19th Aug 2009 07:00
JOHN MENZIES PLC RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2009
HIGHLIGHTS m H1 2009 H1 2008 Revenue 821.3 826.5 Underlying profit before taxation (1) 13.2 11.4 Profit before tax 7.4 11.3 Underlying operating profit by division (2) Aviation 4.0 4.1 Distribution 13.6 10.9 Underlying earnings per share (3) 15.7p 14.3p Basic earnings per share 6.6p 14.3p * GROUP * Underlying profit before taxation up 15.8% * Net debt reduced by c 30m since the year end * All long term banking facilities secured to 2011 and beyond * MENZIES AVIATION * Underlying operating profits broadly in line, demonstrating resilient business model * Significant volume reductions, particularly in cargo handling * Excellent management of the cost base, helping to mitigate volume shortfalls * MENZIES DISTRIBUTION * Cost and productivity benefits deliver underlying operating profit uplift of 25% * Major contract gains add in excess of 180m additional net sales revenue by end of 2010
(1) Underlying profit before taxation is defined as profit before taxation, intangible amortisation and exceptional items.
(2) Underlying operating profit includes each division's share of pre-tax profit from joint ventures and associates, and excludes intangible amortisation and exceptional items.
(3) Underlying earnings per share is profit after taxation and minority interest, but before intangible amortisation and exceptional items, divided by the weighted average number of ordinary shares in issue.
William Thomson, Chairman said:
"I am pleased with the performance of the Group in the first six months of the year.
MENZIES AVIATION has maintained underlying operating profits broadly in line with last year, which I believe to be a very creditable performance in the light of significant volume reductions. This has been achieved by early and decisive management actions to flex the cost base to meet the underlying market conditions. These actions, in tandem with a strategy of focussing on providing great service to attractive airlines in attractive markets, and its position as one of the global market leaders, leave the division well placed to benefit from volume recovery when it occurs.
The market in the short to medium term remains extremely tough and this will continue into the second half. However, the Board believes that the full year underlying operating profit continues to be in line with our expectations.
MENZIES DISTRIBUTION has had a very busy six months. Significant contract gains, secured with all the major publishers, have changed the landscape of the newspaper and magazine market. When all these contracts are fully operational, the division will have added in excess of 180m of net sales revenue and increased its market share from 36% to 43%. This is an extremely pleasing result and an endorsement of the investment made in the division and its reputation within the industry.
In addition, tight cost management has seen profits increase by 25% to 13.6m which represents an excellent result at a time when consumer spending in general is falling. The division's focus on productivity and efficiency has also delivered tangible service benefits, with customer claims reduced by more than 40% since H1 2008 - and further improvements on the horizon as major investments in SAP and Track & Trace parcel technology are realised. The Board believes this division will deliver a full year underlying operating profit ahead of market expectations.
At GROUP level, net debt has been reduced by nearly 30m since the year end to 152.8m and all banking facilities due for renewal during the year have been successfully secured. The Board continues to focus on cash generation and expects Group net debt to reduce further by the year end.
In summary, I am very pleased with progress across the Group. The global economic situation remains challenging: however, both operating divisions are performing well and I look forward to the full year outturn being ahead of current market expectations."
FOR FURTHER INFORMATION:
Paul Dollman, Group Finance Director, John Menzies plc +44 131 459 8018
John Geddes, Group Company Secretary, John Menzies plc +44 131 459 8180
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. 2 The company was established in 1833 and its head office is in Edinburgh, Scotland. Today the company is an international business operating in Europe, North and Central America, Asia, Australasia and Africa. 3 Menzies Aviation is one of the world's leading independent suppliers of ground handling services to the aviation market providing ground and cargo services for many of the world's leading airlines at some of the busiest international airports. The division employs over 14,000 people worldwide servicing over 500 airline customers at 109 locations in 27 countries, In 2008 the division handled more than 600,000 flight turns, 67 million passengers and 1.7 million tonnes of cargo. 4 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 6 million newspapers (6.3 million on Sundays) and 2.7 million magazines (covering 3,000 magazine titles) each day, with deliveries to more than 25,000 customers. The division employs 4,000 people at 40 sites throughout the UK - and is a strongly cash generative business, with around 43% of the newspaper and magazine wholesale distribution market in the UK. It has a track record of investment in innovation and customer service delivery. 5 Further information on John Menzies plc can be found at: www.johnmenziesplc.com, www.menziesdistribution.com and www.menziesaviation.com.
GROUP PERFORMANCE
Overall, the Group has had a positive first half and the Group underlying profit before taxation increased by 15.8% to 13.2m. Menzies Aviation, despite very challenging markets with volumes in both cargo (like for like down 18.2%) and ground handling (like for like down 7.4%) severely affected, produced a resilient performance with profits broadly in line at 4.0m. At Menzies Distribution underlying operating profits were up by 25% at 13.6m which was an excellent result with like for like net operating costs reducing by 4.3m, more than offsetting revenue declines.
Group revenue in the period fell by 0.6% to 821.3m. Menzies Aviation revenue increased by 3.7% to 248.1m reflecting the annualised effect of contracts gained in the second half of 2008 and the continued contract gain momentum during the first half. At Menzies Distribution, revenue fell by 2.4% to 573.2m with like for like magazine sales falling 7.8% and Newspaper sales remaining broadly flat.
Corporate costs fell by 0.4m reflecting the Group wide focus on cost reduction. Interest costs overall increased by 1.2m to 3.9m due to an increase in the pension related interest charge of 2.1m only partially offset by a 0.9m reduction in external interest costs.
EXCEPTIONAL ITEMS
There was a net exceptional cost of 3.0m in the half year. This comprised restructuring costs of 4.4m in Menzies Aviation partially offset by net gains of 1.4m from the sale of properties in the period. This compared to a net exceptional gain in 2008 of 2.4m.
CASHFLOW AND INVESTMENT
Operating cashflow was 23.8m, an increase of 13.3m compared to 2008 mainly due to improvements in working capital. Free cashflow in the period was 11.9m which was a 33.3m improvement on the previous year, including a planned programme of restricting capital expenditure by 15.7m to 7.9m. In addition, we have been examining ways to manage the Balance Sheet more efficiently. As a result 10.1m has been raised from asset refinancing and the disposal of some non-core assets which, after a net 1.7m of deferred consideration from acquisitions and intangible additions gave rise to a net cash inflow of 20.3m in the period. Foreign exchange rates moved in our favour in the period resulting in a net translation gain of 9.5m reducing our net debt at the half year by 29.8m from 182.6m to 152.8m.
Since the period end we have renegotiated the one remaining banking facility maturing in 2009 which is being replaced with a 25m facility maturing in 2011. With the Group's continued focus on debt reduction, the Board is not recommending an interim dividend for 2009.
MENZIES AVIATION GBPm H1 2009 H1 2008 Revenue 248.1 239.3 Underlying operating profit 4.0 4.1
PERFORMANCE
Menzies Aviation produced a resilient performance with profits broadly in line at 4.0m. The unprecedented challenges facing the marketplace continued and the division's performance is testimony to decisive management actions taken to manage the cost base in the light of sharply declining volumes, particularly within the cargo handling market.
Start up costs were 2.7m lower reflecting the focus on existing operations and the major investment in start ups in India and South Africa in the first half of 2008.
CARGO HANDLING
The first half of 2009 has been very poor and was loss making. Absolute tonnes were down 23.8% with like for like tonnes down 18.2%. In particular, the cargo businesses in the UK, Continental Europe and the USA continue to be impacted by the global economic slowdown. Management actions in these regions have led to capacity being reduced where possible, the negotiation of rent reductions with landlords and the implementation of flexible working arrangements. Management continue to pursue a fix - close - sell strategy with these underperforming operations to ensure the impact on earnings is minimised.
As the marketplace reacts to the sharp fall in volumes, over-capacity, particularly at major airports, leads to predatory pricing. As a result the division was a net loser of four contracts during the period, including three at London Heathrow. Contracts were predominantly lost as a result of schedule cessation or on price. Contract renewals were broadly successful but, as expected, some yield reduction was required to secure the business.
CARGO FORWARDING
Cargo forwarding has also been impacted by market conditions with like for like revenue down 20% on last year. In the UK and USA in particular, margins have been under pressure as bookings and volumes have dropped in line with the general malaise in the cargo handling market.
GROUND HANDLING
The ground handling business has performed well. Absolute turns were up 9.0% reflecting new contracts gained, with like for like turns down 7.4%, largely as forecast.
Contract gain momentum across the network continued with the division a net winner of twenty five ground handling contracts, both large and small, during the period.
In addition, a major contract was renewed with Alaska Airlines, the divisions largest customer in the USA, to handle some 40,000 flights per annum at six locations until 2012.
New operations commenced in Bristol, Stansted, Tenerife and Ibiza airports where successful start ups were achieved for easyJet.
In Mexico, as a result of management actions to flex the cost base, the impact of Swine Flu has been significantly less than first expected and is not material.
COST BASE ACTIONS
In light of the substantial volume declines management were required to take rigorous actions. Across the network headcount was reduced by 1,740, flexible working terms were introduced and pay freezes were implemented where possible.
STRATEGY
The strategy of the division remains unchanged. The division targets growth by seeking to provide a great safe and secure service at the right price to attractive airlines in attractive markets. The trend of focussing more on ground handling continued with this business sector now 59% of total revenue compared to cargo handling 26% and cargo forwarding 15%.
MENZIES DISTRIBUTION GBPm H1 2009 H1 2008 Revenue 573.2 587.2 Underlying operating profit 13.6 10.9
PERFORMANCE
Menzies Distribution produced an excellent first half performance. Underlying operating profit is up 25% to 13.6m. During the period the focus has remained on securing new publisher contracts and continual cost base improvement.
As expected the magazine market continued to decline, although the rate of decline has slowed. Overall like for like magazine sales were down 7.8% with monthlies and weeklies sales 9.9% and 6.0% behind last year respectively.
Newspapers continued their long term trends and were broadly in line with last year. Some improvement in the Saturday news market was offset by a decline in Sunday news.
COST AND PRODUCTIVITY INITIATIVES
Cost reduction initiatives again produced an excellent result. During the period like for like costs (net of inflation) were reduced by 4.3m.
The ethos of continual productivity improvement is now embedded in the divisional culture and this has driven savings in branch wages, overtime and transport costs. The implementation of SAP continues, with the finance module now live and the first branch scheduled to go live later this year. This new technology will help the division to produce further efficiencies in the years to come.
PUBLISHER CONTRACT NEGOTIATIONS
The first six months of 2009 have witnessed a step change for the division. New contracts have been negotiated with all major newspaper and magazine publishers and as a result the division will enter seven new territories, servicing over 3,000 new retail outlets. This new business, once fully integrated, will deliver in excess of 180m of new net sales revenue and takes the division's overall market share to 43%.
This outcome is testament to the skills of the existing management and the standing the division holds within the publishing community. This new business underpins earnings through to 2015 and leaves the division extremely well placed.
NEW REVENUE STREAMS
Progress continues with new revenue streams outside of the core wholesaling operation.
The Network, a field marketing company acquired in 2008, delivered returns above expectations. This business has integrated well and will look to expand further over the next 18 months.
D-Cipher has seen its growth trimmed as a result of the global economic slowdown but remains an attractive business delivering good returns. By providing a first class service to large multiples such as Boots and M&S, the business is also well placed for the future.
During the period the venture into digital magazine distribution, Menzies Digital, was closed after failing to gain sufficient market share to make the venture viable.
STRATEGY
In the last three years the division has revolutionised its operating model.
The strategy is unchanged. The division will focus on top-line growth via the implementation of the recent contract wins, as well as continuing to develop new business streams. It will continue to drive efficiencies from the operational cost base, using continuous productivity initiatives and the new SAP system and it will focus on providing outstanding customer service to both retailers and publishers.
OUTLOOK
MENZIES AVIATION continues to trade in line with our expectations although airline schedules in quarter four are not yet certain. Cargo volumes remain very low but appear to have stabilised. Ground handling continues to perform robustly with cost savings and contract wins offsetting volume reductions. Overall, it is still expected that the division will deliver full year underlying operating profits in line with our expectations.
As a result of Surridge Dawson Limited going into administration, MENZIES DISTRIBUTION commenced operations on 2 August 2009 to service all of the new business awarded during the first half of the year that was previously handled by them. Initially, the commencement of this new business was to be phased in over an eighteen month period, but an early transition was secured with the division stepping in to provide services to all publishers and retailers in the areas affected.
To facilitate the early start of these contracts the division has signed agreements for the temporary lease of premises and systems support, as well as acquiring certain wholesale distribution assets of Surridge Dawson Limited (In Administration) for an overall consideration of 500,000.
We now expect to see the benefit of these contracts earlier than originally anticipated, however they will not have any positive impact in 2009 due to start up costs.
Otherwise, the division continues to trade solidly with cost initiatives delivering further savings and volumes in line with expectations. Overall, after the start up costs have been incurred, we expect the division to deliver a full year result ahead of last year.
The GROUP will continue to focus on cash generation and debt reduction and all long term banking facilities are now in place to 2011 and beyond.
Although the Board recognises the strong cash generation of the business during the first half of 2009, given the continued market uncertainty in Aviation and the absolute level of Group debt, it has decided not to pay an interim dividend but will continue to keep this matter under review.
Overall, it is anticipated that the full year underlying profit before tax will be ahead of current expectations.
GROUP INCOME STATEMENT (unaudited) for the half year to 30 June 2009 Notes Half year Half year Full year to to to 30 June 28 June 31 December 2009 2008 2008 GBPm GBPm GBPm Revenue 3 821.3 826.5 1,667.1 Net operating costs (811.9) (814.2) (1,647.7) Operating profit 9.4 12.3 19.4 Share of post-tax results of 1.8 1.6 3.6joint ventures and associates Operating profit after joint 3 11.2 13.9 23.0ventures and associates Analysed as: Underlying operating profit 3 17.1 14.1 36.5 Exceptional items 4 (3.0) 2.4 (7.3) Intangible amortisation 4 (2.4) (1.9) (4.3) Share of interest and tax on (0.5) (0.7) (1.9)joint ventures and associates Operating profit after joint 11.2 13.9 23.0ventures and associates Finance income 0.2 1.0 2.3 Finance charges (3.1) (4.8) (17.7) Other finance (charges)/income - 12b (0.9) 1.2 2.3pensions Profit before taxation 7.4 11.3 9.9 Taxation 5 (3.5) (2.8) (11.1) Profit/(loss) for the period 3.9 8.5 (1.2) Attributable to equity 3.9 8.5 (1.2)shareholders Earnings per ordinary share 7 Basic 6.6p 14.3p (2.0)p Diluted 6.6p 14.3p (2.0)pGROUP Statement of COMPREHENSIVE INCOME (unaudited) for the half year to 30 June 2009 Profit/(loss) for the period 3.9 8.5 (1.2) Actuarial loss on defined benefit 12b (9.4) (20.3) (48.7)pensions Deferred tax associated with 2.6 5.7 13.6defined benefit pensions Net exchange adjustments (9.2) 2.2 4.7 Net losses recognised directly in (16.0) (12.4) (30.4)equity Total recognised loss for the (12.1) (3.9) (31.6)period Attributable to equity (12.1) (3.9) (31.6)shareholders GROUP BALANCE SHEET (unaudited) as at 30 June 2009 Notes As at As at As at 30 June 28 June 31 December 2009 2008 2008 GBPm GBPm GBPm Assets Non-current assets Intangible assets 8 95.2 87.3 102.1 Property, plant and equipment 150.8 162.0 169.4 Investments 8 41.2 41.9 47.1 Derivative financial assets 2.2 0.7 - Deferred tax assets 15.8 6.9 15.0 305.2 298.8 333.6 Current assets Inventories 9.7 10.7 9.3 Trade and other receivables 146.9 162.8 157.4 Available for sale investment 2.4 - 2.7 Derivative financial assets 1.7 1.9 0.4 Cash and cash equivalents 9 33.1 29.3 19.6 193.8 204.7 189.4 Liabilities Current liabilities Borrowings 9 (49.5) (65.0) (58.6) Derivative financial liabilities (9.3) (6.6) (17.1) Trade and other payables (185.2) (197.7) (195.8) Current income tax liabilities (11.3) (7.5) (9.9) (255.3) (276.8) (281.4) Net current liabilities (61.5) (72.1) (92.0) Total assets less current 243.7 226.7 241.6liabilities Non-current liabilities Borrowings 9 (130.3) (113.0) (126.0) Other payables - - (0.2) Derivative financial liabilities (0.7) - (0.9) Provisions (9.1) (7.1) (8.6) Deferred tax liabilities (7.5) (2.9) (7.7) Retirement benefit obligations 12 (45.3) (9.0) (35.6) (192.9) (132.0) (179.0) Net assets 50.8 94.7 62.6 Shareholders' equity Ordinary shares 15.1 15.1 15.1 Share premium account 15.8 15.8 15.8 Investment in own shares (3.3) (3.3) (3.3) Retained earnings 1.6 45.5 13.4 Capital redemption reserve 21.6 21.6 21.6 Total equity 50.8 94.7 62.6
GROUP STATEMENT OF CHANGES IN EQUITY (unaudited)
for the half year to 30 June 2009
Ordinary Share Investment Retained Capital Total shares premium in own earnings redemption account shares reserve GBPm GBPm GBPm GBPm GBPm GBPm As at 31 December 2008 15.1 15.8 (3.3) 13.4 21.6 62.6 Profit for the period - - - 3.9 - 3.9 Share-based payments - - - 0.3 - 0.3 Actuarial loss (net of - - - (6.8) - (6.8)deferred tax) Exchange adjustments - - - (9.2) - (9.2) As at 30 June 2009 15.1 15.8 (3.3) 1.6 21.6 50.8 As at 29 December 2007 15.0 15.1 (3.4) 60.1 21.6 108.4 Profit for the period - - - 8.5 - 8.5 Dividends - - - (11.0) - (11.0) New share capital issued 0.1 0.7 - - - 0.8 Movement during the - - 0.1 - - 0.1period Share-based payments - - - 0.3 - 0.3 Actuarial loss (net of - - - (14.6) - (14.6)deferred tax) Exchange adjustments - - - 2.2 - 2.2 As at 28 June 2008 15.1 15.8 (3.3) 45.5 21.6 94.7 As at 29 December 2007 15.0 15.1 (3.4) 60.1 21.6 108.4 Loss for the period - - - (1.2) - (1.2) Dividends - - - (15.5) - (15.5) New share capital issued 0.1 0.7 - - - 0.8 Movement during the - - 0.1 - - 0.1period Share-based payments - - - 0.4 - 0.4 Actuarial loss (net of - - - (35.1) - (35.1)deferred tax) Exchange adjustments - - - 4.7 - 4.7 As at 31 December 2008 15.1 15.8 (3.3) 13.4 21.6 62.6GROUP CASH FLOW STATEMENT (unaudited) for the half year to 30 June 2009 Notes Half year Half year Full year to to to 30 June 28 June 31 December 2009 2008 2008 GBPm GBPm GBPm Cash flows from operating activities Cash generated from operations 10 21.9 9.2 39.2 Interest received 0.2 0.9 2.2 Interest paid (3.8) (7.2) (17.5) Tax paid (0.4) (2.0) (4.6) Net cash from operating 17.9 0.9 19.3activities Cash flows from investing activities Investment in joint ventures and - (9.0) (8.7)associates Loan repaid by / (to) joint 0.8 (0.2) 0.6ventures and associates Proceeds from disposal of - 10.3 12.2investments Acquisition of subsidiaries (1.6) (8.1) (13.0) Net cash acquired with - 0.7 1.2subsidiaries Purchase of property, plant and (7.9) (25.5) (40.4)equipment Intangible asset additions (0.7) (0.7) (2.4) Proceeds from sale of property, 9.9 1.9 9.1plant and equipment Dividends received 1.9 1.3 3.3 Net cash used in investing 2.4 (29.3) (38.1)activities Cash flows from financing activities Net proceeds from issue of - 0.8 0.8ordinary share capital Finance lease additions - 0.2 - Repayment of borrowings (15.6) (1.3) (16.5) Proceeds from borrowings 6.9 34.6 45.9 Dividends paid to ordinary - (11.0) (15.5)shareholders Net cash from financing (8.7) 23.3 14.7activities Increase/(decrease) in net cash 9 11.6 (5.1) (4.1)and cash equivalents Effects of exchange rate - - 0.3movements 17.2 21.0 21.0Opening net cash and cash equivalents Closing net cash and cash 9 28.8 15.9 17.2equivalents*
*Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.
Notes to the Interim Financial Statements
1. INTRODUCTION
These interim consolidated financial statements are for the half year to 30 June 2009. They were approved by the Board on 17 August 2009 and are unaudited. These interim financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year to 31 December 2008, prepared in accordance with IFRS, which carried an unqualified Auditors' Report, have been filed with the Registrar of Companies.
2. BASIS OF PREPARATION
These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim Financial Reporting" as adopted by the European Union.
The adoption of IAS 1 (revised) has required the reconciliation of movements in equity, previously disclosed in note 21 in the annual financial statements for the year ended 31 December 2008, to be presented as a primary statement entitled `Group Statement of Changes in Equity'. In addition the Group Statement of Recognised Income and Expense has been replaced with the Group Statement of Comprehensive Income.
Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2008, as described in those annual financial statements.
The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year ending December 2009:
IFRS 8 "Operating Segments", Amendment to IAS 23 "Borrowing costs" and Amendment to IFRS 2 "Share based payments" are effective for annual periods beginning on or after 1 January 2009.
The following new standards, amendments to standards or interpretations have been issued, but are not effective for the financial year ending December 2009 and have not been early adopted:
IFRS 3 "Business combinations (revised)" is effective for annual periods beginning on or after 1 July 2009.
3. SEGMENTAL ANALYSISPrimary business segments Distribution Aviation Corporate Group (a) Interim 2009 GBPm GBPm GBPm GBPm Revenue 573.2 248.1 - 821.3 Operating profit/(loss) 13.1 (4.6) 0.9 9.4 Share of post-tax results of 0.5 0.9 - 1.4joint ventures Share of post-tax results of - 0.4 - 0.4associates Operating profit/(loss) after 13.6 (3.3) 0.9 11.2joint ventures and associates Analysed as:
Pre-exceptional operating profit 13.6 4.0 (0.5) 17.1 /(loss)*
Gain on disposal of property, - - 1.4 1.4plant & equipment Rationalisation costs - (4.4) - (4.4) Contract amortisation - (1.5) - (1.5) Impairment provision - (0.9) - (0.9) Share of interest on joint - (0.1) - (0.1)ventures and associates Share of tax on joint ventures - (0.4) - (0.4)and associates Operating profit/(loss) after 13.6 (3.3) 0.9 11.2joint ventures and associates (b) Interim 2008 GBPm GBPm GBPm GBPm Revenue 587.2 239.3 - 826.5 Operating profit/(loss) 10.4 2.8 (0.9) 12.3 Share of post-tax results of 0.1 0.8 - 0.9joint ventures Share of post-tax results of - 0.7 - 0.7associates Operating profit/(loss) after 10.5 4.3 (0.9) 13.9joint ventures and associates Analysed as:
Pre-exceptional operating profit 10.9 4.1 (0.9) 14.1 /(loss)*
Impairment provisions (0.4) (3.9) - (4.3) Gain on disposal of interest in - 8.2 - 8.2joint venture Onerous lease provision - (2.4) - (2.4) Contract amortisation - (1.0) - (1.0) Share of interest on joint - (0.1) - (0.1)ventures and associates Share of tax on joint ventures - (0.6) - (0.6)and associates Operating profit/(loss) after 10.5 4.3 (0.9) 13.9joint ventures and associates (c) Full year 2008 GBPm GBPm GBPm GBPm Revenue 1,166.2 500.9 - 1,667.1 Operating profit/(loss) 22.7 (0.6) (2.7) 19.4 Share of post-tax results of 0.1 2.5 - 2.6joint ventures Share of post-tax results of - 1.0 - 1.0associates Operating profit/(loss) after 22.8 2.9 (2.7) 23.0joint ventures and associates Analysed as:
Pre-exceptional operating profit/ 23.9 14.1 (1.5) 36.5 (loss)*
Gain on disposal of interest in - 8.2 - 8.2joint venture Impairment provisions (0.8) (4.8) - (5.6) Onerous lease provision - (3.8) (1.2) (5.0) Rationalisation costs - (6.7) - (6.7) Contract amortisation - (2.5) - (2.5) Share of interest on joint (0.1) (0.3) - (0.4)ventures and associates
Share of tax on joint ventures (0.2) (1.3) - (1.5) and associates
Operating profit/(loss) after 22.8 2.9 (2.7) 23.0joint ventures and associates
* 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.
Seasonality has no significant impact within the newspaper and magazinemarkets. Due to the seasonal nature of cargo handling within the aviationmarket, higher revenue and operating profits are usually expected in the secondhalf of the financial year, mainly attributed to an increase in cargo movementsin the pre-Christmas period.(a) Interim 2009 Distribution Aviation Corporate Group GBPm GBPm GBPm GBPm Segment assets 155.4 287.1 7.6 450.1 Unallocated assets 48.9 Total assets 499.0 Segment liabilities (103.8) (77.6) (22.9) (204.3) Unallocated liabilities (243.9) Total liabilities (448.2)
Segment net assets/(liabilities) 51.6 209.5 (15.3) 245.8
Unallocated net liabilities (195.0) Net assets 50.8
Unallocated assets comprise deferred tax assets, cash and cash equivalents.
Unallocated liabilities comprise retirement benefit obligations, borrowings, current income tax liabilities and deferred tax liabilities.
(b) Interim 2008 Segment assets 166.9 292.1 8.3 467.3 Unallocated assets 36.2 Total assets 503.5 Segment liabilities (107.7) (82.4) (21.3) (211.4) Unallocated liabilities (197.4) Total liabilities (408.8) Segment net assets/ 59.2 209.7 (13.0) 255.9(liabilities) Unallocated net liabilities (161.2) Net assets 94.7 (c) Full year 2008 Segment assets 167.6 317.5 3.3 488.4 Unallocated assets 34.6 Total assets 523.0 Segment liabilities (108.3) (80.7) (33.6) (222.6) Unallocated liabilities (237.8) Total liabilities (460.4) Segment net assets/ 59.3 236.8 (30.3) 265.8(liabilities) Unallocated net liabilities (203.2) Net assets 62.6 Revenue Segment assets Secondary geographic Interim Interim Full Interim Interim Fullsegments year year 2009 2008 2009 2008 2008 2008 GBPm GBPm GBPm GBPm GBPm GBPm United Kingdom 645.8 662.9 1,316.2 270.6 284.3 282.4 Continental Europe 57.0 58.3 128.2 51.6 57.3 55.2 Americas 65.1 56.7 116.9 47.4 50.1 65.9 Rest of the World 53.4 48.6 105.8 80.5 75.6 84.9 821.3 826.5 1,667.1 450.1 467.3 488.44 (a) Exceptional Items Notes Half year to Half year to Full year to 30 June 2009 28 June 2008 31 December 2008 GBPm GBPm GBPm Gain on disposal of (i) 1.4 - - property, plant & equipment Rationalisation costs (ii) (4.4) - (6.7) Gain on disposal of (iii) - 8.2 8.2 interest in joint venture Impairment provisions (iv) - (3.4) (3.8) Onerous lease (v) - (2.4) (5.0) provisions (3.0) 2.4 (7.3)
(i) During the period the Group disposed of four freehold properties for a
consideration of 5.8m.
(ii) Costs of rationalising excess capacity comprising asset write-downs and
staff redundancy costs in the Aviation business.
(iii) During 2008 the Group disposed of the 50% interest in the joint venture
in Peru, Talma Menzies SRL, for a consideration of 10.3m.
(iv) Following a deterioration in the North American cargo handling market the
acquired goodwill in respect of Aeroground Inc was tested for impairment during 2008 in accordance with IAS 36 and a goodwill charge of 3.0m (approximately 1/3 of the original amount capitalised) was recognised. This goodwill impairment resulted from poor post acquisition performance exacerbated by global market conditions. The recoverable amount of the cash-generating unit was measured based on a value in use calculation and a discount rate of 8%. The Group's investment in associate company Worldwide Magazine Distribution Ltd was also reviewed for impairment during 2008 in accordance with IAS 36 and restated to reflect current trading performance. As a result, an impairment charge of 0.4m was recognised.
(v) This provision was in respect of future obligations on leasehold
properties, which became empty during 2008.
4 (b) Intangible amortisation
Notes Half year to Half year to Full year to 30 June 2009 28 June 2008 31 December 2008 GBPm GBPm GBPm Goodwill impairment (i) (0.9) (0.9) (1.8)
Contract amortisation (ii) (1.5) (1.0) (2.5)
(2.4) (1.9) (4.3)(i) As permitted under the transitional requirements of IFRS 1, the acquisition accounting of business combinations completed prior to the transition date has not been restated. As a result, assets which were previously capitalised as goodwill have not been reclassified as other intangible assets. Accordingly, these financial statements include an impairment charge of 0.9m (June 2008: 0.9m, December 2008: 1.8m) reflecting the remaining life of the current licence at Menzies Macau Aviation Services Ltd.
(ii) This charge relates to contracts capitalised as intangible assets on the
acquisition of businesses following the adoption of IFRS.
5. TAXATION
The underlying effective rate for the full year is estimated at 30% (December 2008: actual 39.4%). The underlying effective rate used for the half year is 30% (June 2008: 30%). The share of results from joint ventures and associates is after taxation of 0.4m (June 2008: 0.6m).
6. DIVIDENDS Half year Half year Full year to 31 December to 30 June to 28 2008 June 2009 2008 GBPm GBPm GBPm Dividends on equity shares: Ordinary: Interim paid in respect of 2008, - - 4.5 7.56p per share Final paid in respect of 2007, - 11.0 11.0 18.4p per share - 11.0 15.57. EARNINGS PER SHARE Basic Underlying* Half Half Full Half Half Full year to year to year to year to year to year to 30 June 28 June 31 Dec 30 June 28 June 31 Dec 2009 2008 2008 2009 2008 2008 GBPm GBPm GBPm GBPm GBPm GBPm Operating profit 9.4 12.3 19.4 9.4 12.3 19.4
Share of post-tax results of 1.8 1.6 3.6 1.8 1.6 3.6 joint ventures and associates
add Exceptional items - - - 3.0 (2.4) 7.3back: Intangible - - - 2.4 1.9 4.3 amortisation Share of tax on joint - - - 0.4 0.6 1.5 ventures and associates Net finance costs (3.8) (2.6) (13.1) (3.8) (2.6) (5.4) Profit before taxation 7.4 11.3 9.9 13.2 11.4 30.7 Taxation (3.5) (2.8) (11.1) (3.9) (3.4) (11.1) Tax on exceptional items - - - - 0.5 (1.0) Earnings for the period 3.9 8.5 (1.2) 9.3 8.5 18.6 Basic Earnings per ordinary share 6.6 14.3 (2.0) (pence) Diluted earnings per ordinary 6.6 14.3 (2.0) share (pence) Underlying* Earnings per ordinary share 15.7 14.3 31.3(pence) Diluted earnings per ordinary 15.7 14.3 31.3share (pence) Number of ordinary shares in issue (millions) Weighted average 59.177 59.438 59.445 Diluted weighted average 59.177 59.636 59.499
The weighted average number of fully paid ordinary shares in issue during the period excludes those held by the employee share trusts. The diluted weighted average is calculated by adjusting for those 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 intangible amortisation and exceptional items.
8. Intangible assets
Intangible assets comprise goodwill of 48.5m (June 2008: 44.4m), contracts of 44.0m (June 2008: 41.2m) and capitalised software development costs of 2.7m (June 2008: 1.7m).
Investments also include goodwill in respect of joint ventures and associates of 8.3m (June 2008: 8.3m).
9. ANALYSIS OF CHANGES IN NET BORROWINGS
As at Half year Currency As at 31 Dec cash flows translation 30 June 2008 2009 GBPm GBPm GBPm GBPm Cash at bank and in hand 19.6 13.5 - 33.1 Bank overdrafts (2.4) (1.9) - (4.3) Net cash and cash equivalents 17.2 11.6 - 28.8 Bank loans due within one year (56.0) 11.0 - (45.0) Loan stock due within one year (0.1) - - (0.1) Preference shares (1.4) - - (1.4) Finance leases (0.3) 0.2 - (0.1) Debt due after one year (124.4) (6.9) 2.4 (128.9) Net derivative financial (17.6) 4.4 7.1 (6.1)liabilities Net borrowings (182.6) 20.3 9.5 (152.8)
10. CASH GENERATED FROM OPERATIONS
Half year Half year Full year to to 30 June to 28 June 31 December 2009 2008 2008 GBPm GBPm GBPm Operating profit 9.4 12.3 19.4 Depreciation 12.8 11.6 23.6 Amortisation of intangible 2.0 1.0 3.0assets Impairment provisions - 3.4 3.8 Share-based payments 0.3 0.3 0.4 Cash spend on dilapidations on - (3.0) (3.0)onerous lease Onerous lease provisions - 2.4 5.0 Cash spend on onerous lease (0.8) - (1.0) (Gain)/loss on sale of property, (1.6) 0.3 0.1plant and equipment Gain on disposal of investment - (8.2) (8.2) Pension charge 0.9 1.2 2.3 Pension contributions in cash (1.5) (1.8) (3.6) Rationalisation costs 4.4 - 6.7 Cash spend on rationalisation (3.9) (0.1) (5.3)costs (Increase)/decrease in (0.5) 1.7 3.1inventories Decrease/(increase) in trade and 5.2 (15.8) (9.3)other receivables (Decrease)/increase in trade and (4.8) 3.9 2.2other payables and provisions 21.9 9.2 39.211. CONTINGENT LIABILITIES
There are contingent liabilities, including those in respect of disposed and acquired businesses, which are not expected to give rise to any significant loss to the Group.
In addition, in the normal course of business, the company has guaranteed certain trading obligations of its subsidiaries.
12. RETIREMENT BENEFIT OBLIGATIONS
(a) In deriving the results the Actuary used the projected unit method and the following financial assumptions:
Half year Half year Full year to to 30 June to 28 June 31 December 2009 2008 2008 % % % Rate of increase in salaries 3.90 4.60 3.60
Rate of increase in pensions (prior to 1 3.55 4.10 3.35 April 2006)
Rate of increase in pensions (after 1 April 2.50 2.50 2.502006) Price inflation 3.40 4.10 3.10 Discount rate 6.40 6.70 6.40 Fair value of assets and reconciliation to the balance sheet Value at Value at Value at 30 June 28 June 31 Dec 2009 2008 2008 GBPm GBPm GBPm Total value of assets 182.1 231.8 182.4 Defined benefit obligation (227.4) (240.8) (218.0) Recognised in balance sheet (45.3) (9.0) (35.6) Related deferred tax asset 12.7 2.5 10.0 Net pension liabilities (32.6) (6.5) (25.6)(b) Components of pension expense Half year Half year Full year to 30 June to 28 June to 31 Dec 2009 2008 2008 Amounts charged to the Income Statement GBPm GBPm GBPm Current service cost 0.9 1.2 2.3
Total amount charged to the income statement 0.9 1.2 2.3
Amounts included in finance costs GBPm GBPm GBPm Expected return on pension scheme assets 6.0 7.9 15.8 Interest on pension liabilities (6.9) (6.7) (13.5) Net financial return (0.9) 1.2 2.3 Pension expense 1.8 - - Amounts recognised in the Statement of GBPm GBPm GBPmComprehensive Income Loss on assets (4.4) (24.0) (78.1)
Actuarial (loss)/gain on defined benefit (5.0) 3.7 29.4 obligation
Total loss (9.4) (20.3) (48.7) Change in scheme assets during the period GBPm GBPm GBPm Fair value of assets at start of period 182.4 250.2 250.2 Expected return on assets 6.0 7.9 15.8 Company contributions 1.5 1.8 3.6 Employee contributions 0.7 0.7 1.4 Benefits and expenses paid (4.1) (4.8) (10.5) Loss on assets (4.4) (24.0) (78.1) Fair value of assets at end of period 182.1 231.8 182.4 Change in defined benefit obligation during GBPm GBPm GBPmthe period Defined benefit obligation at start of (218.0) (240.7) (240.7)period Current service cost (0.9) (1.2) (2.3) Interest cost (6.9) (6.7) (13.5) Employee contributions (0.7) (0.7) (1.4) Benefits and expenses paid 4.1 4.8 10.5
Actuarial (loss)/gain on defined benefit (5.0) 3.7 29.4 obligation
Defined benefit obligation at end of period (227.4) (240.8) (218.0)
The actual return on scheme assets was a gain of 1.6m (June 2008: a loss of 16.1m).
13. ACQUISITIONS
During the period Menzies Aviation acquired the trade and assets of Kion, a ramp services business based at Mexico City Airport, for a consideration of 0.5m.
14. RELATED PARTY TRANSACTIONS
During the period the Group transacted with related parties in the normalcourse of business and on an arm's length basis. Details of these transactionsare shown below: Group Sales to Amounts owed shareholding related by/(to) related party party at 30 June 2009 Related party % GBPm GBPm Freshport BV 50 0.2 - Swissport Menzies Handling Ute 39 0.3 1.0 Menzies Bobba Ground Handling 51 0.3 0.2Services Private Ltd Hyderabad Menzies Air Cargo Private 49 0.1 -Ltd EM News Distribution (NI) Ltd 50 0.3 (1.4) EM News Distribution (Ireland) Ltd 50 0.4 0.4
Certain activities, including treasury, taxation, insurance, pension and legal matters are provided by the parent company to subsidiary companies and are recharged on a cost-plus basis.
Risks & Uncertainties
The principal risks and uncertainties affecting the business activities of the Group remain those detailed in the Annual Report for 31 December 2008, a copy of which is available on the Group website at www.johnmenziesplc.com. The Board considers that these remain a current reflection of the risk and uncertainties facing the business for the remaining 6 months of the financial year.
Directors' Responsibility Statement in respect of the Condensed Interim Financial Statements
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union, and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules of the Financial Services Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The directors of John Menzies plc are listed in the John Menzies plc Annual Report for 31 December 2008. A list of current directors is maintained on the John Menzies plc website: www.johnmenziesplc.com
vendorRelated Shares:
MNZS.L