Half Year Results

19 August 2014

John Menzies plc

Half Year Results for the Period Ended 30 June 2014

H1 2014 - Financial Highlights

Highlights

· Momentum continues across the Group

· Group Turnover up 3%, Aviation 7%

· Strong operating cash flow at £29.0m (H1 2013: £24.6m)

· Dividend increased by 5% to 8.1p (H1 2013: 7.7p)

· Aviation continues to progress against its objectives

· Underlying operating profit up 7%, excluding start-up costs

· Strong contract wins and renewals during the period helps grow market share

· Entry into new markets provides platforms for future growth

· Cargo handling continues to deliver improved performance

· Start-up costs to support contract wins impact first half results

· Short term operational challenges in the UK

· Positive first half in Distribution boosted by collectible sales

Iain Napier, Chairman said:

"The Group continues to progress despite challenges faced in Aviation in terms of continued airline pricing pressure and operational issues within our UK ground handling business. Notwithstanding these, we have enjoyed a very strong contract win season and Aviation remains well placed to continue to grow in a market with positive growth dynamics. Distribution has had a good first half and we look forward to seeing the benefits of our rationalisation programme which will conclude at the end of 2015. Overall, I am pleased that the Group continues on a strong financial footing with excellent prospects."

For further information:

Paula Bell, Group Finance Director, John Menzies plc 0131 459 8018

John Geddes, Group Company Secretary, John Menzies plc 0131 459 8180

Jonathon Brill/Alex Beagley, FTI Consulting 0203 727 1000

Notes to Editors

1. John Menzies plc is one of Scotland's largest companies. The Group 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 149 airports in 31 countries, with annual revenue in excess of US$1.1 billion and supported by a team of over 20,000 highly-trained people. Menzies Aviation serves over 500 customers, handling over 1 million flights and 1.5 million tonnes of cargo per annum. Customers include easyJet, Cathay Pacific, British Airways, Alaska Airlines, Lufthansa, Thai Airways, Flybe and many others. Best in class safety and security, the most resilient and innovative technology in its peer group and flawless customer service 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 and Ireland. 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 3,600 people at 36 sites throughout the UK and Ireland 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

Overall we are progressing all of our objectives as set out for 2014. Following a material market decline of magazine sales in 2013 we responded with new plans to rationalise our distribution network and these are delivering to plan, underpinning future cost savings. Media decline tracked within our estimates and together with World Cup fever for stickers, H1 profit did not disappoint. Although challenging trading conditions prevail, Aviation secured a record number of new contracts and the business remains well placed to provide sustainable growth for the Group.

On a constant currency basis Group turnover was up £27.1m to £1,025.0m (H1 2013: £997.9m) with underlying operating profit marginally ahead at £26.2m (H1 2013: £26.1m).

Aviation has had a very busy first six months, winning and retaining contracts, and pursuing new business opportunities. On a constant currency basis turnover was up 7% to £386.3m. Underlying operating profit was level at £15.5m. Excluding start-up costs of £1.8m (H1 2013: £0.6m) for new contract wins, underlying operating profit was up 7%.

The ground handling market continues to defend airline pricing pressure whilst maintaining operational service levels. As a consequence of such yield pressure we continue to make decisions not to renew contracts at rates where we believe an economic return cannot be generated. As a result the ground handling margin has reduced in the first half. This is offset by improved margins in cargo handling and driving increased volume through existing facilities.

Distribution had a positive first half of the year. Turnover as expected was similar to the prior year at £638.7m (H1 2013: £636.6m) with underlying operating profit marginally up at £12.0m (H1 2013: £11.8m). Trading performance at Distribution was boosted by a better than expected contribution from 2014 FIFA World Cup stickers and a slower than expected rate of decline in newspapers and magazines revenue.

The rationalisation of our distribution network is performing to plan and the exceptional cost of this restructure was £1.8m in the first half of 2014. The programme is planned to complete at the end of 2015, whereby the number of hub operations will substantially reduce.

Underlying earnings per share was 24.7p (H1 2013: 28.2p), directly impacted by foreign exchange headwinds.

Taxation

As a multinational business the Group is liable to taxation in multiple jurisdictions around the world. The Group's underlying tax charge for the half year was £5.6m (H1 2013: £5.7m), representing an underlying effective tax rate of 27% (H1 2013: 25%).The increase reflects the ongoing rising proportion of profits in higher tax rate jurisdictions.

Cash Flow and Investment

Delivering strong cash flows is a key area of focus and we are pleased to report an operating cash flow of £29.0m (H1 2013: £24.6m). Free cash flow was £12.1m (H1 2013: £6.0m). Net capital expenditure totalled £10.1m (H1 2013: £10.8m).

Treasury

The Group continues to maintain a strong financial footing. We have a robust balance sheet built from strong operating cash flows across our divisions and the total debt to EBITDA ratio of 1.8 times at 30 June 2014 is well within our covenant levels. Our interest cover is 11.3 times.

At the end of the half the Group had net debt of £113.4m (2013 H1: £110.5m) which is comfortably below the available committed lending facilities.

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 are not hedged and as a result the movement of exchange rates directly affect the Group reported results, which in the half year ended June 2014 was an adverse variance of £2.2m when compared to the rates for the same period in the prior year. In particular the recent adverse movements have been in the Australian dollar, South African rand, Indian rupee and US dollar.

Dividend

The Board has recommended an interim dividend of 8.1p per share (H1 2013: 7.7p) which is payable on 21 November 2014 to all shareholders on the register at 24 October 2014.

OPERATING REVIEW

MENZIES AVIATION

Performance

On a constant currency basis, underlying operating profit was level with last year, as the first half of 2014 saw many challenges but also some great opportunities to expand our business in existing and new airports. We had our most successful contract gain season with a number of significant new contracts secured. This was very pleasing with the gains being spread across the network, with new and existing customers, and in both our main product categories of ground and cargo handling. To support the start-up of these contracts, costs have been incurred that have impacted the first half result but the long term benefit will be realised over the life of the contracts.

A strong contract win season resulted in a net gain of 49 contracts adding some £38.4m of additional annual revenue. In total 80 new contracts were secured in the half year. In cargo handling we won contracts with Etihad to provide services across Australia and also at Amsterdam and a four airport deal to provide services to Air France/KLM across Canada. The latter deal provides a scale operation in Canada and allows us to explore other opportunities in an attractive market. In ground handling, we were awarded a key out-sourcing contract with Delta Airlines at their hub operation in Detroit. This contract will see Menzies handle some 250 flights per day and represents real progress with a major American carrier in the USA. We also won a number of contracts across Europe with airlines including Thomson, Norwegian, Monarch and BA CityFlyer.

The number of contracts lost, 31, is higher than normal and reflects the very competitive markets that currently exist, particularly in Europe. Yield pressure is intense and we have lost a number of contracts on price. We believe in our product offering and our commitment to safety and service. To deliver this we must achieve an economic price. It is our belief that a more orderly market will return following further market consolidation and the recognition that good service can only be delivered at an economic rate.

In the UK our ground handling business is facing a number of challenges. At London Heathrow, we are currently suffering as British Airways have accelerated their move from Terminal One to Terminal Five which has resulted in some 10,000 turns moving to their self-handled operation. In addition, there has been unprecedented operational upheaval with the opening of Terminal Two and a rotation of contracts as fifteen airlines changed their handling agent. As a result of this, we expect earnings from the UK ground handling business to be significantly down on the previous year. Excluding the UK, all other regions are trading positively and continue to deliver to plan.

Overall ground handling volumes were strong with like-for-like turns up 2.4% and absolute turns up 15.7%. Absolute turn growth was driven by the prior year acquisitions and the start-up in Detroit which is a large number of turns but is predominantly small aircraft with lower turnaround fees. Cargo handling continues to perform well. Like-for-like tonnes were up 3.4% with absolute tonnes up 4.7%. The increase in absolute tonnes is particularly pleasing and represents the effect of solid contract gains, particularly in Amsterdam.

Air Menzies International (AMI), our cargo forwarding business, is performing in line with our expectations and has opened new offices in Australia and the Netherlands.

To counter the difficult trading environment there has been an increased focus on cost control and productivity and each region is working to drive efficiency from its cost base.

The medium and long term outlook for the business remains positive. The contract pipeline is strong, new licence opportunities are coming on stream and we continue to pursue acquisition opportunities. We believe in providing a premium service at the right price and that by continuing to pursue our strategy we are building a strong business that will prosper in the coming years.

MENZIES DISTRIBUTION

Performance

The first half of the year has been positive. Sales in the core product categories have been slightly better than our internal forecasts and sales of stickers relating to the 2014 FIFA World Cup have been very positive. In addition, good progress has been made on the rationalisation of the branch network and the delivery of cost saving initiatives.

Overall, absolute sales across the newspaper and magazine categories are down 2.7% (2.1% on a like-for-like basis). The main driver of this has been Monday to Friday newspaper sales where a number of cover price increases has been made. Magazines sales value on a like-for-like basis was down 5% and newspapers down 1%. The magazine category has benefited from a number of promotions, one-off 2014 FIFA World Cup editions and no major title closures. Stickers relating to the World Cup have performed strongly and exceeded sales from the 2010 competition.

Branch rationalisation plans are continuing. Four branches (Scarborough, Scunthorpe, Dumfries and Bangor) have now been closed. Magazine packing for the South of England has now been consolidated into our Maidstone facility and we are now serving some 6,000 retail customer from a single unit. Operational standards have been maintained during this period of change and the targeted cost savings are being achieved.

Orbital Marketing Services continues to trade in line with expectations. Over the next 12 months further integration into the core business will be pursued.

The extension of logistics services using our existing network and fleet has expanded. The venture is still in its early stages but there are real signs that further expansion is possible in collaboration with others and through additional print products.

BOARD AND MANAGEMENT CHANGES

Silla Maizey joined as Non-executive Director on 19 May 2014, bringing extensive aviation experience gained during a career with British Airways. Silla is currently Chairman of NHS Business Service Authority.

We welcomed Forsyth Black to the senior team as Managing Director of Distribution. Forsyth has been with John Menzies Group for 15 years and helped develop our Aviation business in South Africa. We are delighted to draw from Forsyth's extensive commercial experience as he now leads one of our key divisions.

On 11 August 2014 we announced that we are conducting a search to appoint a Chief Executive Officer for John Menzies plc and that Craig Smyth, Managing Director of our Aviation division tendered his resignation on 8 August 2014. Craig is under a notice period of 12 months and he has agreed to fulfil all of his contractual obligations.

OUTLOOK

Menzies Distribution has delivered on all fronts in the first half and network rationalisation plans will be the key focus over the next 18 months. We are well placed to benefit from resulting cost savings.

The beginning of the second half of the year has been affected by operational challenges in the UK caused by unusual level of airport and airline customer changes with the resulting disruption impacting full year progress. Busy summer schedules and stronger cargo volumes together with record contract wins in the first half provide confidence for earnings growth in 2015.

INDEPENDENT REVIEW REPORT TO JOHN MENZIES PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 which comprises Group Income Statement, Group Statement of Comprehensive Income, Group Balance Sheet, Group Statement of Changes in Equity, Group Statement of Cash Flows and the related notes 1 to 17. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent mis-statements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

Glasgow18 August 2014

*Underlying operating profit is consistently presented adjusting for non-recurring exceptional items, intangible amortisation associated with goodwill impairment on joint venture 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.

Notes to the Interim Accounts

1. INTRODUCTION

These interim consolidated financial statements for the half year to 30 June 2014 are unaudited but have been formally reviewed by the Auditors and their report to the Company is set out on page 6. They were approved by the Board on 18 August 2014. These interim financial results do not comprise statutory accounts within the meaning of Section 435 of the Companies Act 2006. Statutory accounts for the year to 31 December 2013, prepared in accordance with IFRS, have been filed with Registrar of Companies. The report of the Auditors included in that 2013 Annual Report was unqualified and did not contain a statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2. BASIS OF PREPARATION

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, the Disclosure and Transparency Rules of the Financial Conduct Authority and the basis of the accounting policies set out in the Group's 2013 Annual Report, except for the adoption of new standards and interpretations effective from 1 January 2014 as noted below.

These interim financial statements have been prepared on a going concern basis as the Directors, having considered the available relevant information, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.

Changes to accounting policies

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

IFRS 10 Consolidated Financial Statements sets forth the requirements for the preparation and presentation of consolidated financial statements and supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. The standard defines a uniformly applicable control concept for all company forms to serve as the basis for determining which companies are to be fully consolidated. Control is only deemed to exist if the Group is exposed, or has rights, to variable returns from its involvement with a company and has the ability to use its power over that company to affect the amount of that company's returns.

IFRS 11 Joint Arrangements prescribes the accounting for joint arrangements and supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. A joint arrangement is deemed to exist if the Group through a contractual agreement jointly controls activities managed with a third party. Joint control is only deemed to exist if decisions regarding the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures. The Group recognises the share of assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with its rights and obligations. The investment in a joint venture is accounted for using the equity method in accordance with the provisions of the amended IAS 28 Investments in Associates and Joint Ventures. Following reassessment, Menzies Macau Airport Services Ltd has been reclassified from an associate to a joint venture with no impact on the primary statements.

IFRS 12 Disclosure of Interests in Other Entities prescribes the information to be disclosed in the notes to the financial statements about interests in subsidiaries, associates, joint arrangements and structured entities. In the 2014 Annual Report this will result in additional disclosures.

The revised IAS 27 Separate Financial Statements is now devoted entirely to accounting for interests in subsidiaries, associates and joint ventures under IFRS separate financial statements.

The application of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and the amendments to IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures is mandatory in the European Union for annual periods beginning on or after 1 January 2014.

IFRS 13 Fair Value Measurement provides a uniform definition of fair value and how it is measured. Fair value is now defined as the price that would be received to sell an asset or paid to transfer a liability. IFRS 13 also requires specific notes to the consolidated financial statements for assets and liabilities measured at fair value. The publication of IFRS 13 Fair Value Measurement in May 2011 was revised in May 2013. The recoverable amount of a cash-generating unit now only has to be disclosed for periods in which an impairment loss has been recognised or reversed. Additional disclosures are required when an impairment loss is recognised and the recoverable amount is based on fair value less costs of disposal. The amendments are to be applied for the annual periods beginning on or after 1 January 2014.

In May 2013, the IFRS IC issued the interpretation IFRIC 21 Levies. The interpretation covers the accounting for government-imposed levies with the exception of income taxes covered by IAS 12 Income Taxes. It also provides guidance on when to recognise a liability for a levy. The interpretation is to be applied for annual periods beginning on or after 1 January 2014.

3. 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 specific Balance Sheet information. Transfer prices between segments are set on an arm's length basis.

Business Segment Information

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

* Pre-exceptional operating profit/(loss) is defined as operating profit/(loss) excluding intangible amortisation and exceptional items but including the pre-tax share of results from joint ventures and associates.

4 (a) EXCEPTIONAL ITEMS

4 (b) Exceptional items included in finance charges

4 (c) GOODWILL IMPAIRMENT AND CONTRACT AMORTISATION

The taxation effect of the exceptional items is a credit of £0.4m (half year to 30 June 2013: £Nil and full year to December 2013: £Nil).

5. FINANCE COSTS (pre-exceptional)

6. TAXATION

The underlying effective tax rate for the full year 2014 is estimated at 27% (2013: 25%). Therefore the underlying effective tax rate used for the half year 2014 was 27% (half year 2013: 25%). The share of results from the joint ventures and associates for the half year is after taxation of £0.9m (half year to June 2013: £0.6m and full year to December 2013: £1.6m).

In March 2013, the UK Government announced its intention to reduce the main rate of corporation tax from 23%, which applied from 1 April 2013, to 20%. The fall is being phased in over a period of two years, with a 2% reduction to 21% from 1 April 2014, and a subsequent 1% reduction to 20% from 1 April 2015. The reduction in the main rate of corporation tax to 20%, which was substantively enacted at 31 December 2013, reduced the tax rate expected to apply when temporary differences reverse and had the effect of reducing the UK deferred tax assets and liabilities at that date. As the effect of the reduction in the main corporation tax rate to 20% was reflected in the UK deferred tax assets and liabilities at 31 December 2013, the reduction has not had any effect on the effective tax rate or on profit for the half year to 30 June 2014.

7. DIVIDENDS

Dividends of £0.1m were waived on Treasury shares during the half year to 30 June 2014.

The Directors are proposing an interim dividend in respect of the half year to 30 June 2014 of 8.1p per ordinary share, which will absorb an estimated £5.0m of shareholders' funds. Payment will be made on 21 November 2014 to shareholders on the register at the close of business on 24 October 2014.

8. EARNINGS PER SHARE

The weighted average number of fully paid shares in issue during the period excludes Treasury shares. The diluted weighted average is calculated by adjusting for all outstanding share options which are potentially dilutive, i.e. where the exercise price is less than the average market price of the shares during the period.

*Underlying earnings are presented as an additional performance measure. They are stated before exceptional items and intangible amortisation.

9. INTANGIBLE ASSETS

Intangible assets comprise goodwill of £46.5m (June 2013: £50.6m and December 2013: £47.5m), contracts of £62.9m (June 2013: £59.9m and December 2013: £66.9m) and capitalised software development costs of £12.3m (June 2013: £12.2m and December 2013: £12.4m).

There is no remaining goodwill within investments relating to joint ventures or associates. At June 2013 this goodwill was £0.7m (December 2013: £Nil).

10. ANALYSIS OF CHANGES IN NET BORROWINGS

Current borrowings of £3.8m in the Balance Sheet include bank overdrafts of £1.2m, bank loans of £2.3m and finance leases of £0.3m. Non-current borrowings in the balance sheet of £137.7m include preference shares of £1.4m and bank debt of £136.3m. Net derivative assets of £2.9m shown above include derivative financial assets of £3.5m and derivative financial liabilities of £0.6m as shown on the Balance Sheet.

Facilities that were due for renewal in the first six months of 2014 were renegotiated and increased by approximately £55m to create appropriate headroom to support business growth.

11. CASH GENERATED FROM OPERATIONS