Final Results

4 March 2014

John Menzies plc

The aviation services & print media distribution group

Final Results for the year ended 31 December 2013

Highlights

· Aviation momentum continues, underlying operating profit up 11% at constant currency

· Distribution impacted by weak magazine sales

· Strong Balance Sheet and Operating Cash Flow

Operational Highlights

· A year of significant operational progress

· Three acquisitions completed and successfully integrated

· Cargo turnaround delivers margin improvement

· Publisher renewals continue to progress well with 80% of 2013 revenues secured to 2019

· Successful cost management programmes deliver over £5m full year saving

Iain Napier, Chairman said:

"During 2013 our Aviation services business continued to demonstrate its growth credentials, improving profit by 11%. We have continued to invest for growth, acquiring three businesses which extend our global footprint and further develop relationships with airlines. In Distribution, we continue to make significant efficiency improvements and had a successful year renewing contracts with publishers, although overall profit was impacted by weak markets.

"I am confident that the Group is on a firm financial footing and we are well placed to grow our business while delivering returns for our shareholders."

For further information:

Notes to Editors

1. John Menzies plc is one of Scotland's largest companies. The company has two operating divisions, Menzies Aviation and Menzies Distribution. Both divisions operate in distinct B2B sectors where success depends on providing an efficient, high quality, time-critical service to their customers and partners. The company was established in 1833 and its head office is in Edinburgh, Scotland. Today the company is an international business with operations worldwide.

2. Menzies Aviation is a leading global provider of passenger, ramp and cargo services. It also owns AMI, the world's only trade-only global airfreight and express wholesaler. The Menzies Aviation business is highly successful, operating at 144 airports in 31 countries, with annual revenue in excess of US$1.1bn and supported by a team of around 20,000 highly-trained people. Menzies Aviation serves over 500 customers, handling around 1m flights and 1.5m tonnes of cargo per annum. Customers include easyJet, Cathay Pacific, British Airways, Emirates, Qatar, Virgin America & Australia, Jet Blue, Asiana & Singapore Airlines. Best in class safety and security, the most resilient and innovative technology in its peer group and flawless customer service are what sets Menzies Aviation apart from other service providers.

3. Menzies Distribution is a leading provider of added value distribution and marketing services to the newspaper and magazine supply chain in the UK. The division handles around 5 million newspapers and 2 million magazines (covering some 3,000 magazine titles) each day, with deliveries to around 25,000 customers. The division employs 3,800 people at 40 sites throughout the UK - and is a strongly cash generative business, with around 45% of the newspaper and magazine wholesale distribution market in the UK. It has a track record of investment in innovation and customer service delivery.

4. Further information on John Menzies plc can be found at: www.johnmenziesplc.com, www.menziesdistribution.com and www.menziesaviation.com.

BUSINESS OVERVIEW

Group Performance

Much progress has been made during 2013, a busy year for contract renewals and wins, in both our Aviation and Distribution businesses. We now have over 80% of our revenue streams from print media distribution underpinned with contracts which are not due for renewal until 2019, and in Aviation we have seen positive growth in contract wins with both existing customers and new customers.

Our geographic diversification continues, including entry into Latin America, with three key Aviation acquisitions made in the year building on our solid global platform and positioning us well for future growth.

2013 has been an important year for building a strong growth platform and refocusing efforts in cost management in response to very disappointing magazine sales in the year which impacted our results.

Turnover was £2,000.3m (2012: £1,996.8m). Underlying profit before tax fell to £53.1m (2012: £54.5m) as the Group continues to focus on driving growth from aviation related activities against a backdrop of a structural decline in print media. We will continue to mitigate this trend by actively managing the cost structure supporting the print media distribution network. The small decline in underlying profit before tax had a consequent impact on our underlying earnings per share figure which decreased slightly to 65.6p (2012: 68.8p).

Profit before tax was £42.1m (2012: £28.1m). 2012 included £18.4m of non-recurring items reflecting, in the main, management actions to close cargo operations in the UK and USA which allowed the focus to be on higher margin operations which has yielded benefits in 2013.

Focus on our Aviation growth agenda continues with the division now representing 63% of Group underlying operating profit (2012: 57%). We are pleased to report revenue growth of 4% in that division to £722.8m, and 9% operating profit growth to £37.8m. On a constant currency basis, operating profits increased by 11%.

As expected, our Distribution division had a challenging year as the volume of newspapers, magazines and collectibles continue to decline with magazine sales a particular disappointment. As a result we continue to focus on efficiency measures, delivering over £5m of savings in the year. Following the acquisition of Orbital Marketing Services in 2012 we are pleased to report this is performing to expectations and made a valuable contribution. The impact of the core print decline was partially offset by cost management and new business streams although operating profit for the year was £24.3m (2012: £27.5m). Looking forward, a major rationalisation programme will commence in 2014 and c£5m of exceptional costs are planned over the next two years.

Taxation

As a multinational business we are liable to taxation in multiple jurisdictions around the world. The Group's underlying tax charge for the year was £13.3m (2012: £13.2m), representing an effective underlying tax rate of 25% (2012: 24%). Tax paid totalled £10.1m (2012: £9.5m). Looking forward, underlying tax rates are expected to increase to c27% reflecting our entry into Latin America and the rising proportion of profits in higher tax rate jurisdictions.

Acquisition and Related Intangible Assets

During the year, three acquisitions were made as part of the business development agenda in Aviation which required an investment of £14.9m (including debt acquired). The acquisitions build upon our regional presence in Oceania and Scandinavia, and provide a new entry point into Latin America. Acquisition costs totalled £0.7m and these are highlighted as non-recurring items in the Group Income Statement.

Defined Benefit Pension Scheme

As at 31 December 2013 the scheme showed a deficit of £45.8m (2012: £62.5m) a reduction of £16.7m due to improved performance on the scheme assets and increased employer contributions. Following the actuarial valuation carried out as at 31 March 2012, the Company agreed with the Trustees of the Fund to contribute an additional annual cash payment of £11m plus RPI which commenced on 1 April 2013.

IAS19 (Revised) Employee Benefits was implemented in 2013 and the financial statements have been prepared accordingly. The impact on prior year financial statements are as set out in Note 1 to the 2013 Annual Report and results in a net reduction in operating profit for that year of £2.1m.

Auto enrolment was introduced during the year and in October 2013 more than 6,000 of our employees were enrolled in the Nest pension scheme. The current estimated impact to operating profit is an additional cost of approximately £1m for 2014.

Cash Flow and Investment

In the year ended 31 December 2013 the Group had an operating cash flow of £68.3m (2012: £64.3m) and a free cash flow of £32.6m (2012: £34.7m). Investment in acquired businesses and capital expenditure totalled £33.5m (2012: £34.8m) which underlines our policy of investing for future growth.

Treasury

The Group continues to be on a very strong financial footing. We have a robust Balance Sheet built from strong operating cash flows across the divisions and our total debt to EBITDA ratio of 1.7 times at 31 December 2013 is well within our covenant level of 3 times. Our interest cover is 12.4 times.

At the year end December 2013 the Group had net debt of £103.5m (2012: £93.0m) which was comfortably below the available committed lending facilities. Post the year end facilities that were due for renewal in the first six months of 2014 have been renegotiated and increased by approximately £55m to create appropriate headroom to support business growth.

The majority of Menzies Aviation's stations are located outside of the UK and operate in currencies other than Sterling. The Group attempts to minimise the volatility of transactional foreign exchange as far as possible through the use of foreign exchange forward contracts. The translation of profits from overseas trading entities is not hedged and as a result the movement of exchange rates directly affect the Group's reported results, which in 2013 was £0.7m. In particular the recent adverse movements have been in the Australian dollar, Indian rupee and South African rand.

OPERATING REVIEW

MENZIES AVIATION

Performance

2013 was a year of further progress with good profit growth. This demonstrates the clear resilience that the business has through its customer, product and geographical diversity. We invested in further growth by making acquisitions, including a strategic entry into the Latin American market and consolidation in Australia and New Zealand. The division also grew by winning new contracts at both existing and new airports. Headwinds were experienced through foreign exchange with a number of currencies moving adversely and through yield pressure where the renewal of contracts in competitive western European airports impacted profit progression.

We won 92 new contracts, at locations across the network. 26 contracts were lost, 9 to price and the remainder from route cessation. This adds some £15.6m of net revenue. In addition, we renewed 114 contracts securing £104.1m annual revenue. We experienced some yield pressure during the year especially in Europe where competition is particularly intense.

Aircraft turns were up 9% reflecting the benefits of prior year contract wins and acquisitions made in the UK and the Czech Republic. Like for like turns increased 2% representing market growth at existing stations, although this was tempered by some airlines not flying their anticipated schedules, particularly in the UK, which also adversely affected ground handling margins. 2013 was a very busy year for business development. We won a licence to operate at Nice airport in France and have secured Norwegian Airlines as our anchor customer. In the USA our ground handling business continued to expand, notably with Frontier Airlines at three new locations.

Following a period of re-structuring, cargo handling had a good year with the operating margin improving and the business now in the shape that we have been striving for. It is an attractive product where good margins can be achieved. Whilst large operations at a number of locations still exist, our portfolio now mainly focuses on restricted licences in emerging markets and locations where offering airlines a one stop shop of cargo and ground handling is important. As expected, absolute cargo tonnes were down 14%. This reflects the closure of large facilities in Chicago and New York together with the downsizing of the cargo network in the UK. Like for like tonnes were marginally down on the prior year at 2% which is in line with our expectations and published IATA statistics.

We made three acquisitions during the year. Skystar, a ground handling business operating at eight locations across Australia and New Zealand, was acquired in October. This was a key consolidation play and had a strong strategic fit with our existing business in the region. The acquisition has integrated well and further contracts have been won at the new stations. We now have a very strong presence in the region and further expansion plans are in place. In August, we acquired Desacol, a cargo and ground handling business based at five stations in Colombia. This acquisition was a strategic entry into Latin America which is an attractive region that we have identified for further growth. The acquisition is bedding in well and this provides a platform for other opportunities that exist in Latin America. Lastly, we acquired Moose Aviation, a small ground handling business based at Stockholm Arlanda airport in Sweden which added to our existing presence allowing us to provide a full service to prospective and existing airline customers.

AMI, our cargo forwarding business, had another good year increasing profits by 11% to £4.2m. The business now has a network of offices across the globe and is benefitting from being a truly independent player in the busy freight forwarding marketplace.

The contract pipeline remains strong and we continue to evaluate acquisition opportunities that we believe will deliver the required returns. We will continue to provide what we believe to be the best service offering in the industry, putting safety and security at the heart of everything we do and providing our airline customers with the service they demand. We align ourselves with growing, financially sound airlines and in a consolidating market Menzies Aviation is very well placed to continue growing as we look to deepen existing customer relationships, expand into new territories and attract new customers.

MENZIES DISTRIBUTION

Performance

Despite a challenging year where weekly magazine sales saw a step change decline in volume, we delivered excellent cost savings, successfully renewed over 80% of revenues from publisher contracts and Orbital Marketing Services, the business acquired in October 2012, delivered its expected returns. These achievements allow the division to plan for the future with confidence.

Sales in the magazine market were weak, with the weekly market in particular affected by falling volumes and title closures. As expected, due to the absence of a major football tournament, collectibles were behind the prior year.

In the core categories, overall magazine sales were down 9.2% (8.2% like for like). Weekly titles, particularly the celebrity category, were down 10.5% (9.2% like for like) with monthly titles down 7.5% (6.9% like for like). During the year a number of titles closed including Autotrader, easyLiving and More.

Newspaper sales performed ahead of expectations with sales value up 1.5% (like for like down 2.0%), resulting from strong cover price growth and new business won from News International in Northern Ireland.

During the year we continued to renew our major publisher contracts. We now have over 80% of 2013 revenues secured through to 2019. These renewals provide contract security and allow plans to be made for the future shape of the business.

Productivity and cost saving initiatives continue to deliver results. In 2013 over £5m of cost savings were achieved.

The integration of Orbital Marketing Services progressed well, meeting synergy and profit targets. The distribution of printed media (travel brochures) is integrating into the core network and we are evaluating opportunities within the fulfilment and direct mailing markets. Menzies Marketing Services made progress year on year but continues to operate in a challenging environment.

To address the fall in volume we have accelerated extensive branch rationalisation plans. The implementation of these plans will commence in the first half of 2014 and will run through a number of stages before completion in the second half of 2015. As a result a number of newspaper packing spokes will close and magazine packing will be centralised into a smaller number of hub locations. To deliver the project exceptional rationalisation costs of c£5m will be incurred over the next 24 months. It is expected that the recurring benefits of this rationalisation will commence during 2015.

Board

During the year we have seen our Board evolve. Paul Dollman, Group Finance Director, retired and was replaced by Paula Bell in June. Iain Harrison stepped down from the Board at the AGM after a period of 26 years service. We recently announced that David McIntosh will step down as Managing Director of Menzies Distribution after 25 years service once a successor is in place. A search for both David's successor and an additional non-executive director is underway.

Dividend

The Board has recommended a final dividend of 18.8p per share which is payable on 20 June 2014 to all shareholders on the register at 23 May 2014. The total (paid and proposed) dividend for the year has increased by 5% to 26.5p per ordinary share and is an indication of the underlying strength and stability in the business.

Outlook

Trading conditions, particularly within the Distribution business, are likely to remain challenging in 2014. We expect momentum to continue at Aviation on a constant currency basis and with further planned growth in the aviation marketplace, a solid balance sheet and new borrowing facilities secured, the Group is well placed to take advantage of investment opportunities as they arise. The Group as a whole will continue its focus on cost management in 2014 which delivered savings in the Distribution business alone of over £5m in 2013. The announcement of a 5% increase in the final dividend emphasises the robustness of the Group's financial prospects and the Board looks to the future with confidence.

GROUP INCOME STATEMENT

for the year ended 31 December 2013 (year ended 31 December 2012)

* Underlying operating profit is consistently presented adjusting for non-recurring exceptional items, intangible amortisation associated with goodwill impairment on associate assets and contract amortisation, and the Group's share of interest and tax on joint ventures and associates to provide an appreciation of the impact of those items on operating profit.

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2013 (year ended 31 December 2012)

GROUP AND COMPANY BALANCE SHEETS

as at 31 December 2013 (31 December 2012 and 31 December 2011)

The accounts were approved by the Board of Directors on 3 March 2014 and signed on its behalf by:

GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY

as at 31 December 2013 (31 December 2012)

GROUP AND COMPANY STATEMENT OF CASH FLOWS

for the year ended 31 December 2013 (year ended 31 December 2012)

* Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.

Notes to the Accounts

The consolidated accounts of the Group for the year ended 31 December 2013 were approved and authorised for issue in accordance with a resolution of the Directors on 3 March 2013. John Menzies plc is a limited company incorporated in Scotland and is listed on the London Stock Exchange.

1. Accounting policies

A summary of the more significant accounting policies, which have been consistently applied, is set out below.

New Accounting Standards and Interpretations affecting the Group

In the current year the Group has adopted the amendments to IAS 1 Presentation of items of Other Comprehensive Income, IFRS 13 Fair Value Measurement and IAS 19R Employee Benefits.

The amendment to IAS 1 require items of Other Comprehensive Income to be grouped by those that will be reclassified subsequently to profit or loss and those that will never be reclassified subsequently to profit or loss, together with their associated income tax. The amendments have been applied retrospectively and, hence, the presentation of items in Other Comprehensive Income have been restated to reflect the change. The effect of these changes is evident from the Group Statement of Comprehensive Income.

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by the Group. IFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. The relevant disclosures are reflected in Note 12.

Under IAS 19R the interest cost on the defined benefit obligation, and the expected rate of return on plan assets, have been replaced with a net interest charge that is calculated by applying the discount rate to the net defined benefit liability. In addition, administration expenses are now treated as an operating expense. The impact on the results, Statement of Changes in Equity, Balance Sheet, earnings per share for the prior year and impact on the current year is outlined below.

Impact on results for the year ended 31 December 2012

Impact on Statement of Changes in Equity

Retained earnings at 1 January 2012 and 1 January 2013 have been restated from £42.4m to £52.5m and £32.5m to £36.8m respectively. In 2010, the future accrual in the Menzies Pension Fund was capped at 1% resulting in a reduction in the Fund's liabilities. Under IAS 19 the benefit of this reduction was being spread over the remaining life of the Fund. Under IAS 19R this spreading is no longer permitted and opening reserves have been adjusted accordingly.

Impact on Balance Sheet

The impact has been to reduce the retirement benefit obligation by £13.5m at 31 December 2011 and £5.6m at 31 December 2012. There was a corresponding decrease in deferred tax assets of £3.4m at 31 December 2011 and £1.3m at 31 December 2012. The net impact was to increase the Group net assets by £10.1m and £4.3m at 31 December 2011 and 31 December 2012 respectively.

Impact on earnings per share

Basic earnings per share at 31 December 2012 have been restated from 36.0p to 31.3p. Diluted earnings per share at 31 December 2012 have been restated from 35.8p to 31.2p.

Impact on the current year

The net charge to the Income Statement for this accounting period has increased by £5.4m on a pre-tax basis (relative to that which would have applied under the previous version of IAS 19), with a tax impact of £1.3m. Operating profit reduced by £2.8m due to the recognition of administrative costs as well as the 2010 active benefit change impact, while other finance charge - pensions increased by £2.6m. The actuarial gain recognised has increased correspondingly by £7.2m. The additional net charge to the Income Statement reduces basic and diluted earnings per share for total operations by 6.9p and 6.8p respectively. The impact from the adoption of IAS 19R has reduced the disclosed defined benefit obligation by £9.4m with a consequent reduction to deferred tax assets recognised of £1.9m.

The following standards and interpretations have also been adopted in these accounts and have not had a material impact on the Group's accounts in the period of initial application:

IFRS 7 Financial Instruments: Disclosures (Amendment) - Offsetting Financial Assets and Financial Liabilities - effective date 1 January 2013

Improvements to IFRS (May 2012) - effective date 1 January 2013

The following standards, amendments to standards and interpretations have been issued but are not effective for 2013 and have not been early adopted:

IFRS 10 Consolidated Financial Statements - effective date 1 January 2014

IFRS 11 Joint Arrangements - effective date 1 January 2014

IFRS 12 Disclosure of Interests in Other Entities - effective date 1 January 2014

Amendments to IFRS 10, 11 and 12 on transition guidance - effective date 1 January 2014

IAS 27 (revised 2011) Separate Financial Statements - effective date 1 January 2014

IAS 28 (revised 2011) Associates and Joint Ventures - effective date 1 January 2014

Amendment to IAS 32 Financial instruments: Presentation, on offsetting financial assets and financial liabilities - effective date 1 January 2014

IFRS 9 Financial Instruments* - no effective date set

IAS 19 - Defined Benefit Plans - employee contributions - effective date 1 July 2014

Annual Improvements to IFRSs - 2010 - 2012 cycle - effective date 1 July 2014

Annual Improvements to IFRSs - 2011 - 2013 cycle - effective date 1 July 2014

IAS 36 (amendment) Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets* - effective date 1 January 2014

IAS 39 (amendment) Financial Instruments: Novation of Derivatives and Continuation of Hedge Accounting* - effective date 1 January 2014

IFRIC 21 Levies* - effective date 1 January 2014

Improvements to IFRSs (issued May 2012) - various effective dates

*Not yet adopted for use in the European Union.

The above standards and interpretations will be adopted in accordance with their effective dates and have not been adopted in these financial statements. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application.

For those standards with a later effective date, the Directors are in the process of assessing the likely impact and await finalisation of the standards before formalising their view.

As permitted by Section 408 of the Companies Act 2006 no Income Statement is presented for the Company.

Basis of consolidation

The consolidated accounts, which have been prepared under the historical cost convention and in accordance with EU Endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, incorporate the accounts of the Company and its subsidiaries, joint ventures and associates from the effective date of acquisition or to the date of deemed disposal.

The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings in which John Menzies plc has a controlling interest, using accounts drawn up to 31 December except where entities have non-coterminus year ends. In such cases, the information is based on the accounting period of these entities and is adjusted for material changes up to 31 December. Accordingly, the information consolidated is deemed to cover the same period for all entities throughout the Group.

Joint ventures and associates

A joint venture is an entity in which the Group holds an interest on a long-term basis and which is jointly controlled by the Group and one or more other venturers under a contractual agreement.

An associate is an undertaking, not being a subsidiary or joint venture, over which the Group has significant influence and can participate in the financial and operating policy decisions of the entity.

The Group's share of the results of joint ventures and associates is included in the Group Income Statement using the equity method of accounting. Investments in joint ventures and associates are carried in the Group Balance Sheet at cost plus post-acquisition changes in the Group's share of the net assets of the entity, less any impairment in value. The carrying values of investments in joint ventures and associates include acquired goodwill.

Revenue

Distribution - revenue is recognised on the weekly dispatched value of goods sold, excluding value-added tax. Product is sold to UK retailers on a sale or return basis. Revenue for goods supplied with a right of return is stated net of the value of any returns.

Aviation - cargo revenue is recognised at the point of departure for exports and at the point that the goods are ready for dispatch for imports. Other ramp, passenger and aviation-related services income is recognised at the time the service is provided in accordance with the terms of the contract. Revenue excludes value-added and sales taxes, charges collected on behalf of customers and intercompany transactions.

Property, plant and equipment

Property, plant and equipment is stated at cost, including acquisition expenses, less accumulated depreciation. Depreciation is provided on a straight-line basis at the following rates:

Freehold and long leasehold properties - over 50 years

Short leasehold properties - over the remaining lease term

Plant and equipment - over the estimated life of the asset between 3 and 20 years

Inventories

Inventories, being goods for resale and consumables, are stated at the lower of purchase cost and net realisable value.

Pensions

The operating and financing costs of pensions are charged to the Income Statement in the period in which they arise and are recognised separately. The costs of past service benefit enhancements, settlements and curtailments are also recognised in the period in which they arise. The difference between actual and expected returns on assets during the year, including changes in actuarial assumptions, are recognised in the Group Statement of Comprehensive Income.

Pension costs are assessed in accordance with the advice of qualified actuaries.

With regard to defined contribution schemes, the Income Statement charge represents contributions made.

Pension financing costs are shown separately in the Income Statement.

Taxation

Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period.

Deferred tax is provided in full, using the liability method, on temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base. Deferred tax arising from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, is not recognised. Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits.

Deferred tax is determined using the tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Current and deferred tax is recognised in the Income Statement except if it relates to an item recognised directly in equity or in Other Comprehensive Income, in which case it is recognised directly in equity or in the Group Statement of Comprehensive Income respectively.

Intangible assets

Goodwill

Business combinations from 1 January 2010 are accounted using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed and included in exceptional items.

Goodwill arising on acquisitions before 26 December 2004 (the date of transition to IFRS) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.

Goodwill acquired is recognised as an asset and reviewed for impairment at least annually by assessing the recoverable amount of each cash-generating unit to which the goodwill relates. When the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Any impairment is recognised in the Income Statement.

Goodwill arising on the acquisition of joint ventures and associates is included within the carrying value of the investment.

Contracts

The fair value attributed to contracts at the point of acquisition is determined by discounting the expected future cash flows to be generated from that asset at the risk-adjusted weighted average cost of capital for the Group. This amount is included in intangible assets as "contracts" and amortised over the estimated useful life on a straight-line basis. Separate values are not attributed to internally-generated customer relationships.

Contract amortisation is business-stream dependent. At Distribution, publisher distribution contracts capitalised are not amortised due to the very long-term nature of the business in the UK. These contracts are, however, tested annually for impairment using similar criteria to the goodwill test. At Aviation and for non-publisher related contracts in Distribution, contracts are amortised on a straight-line basis over ten years as this period is the minimum time-frame management considers when assessing businesses for acquisition.

Computer software

Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly attributable with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the directly attributable costs of software development employees. Costs are amortised over their estimated useful lives, usually three to five years.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets acquired under finance leases are capitalised in the Balance Sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is recorded in the Balance Sheet as a finance lease obligation. The lease payments are apportioned between finance charges (charged to the Income Statement) and a reduction of the lease obligations.

Rental payments under operating leases are charged to the Income Statement on a straight-line basis over applicable lease periods.

Trade receivables

If there is objective evidence that the Group will not be able to collect all of the amounts due under the original terms of an invoice, a provision on the respective trade receivable is recognised. In such an instance, the carrying value of the receivable is reduced, with the amount of the loss recognised in the Income Statement.

Cash and cash equivalents

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the Balance Sheet.

Foreign currencies

Foreign currency assets and liabilities of the Group are translated at the rates of exchange ruling at the Balance Sheet date. The trading results of overseas subsidiaries, joint ventures and associates are translated at the average exchange rate ruling during the year, with the exchange difference between average rates and the rates ruling at the Balance Sheet date being taken to reserves.

Any differences arising on the translation of the opening net investment, including goodwill, in overseas subsidiaries, joint ventures and associates, and of applicable foreign currency loans, are dealt with as adjustments to reserves. All other exchange differences are dealt with in the Income Statement.

Derivative financial instruments and hedging activities

The Group uses forward contracts and cross-currency swaps as derivatives to hedge the risk arising from the retranslation of foreign currency denominated items.

The Group has derivatives which are designated as hedges of overseas net investments in foreign entities (net investment hedges) and derivatives which are designated as hedges of the exchange risk arising from the retranslation of highly probable forecast revenue denominated in non-local currency of some of its overseas operations (cash flow hedges).

Derivative contracts entered into by the Group are expected to continue to be highly effective until they expire. The effectiveness of these contracts is monitored during the year. As a result, all derivatives have been recorded using hedge accounting, which is explained below.

All derivatives are measured at fair value, which is calculated as the present value of all future cash flows from the derivative discounted at prevailing market rates.

Changes in the fair value of the effective portion of net investment hedges are recorded in equity, and are only recycled to the Income Statement on disposal of the overseas net investment.

Changes in the fair value of the effective portion of cash flow hedges are recorded in equity until such time as the forecast transaction occurs, at which time they are recycled to the Income Statement. If, however, the occurrence of the transaction results in a non-financial asset or liability, then amounts recycled from equity would be included in the cost of the non-financial asset or liability. If the forecast transaction remains probable but ceases to be highly probable then, from that point, changes in fair value would be recorded in the Income Statement within finance costs. Similarly, if the forecast transaction ceases to be probable then the entire fair value recorded in equity and future changes in fair value would be posted to the Income Statement within finance costs.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Share capital

Ordinary shares are classed as equity. Where the Company purchases its own shares the consideration paid including any directly attributable incremental costs, is deducted from the equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of.

Share-based payments

Equity-settled share-based payments are measured at fair value at the date of grant and recognised as an expense over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest unless the options do not vest as a result of a failure to satisfy market conditions. Fair value is measured by use of a relevant pricing model.

Use of estimates and judgements

The preparation of the consolidated accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These estimates will, by definition, seldom equal the related actual results particularly so given the prevailing difficult economic conditions and the level of uncertainty regarding their duration and severity. 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The most important estimates and judgements are set out below.

Intangible assets

On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired (provided they meet the criteria to be recognised). The fair values of these intangible assets are dependent on estimates of attributable future revenues, margins and cashflows, as well as appropriate discount rates. In addition, the allocation of useful lives to acquired intangible assets requires the application of judgement based on available information and management expectations at the time of recognition.

Impairment

IFRS requires companies to carry out impairment testing on any assets that show indications of impairment and annually on goodwill and intangibles that are not subject to amortisation. This testing involves exercising management judgement about future cashflows and other events which are, by their nature, uncertain.

Retirement benefits

The assumptions underlying the calculation of retirement benefits are important and based on independent advice. Changes in these assumptions could have a material impact on the measurement of the Group's retirement benefit obligations.

Income taxes

The Group is subject to income tax in numerous jurisdictions and significant judgement is required in determining the provision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises provisions for tax based on estimates of the taxes that are likely to become due. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made.

Exceptional items

Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the Income Statement to enable a full understanding of the Group's financial performance. These exclude certain elements of intangible asset impairment and amortisation, which are also presented separately in the Income Statement.

Transactions which may give rise to exceptional items include restructuring of business activities (in terms of rationalisation costs and onerous lease provisions), gains or losses on the disposal of businesses and transaction costs associated with the acquisition of new businesses.

Dividend distributions

Final ordinary dividends are recognised as liabilities in the accounts in the period in which the dividends are approved by the Company's shareholders.

Financial risk factors

The Group is exposed to financial risks: liquidity risk, interest rate fluctuations, foreign exchange exposures and credit risk.

Definitions and Non-GAAP measures used by management

Management believes that the following non-GAAP or adjusted measures provide a useful comparison of business performance and reflect the way in which the business is controlled:

Underlying profit before taxation is defined as profit before taxation, intangible amortisation and exceptional items.

Underlying operating profitincludes each division's share of pre-tax profit from joint ventures and associates, and excludes intangible amortisation and exceptional items.

Underlying earnings per share is profit after taxation and non-controlling interest, but before intangible amortisation and exceptional items, divided by the weighted average number of ordinary shares in issue.

Turnover includes revenue from subsidiaries, joint ventures and associates.

Free cash flow is defined as the cash generated by the business after net capital expenditure, interest and taxation, before special pension contributions, acquisitions, disposals, cash raised, ordinary dividends and net spend on shares.

Total debt to EBITDA ratio. Total debt is net debt plus guarantees and excluding financial derivatives and preference shares. EBITDA is underlying operating profit plus depreciation and computer software amortisation.

Interest cover is EBITA divided by the external interest charge. EBITA is underlying operating profit plus computer software amortisation. The external interest charge excludes net financial income/(charge) related to pensions.

2. SEGMENT INFORMATION

For management purposes the Group is organised into two operating divisions: Distribution and Aviation. These two divisions are organised and managed separately based upon their key markets. The Distribution segment provides newspaper and magazine distribution services across the UK and Ireland along with marketing services. The Aviation segment provides cargo and passenger ground handling services across the world.

The information presented to the Board for the purpose of resource allocation and assessment of segment performance is focused on the performance of each division as a whole but also contains performance information on a number of operating segments within the Aviation division. The Board assesses the performance of the operating segments based on a measure of adjusted segment result before exceptional items and intangibles amortisation. Net finance income and expenditure are not allocated to segments as this type of activity is driven by the central treasury function.

Segment information is presented in respect of the Group's reportable segments together with additional geographic and Balance Sheet information. Transfer prices between segments are set on an arm's length basis.

Business segment information

A reconciliation of segment pre-exceptional operating profit/(loss) to profit before tax is provided below.