19th Aug 2010 07:00
John Menzies plc
Interim Results announcement for the six months ended 30 June 2010
HIGHLIGHTS H1 2010 H1 2009 Revenue £924.0m £821.3m Turnover (including JV's & associates) £984.7m £880.7m Underlying profit before taxation (1) £19.3m £13.2m Profit before tax £20.6m £7.4m Underlying operating profit by division (2) Aviation £9.1m £4.0m Distribution £14.5m £13.6m Free cashflow £20.6m £11.1m Underlying earnings per share (3) 23.7p 15.7p Basic earnings per share 25.0p 6.6pGROUP * Underlying profit before tax up 46% * Net debt/EBITDA ratio less than 2 times * Free cashflow of £20.6m generated
MENZIES AVIATION
* Underlying operating profit more than doubles * Strong recovery in Cargo volume boosts profits * Organic growth momentum continues within the Ground Handling business
MENZIES DISTRIBUTION
* Underlying operating profit up 7%
* New contracts delivering expected returns
DIVIDEND
* Interim dividend of 5p
Iain Napier, Chairman said:
"The performance of the Group during the first six months has been very strong. Group underlying profits are up 46% on the corresponding period last year and both operating divisions are performing well. As a result, the Board expects the full year results to be slightly ahead of current market expectations.
At Menzies Aviation, despite the effect of the Icelandic volcano, profits more than doubled as cargo volumes recovered. Ground Handling continued to grow, bolstered by further contract gains with customers including a significant gain with Lufthansa/bmi at London Heathrow. Whilst some fragility still exists within the industry, we continue to demonstrate our ability to secure major contracts with leading airlines at their hub locations.
Menzies Distribution traded in line with our expectations despite a generally difficult marketplace. The half year result benefited from the successful integration of the contracts gained during 2009, and from the sales of stickers associated with the 2010 World Cup.
Overall, the Group is very well positioned to grow shareholder value."
Notes 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.
FOR FURTHER INFORMATION:
Paul Dollman, Group Finance Director, John Menzies plc 0131 459 8018
John Geddes, Group Company Secretary, John Menzies plc 0131 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
aviation 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 16,000 people worldwide servicing over 500 airline customers at 112 locations in 27 countries, In 2009 the division handled more than 650,000 flight turns, 71 million passengers and 1.4 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 5.5 million newspapers and 2.2 million magazines (covering 3,000 magazine titles) each day, with deliveries to more than 25,000 customers. The division employs 4,000 people at 48 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.
5. Further information on John Menzies plc can be found at:
www.johnmenziesplc.com, www.menziesdistribution.com and
www.menziesaviation.com. GROUP PERFORMANCE
The Group had a strong first half with underlying profit before taxation up by over 46% to £19.3m. Group turnover in the period increased by 11.8% to £984.7m.
A significant improvement in the cargo market with like for like volumes up 24.8%, and additional contract gains in Ground Handling, helped profits at Menzies Aviation more than double to £9.1m with turnover rising by 13.8% to £ 300.9m.
At Menzies Distribution sales of World Cup related stickers, continuing cost initiatives and the contribution made from the new contracts gained during 2009 helped profits to increase by 7% to £14.5m, with turnover increasing by 11% to £683.8m.
Corporate costs and interest costs were both held at prior year levels.
Cashflow and Investment
Operating cashflow was £32.2m, an increase of £8.4m on 2009, mainly due to higher profits in the period. Free cashflow also increased to £20.6m. Net capital expenditure in the period was well below depreciation and also lower than the previous year. Foreign exchange rates in the period were broadly neutral, increasing net debt by only £1.5m. After the payment of the dividend in April in respect of the financial year 2009 of £4.7m, the net cashflow for the Group was £12.2m. This reduced net debt at the half year to £121.6m.
Our net debt to EBITDA ratio at the half year reduced further to 1.9 times as a result of lower net debt and higher profits. Our interest cover increased to 7.3 times. A £20m facility which expired at the end of June 2010 was no longer required and was not replaced. All remaining facilities are secured until November 2011 or beyond.
Exceptional Items
There was an exceptional credit of £4.6m in the period resulting from some members of the main UK pension scheme exchanging future non-statutory increases in pension for a higher fixed pension.
Dividend
The Board is declaring an interim dividend of 5p which will be payable inNovember 2010. No interim dividend was declared this time last year but aninterim dividend in lieu of a final dividend of 8p per share was declared inMarch 2010.MENZIES AVIATION 2010 2009 Turnover £300.9m £264.4m Underlying operating profit £9.1m £4.0m
Performance
Menzies Aviation again produced an excellent result with underlying operating profit up 128%, despite the effect of the Icelandic volcano which cost the business £2.5m.
The main driver of the increase was cargo volumes, which were significantly ahead of last year across the whole network. In addition, increased de-icing revenue boosted the results as Northern Europe experienced a particularly cold start to the year. The division also benefited from many of the cost actions taken during 2009.
A strict focus on cash generation again produced a strong result with the division contributing a net cash flow of £11.9m.
A focus on operational efficiency delivered tangible benefits. The rollout of standard IT systems in key areas such as time and attendance, billing and rostering, along with investment in safety and security, allowed the division to increase operational efficiency and deliver a first class service to its customers. During the period the key metrics of tonnes per FTE and man hours per turn both improved.
The division were net winners of forty contracts (56 won/16 lost) in the first half. Significantly, of the sixteen contracts that were lost, the majority resulted from route cessation and airline failure. This strengthens our belief that by providing great service at the right price the division can continue to retain its existing customers and grow with new customers. In addition to contracts gained, forty four were renewed, securing some £23m of annualised revenue for three years and beyond.
Cargo Handling
Cargo Handling recovered strongly with like for like tonnes up 24.8% and absolute tonnes up 26.1%. The rise in volume was witnessed across the network.
In particular, the major cargo operations in North America and the Netherlands benefited from significant volume increases which will turn these businesses, which were loss making in 2009, back to profitability.
However, structural issues within Cargo Handling remain. Over capacity still exists, particularly at major airports, and we expect an element of predatory pricing to continue as handlers look to increase their shed utilisation.
Cargo volumes remain positive and we expect the strong start to the year to continue, albeit with stronger comparatives in the second half. On current volumes the cargo business is now profitable.
Cargo Forwarding
Cargo forwarding has benefited from the generally better market conditions with bookings up sharply and some yield improvement. During the period an investment programme commenced to enhance the IT infrastructure and senior management. With cargo volumes improving and the correct infrastructure in place, this business is very well positioned to grow into what is a large available market, and to significantly expand its market share.
Ground Handling
As expected the ground handling business performed well displaying its resilience and flexibility. Like for like turns were up 2.0% with absolute turns up 6.0%.
Operations in South Africa handled some 250 extra charter flights at ten locations as fans and teams moved around the country at the 2010 World Cup. In India, the divisions' first contract to handle an indigenous low cost airline, Kingfisher, was secured. The division now handles some 360 Kingfisher flights per month at Hyderabad. This is an exciting breakthrough in a very large market.
In April, operations were materially affected by the volcanic activity in Iceland which resulted in large parts of European air space being closed. Losses during this period were minimised although it was inevitable that there was a significant hit to operating profits. It is testament to the flexibility and spirit of our employees that the size of the loss was not bigger, as the majority of staff either took holidays or accepted flexible working conditions during what was an unprecedented period for the industry.
MENZIES DISTRIBUTION 2010 2009 Turnover £683.8m £616.3m Underlying operating profit £14.5m £13.6m
Performance
Menzies Distribution produced a solid first half performance with underlying operating profit up 7%. The rise in profit was driven by the successful integration of the new business gained from Dawson Holdings, continuing cost initiatives and strong sales of World Cup related stickers.
Newspaper like for like sales were a disappointing 4% down on last year. Volumes continued to decline and there was a general lack of cover price increases. Magazine volumes, where overall sales were down 2.3%, were slightly ahead of expectations after a better performance in the monthly magazine category, where like for like sales were down only 0.6%. Overall core product volumes are still in decline but the rate of decline has slowed.
The business gained during 2009 from Dawson Holdings has been integrated successfully. Two new distribution centres have been opened and both are performing well. The existence of these new centres has allowed the branch network to be reviewed and further efficiencies have been identified.
In all, around £180m of additional revenue was won in the contract renewal process. Of this £22m is still to migrate and plans are in place for the integration of this new business when it arrives. The full effect, therefore, of the contract renewal process will be seen in 2011.
Negotiations continued with a number of regional press publishers and £5m of additional revenue was secured during the period. The regional press market continues to offer many possibilities and the division is well placed to gain further new business over the next five years.
Cost and Productivity Initiatives
The constant drive to find efficiencies continued. Bottom line benefits were derived from branch cost saving initiatives. Cost savings during the period were again ahead of inflation.
A branch rationalisation programme is underway. One branch has now been closed and a further two branches have been downgraded to newspaper packing spokes. Further actions are planned and will take effect during the second half of the year and into 2011.
The implementation of SAP is now gaining real traction with the project entering the go-live phase. The system will then be rolled out progressively. Efficiencies have been identified and costs savings will be delivered as the system is embedded throughout the network.
New Revenue Streams
In the early part of the year Menzies Marketing Services ("MMS") was launched. It brought together under the Menzies banner four fledgling businesses (D-Cipher, The Network, Jones Yarrell Leadenhall and Menzies Travel Media) that were previously trading independently.
MMS made good progress during the period although trading was slightly behind last year, due to investment in infrastructure, start up costs at Menzies Travel Media and the closure of the London Lite free sheet which impacted on The Network.
Menzies Travel Media (MTM), a business that supplies newspapers to airlines and airport lounges, was launched. A trial with easyJet to supply newspapers and magazines onboard flights commenced. This business is in its infancy but is well positioned to gain contracts by leveraging the Group's relationships with airlines and publishers.
The Network made a small acquisition, acquiring Trinity Field Marketing. The Network is a full service field marketing company and the acquisition will expand its reach into new sectors and reinforce its place amongst the top field marketing companies in the UK.
OUTLOOK
Menzies Aviation continues to trade well and is expected to exceed full year market consensus.
Cargo volumes continue to be strong although the rate of recovery will slow in the second half due to stronger comparators.
Within the ground handling business a £70m five year contract was secured to handle in excess of ninety flights per day for Lufthansa/bmi at London Heathrow Airport. This contract will commence on 1 October and is a significant award by one of the world's leading airlines at a key hub operation. Menzies Aviation are delighted that their reputation for first class service and on time performance has helped secure this contract.
Overall the division is well placed to deliver its growth aspirations.
At Menzies Distribution sales volumes are trending in line with our expectations. During the second half further revenue from the Associated Newspapers contract gained during 2009 is due to migrate from Smiths News.
Also in the second half, the branch network rationalisation project will continue and implementation of SAP will commence, with real benefits expected to be delivered in 2011 and 2012.
At John Menzies plc a clear strategy exists:
* Menzies Aviation will continue to grow and in particular focus on the more flexible and less cash consumptive ground handling business, where there are a large number of opportunities. * Menzies Distribution will consolidate its position in the newspaper and magazine distribution market while pursuing adjacent revenue streams. * John Menzies plc will deliver a progressive dividend programme.
In all, the Group is now in a strong position to increase shareholder value.
GROUP INCOME STATEMENT (unaudited) for the half year to 30 June 2010 Notes Half year Half year Full year to 30 June to 30 June to 31 2010 2009 December 2009 £m £m £m Revenue 3 924.0 821.3 1,725.7 Net operating costs (903.2) (811.9) (1,701.4) Operating profit 20.8 9.4 24.3 Share of post-tax results of 3.6 1.8 5.9joint ventures and associates Operating profit after joint 3 24.4 11.2 30.2ventures and associates Analysed as: Underlying operating profit 3 23.1 17.1 43.4 Exceptional items 4a 4.6 (3.0) (6.0) Intangible amortisation 4b (2.5) (2.4) (5.1) Share of interest and tax on (0.8) (0.5) (2.1)joint ventures and associates Operating profit after joint 24.4 11.2 30.2ventures and associates Finance income 0.1 0.2 0.6 Finance charges (3.2) (3.1) (7.0) Other finance charges - pensions 12b (0.7) (0.9) (1.8) Profit before taxation 20.6 7.4 22.0 Taxation 5 (5.8) (3.5) (6.7) Profit for the period 14.8 3.9 15.3 Attributable to equity 14.8 3.9 15.3shareholders Earnings per ordinary share 7 Basic 25.0p 6.6p 25.8p Diluted 25.0p 6.6p 25.8pGROUP Statement of COMPREHENSIVE INCOME (unaudited) for the half year to 30 June 2010 Notes Half year Half year Full year to 30 June to 30 June to 31 2010 2009 December 2009 £m £m £m Profit for the period 14.8 3.9 15.3 Actuarial gain/(loss) on defined 12b 3.1 (9.4) (50.0)benefit pensions Actuarial loss on unfunded - - (0.2)pension arrangements Deferred tax associated with (0.9) 2.6 14.1defined benefit pensions Losses on cash flow hedges (0.6) - (1.2) Income tax effect 0.2 - 0.3 Net exchange adjustments 2.9 (9.2) (1.7) Net gains/(losses) recognised 4.7 (16.0) (38.7)directly in equity Total recognised gain/(loss) for 19.5 (12.1) (23.4)the period Attributable to equity 19.5 (12.1) (23.4)shareholders GROUP BALANCE SHEET (unaudited) as at 30 June 2010 Notes As at 30 As at 30 As at 31 June 2010 June 2009 December 2009 £m £m £m Assets Non-current assets Intangible assets 8 99.4 95.2 100.5 Property, plant and equipment 134.5 150.8 140.8 Investments 8 43.3 41.2 41.8 Derivative financial assets 0.1 2.2 0.1 Deferred tax assets 17.1 15.8 19.9 294.4 305.2 303.1 Current assets Inventories 14.2 9.7 12.0 Trade and other receivables 168.7 146.9 158.9 Available for sale investment 1.5 2.4 1.4 Derivative financial assets 3.3 1.7 2.5 Cash and cash equivalents 9 36.0 33.1 31.5 223.7 193.8 206.3 Liabilities Current liabilities Borrowings 9 (7.5) (49.5) (12.8) Derivative financial liabilities (2.5) (9.3) (2.2) Trade and other payables (210.2) (185.2) (200.0) Current income tax liabilities (11.7) (11.3) (9.7) Provisions (2.6) (2.6) (2.6) (234.5) (255.3) (227.3) Net current liabilities (10.8) (61.5) (21.0) Total assets less current 283.6 243.7 282.1liabilities Non-current liabilities Borrowings 9 (149.2) (130.3) (150.1) Other payables (1.4) - (1.3) Derivative financial liabilities (1.8) (0.7) (1.3) Provisions (4.1) (6.5) (5.3) Deferred tax liabilities - (7.5) -
Retirement benefit obligations 12 (74.5) (45.3) (84.5)
(231.0) (192.9) (242.5) Net assets 52.6 50.8 39.6 Shareholders' equity Ordinary shares 15.1 15.1 15.1 Share premium account 15.9 15.8 15.8 Investment in own shares (5.6) (3.3) (3.3) Hedge reserve (1.3) - (0.9) Retained earnings 6.9 1.6 (8.7) Capital redemption reserve 21.6 21.6 21.6 Total equity 52.6 50.8 39.6
GROUP STATEMENT OF CHANGES IN EQUITY (unaudited)
for the half year to 30 June 2010
Ordinary Share Investment Hedge Retained Capital Total shares premium in own accounting earnings redemption account shares reserve reserve £m £m £m £m £m £m £m As at 31 15.1 15.8 (3.3) (0.9) (8.7) 21.6 39.6December 2009 Profit for the - - - - 14.8 - 14.8period New share - 0.1 - - - - 0.1capital issued Share-based - - - - 0.4 - 0.4payments Movements in the - - (2.3) (0.4) - - (2.7)period Dividends - - - - (4.7) - (4.7) Actuarial gain - - - - 2.2 - 2.2(net of deferred tax) Exchange - - - - 2.9 - 2.9adjustments As at 30 June 15.1 15.9 (5.6) (1.3) 6.9 21.6 52.62010 As at 31 15.1 15.8 (3.3) - 13.4 21.6 62.6December 2008 Profit for the - - - - 3.9 - 3.9period Share-based - - - - 0.3 - 0.3payments Actuarial loss - - - - (6.8) - (6.8)(net of deferred tax) Exchange - - - - (9.2) - (9.2)adjustments As at 30 June 15.1 15.8 (3.3) - 1.6 21.6 50.82009 As at 31 15.1 15.8 (3.3) - 13.4 21.6 62.6December 2008 Profit for the - - - - 15.3 - 15.3year Share-based - - - - 0.4 - 0.4payments Movement in the - - - (0.9) - - (0.9)year Actuarial loss - - - - (36.1) - (36.1)(net of deferred tax) Exchange - - - - (1.7) - (1.7)adjustments As at 31 15.1 15.8 (3.3) (0.9) (8.7) 21.6 39.6December 2009 GROUP STATEMENT OF CASH FLOWS (unaudited) for the half year to 30 June 2010 Notes Half year Half year Full year to 30 June to 30 June to 31 2010 2009 December 2009 £m £m £m Cash flows from operating activities Cash generated from operations 10 25.9 21.9 52.0 Interest received 0.2 0.2 0.8 Interest paid (3.0) (3.8) (7.9) Tax paid (2.1) (0.4) (5.5) Net cash from operating 21.0 17.9 39.4activities Cash flows from investing activities Investment in joint ventures and (0.1) - 0.9associates Loan repaid by joint ventures and 0.8 0.8 2.3associates Proceeds from disposal of - - 0.6investments Acquisition of subsidiaries (0.1) (1.6) (1.6) Purchase of property, plant and (7.0) (7.9) (15.1)equipment Intangible asset additions (0.5) (0.7) (4.1) Proceeds from sale of property, 1.2 9.9 16.9plant and equipment Dividends received 3.8 1.9 4.2 Net cash used in investing (1.9) 2.4 4.1activities Cash flows from financing activities Net proceeds from issue of (2.2) - -ordinary share capital Repayment of borrowings (2.2) (15.6) (54.3) Proceeds from borrowings 0.1 6.9 14.3 Dividends paid to ordinary (4.7) - -shareholders Net cash from financing (9.0) (8.7) (40.0)activities Increase in net cash and cash 9 10.1 11.6 3.5equivalents Effects of exchange rate (0.2) - (0.2)movements 20.5 17.2 17.2Opening net cash and cash equivalents Closing net cash and cash 9 30.4 28.8 20.5equivalents*
*Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.
Notes to the Interim Accounts
1. INTRODUCTION
These interim consolidated financial statements are for the half year to 30 June 2010. They were approved by the Board on 17 August 2010 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 2009, 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.
Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2009, 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 2010:
IFRS 2 '(Amendment) Group Cash-settled Share-based Payment Transactions'
IFRS 3 'Business Combinations (Revised)'
IAS 27 'Consolidated and Separate financial statements (Revised)'
IAS 39 '(Amendment) Eligible Hedged items'
IFRIC 17 'Distribution of non-cash Assets to owners'
IFRIC 18 'Transfers of assets from customers'
The following new standards, amendments to standards and interpretations have been issued but are not effective for the financial year ending December 2010 and have not been adopted early:
IFRS 1 '(Amendment) Limited Exemption from Comparative IFRS 7 disclosures' is effective for periods on or after 1 July 2010
IFRS 9 'Financial Instruments: Classification & Measurement' is effective for periods on or after 1 January 2013
IAS 24 '(Revised) Related Party Disclosures' is effective for periods on or after 1 January 2011
IAS 32 '(Amendment) classification of right Issues' is effective for annual periods on or after 1 February 2010
IFRIC 14 '(Amendment) Prepayments of a Minimum Funding Requirement' is effective for periods on or after 1 January 2011
IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' is effective for periods on or after 1 July 2010
3. SEGMENTAL 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 and each is treated as an operating segment and reportable segment in accordance with IFRS8.
The operating and reportable segments were determined based on the reports reviewed by the Board which are used to make decisions about the allocation of resources between the two divisions.
The Distribution segment provides newspaper and magazine distribution services across the UK along with marketing services. The Aviation segment provides cargo and passenger ground handling services across the world.
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.
The amounts provided to the Board with respect to total assets and total liabilities are measured in a manner consistent with that of the Accounts. The assets are allocated based on the operations of the segment and the physical location of the asset. The liabilities are allocated based on the operations of the segment.
The Group's interest bearing liabilities are not considered to be segment liabilities but rather are managed by the central treasury function.
Segment information is presented in respect of the Group's operating segments together with additional geographic information. Transfer prices between segments are set on an arm's length basis.
Segment Results Distribution Aviation Corporate Group (a) Interim 2010 £m £m £m £m Revenue 642.0 282.0 - 924.0 Operating profit 13.7 3.0 4.1 20.8 Share of post-tax results of 0.8 2.0 - 2.8joint ventures Share of post-tax results of - 0.8 - 0.8associates Operating profit after joint 14.5 5.8 4.1 24.4ventures and associates Net finance expense (3.8) Profit before tax 20.6 Analysed as: Pre-exceptional operating profit 14.5 9.1 (0.5) 23.1/(loss)* Pension credit - - 4.6 4.6 Impairment provision - (0.9) - (0.9) Contract amortisation - (1.6) - (1.6) Share of tax on joint ventures - (0.8) - (0.8)and associates Operating profit after joint 14.5 5.8 4.1 24.4ventures and associates (b) Interim 2009 Distribution Aviation Corporate Group £m £m £m £m 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 Net finance expense (3.8) Profit before tax 7.4 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 (c) Full year 2009 Distribution Aviation Corporate Group £m £m £m £m Revenue 1,218.5 507.2 - 1,725.7 Operating profit/(loss) 26.7 (1.4) (1.0) 24.3 Share of post-tax results of 1.3 2.9 - 4.2joint ventures Share of post-tax results of - 1.7 - 1.7associates Operating profit/(loss) after 28.0 3.2 (1.0) 30.2joint ventures and associates Net finance expense (8.2) Profit before tax 22.0 Analysed as: Pre-exceptional operating profit 28.6 15.8 (1.0) 43.4/(loss)* (Loss)/gain on disposal of - (0.5) 1.7 1.2property, plant and equipment Gain on disposal of interest in - 0.2 - 0.2joint venture Impairment provisions - (2.8) - (2.8) Onerous lease provision - - (1.7) (1.7) Rationalisation costs - (4.7) - (4.7) Contract amortisation - (3.3) - (3.3) Share of tax on joint ventures (0.6) (1.5) - (2.1)and associates Operating profit/(loss) after 28.0 3.2 (1.0) 30.2joint 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 2010 Distribution Aviation Corporate Group £m £m £m £m Segment assets 182.7 277.4 4.9 465.0 Unallocated assets 53.1 Total assets 518.1 Segment liabilities (124.5) (81.8) (16.3) (222.6) Unallocated liabilities (242.9) Total liabilities (465.5)
Segment net assets/(liabilities) 58.2 195.5 (11.4) 242.4
Unallocated net liabilities (189.8) Net assets 52.6
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 2009 £m £m £m £m 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(c) Full year 2009 £m £m £m £m Segment assets 184.2 267.9 5.9 458.0 Unallocated assets 51.4 Total assets 509.4 Segment liabilities (124.0) (70.2) (18.5) (212.7) Unallocated liabilities (257.1) Total liabilities (469.8) Segment assets/(liabilities) 60.2 197.7 (12.6) 245.3 Unallocated net liabilities (205.7) Net assets 39.6 Revenue Half year to Half year to Full year to 31 30 June 2010 30 June 2009 December 2009 Geographic information £m £m £m United Kingdom 716.3 645.8 1,369.0 Continental Europe 63.1 57.0 112.5 Americas 70.1 65.1 126.6 Rest of the World 74.5 53.4 117.6 924.0 821.3 1,725.74 (a) Exceptional Items Notes Half year to Half year to Full year to 31 30 June 2010 30 June 2009 December 2009 £m £m £m Pension credit (i) 4.6 - - Gain on disposal of (ii) - 1.4 1.2 property, plant & equipment Rationalisation costs (iii) - (4.4) (4.7) Gain on disposal of (iv) - - 0.2 interest in joint venture Impairment provision (v) - - (1.0) Onerous lease provision (vi) - - (1.7) 4.6 (3.0) (6.0)
(i) During the period the Group completed a pension increase exchange
exercise whereby pensioners in the Menzies Pension Fund were offered an
increased pension in exchange for foregoing future non-statutory annual
increases.
(ii) The Group completed a number of property and equipment sale and leaseback
arrangements during 2009, which resulted in a gain on disposal.
(iii) Costs of rationalising excess capacity comprising asset write-downs and
staff redundancy costs in the Aviation business.
(iv) During 2009 the Group disposed of the 50% interest in Freshport BV for a
consideration of £0.6m.
(v) The impairment provision reduced the carrying value of the Group's 40%
interest in Menzies Chengdu Aviation Services Limited, which is held as an available for sale asset, to its estimated recoverable amount. Finalisation of the sale agreement is pending regulatory approval in China.
(vi) This provision was in respect of future obligations on leasehold
properties, which became empty during 2009.
The taxation effect of the exceptional items is a charge of £1.3m (June 2009: nil).
4 (b) Intangible amortisation
Notes Half year to Half year to Full year to 31 30 June 2010 30 June 2009 December 2009 £m £m £m Goodwill impairment (i) (0.9) (0.9) (1.8) Contract amortisation (ii) (1.6) (1.5) (3.3) (2.5) (2.4) (5.1)(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 2009: £0.9m, December 2009: £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 27.5% (December 2009: actual 26.4%). The underlying effective rate used for the half year is 27.5% (June 2009: 30%). The share of results from joint ventures and associates is after taxation of £0.8m (June 2009: £0.4m).
In June 2010 the UK Government announced its intention to reduce the main rate of corporation tax from 28 per cent to 24 per cent. The fall will be phased in over a period of four years with a 1 per cent reduction in the main corporation tax rate for each year starting on 1 April 2011. The Finance (No. 2) Act 2010, enacted on 27 July 2010, included legislation on the initial phase to reduce the main rate of corporation tax from 28 per cent to 27 per cent from 1 April 2011. The tax rate change was not substantively enacted at 30 June 2010, therefore the change has not been reflected in the amounts recognised at that date. The estimated effect of the proposed reductions in rate by 2014 would be to decrease the net deferred tax asset by £2m. Most of the UK deferred tax asset relates to the UK pension deficit and it is expected that the majority of the reduction will be debited to other comprehensive income and will not have a material effect on the effective tax rate or on the profit for the year.
6. DIVIDENDS Half year Half year Full year to 30 June to 30 to 31 2010 June 2009 December 2009 £m £m £m Dividends on equity shares: Ordinary: Interim paid in lieu of 2009 final, 4.7 - - 8 pence per share 4.7 - -7. 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 30 June 31 Dec 30 June 30 June 31 Dec 2010 2009 2009 2010 2009 2009 £m £m £m £m £m £m Operating profit 20.8 9.4 24.3 20.8 9.4 24.3 Share of post-tax results 3.6 1.8 5.9 3.6 1.8 5.9of joint ventures and associates add Exceptional items - - - (4.6) 3.0 6.0back: Intangible - - - 2.5 2.4 5.1 amortisation Share of tax on - - - 0.8 0.4 2.1 joint ventures and associates Net finance costs (3.8) (3.8) (8.2) (3.8) (3.8) (8.2) Profit before taxation 20.6 7.4 22.0 19.3 13.2 35.2 Taxation (5.8) (3.5) (6.7) (6.6) (3.9) (8.8) Tax on exceptional items - - - 1.3 - (0.5) Earnings for the period 14.8 3.9 15.3 14.0 9.3 25.9 Basic Earnings per ordinary share 25.0 6.6 25.8 (pence) Diluted earnings per 25.0 6.6 25.8 ordinary share (pence) Underlying* Earnings per ordinary share 23.7 15.7 43.8(pence) Diluted earnings per 23.7 15.7 43.8ordinary share (pence) Number of ordinary shares in issue (millions) Weighted average 58.920 59.177 59.188 Diluted weighted average 58.971 59.177 59.188
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 £50.7m (June 2009: £48.5m), contracts of £40.9m (June 2009: £44.0m) and capitalised software development costs of £7.8m (June 2009: £2.7m).
Investments also include goodwill in respect of joint ventures and associates of £7.5m (June 2009: £8.3m).
9. ANALYSIS OF CHANGES IN NET BORROWINGS
As at 31 Half year Currency As at 30 Dec 2009 cash flows translation June 2010 £m £m £m £m Cash at bank and in hand 31.5 4.7 (0.2) 36.0 Bank overdrafts (11.0) 5.4 - (5.6) Net cash and cash equivalents 20.5 10.1 (0.2) 30.4 Bank loans due within one year (1.6) (0.1) - (1.7) Loan stock due within one year (0.1) - - (0.1) Preference shares (1.4) - - (1.4) Finance leases (0.3) 0.1 - (0.2) Debt due after one year (148.5) 0.8 - (147.7) Net derivative financial (0.9) 1.3 (1.3) (0.9)liabilities Net borrowings (132.3) 12.2 (1.5) (121.6)
10. CASH GENERATED FROM OPERATIONS
Half year to Half year to Full year to 31 30 June 2010 30 June 2009 December 2009 £m £m £m Operating profit 20.8 9.4 24.3 Depreciation 12.4 12.8 24.9 Amortisation of intangible 2.0 2.0 4.7assets Impairment provision - - 1.0 Share-based payments 0.4 0.3 0.4 Onerous lease provisions - - 1.7 Cash spend on onerous lease (1.1) (0.8) (2.0) Gain on sale of property, plant (0.4) (1.6) (1.7)and equipment Gain on disposal of investment - - (0.2) Pension charge 0.9 0.9 1.6 Pension contributions in cash (3.9) (1.5) (4.5) Pension credit (4.6) - - Rationalisation costs - 4.4 4.7 Cash spend on rationalisation - (3.9) (6.1)costs Increase in inventories (2.2) (0.5) (2.7) (Increase)/decrease in trade and (8.7) 5.2 (2.2)other receivables Increase/(decrease) in trade and 10.3 (4.8) 8.1other payables and provisions 25.9 21.9 52.011. 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 30 June 31 December 2010 2009 2009 % % % Rate of increase in salaries 3.10 3.90 3.50
Rate of increase in pensions (prior to 1 3.20 3.55 3.60 April 2006)
Rate of increase in pensions (after 1 April 2.50 2.50 2.502006) Price inflation 3.10 3.40 3.50 Discount rate 5.30 6.40 5.70 Fair value of assets and reconciliation to the balance sheet Value at Value at 30 Value at 30 June June 2009 31 Dec 2010 2009 £m £m £m Total value of assets 213.4 182.1 211.9 Defined benefit obligation (287.9) (227.4) (296.4) Recognised in balance sheet (74.5) (45.3) (84.5) Related deferred tax asset 20.9 12.7 23.7 Net pension liabilities (53.6) (32.6) (60.8)(b) Components of pension expense Half year Half year to Full year to 30 June 30 June 2009 to 31 Dec 2010 2009 Amounts charged to the Income Statement £m £m £m Current service cost 0.9 0.9 1.8 Past service cost - - 0.2 Gains on curtailments and settlements (4.6) - (0.4) Total amount (credited)/charged to the (3.7) 0.9 1.6income statement Amounts included in finance costs £m £m £m Expected return on pension scheme assets 7.6 6.0 11.9 Interest on pension liabilities (8.3) (6.9) (13.7) Net financial return (0.7) (0.9) (1.8) Pension (credit)/expense (3.0) 1.8 3.4 Amounts recognised in the Statement of Comprehensive Income (Loss)/gain on assets (5.0) (4.4) 26.4 Actuarial gain/(loss) on defined benefit 8.1 (5.0) (76.4)obligation Total gain/(loss) 3.1 (9.4) (50.0) Change in scheme assets during the period Fair value of assets at start of period 211.9 182.4 182.4 Expected return on assets 7.6 6.0 11.9 Company contributions 3.9 1.5 4.5 Employee contributions 0.6 0.7 1.3 Assets distributed on settlements - - (1.5) Benefits and expenses paid (5.6) (4.1) (13.1) (Loss)/gain on assets (5.0) (4.4) 26.4 Fair value of assets at end of period 213.4 182.1 211.9 Change in defined benefit obligation during the period Defined benefit obligation at start of 296.4 218.0 218.0period Current service cost 0.9 0.9 1.8 Past service cost - - 0.2 Interest cost 8.3 6.9 13.7 Liabilities extinguished on settlements (4.6) - (1.9) Employee contributions 0.6 0.7 1.3 Benefits and expenses paid (5.6) (4.1) (13.1)
Actuarial (gain)/loss on defined benefit (8.1) 5.0 76.4 obligation
Defined benefit obligation at end of period 287.9 227.4 296.4
The actual return on scheme assets was a gain of £2.6m (June 2009: a gain of £ 1.6m).
13. 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 by/ shareholding related (to) related party party at 30 June 2010 Related party % £m £m Swissport Menzies Handling Ute 39 0.3 0.3 Menzies Bobba Ground Handling 51 0.3 0.1Services Private Ltd Hyderabad Menzies Air Cargo Private 49 0.2 -Ltd EM News Distribution (NI) Ltd 50 0.2 (4.8) EM News Distribution (Ireland) Ltd 50 0.4 0.2
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 2009, 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 2009. A list of current directors is maintained on the John Menzies plc website: www.johnmenzie
vendorRelated Shares:
MNZS.L