were 6.0% in the full year, an encouraging increase from last year's gains of 1.7%. Over the year we saw very strong contributions from North America and the Rest of the World, reporting net gains of c. 23% and 18% respectively. Significant new unit openings in airports at Chicago Midway and JFK T7 in North America, and in Hong Kong and China in the Rest of the World, have contributed to this strong performance. We continue to focus on retaining profitable contracts and our contract renewal rate in 2017 was in line with historical levels.

 

During the year we won a number of significant new contracts, including at airports in Seattle, Los Angeles and Boston in North America, and in Cebu in the Philippines. We expect to begin operating these contracts progressively over the next two years.

 

The strong operating margin improvement of 50 bps reflects the like-for-like sales growth and further encouraging progress on our strategic initiatives. This result was slightly ahead of our expectations, due to the stronger like-for-like sales growth in the second half and the fact that some unit redevelopments (and corresponding closure periods and pre-opening costs) which were expected to take place in the second half have been deferred into the new financial year.

 

We delivered strong free cash flow of £89.0m, after investing £115.0m in capital expenditure (excluding capital contributions), which was a £19.1m increase on the prior year. The increase in capital expenditure reflects the growth in net gains. Reported net debt fell from £317.4m to £262.2m. The reduction in net debt was driven by the free cash flow of £89.0m, net of the dividend payment of £29.0m.

 

Use of cash

Having reviewed our medium-term capital requirements, we have taken the decision to increase the ordinary dividend for the 2017 financial year and pay out 40% of net income. This takes the payout ratio from 35% to the top of the range we gave at the IPO of 40%. Furthermore, we are today proposing a special dividend of c.£100m which will be accompanied by a share consolidation. Both of these will contribute to maintaining balance sheet efficiency and underpin our confidence in the business.

 

We are intending to pay the final dividend in March 2018 and the special dividend in April 2018. The dividends and share consolidation will be subject to shareholder approval at the Annual General Meeting of the Company to be held in February 2018. Further details of the special dividend and share consolidation (including the final amount to be paid, the proposed record date and payment date for the special dividend) will be set out in the notice of Annual General Meeting that will be sent to shareholders in January 2018.

 

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

 

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 period:

 

1.    Optimising our offer from the positive trends in our markets

 

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 to drive profitable like-for-like sales, ensuring that we benefit from the positive trends in these markets.

 

Like-for-like sales growth in the year was driven by the ongoing roll out of our retailing programmes which are delivering well. We have made further good progress on optimising our product ranges and the development of premium products to provide customers with additional choice. For example, in conjunction with celebrity chef, James Martin, we have recently introduced a new James Martin's Kitchen (JMK) premium range as part of our UK on board rail offer. We have a new first class menu and in standard class, we now include JMK premium lines such as Hot Pots and British Ham and Barber Cheese baguettes.

 

2.    Growing profitable new space

 

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

 

Net contract gains were 6.0%, driven by new unit openings and high levels of contract retention. The higher level of net gains was driven by strong performances in North America and in the Rest of the World. 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. We have strong disciplines around the contract tendering process which support our ability to deliver attractive returns from new business investment.

 

Our new business growth is underpinned by our ability to deliver attractive and effective food 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, and also our own proprietary brands such as Upper Crust and Ritazza, as well as bespoke concepts and local heroes. We have opened a number of units across our range of brands in the year including a new look Ritazza at Euston station, a Camden Food Company in Dubai airport and an Upper Crust at Brisbane airport. We have further expanded our relationships with high profile chefs and this year opened our first Paul Hollywood outlet, KNEAD at Euston station, which has been well received by our customers. We have also secured a deal with Gordon Ramsay to open a new grab and go concept in the air sector.

 

A significant development for us has been our recent entry into India. India is the world's second most populous country, with over one billion inhabitants, and has seen sustained strong passenger growth in recent years, which is forecast to continue. Infrastructure growth is expected to support this and it has been reported that the government is scheduled to invest US$120bn in airport infrastructure over the next decade. We acquired 33% of TFS in India during the year and will acquire a further 16% interest by the end of calendar year 2018. TFS operates over 200 units, with operations in six of the main airports in India including Delhi and Mumbai, as well as in railway stations. TFS has delivered a strong financial performance in the ten months since acquisition and has contributed 2.9% to our revenue.

 

3.    Optimising gross margins

 

Gross margin, excluding TFS, increased by 90 bps in the year at constant currency. Approximately 30 bps of this improvement is due to higher growth in the air sector, which typically has higher gross margins but higher concession fees than the rail sector. As anticipated, we have started to see some increased food inflation in the business and we expect this to continue in the new financial year.

 

The roll out of gross margin initiatives is progressing well across our regions. Key areas of focus include procurement disciplines, range and recipe rationalisation and the management of waste and losses. This year we have made good progress in the introduction of equipment that automates food preparation processes in our sites. This helps to improve the product consistency, as well as driving labour efficiency and reducing waste. To support these initiatives, we continue to invest in both central and local resources.  

 

4.    Running an efficient and effective organisation

 

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. Labour efficiencies contributed a 20 bps improvement to our operating margin.

 

We continue to develop systems to better align labour to sales, allowing us to optimise service levels and labour costs. We have developed a more standardised, systematised approach to labour forecasting and scheduling through a programme called Better Service Planning. We have rolled out the new system across the UK and initial results are encouraging. We are now undertaking further pilot studies across a number of other countries. We are also trialling self-scan and self-serve checkouts at a number of units, both of which can contribute to greater efficiency and the customer experience.

 

5.    Optimising investment utilising best practice and shared resource

 

We have maintained our focus on generating efficiencies to optimise our investments, drive returns and use best practice and shared resources. We are continuing to look at how shared back office services can reduce cost and drive simpler, more efficient processes. We have now established two outsourced shared service centres in Pune in India and Lodz in Poland which are used by a number of SSP's countries for financial transaction processing. We continue to look for further opportunities to outsource administration and financial processes. In addition to this we have made good progress in driving energy efficiencies in the year and have introduced a number of programmes which have helped to reduce overall energy usage.

 

Summary and outlook

The Group delivered a strong financial performance in the year with good like-for-like sales growth, very strong net gains and improvement in operating margin. The new financial year has started in line with our expectations and the pipeline of new contracts is encouraging, although it is always difficult to predict the precise timing of the opening of these new units. Looking forward to 2018, with the current level of general economic uncertainty, we anticipate slightly lower like-for-like revenue growth next year. However the significant structural growth opportunities and our programme to deliver operational improvements leave us well placed to continue to deliver both for our customers and our shareholders.
 

Financial review

 

Group performance

 

	2017 £m	2016 £m	Change
			Reported	Constant currency	LFL
Revenue	2,379.1	1,990.3	+19.5%	+11.7%	+3.1%
Underlying operating profit	162.9	121.4	+34.2%	+27.0%
Underlying operating margin	6.8%	6.1%	+70 bps	+80 bps
Operating profit	161.0	119.5	+34.7%
Operating margin	6.7%	6.0%	+70 bps

 

Revenue

Revenue increased by 11.7% on a constant currency basis, comprising like-for-like sales growth of 3.1%, net contract gains of 6.0% and a negative impact of 0.3% from the additional leap year day in 2016. The TFS business contributed a further 2.9% to revenue. At actual exchange rates, total revenue grew by 19.5%, to £2,379.1m.

 

Like-for-like sales growth was 3.1%. The growth in the air channel has again been strong, driven by increasing passenger numbers in most of our major markets. The growth in the rail channel in the UK and Continental Europe continues to be impacted by ongoing terrorist incidents, strike action in some markets and an increase in disruption due to station redevelopments, particularly in London. Looking forward to 2018, with the current level of economic and geopolitical uncertainty, we continue to plan conservatively, anticipating slightly lower like-for-like sales growth of 2-3%.

 

Net gains contributed 6.0% to full year revenue growth, driven by strong contributions from North America, including at Chicago Midway, JFK T7, Tampa, Minneapolis and Montreal, and the Rest of the World, including in Hong Kong, at Beijing and Sanya in China, and at Don Mueang and Phuket in Thailand. Looking forward to 2018, including TFS, we expect net contract gains to be about 3%.

 

Trading results from outside the UK are converted into sterling at the average exchange rates for the year. The overall impact on revenue of the movement of foreign currencies (principally the Euro, US Dollar, Swedish Krona and Norwegian Krone) in 2017 compared to the 2016 average was +7.8%. If the current spot rates were to continue through 2018, we would expect a negative currency impact on revenue of around 1% compared to the average rates used for 2017. This is a translation impact only.

 

Underlying operating profit

Underlying operating profit increased by 27.0% on a constant currency basis and by 34.2% at actual exchange rates to £162.9m. The underlying operating profit margin, excluding TFS, improved by 50 bps on a constant currency basis and 40 bps at actual exchange rates. The consolidation of TFS added a further 30 bps, bringing the overall underlying operating profit margin to 6.8%. Margin growth has been delivered through the combination of the good like-for-like sales growth and the benefits from our strategic initiatives.

 

Gross margin increased by 110 bps year-on-year, on a constant currency basis, or 90 bps when excluding the impact of TFS. Of the 90 bps improvement, 30 bps is due to the higher sales growth in air, where gross margins are typically higher than the rail sector. The remaining improvement reflects the ongoing roll out of our strategic initiatives which have helped to reduce the impact of ongoing food cost price inflation. Key areas of focus during the year were on reinforced procurement disciplines, range and recipe rationalisation and the strengthening of resources and technology to manage around waste and loss.

 

Labour costs improved by 60 bps year-on-year, on a constant currency basis, with 40 bps of this improvement coming from the inclusion of India with its lower labour cost. Excluding India, the underlying improvement was 20 bps or 30 bps before absorbing the impact of additional share-based payment costs. The improvement in labour ratios was the result of the roll out of our Better Service Planning system, which forecasts sales and supports better labour scheduling and help to mitigate ongoing labour inflation. Looking forward to 2018, we expect to see more modest improvements in our labour ratios, as we face further increases in labour costs, notably in the UK, with a rise in the National Living Wage, and in North America, where we also anticipate rising minimum wage levels in a number of states. In addition to this we will absorb the impact of closure and pre-opening costs on units where redevelopment was deferred until 2018.

 

Concession fees rose by 70 bps during the year with the stronger growth in sales in the air channel, where concession fees are typically higher, contributing 30 bps to the year-on year increase, and the inclusion of TFS a further 10 bps increase. Without these impacts, the underlying increase in concession fees year-on-year was 30 bps.

 

Overheads increased slightly year-on-year with a 10 bps increase, although this is entirely due to the inclusion of the India business. Excluding India, our overheads remain flat year-on-year reflecting further good progress in overhead efficiency.

 

Looking forward to 2018, we anticipate operating margin growth across the Group, including TFS, to be nearer to 20 bps reflecting our expectation of slightly lower like-for-like sales growth, food and labour cost inflation and pre-opening costs.

 

Operating profit

Operating profit was £161.0m (2016: £119.5m), reflecting an adjustment for the amortisation of acquisition-related intangible assets of £1.9m (2016: £1.9m).
 

Regional performance

The following shows the Group's segmental performance. For full details of our key reporting segments, refer to note 2.

 

UK (including Republic of Ireland)

 

	2017 £m	2016 £m	Change
			Reported	Constant currency	LFL
Revenue*	787.7	749.4	+5.1%	+4.8%	+2.1%
Underlying operating profit	82.1	66.4	+23.6%	+23.2%
Underlying operating margin	10.4%	8.9%	+160 bps	+160 bps

* Constant currency revenue growth excludes a negative impact of 0.2% from the additional leap year day in 2016.

Note - Statutory reported operating profit was £80.6m (2016: £64.9m) and operating margin was 10.2% (2016: 8.7%) reflecting an adjustment for the amortisation of acquisition related intangible assets of £1.5m (2016: £1.5m).

 

Revenue increased by 4.8% on a constant currency basis, comprising like-for-like growth of 2.1% and net contract gains of 2.7%. 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. Trading in the rail sector continues to be soft.

 

Underlying operating profit for the UK increased by 23.2% on a constant currency basis to £82.1m, and underlying operating margin increased by 160 bps to 10.4%, helped by the strong revenue growth in the air sector, gross margin optimisation initiatives and labour efficiencies driven by the roll out of the Better Service Planning programme across the UK.

 

Continental Europe

 

	2017 £m	2016 £m	Change
			Reported	Constant currency	LFL
Revenue*	910.3	796.8	+14.2%	+3.1%	+2.7%
Underlying operating profit	77.8	60.1	+29.5%	+18.6%
Underlying operating margin	8.5%	7.5%	+100 bps	+110 bps

* Constant currency revenue growth excludes a negative impact of 0.2% from the additional leap year day in 2016.

Note - Statutory reported operating profit was £77.4m (2016: £59.7m) and operating margin was 8.5% (2016: 7.5%) reflecting an adjustment for the amortisation of acquisition related intangible assets of £0.4m (2016: £0.4m).

 

Revenue increased by 3.1% on a constant currency basis, comprising like-for-like growth of 2.7% and net contract gains of 0.4%. As with the UK, like-for-like sales were stronger in air than in rail, with good growth in the air businesses particularly in Spain, which continues to benefit from tourists switching from the Middle East, and also in France and Germany.

 

Underlying operating profit increased by 18.6% on a constant currency basis to £77.8m. Profit growth was helped by the reversal of the profit impact of last year's terrorist attacks in France and the ongoing roll out of strategic initiatives. The underlying operating margin improved by 110 bps, on a constant currency basis, to 8.5%.

 

North America

 

	2017 £m	2016 £m	Change
			Reported	Constant currency	LFL
Revenue*	372.9	262.7	+41.9%	+27.8%	+4.9%
Underlying operating profit	14.3	12.5	+14.4%	+0.8%
Underlying operating margin	3.8%	4.8%	-90 bps	-100 bps

* Constant currency revenue growth excludes a negative impact of 0.4% from the additional leap year day in 2016.

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

 

Revenue increased by 27.8% on a constant currency basis, comprising like-for-like growth of 4.9% and net contract gains of 22.9%. Like-for-like growth benefited from positive trends in airport passenger numbers in the North American market, although growth in the second half was impacted by changes in airline route scheduling and passenger flows at a few of our airports. Contract gains benefited from commencing operations at Chicago Midway Airport during the second half of the year, where we have been running 27 temporary units ahead of the redevelopment next year. Ultimately we will operate 18 units, with a further 18 units being subcontracted to a number of business partners. In addition to this, we opened important new business in JFK T7, Tampa, Minneapolis and Montreal in the year.

 

Underlying operating profit increased by £1.8m to £14.3m. Operating profit growth was impacted by higher (c.£8m at constant currency) depreciation arising largely from the increased capital invested in new units which opened during the year. Excluding this, we saw good growth in operating profit.

 

Rest of the World (excluding TFS)

 

	2017 £m	2016 £m	Change
			Reported	Constant currency	LFL
Revenue*	243.1	181.4	+34.0%	+25.5%	+7.4%
Underlying operating profit	8.3	8.6	-3.5%	+11.8%
Underlying operating margin	3.4%	4.7%	-130 bps	-50 bps

* Constant currency revenue growth excludes a negative impact of 0.4% from the additional leap year day in 2016.

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

 

Revenue increased by 25.5% on a constant currency basis, with an increase in like-for-like sales of 7.4% and net contract gains of 18.1%. Like-for-like sales were boosted in the second half by strong passenger growth in Asia Pacific, particularly in Hong Kong and China, and growth in Egypt as passengers slowly start to return to the country, although we continue to see very few flights at Sharm el Sheikh. Net gains came primarily from new units at airports in the Asia Pacific region, including in Hong Kong, at Beijing and Sanya in China, and at Don Mueang and Phuket in Thailand. In addition to these we have won a tender to operate (through a joint venture) at Cebu in the Philippines.

 

Underlying operating profit for the Rest of the World was £8.3m, an increase of 11.8% on a constant currency basis. Operating profit growth was impacted by higher (c.£4m) depreciation arising from the increased capital invested in new openings during the year. Excluding this, we saw good growth in operating profit.

 

TFS joint venture performance

In October 2016, SSP announced the agreement to create a joint venture with K Hospitality Group, whereby SSP would own a 49% share in Travel Food Services Private Limited (TFS), a leading operator of food and beverage concessions in travel locations in India, through a two stage completion.

 

The Group owns a 33% share in TFS following the completion of the first stage of the acquisition acquired for net consideration of £35m. The Group will acquire a further 16% share by the end of the 2018 calendar year for an estimated consideration of £21m.

 

SSP has management and operational control of the business and hence it is consolidated into SSP's financial results. In the first ten months of ownership, revenue was £65.2m, with operating profit of £12.9m (see table below). The strong performance was driven by good sales growth and strong profit conversion, in part helped by the relatively lower labour costs in India, but also the delay in opening new units secured at Delhi airport, which will now open next year and hence result in higher pre-opening costs in 2018.

 

Fully consolidated (10 months)
£m	Reported FX rates
Revenue	65.2
Operating profit	12.9
% Margin	19.7%
Net finance charges	(0.2)
Tax	(4.0)
%	(31.6)%
Profit After Tax	8.7
Non-controlling interest*	(6.8)
%	(78.7)%
Net income	1.9

 

* SSP's share of the fully consolidated revenue and profit was 11% (December 2016 to February 2017) and 26% (March to September 2017). This equated to 21.3% in the 10 months to 30 September 2017. In H1 the non-controlling interest share of TFS's PAT was 82.9% and in H2, 77.2%.

 

Share of profit of associates

The Group's share of profit from associates was £3.4m (2016: £1.3m). During the year we disposed of our investment in Avecra, which contributed approximately £1m to the associate income in the year.

 

Net finance costs

Underlying net finance costs increased year-on-year to £17.6m, primarily due to movements in foreign exchange rates and higher interest rate swap costs. Reported net finance costs were £19.6m, the additional £2.0m being the revaluation of the financial liability to acquire the remaining 16% interest in TFS. We recently completed an amend and extend of the Group's debt facilities, securing a slight reduction in the interest rate, the effect of which is expected to reduce the interest charge in 2018 by c.£1m.

  

Taxation

The Group's underlying tax charge for the year was £33.8m (2016: £24.2m), equivalent to an effective tax rate of 22.7% (2016: 22.5%) of the underlying profit before tax. On a reported basis the tax charge for the year was £33.6m (2016: £23.8m). Looking forward we expect the underlying tax rate to be at the lower end of our historical range at around 22%.

 

Non-controlling interests

The non-controlling interests increased year-on-year by £8.6m to £18.4m. The increase largely reflects the first time inclusion of TFS (£6.8m) and the growth in our joint venture businesses, most of which are in North America and the Rest of the World. Next year, we expect the non-controlling interests to increase to around £22m - £23m, reflecting ongoing profit growth in our joint ventures and a full year impact of TFS.

 

Earnings per share

Underlying earnings per share was 20.3 pence per share (2016: 15.5 pence per share). Reported earnings per share was 19.5 pence per share (2016: 15.2 pence per share).

 

Dividends

In line with the Group's stated priorities for the uses of cash and after careful review of the capital expenditure requirements for the coming years, the Board are proposing to increase the dividend payout ratio for this year to 40%, the top end of the range stated in the IPO prospectus. This will equate to a final dividend of 4.9 pence per share (2016: 2.9 pence per share), which is subject to shareholder approval at the Annual General Meeting. If approved, this will result in a total dividend per share for the year of 8.1 pence (2016: 5.4 pence).

 

In addition to this, the Board proposes a special dividend of c.£100m. The Company is also proposing to undertake a share consolidation on the record date of the special dividend. Both of these will contribute to maintaining balance sheet efficiency and reflect our confidence in the business.

 

The final dividend will be paid, subject to shareholder approval, on 29 March 2018 to shareholders on the register on 16 March 2018. The ex-dividend date will be 15 March 2018. The special dividend is expected to be paid in April 2018.

 

The special dividend and share consolidation will be subject to shareholder approval at the Annual General Meeting of the Company to be held in February 2018. Further details of the special dividend and share consolidation (including the final amount to be paid, the record date and proposed payment date for the special dividend) will be set out in the notice of Annual General Meeting that will be sent to shareholders in January 2018.

 

Post balance sheet events

On 17 October 2017, the Group successfully agreed an "amend and extend" of its existing debt facilities, securing an extension of the term by two years to July 2022, a slight reduction in the margin payable on the debt and an increase in its Revolving Credit Facility by £100m to £150m.

 

 Cash flow

The table below presents a summary of the Group's cash flow for 2017:

	2017 £m	2016 £m
Underlying operating profit1	162.9	121.4
Depreciation and amortisation	95.5	78.8
Working capital	18.3	3.8
Net tax	(33.3)	(20.0)
Other	11.9	4.5
Underlying net cash flow from operating activities	255.3	188.5
Capital expenditure2	(115.0)	(95.9)
Sale of/(investment in) associates	7.3	(4.7)
Acquisition of investment in TFS, adjusted for net debt acquired 3	(35.0)	-
Net dividends to/from non-controlling interests/associates	(9.1)	(8.8)
Other	-	(0.8)
Underlying operating cash flow	103.5	78.3
Net finance costs	(14.5)	(13.3)
Underlying free cash flow	89.0	65.0
Dividend paid	(29.0)	(22.3)
Underlying net cash flow	60.0	42.7

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 £8.4m (2016: £8.4m)

³ Comprises consideration of £42.7m adjusted for cash and cash equivalents acquired (£15.2m), other financial assets acquired (£0.8m) and long and short term borrowings acquired (£8.3m), (refer to Note 9).

 

The Group generated net cash flow from operating activities of £255.3m (2016: £188.5m) and underlying free cash flow of £89.0m, an increase of £24.0m compared to 2016, driven by the growth in operating profit, and after increased investment in the business.

 

Capital expenditure increased by £19.1m to £115.0m, reflecting the increased contract wins in 2017. This was at the lower end of the expected range mainly due to the fact that some of the investments planned for contracts commencing in this financial year, notably Chicago Midway and JFK T7, will now fall into next year, when the full redevelopment programme will commence. Capital expenditure in 2018 is expected to be approximately £120m, a reflection of this investment and another year of expected strong net contract gains, including TFS, of approximately 3%.

 

The payment for the acquisition of the Group's current 33% investment in the TFS joint venture in India, after adjusting for net debt acquired, was £35.0m.

 

Working capital generated £18.3m of cash flow during the year. The increase of £14.5m compared to last year reflected the strong sales growth and the fact that some payments at year end fell into October rather than September.

 

Net finance costs paid of £14.5m were higher than in 2016, primarily due to movements in foreign exchange rates and higher interest rate swap costs.

 

The dividend paid of £29.0m reflected the cost of the 2016 final dividend of 2.9 pence per share and the 2017 interim dividend of 3.2 pence per share. Overall, the Group generated net cash flow of £60.0m during the year.

 

Balance sheet and net debt

The Group's balance sheet strengthened in the year, with year end net debt reducing to £262.2m (2016: £317.4m) and net assets increasing to £465.0m (2016: £382.7m).

 

	£m
Opening net debt (1 October 2016)	(317.4)
Net cash flow	67.5
Impact of foreign exchange rates	(3.4)
Acquisition of loans and other financial assets arising on business combinations	(7.5)
Other	(1.4)
Closing net debt (30 September 2017)	(262.2)

 

The reduction in net debt of £55.2m was driven by the net cash flow generation of £67.5m offset by a foreign exchange translation impact of £3.4m arising from the weakening of Sterling during the year and the acquisition of loans and other financial assets relating to TFS.

 

Leverage reduced during the year, leaving net debt:EBITDA at the year end at 1.0 times, compared with 1.6 times at the end of the prior year.

 

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 and net contract gains / (losses).

 

	UK	Continental Europe	North America	RoW incl TFS	Total
2017 Revenue at actual rates by segment (£m)	787.7	910.3	372.9	308.2	2,379.1
Impact of foreign exchange (£m)	(4.3)	(90.3)	(38.1)	(24.1)	(156.8)
2017 Revenue at constant currency 1 (£m)	783.4	820.0	334.8	284.1	2,222.3
2016 Revenue (£m)	749.4	796.8	262.7	181.4	1,990.3
Constant currency sales growth	4.6%	2.9%	27.4%	56.6%	11.7%
Which is made up of:
Like-for-like sales growth 2	2.1%	2.7%	4.9%	7.4%	3.1%
Net contact gains / (losses) 3	2.7%	0.4%	22.9%	18.1%	6.0%
TFS joint venture acquisition 4	-	-	-	31.5%	2.9%
	4.8%	3.1%	27.8%	57.0%	12.0%
Additional leap year day in the prior year	(0.2)%	(0.2)%	(0.4)%	(0.4)%	(0.3)%
	4.6%	2.9%	27.4%	56.6%	11.7%

¹ Constant currency is based on average 2016 exchange rates weighted over the financial year by 2016 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 impact of TFS has been presented separately from net contract gains/(losses) from existing SSP business for the current year only.

 

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 by the end of calendar year 2018. A reconciliation from the underlying to the statutory reported basis is presented below.

 

	2017			2016
	Underlying	Adjustments	Total	Underlying	Adjustments	Total
Operating profit (£m)	162.9	(1.9)	161.0	121.4	(1.9)	119.5
Operating margin	6.8%	(0.1)%	6.7%	6.1%	(0.1)%	6.0%
Profit before tax (£m)	148.7	(3.9)	144.8	107.5	(1.9)	105.6
Earnings per share (p)	20.3	(0.8)	19.5	15.5	(0.3)	15.2

 

Consolidated income statement

for the year ended 30 September 2017

 

		2017			2016
	Notes	Underlying*	Adjustment	Total	Underlying*	Adjustment	Total
		£m	£m	£m	£m	£m	£m
Revenue	2	2,379.1	-	2,379.1	1,990.3	-	1,990.3
Operating costs	4	(2,216.2)	(1.9)	(2,218.1)	(1,868.9)	(1.9)	(1,870.8)
Operating profit		162.9	(1.9)	161.0	121.4	(1.9)	119.5
Share of profit of associates		3.4	-	3.4	1.3	-	1.3
Finance income	5	0.9	-	0.9	0.5	-	0.5
Finance expense	5	(18.5)	(2.0)	(20.5)	(15.7)	-	(15.7)
Profit before tax		148.7	(3.9)	144.8	107.5	(1.9)	105.6
Taxation		(33.8)	0.2	(33.6)	(24.2)	0.4	(23.8)
Profit for the year		114.9	(3.7)	111.2	83.3	(1.5)	81.8
Profit attributable to:
Equity holders of the parent		96.5	(3.7)	92.8	73.5	(1.5)	72.0
Non-controlling interests		18.4	-	18.4	9.8	-	9.8
Profit  for the year		114.9	(3.7)	111.2	83.3	(1.5)	81.8
Earnings per share (p):
-          Basic	3	20.3		19.5	15.5		15.2
-          Diluted	3	20.0		19.2	15.4		15.0

 

*Presented on an underlying basis, refer to page 17 for details 

 

 

Consolidated statement of other comprehensive income

for the year ended 30 September 2017

 

		2017	2016
		£m	£m
Other comprehensive income/(expense)
Items that will never be reclassified to the income statement
Remeasurements on defined benefit pension schemes		6.1	(4.1)
Income tax (charge)/credit relating to items that will not be reclassified		(0.9)	1.7
Items that are or may be reclassified subsequently to the income statement
Net (loss) on hedge of net investment in foreign operations		(1.5)	(48.5)
Other foreign exchange translation differences		(20.1)	83.2
Effective portion of changes in fair value of cash flow hedges		1.2	(6.7)
Cash flow hedges - reclassified to the income statement		4.0	2.7
Income tax (charge)/credit relating to items that are or may be reclassified		(0.4)	1.1
Other comprehensive (expense)/ income for the year		(11.6)	29.4
Profit for the year		111.2	81.8
Total comprehensive income for the year		99.6	111.2
Total comprehensive income attributable to:
Equity shareholders		83.9	97.4
Non-controlling interests		15.7	13.8
Total comprehensive income for the year		99.6	111.2

 

Consolidated balance sheet

as at 30 September 2017

 

	Notes	2017	2016
		£m	£m
Non-current assets
Property, plant and equipment		304.5	272.0
Goodwill and intangible assets		714.2	701.3
Investments in associates		6.8	9.3
Deferred tax assets		21.3	18.1
Other receivables		40.5	37.3
Other financial assets		10.3	-
		1,097.6	1,038.0
Current assets
Inventories		32.6	29.2
Tax receivable		0.1	4.3
Trade and other receivables		135.4	118.1
Cash and cash equivalents	8	178.1	155.8
		346.2	307.4
Total assets		1,443.8	1,345.4
Current liabilities
Short term borrowings	8	(31.4)	(30.7)
Trade and other payables		(419.9)	(404.1)
Tax payable		(22.1)	(23.8)
Provisions		(3.7)	(2.3)
		(477.1)	(460.9)
Non-current liabilities
Long term borrowings	8	(419.2)	(442.5)
Post employment benefit obligations		(13.9)	(19.2)
Provisions		(26.4)	(13.8)
Derivative financial liabilities	8	(9.0)	(14.2)
Obligation to acquire additional share of subsidiary undertaking		(20.9)	-
Deferred tax liabilities		(12.3)	(12.1)
		(501.7)	(501.8)
Total liabilities		(978.8)	(962.7)
Net assets		465.0	382.7
Equity
Share capital		4.7	4.7
Share premium		461.2	461.2
Capital redemption reserve		1.2	1.2
Other reserves		(11.5)	21.5
Retained earnings		(55.3)	(138.0)
Total equity shareholders' funds		400.3	350.6
Non-controlling interests		64.7	32.1
Total equity		465.0	382.7

 

Consolidated statement of changes in equity

for the year ended 30 September 2017

 

	Share capital	Share premium	Other reserves 1	Retained earnings	Total parent equity	NCI	Total equity
	£m	£m	£m	£m	£m	£m	£m
At 30 September 2015	4.7	461.2	(5.1)	(190.6)	270.2	21.5	291.7
Profit for the year	-	-	-	72.0	72.0	9.8	81.8
Other comprehensive income / (expense) for the year	-	-	27.8	(2.4)	25.4	4.0	29.4
Acquisition of additional share in subsidiary	-	-	-	0.4	0.4	(0.5)	(0.1)
Capital contributions from NCI	-	-	-	-	-	8.4	8.4
Dividends paid to equity shareholders	-	-	-	(22.3)	(22.3)	-	(22.3)
Dividends paid to NCI	-	-	-	-	-	(11.1)	(11.1)
Share-based payments	-	-	-	4.5	4.5	-	4.5
Deferred tax on share schemes	-	-	-	0.4	0.4	-	0.4
At 30 September 2016	4.7	461.2	22.7	(138.0)	350.6	32.1	382.7
At 1 October 2016	4.7	461.2	22.7	(138.0)	350.6	32.1	382.7
Profit for the year	-	-	-	92.8	92.8	18.4	111.2
Other comprehensive income / (expense) for the year	-	-	(14.1)	5.2	(8.9)	(2.7)	(11.6)
NCI arising on acquisition	-	-	-	-	-	21.4	21.4
Capital contributions from NCI	-	-	-	-	-	8.4	8.4
Obligation to acquire additional share of joint venture	-	-	(18.9)	-	(18.9)	-	(18.9)
Dividends paid to equity shareholders	-	-	-	(29.0)	(29.0)	-	(29.0)
Dividends paid to NCI	-	-	-	-	-	(12.9)	(12.9)
Share-based payments	-	-	-	11.9	11.9	-	11.9
Deferred tax on share schemes	-	-	-	1.8	1.8	-	1.8
At 30 September 2017	4.7	461.2	(10.3)	(55.3)	400.3	64.7	465.0

 

¹ The other reserves includes the capital redemption reserve, translation reserve, cash flow hedging reserve and the obligation to acquire an additional share of a joint venture. The decrease of £33.0m in other reserves (2016: increase of £27.8m) comprises a decrease to the translation reserve of £19.0m (2016: increase of £31.6m), an increase to the cash flow hedging reserve of £4.9m (2016: decrease of £3.8m) and the creation of the obligation to acquire an additional share of a non-controlling interest in a joint venture of £18.9m (2016: £nil).

 

 

Consolidated cash flow statement

for the year ended 30 September 2017

 

	Notes	2017	2016
		£m	£m
Cash flows from operating activities
Cash flow from operations	6	280.2	208.5
Tax paid		(33.3)	(20.0)
Net cash flows from operating activities		246.9	188.5
Cash flows from investing activities
Investment in associate		-	(4.7)
Dividends received from associates		3.8	2.3
Interest received		0.9	0.4
Purchase of property, plant and equipment		(107.4)	(97.6)
Purchase of other intangible assets		(7.6)	(6.7)
Acquisition of investment in TFS, net of cash and cash equivalents acquired		(27.5)	-
Disposal of associate		7.3	-
Net cash flows from investing activities		(130.5)	(106.3)
Cash flows from financing activities
Repayment of borrowings		(31.6)	(30.8)
Repayment of finance leases and other loans		(1.7)	(0.2)
Investment in other financial assets		(9.5)	-
Interest paid		(15.4)	(13.7)
Dividends paid to equity shareholders		(29.0)	(22.3)
Dividends paid to non-controlling interests		(12.9)	(11.1)
Acquisition of increased share of subsidiary		-	(0.8)
Capital contribution from non-controlling interests		8.4	8.4
Net cash flows from financing activities		(91.7)	(70.5)
Net increase in cash and cash equivalents		24.7	11.7
Cash and cash equivalents at beginning of the year		155.8	134.7
Effect of exchange rate fluctuations on cash and cash equivalents		(2.4)	9.4
Cash and cash equivalents at end of the year		178.1	155.8
Reconciliation of net cash flow to movement in net debt
Net increase in cash in the year		24.7	11.7
Cash outflow from decrease in debt and finance leases		33.3	31.0
Cash outflow from investment in other financial assets		9.5	-
Change in net debt resulting from cash flows		67.5	42.7
Translation differences		(3.4)	(39.1)
Acquisition of TFS loans and other financial assets		(7.5)	-
Other non-cash changes		(1.4)	(1.2)
Decrease in net debt in the year		55.2	2.4
Net debt at beginning of the year		(317.4)	(319.8)
Net debt at end of the year		(262.2)	(317.4)

 

Notes

1     Preparation

Basis of preparation and statement of compliance

The consolidated financial statements of SSP Group plc have been prepared on a going concern basis and 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 financial statements are presented in Sterling and unless stated otherwise, rounded to the nearest £0.1 million. The financial statements are prepared on the historical cost basis except for the derivative financial instruments which are stated at their fair value.

 

Changes in accounting policy and disclosures

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

 

The following standards, issued by the IASB and endorsed by the EU, have not yet been adopted and unless otherwise stated are not expected to have a material impact on the Group:

 

IFRS 9 'Financial Instruments' replaces IAS 39 'Financial instruments - Recognition and Measurement' (effective for the year ending 30 September 2019) - the Group continues to assess the impact this standard would have on its consolidated results and financial position.

 

IFRS 15 'Revenue from Contracts with Customers' (effective for the year ending 30 September 2019) - the Group continues to assess the impact of the new standard, but based on a preliminary assessment, the Group believes that IFRS 15 will not have a significant impact on the timing and recognition of revenue.

 

IFRS 16 'Leases' (effective for the year ending 30 September 2020) - the Group is reviewing the standard in more detail to ensure it prepares itself for adoption and expects that IFRS 16 will have a material impact on the Group's consolidated results and an associated impact on both assets and liabilities.

 

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, 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.

 

2017	UK	Continental Europe	North America	RoW	Non-attributable	Total
	£m	£m	£m	£m	£m	£m
Revenue	787.7	910.3	372.9	308.2	-	2,379.1
Underlying operating profit/(loss)	82.1	77.8	14.3	21.2	(32.5)	162.9
2016
Revenue	749.4	796.8	262.7	181.4	-	1,990.3
Underlying operating profit/(loss)	66.4	60.1	12.5	8.6	(26.2)	121.4
The following amounts are included in underlying operating profit:
	UK	Continental Europe	North America	RoW	Non-attributable	Total
	£m	£m	£m	£m	£m	£m
2017
Depreciation and amortisation*	(12.2)	(32.4)	(28.5)	(17.4)	(5.0)	(95.5)
2016
Depreciation and amortisation*	(14.2)	(34.9)	(18.0)	(9.9)	(1.8)	(78.8)

* Excludes amortisation of acquisition related intangible assets.

 

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

	2017 £m	2016 £m
Underlying operating profit	162.9	121.4
Adjustments to operating costs	(1.9)	(1.9)
Share of loss from associates	3.4	1.3
Finance income	0.9	0.5
Finance expense	(20.5)	(15.7)
Profit before tax	144.8	105.6
Taxation	(33.6)	(23.8)
Profit after tax	111.2	81.8

 

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 below:

	2017	2016
	£m	£m
Profit attributable to ordinary shareholders	92.8	72.0
Adjustments:
Amortisation of acquisition-related intangibles	1.9	1.9
Revaluation and discount unwind of the TFS financial liability (refer to note 7)	2.0	-
Tax effect of adjustments	(0.2)	(0.4)
Underlying profit attributable to ordinary shareholders	96.5	73.5
Basic weighted average number of shares	475,214,310	475,169,510
Dilutive potential ordinary shares	7,487,883	3,579,804
Diluted weighted average number of shares	482,702,193	478,749,314
The number of ordinary shares in issue as at 30 September 2017 was 475,226,453 (30 September 2016: 475,199,063).
	2017	2016
Earnings per share (p):
-          Basic	19.5	15.2
-          Diluted	19.2	15.0
Underlying earnings per share (p):
-          Basic	20.3	15.5
-          Diluted	20.0	15.4

 

4     Operating costs

		2017	2016
		£m	£m
Cost of food and materials:
Cost of inventories consumed in the year		(727.0)	(636.5)
Labour cost:
Employee remuneration		(687.2)	(581.6)
Overheads:
Depreciation of property, plant and equipment		(89.3)	(74.2)
Amortisation of intangible assets - software		(6.2)	(4.6)
Amortisation of acquisition-related intangible assets		(1.9)	(1.9)
Rentals payable under operating leases		(438.0)	(349.6)
Other overheads		(268.5)	(222.4)
		(2,218.1)	(1,870.8)
Adjustments to operating costs
Amortisation of intangible assets arising on acquisition		(1.9)	(1.9)
		(1.9)	(1.9)

 

5     Finance income and expense

	2017	2016
	£m	£m
Finance income
Interest income	0.9	0.4
Net foreign exchange gains	-	0.1
Total finance income	0.9	0.5
Finance expense
Total interest expense on financial liabilities measured at amortised cost	(11.2)	(10.5)
Net change in fair value of cash flow hedges utilised in the year	(4.0)	(2.7)
Unwind of discount on provisions	(0.5)	(0.6)
Net interest expense on defined benefit pension obligations	(0.3)	(0.4)
Net foreign exchange losses	(0.2)	-
Net revaluation of TFS financial liability	(2.0)	-
Other	(2.3)	(1.5)
Total finance expense	(20.5)	(15.7)

 

Adjustments to finance expense

The adjustments to finance expense in the year to 30 September 2017 includes the revaluation of the obligation to acquire an additional 16% share of TFS in late 2018.

	2017	2016
Unwind of discount on obligation to acquire additional share of subsidiary undertaking	(0.4)	-
Revaluation of obligation to acquire additional share of subsidiary undertaking	(2.4)	-
Foreign exchange gains on revaluation of obligation to acquire additional share of subsidiary undertaking	0.8	-
Net revaluation of TFS financial liability	2.0	-

 

6     Cash flow from operations

	2017	2016
	£m	£m
Profit for the year	111.2	81.8
Adjustments for:
Depreciation	89.3	74.2
Amortisation	8.1	6.5
Share-based payments	11.9	4.5
Finance income	(0.9)	(0.5)
Finance expense	20.5	15.7
Share of profit of associates	(3.4)	(1.3)
Taxation	33.6	23.8
	270.3	204.7
Decrease/(increase) in trade and other receivables	3.9	(18.7)
Decrease in inventories	(2.4)	(0.1)
Decrease in trade and other payables including provisions	8.4	22.6
Cash flow from operations	280.2	208.5

7     Dividends

	2017	2016
	£m	£m
Interim dividend paid in the year of 3.2p per share (2016: 2.5p)	(15.2)	(11.8)
Prior year final dividend of 2.9p per share paid in the year (2016: 2.2p)	(13.8)	(10.5)
	(29.0)	(22.3)

The proposed dividend of 4.9 pence per share, amounting to a final dividend of £23.3m, is not included as a liability in these financial statements, and subject to shareholder approval, will be paid on 29 March 2018 to shareholders on the register on 16 March 2018.
 

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
	2017	2016
	£m	£m
Financial instruments measured at fair value:
Non-current
Derivative financial liabilities	(9.0)	(14.2)
Financial instruments not measured at fair value:
Non-current
Other financial assets	10.3	-
Long term borrowings	(419.2)	(442.5)
Current
Cash and cash equivalents	178.1	155.8
Short term borrowings	(31.4)	(30.7)

 

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 30 September 2017 is £454.2m (30 September 2016: £476.7m).

 

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     Business combinations

The Group has created a joint venture with K Hospitality Group, whereby SSP will ultimately own a 49% share in Travel Food Services Private Limited (TFS).

 

On 13 December 2016, the Group acquired 15.1% of the issued share capital of TFS, a leading operator of food and beverage concessions in travel locations in India. A further 17.9% of the issued share capital was acquired on 3 March 2017 bringing the total shareholding to 33%. As part of the acquisition the Group agreed to acquire a further 16% shareholding by the end of calendar year 2018.

 

The acquisition provides an entry point for the Group into the Indian market and the Group expects to benefit from TFS' established strong local presence. By virtue of the agreement with the other shareholders, the Group has control over TFS' relevant activities including establishing budgets and operating plans, appointment of key management personnel and ongoing review of performance and reporting procedures and as such is consolidating TFS and its group companies.

 

The goodwill calculation is summarised below:

 

Provisional fair value of assets acquired	Book value	Measurement adjustment	Fair value
	£m	£m	£m
Property, plant and equipment	14.6	-	14.6
Intangible assets	-	1.5	1.5
Other financial assets	0.8	-	0.8
Inventories	1.2	-	1.2
Cash and cash equivalents	15.2	-	15.2
Trade and other receivables 1	21.2	-	21.2
Trade and other payables	(15.8)	-	(15.8)
Long and short-term borrowings	(8.3)	-	(8.3)
Deferred tax assets / (liabilities)	1.0	(0.5)	0.5
Net identifiable assets	29.9	1.0	30.9
Non-controlling interest	(21.0)	(0.4)	(21.4)
Goodwill on acquisition			33.2
Cash consideration			42.7

¹ All acquired receivables held at fair value, which is equivalent to the gross contractual amount receivable.  All contractual cash flows are expected to be collected.
 

Reconciliation of consideration to cash flow statement

	£m
Cash consideration	42.7
Less: cash and cash equivalents acquired	(15.2)
Acquisition of investment in TFS, net of cash and cash equivalents acquired	27.5
Less: other financial assets acquired	(0.8)
Add: long and short term borrowings acquired	8.3
Acquisition of TFS, adjusted for net debt acquired	35.0

 

The intangible assets acquired represent the fair value of the brand names acquired, namely Caféccino, Idli.com, Flying Bites and Curry Kitchen. The Board believe that the excess of consideration paid over the fair value of the net identifiable assets is best considered as goodwill on acquisition representing relationships with airports, extensive knowledge of the Indian travel catering market and future operating synergies.

 

Included in the 12 month period to 30 September 2017 is revenue of £65.2m and an operating profit of £12.9m in respect of TFS.

 

If the acquisition of TFS had been made at the beginning of the financial year, the estimated contribution to the results of the Group for the year ended 30 September 2017 would have been £78.0m to revenue and £15.1m to operating profit.

 

Obligation to acquire additional share of subsidiary undertaking

The consideration payable for the additional 16% is based on a multiple of TFS' 2018 Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) and has been estimated by reference to most recent financial statements and internal budgets and forecasts, discounted with a suitable discount rate and subject to a cap of £21.4m (undiscounted at 30 September 2017 exchange rates). 

 

The discount rate is pre-tax and reflects the current market assessments of the time value of money and a specific risk premium relevant to the TFS business. This discount rate is considered to be equivalent to the rate a market participant would use.

 

On acquisition, the Group recognised a financial liability of £18.9m in respect of its obligation to acquire a further 16% of TFS in 2018. As at 30 September 2017 the financial liability was £20.9m. This reflects the TFS updated assumptions on the forecasted 2018 EBITDA due to the business exceeding expectations compared to the forecasts at the time of the original acquisition of the initial shareholding, adjustments for the subsequent foreign exchange revaluation and the unwind of discounting.

 

10   Post balance sheet event

On 17 October 2017 the Group completed an "amend and extend" of its existing Debt Facilities to: extend the final maturity date by two years from July 2020 to July 2022; reduce the margin on the debt and the Revolving Credit Facility by 25 basis points; and increase the size of the Revolving Credit Facility by £100m to £150m.

 

11   Annual General Meeting

The Group's Annual General Meeting will be held on 27 February 2018. 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 2018.

 

12   Other information

The financial information for the year ended 30 September 2017 contained in this preliminary announcement was approved by the Board on 21 November 2017. This announcement does not constitute 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 2016 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 30 September 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

 

The auditors have reported on those accounts. Their reports were not qualified, 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 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 2017 will be posted and made available to shareholders on the Company's website in January 2018.

 

13           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" 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 other 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.