6th Mar 2012 07:00
John Menzies Plc - Final Results for period ended 31 December 2011
Clear and consistent strategy is delivering shareholder value
* John Menzies plc delivers another year of record profits * + Underlying profit before tax up 25% to £56.4m + Underlying earnings per share up 26% to 73.2p + Strong cash generation - free cash flow of £39.4m + Menzies Aviation has another excellent year with profits up 31% to £ 32.3m + Reputation for service excellence continues to win new contracts + Menzies Distribution profits of £28.8m - maintained year on year
+ Consistent track record for taking out costs and driving efficiencies
+ Menzies Aviation is now the larger profit and cash contributor
+ Progressive dividend policy maintained - Final dividend of 17p making a
full year payment of 24p - up 26% 2011 2010 Turnover (including JVs & Associates) £2,013.8m
£1,964.2m
Underlying profit before taxation (1) £56.4m £45.0m
Free cash flow (2) £39.4m £43.8m
Underlying earnings per share (3) 73.2p 57.9p
Iain Napier, Chairman said:
"The Group has had another very successful year. I am delighted that wecontinue to grow sustainable shareholder value through delivery of the clearand consistent strategies of our two operating divisions. I am particularlypleased that Menzies Aviation, after delivering profit growth of 31%, is nowthe larger profit contributor. Menzies Distribution, as planned, maintainedprofits by driving efficiencies through the business.Growth opportunities exist and we will continue to invest in new projects thatmeet our investment criteria and produce sustainable returns. Financially theGroup is in a very strong position allowing a continued focus on shareholdervalue."Notes
1 Underlying profit before taxation is defined as profit before taxation,
intangible amortisation and exceptional items. 2 Free cash flow is defined as the cash generated by the business after
net capital expenditure, interest and taxation, before special pension
contributions, acquisitions, disposals, cash raised, ordinary dividends
and net spend on shares. 3 Underlying earnings per share is profit after taxation and non-controlling interest, but before intangible amortisation and exceptional items, divided by the weighted average number of ordinary shares in issue.
4 Underlying operating profit includes each division's share of pre-tax
profit from joint ventures and associates, and excludes intangible amortisation and exceptional items. 5 Total debt to EBITDA ratio. Total debt is net debt plus guarantees and excluding financial derivatives and preference shares. EBITDA is underlying operating profit plus depreciation and computer software amortisation. 6 Interest cover is EBITA divided by external interest charge. EBITA is underlying operating profit plus computer software amortisation. External interest charge excludes net financial income related to pensions. 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
Jonathan Brill/Caroline Stewart, Financial Dynamics 020 7831 3113
Notes to Editors:
1. John Menzies plc is one of Scotland's largest companies. The company has
two operating divisions, Menzies Aviation and Menzies Distribution. Both
divisions operate in distinct B2B sectors where success depends on
providing an efficient, high quality, time-critical service to their
customers and partners. The company was established in 1833 and its head
office is in Edinburgh, Scotland. Today the company is an international
business with operations worldwide.
2. Menzies Aviation is the fastest growing, and now world's second largest,
global aviation services business. It also owns AMI, the world's only
global wholesale freight forwarder. The business is highly successful -
operating at 131 airports in 29 countries, with annual revenue in excess of
US$1.3bn and employing some 17,000 highly trained people. Customers include
easyJet, Cathay Pacific, British Airways, Emirates, Qatar, Virgin America &
Australia, Kingfisher, Jet Airways, Asiana & Singapore Airlines. Best in
class safety & security as well as great customer service are core to its
success and sets it apart from other handlers.
3. Menzies Distribution is a leading provider of added value distribution and
marketing services to the newspaper and magazine supply chain in the UK.
The division handles around 5 million newspapers and 2.1 million magazines
(covering 3,000 magazine titles) each day, with deliveries to more than
25,000 customers. The division employs 4,000 people at 39 sites throughout
the UK - and is a strongly cash generative business, with around 45% of the
newspaper and magazine wholesale distribution market in the UK. It has a
track record of investment in innovation and customer service delivery.
4. Further information on John Menzies plc can be found at:
www.johnmenziesplc.com, www.menziesdistribution.com and
www.menziesaviation.com.
Group Strategy
The Group's strategy remains unchanged. John Menzies plc is committed to delivering shareholder value by investing in both of our operating divisions to generate sustainable returns.
We will continue to grow Menzies Aviation by leveraging existing customer relationships to win more contracts at existing and new airports but we will also develop new customer relationships and identify new attractive markets where we can deliver Menzies Aviation's market leading service provision.
Menzies Distribution, with its strong market position and stable profit generation, remains central to the Group and we will continue to innovate and evolve the business model to mitigate declining sales whilst pursuing attractive new revenue opportunities away from the core business.
By operating with these two distinct, strong businesses, each with strong cashflows, the Group is well placed to provide shareholders with both stability
andgrowth.Group PerformanceOverview2011 was an excellent year. Both operating divisions are performing well anddelivering the returns expected of them. Total bank debt has now reduced belowthe Group's EBITDA and dividends to shareholders continue to grow.Underlying profit before taxation was up 25% to £56.4m on turnover of £2,013.8m(2010: £1,964.2m).This is a record result for the Group and endorses thestrategy followed over the last three years. The Group is now on a very strongfinancial footing.Menzies Aviation's growth continued after an excellent year where contractgains helped the division to overtake Menzies Distribution as the larger profitcontributor. Turnover was up 8% to £676.8m generating operating profits of £32.3m, a rise of 31%. At Menzies Distribution turnover and profit were in linewith last year with operating profits maintained at £28.8m.
Debt and Interest
Group net debt fell further to £80.1m and is now less than the Group's EBITDA.The covenanted ratio which includes bank guarantees and letters of credit fellfrom 1.5 times last year to 1.2 times. Interest cover increased from 9 times in2010 to 12 times in 2011. All required facilities are secured with the nextfacility renewal in January 2013.
Cash flow and Investment
The Group had another strong year with a free cash flow of £39.4m. Capitalexpenditure increased year on year mainly as a result of the strong contractwin momentum in the Aviation Division. The Group's net capital expenditure at £20.8m was still below the level of depreciation. After increased additionalpayments into the pension fund and a higher level of dividend the net cash flowfor the Group was £18.9m including a currency translation gain of £1.6m
Dividend
The Board has declared a final dividend of 17p which is payable on 22 June 2012to all shareholders on the register on 25 May 2012. This represents an increaseof 26% on the prior year and underlines the Board's continuing confidence inthe Group's future, the cash generative nature of the Group and the resilienceof its earnings.Menzies Aviation 2011 2010 Turnover (including JVs & £676.8m £626.0m Associates) Underlying operating profit £32.3m £24.6m
Performance
Menzies Aviation had another great year, benefitting from a clear andconsistently delivered business plan. Operating profits of £32.3m were 31% upon the previous year as new contracts were secured and new markets entered.During the year operations commenced at a further 18 airports as existingcustomer relationships were leveraged and new customer relationships formed.The division now operates at 131 airports in 29 countries.
The highly cash generative nature of the business was demonstrated again with 100% cash conversion for the third year running.
As in previous years, the division had a successful year in securing newcontracts. Over all product categories the division were net winners of 50contracts which will generate £41m of revenue on an annualised basis. Just asimportant as securing new contracts is renewing existing contracts and duringthe year some 81 contracts were renewed securing £77m of annualised revenue.The continued excellent record for securing and retaining contracts is helpedby investment made into systems and processes. The division's market leading ITsystems are critical to the success of the business, creating robust platformsthat control global time critical operations.Operational efficiency remains one of our key points of differentiation. Duringthe year a SMART audit programme was implemented which helps drivestandardisation across the network. The division's operating model revolvesaround doing the same procedures time and again in a safe, secure and efficientmanner. During the year 5 airport operations were granted ISAGO accreditation.This industry standard is important and reinforces the commitment to serviceexcellence.Ground Handling
The ground handling business had a very strong year across the network. Absolute aircraft turns were up 12.9% with like for like turns up 6.1%. The growth in the underlying business is pleasing and reinforces the strategy of aligning ourselves with expanding airlines in growing markets.
Operating profit from ground handling rose by 11% to £24.3m as a result of theannualisation of contracts gained in 2010 and new contracts acquired early in2011.Material contracts gained during the year included a start up operation forJetstar in Darwin, Australia. This contract is the division's first withJetstar who are a wholly owned subsidiary of Qantas and are fast growing acrossthe Oceania region. Each week in Darwin we handle some 63 flights. In Mayoperations commenced to handle 168 flights per week for Wizz Air out of LondonLuton Airport. In the Americas, following the award of contracts byvivaaerobus, 11 new airport operations commenced in Mexico. The division is nowthe provider of ground handling to the airline at 18 destinations acrossMexico.
Overall 75% of ground handling revenue is derived from handling narrow body aircraft which fits the business model of quick, efficient and safe turnarounds.
Over the year the division was a net winner of 40 new contracts which securedsome £30.1m of annualised revenue. Ground handling accounts for 60% ofdivisional revenues and remains the most attractive product category with thestrongest growth prospects.Cargo HandlingThe cargo handling business, which now represents 24% of divisional turnover,performed well during the year. Operating profits were up 62% as a result ofcontract wins, particularly in Amsterdam and London Heathrow. Absolute volumesfell 1.8% as new contracts partly offset general volume declines. Like for likevolumes were down 4.3% reflecting the Japanese earthquake, followed by theslowdown in Asia which reduced Asian airline traffic into our markets. Thisevent was coupled with the general uncertain economic climate which resulted ina reduction in consumer demand for goods shipped by air. Unlike the events of2008, volumes, whilst down on the previous year, remain stable.Further progress was made in reducing losses at the three underperforming cargolocations that exist within the network. At these locations excess capacitymakes it very difficult to maintain economic rates. At London Heathrow, newcontracts with Kingfisher Airways and China Airlines were secured increasingthroughput by some 20,000 tonnes per annum.Where the market dynamics are good, cargo remains an excellent product categoryand continues to deliver attractive returns in locations where the market isnot over supplied.Cargo ForwardingThe air freight wholesaling business, AMI, had an excellent year with profitsup 52% to £3.5m. The business has benefitted from market-leading web-basedproducts launched in the UK, capacity in two key growing markets (South Africaand Western Australia), and strengthened sales and service delivery across allinter-regional trade lanes. AMI has also benefitted by embracing MenziesAviation's world class security and safety programme. With global presence,strong product development and a proven management team, AMI is well placed
tocontinue its growth.StrategyMenzies Aviation is now the world's second largest and fastest growing globalaviation support services business. Its strategy remains unaltered. Withinground handling, the business will continue to grow into a large and availablemarket. With a specialisation for handling narrow bodied aircraft, growth willcontinue to be predominantly organic as we consolidate positions, enter newairports and seek out new geographies. Within cargo handling, new ventures willtypically be where a cargo facility is complementary to an existing groundhandling business. Away from major airports that are over supplied, cargohandling delivers good returns and growth opportunities will be pursued wherethe market dynamics are right.The aviation services sector remains highly fragmented with strong anddeliverable growth prospects and Menzies Aviation are well placed to capitaliseon this.Menzies Distribution 2011 2010 Turnover (including JVs & £1,337.0m £1,338.2m Associates) Underlying operating profit £28.8m £28.8m
Performance
Menzies Distribution produced a strong performance in challenging markets, delivering operating profits in line with the previous year at £28.8m. The division also continued to be highly cash generative producing free cash flow of £22.9m.
During the year major operational projects were delivered successfully. InNovember, the implementation of the SAP IT system was completed across the UKmainland and over a period of several months the branch network in the Londonarea went through a period of reorganisation.
Core Business
Underlying volumes during the year continued to be in our range of estimates with newspaper volumes down 8% and magazine volume down 6%.
In the newspaper market, the volume decline was offset by strong cover pricegrowth which resulted in retail sales value declining by only 2.2% during theyear. July saw the unprecedented closure of the largest selling Sunday title,News of the World. However, the habitual nature of newspaper purchasing led toa high rate of substitution purchases which was aided by publisher discounting.The rate of substitution has now eased and developments in this categorycontinue to be monitored.In magazines, underlying sales value fell 4.4%. Magazines continue to be moreof a discretionary purchase and sales are affected by the wider economicuncertainty. Sales received a marginal boost in May as a result of the RoyalWedding, although this upside was relatively short lived.The division's excellent track record of taking out cost continued with some £4.6m of cost savings during the year. This ability to constantly increaseefficiency and reduce costs in the face of declining volume remains central tothe success of the division in maintaining profits.The implementation of the SAP IT system was completed throughout the UKmainland in November 2011. The system is now bedded in and performing well. Theteams locally have embraced the new system and are confident that the expectedsavings will be delivered.During the year a re-organisation of the branch network in the London area wascompleted. This involved the successful resiting of one branch and the closureof a returns processing unit, which resulted in all returns from the Londonarea being split between two hub branches.The distribution business in Ireland continued to make progress. In the Norththe business traded well. In the South operational challenges continue, butreal progress is being made and we anticipate that during the coming year thisbusiness can start to make a larger contribution to divisional profits.
New Revenue Ventures
During the year the businesses formed to pursue new revenue ventures werere-structured into two distinct subsidiaries. Menzies Select is involved in thebulk distribution of newspapers to the travel market together with corporatenewspaper distribution. During the second half of the year the businessperformed in line with expectations.
Menzies Marketing Services, whose primary focus is on field marketing and retail inventory management, performed well in difficult markets although profits were marginally behind expectations.
The creation of two distinct business units with dedicated management provides the best structure to deliver the future growth ambitions that exist.
Strategy
The division has been following a three pillar strategy, Execute, Re-design,Diversify. Much of the Execute work is complete with the integration of the newbusiness won in 2009 and the changes to the branch network that resulted fromthis. The focus is now on the Re-design and Diversify stage.With the implementation of SAP and the centralisation that this has broughtthere will be opportunities to further rationalise the branch network and itsprocesses. The Diversity phase continues to gain traction with the creation ofMenzies Select and a new structure for Menzies Marketing Services.Opportunities exist within these markets and will be actively pursued.
Outlook
The Group has made a positive start to the year and is trading in line with the Board's expectations.
At Menzies Aviation some significant new contracts have been won. Contracts tohandle Flybe at London Gatwick and Birmingham International have been securedwith operations commencing on 1 April. Operations in Toulouse, France havecommenced with a contract to handle some 134 easyJet flights per week and alicence to operate in Naples, Italy has been activated with operationscommencing on 1 April. This is an expansion into two new countries for thedivision and it is hoped that customer relationships can be leveraged to growthe business and create airport and ultimately regional density.In Mexico, our relationship with vivaaerobus has been deepened with the signingof a five year contract to provide full passenger and ramp handling services tovivaaerobus at all 26 airports that they operate in throughout Mexico. Tofacilitate this, four new airport operations will commence.Menzies Distribution continues to drive efficiencies as a result of theimplementation of the SAP IT system. Following the centralisation of a numberof functions and the creation of a central operations unit, a number of networkrationalisation opportunities have been identified and plans are already inplace to deliver these changes during the year.
On 17 February, News International announced the launch of the Sun on Sunday. It is too early to gauge the impact of this new title.
The Group is now financially strong. The reduction in net debt over the last few years has left the Group in a strong position. Within both divisions, particularly Aviation, expansion opportunities exist and we continue to evaluate these against sensible returns criteria.
With our two strong operating divisions providing a blend of stability, growth and cash generation the Group is well placed to build on our success.
GROUP INCOME STATEMENT
for the year ended 31 December 2011 (year ended 31 December 2010)
Before Exceptional 2011 Total exceptional and other and other items items Notes £m £m £m Revenue 2 1,899.7 - 1,899.7 Net operating costs (1,849.1) (3.6) (1,852.7) Operating profit 2 50.6 (3.6) 47.0
Share of post-tax results of 9.3 (3.9)
5.4
joint ventures and associates Operating profit after joint 2 59.9 (7.5)
52.4ventures and associates Analysed as:
Underlying operating profit* 59.9 -
59.9 Non-recurring items 4(a) - (0.3) (0.3) Associate goodwill impairment 4(b) - (1.8) (1.8) Contract amortisation 4(b) - (3.7) (3.7) Share of interest on joint - 0.4 0.4ventures and associates Share of tax on joint - (2.1) (2.1)ventures and associates
Operating profit after joint 59.9 (7.5)
52.4ventures and associates Finance income 5 1.3 - 1.3 Finance charges 5 (6.2) (0.4) (6.6) Other finance income - 3 1.4 - 1.4pensions Profit before taxation 56.4 (7.9) 48.5 Taxation 6 (13.2) 3.1 (10.1) Profit for the year 43.2 (4.8) 38.4 Attributable to equity 42.7 (4.8) 37.9shareholders Attributable to 0.5 - 0.5non-controlling interests 43.2 (4.8) 38.4
Earnings per ordinary share 8
Basic 73.2p (8.2)p 64.9p Diluted 71.2p (8.0)p 63.2p Before Exceptional 2010 Total exceptional and other and other items items Notes £m £m £m Revenue 2 1,837.6 - 1,837.6 Net operating costs (1,796.7) (3.2) (1,799.9) Operating profit 2 40.9 (3.2) 37.7
Share of post-tax results of 11.3 (4.1)
7.2
joint ventures and associates Operating profit after joint 2 52.2 (7.3)
44.9ventures and associates Analysed as:
Underlying operating profit* 52.2 -
52.2 Non-recurring items 4(a) - 0.1 0.1 Associate goodwill impairment 4(b) - (1.8) (1.8) Contract amortisation 4(b) - (3.3) (3.3) Share of interest on joint - 0.2 0.2ventures and associates Share of tax on joint - (2.5) (2.5)ventures and associates
Operating profit after joint 52.2 (7.3)
44.9ventures and associates Finance income 5 1.1 - 1.1 Finance charges 5 (6.9) (0.2) (7.1) Other finance (charge) - 3 (1.4) - (1.4)pensions Profit before taxation 45.0 (7.5) 37.5 Taxation 6 (10.9) 1.6 (9.3) Profit for the year 34.1 (5.9) 28.2 Attributable to equity 34.0 (5.9) 28.1shareholders Attributable to 0.1 - 0.1non-controlling interests 34.1 (5.9) 28.2
Earnings per ordinary share 8
Basic 57.9p (10.0)p 47.8p Diluted 57.7p (10.0)p 47.7p
* Underlying operating profit is consistently presented adjusting for non-recurring exceptional items, intangible amortisation associated with goodwill impairment on associate assets and contract amortisation, and the Group's share of interest and tax on joint ventures and associates to provide an appreciation of the impact of those items on operating profit.
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2011 (year ended 31 December 2010)
2011 2010 Notes £m £m Profit for the year 38.4 28.2 Actuarial (loss)/gain on 3 (26.0) 29.5defined benefit pensions Income tax effect 7.1 (8.4) Impact of rate change on (1.3) (0.4)deferred tax Movement on cash flow hedges 12 (0.6) - Income tax effect (0.2) - Movement on net investment 12 (1.8) 1.3hedges Income tax effect 0.5 0.1 Exchange (loss)/gain on (4.9) 4.8translation of foreign operations Other comprehensive income (27.2) 26.9for the year, net of tax Cumulative exchange movement (1.3) -recycled to income on disposal of associate undertaking Total comprehensive income 9.9 55.1for the year Attributable to equity 9.4 55.0shareholders Attributable to 0.5 0.1non-controlling interests 9.9 55.1
GROUP AND COMPANY BALANCE SHEETS
as at 31 December 2011 (31 December 2010)
Group Company 2011 2010 2011 2010 Notes £m £m £m £m ASSETS Non-current assets Intangible assets 9 105.1 100.5 - - Property, plant and 123.4 128.2 28.8 30.7equipment Investments accounted 31.5 41.7 - -using the equity method Investment in - - 292.8 292.7subsidiaries Deferred tax assets 15.3 11.0 10.7 8.6 275.3 281.4 332.3 332.0 Current assets Inventories 15.3 13.6 - - Trade and other 169.7 165.9 188.3 205.6receivables Derivative financial 12 1.5 1.3 1.5 1.3assets Cash and cash 24.4 26.6 1.1 8.4equivalents 210.9 207.4 190.9 215.3 LIABILITIES Current liabilities Borrowings 12 (3.4) (60.5) (2.8) (60.2) Derivative financial 12 (1.9) (2.5) (1.9) (2.5)liabilities Trade and other (211.6) (205.9) (291.0) (273.7)payables Current income tax (12.0) (13.4) - -liabilities Provisions (2.9) (3.3) - - (231.8) (285.6) (295.7) (336.4) Net current liabilities (20.9) (78.2) (104.8) (121.1) Total assets less 254.4 203.2 227.5 210.9current liabilities Non-current liabilities Borrowings 12 (100.4) (63.2) (100.4) (63.1) Other payables (1.8) (1.9) (5.0) (5.1) Derivative financial 12 (0.3) (0.7) (0.3) (0.7)liabilities Provisions (3.6) (3.8) - - Retirement benefit 3 (64.3) (47.8) (64.3) (47.8)obligations (170.4) (117.4) (170.0) (116.7) Net assets 84.0 85.8 57.5 94.2 Shareholders' equity Ordinary shares 15.2 15.1 15.2 15.1 Share premium account 17.4 16.3 17.4 16.3 Treasury shares (8.3) (5.9) - - Other reserves (0.9) 7.4 (1.7) (0.9) Retained earnings 38.4 31.2 5.0 42.1 Capital redemption 21.6 21.6 21.6 21.6reserve Total shareholders' 83.4 85.7 57.5 94.2equity 0.6 0.1 - -Non-controlling interest in equity Total equity 84.0 85.8 57.5 94.2The accounts were approved by the Board of Directors on 5 March 2012 and signedon its behalf by:Iain Napier, Paul Dollman, Chairman Group Finance Director GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY as at 31 December 2011 (31 December 2010) Ordinary Share Treasury Cash Translation Retained
Capital Total Non-controlling Total
shares premium shares flow reserve earnings
Redemption shareholders' interest equity
account hedge reserve equity reserve £m £m £m £m £m £m £m £m £m £m Group At 31 15.1 16.3 (5.9) (0.9) 8.3 31.2 21.6 85.7 0.1 85.8December 2010 Profit for - - - - - 37.9 - 37.9 0.5 38.4the year Other - - - (0.8) (6.2) (20.2) - (27.2) - (27.2)comprehensive income Recycled - - - - (1.3) - - (1.3) - (1.3)exchange gains* Total - - - (0.8) (7.5) 17.7 - 9.4 0.5 9.9comprehensive income New share 0.1 1.1 - - - - - 1.2 - 1.2capital issued Share-based - - - - - 1.7 - 1.7 - 1.7payments Dividends - - - - - (12.2) - (12.2) - (12.2)paid Repurchase of - - (2.4) - - - - (2.4) - (2.4)own shares At 31 15.2 17.4 (8.3) (1.7) 0.8 38.4 21.6 83.4 0.6 84.0December 2011 At 31 15.1 15.8 (3.3) (0.9) 2.1 (10.8) 21.6 39.6 - 39.6December 2009 Profit for - - - - - 28.2 - 28.2 0.1 28.3the year Other - - - - 6.2 20.7 - 26.9 - 26.9comprehensive income Total - - - - 6.2 48.9 - 55.1 0.1 55.2comprehensive income New share - 0.5 - - - - - 0.5 - 0.5capital issued Share-based - - - - - 0.8 - 0.8 - 0.8payments Dividends - - - - - (7.7) - (7.7) - (7.7)paid Repurchase of - - (2.6) - - - - (2.6) - (2.6)own shares At 31 15.1 16.3 (5.9) (0.9) 8.3 31.2 21.6 85.7 0.1 85.8December 2010 Company At 31 15.1 16.3 - (0.9) - 42.1 21.6 94.2 - 94.2December 2010 Loss for the - - - - - (6.4) - (6.4) - (6.4)year Other - - - (0.8) - (20.2) - (21.0) - (21.0)comprehensive income Total - - - (0.8) - (26.6) - (27.4) - (27.4)comprehensive income New share 0.1 1.1 - - - - - 1.2 - 1.2capital issued Share-based - - - - - 1.7 - 1.7 - 1.7payments Dividends - - - - - (12.2) - (12.2) - (12.2)paid At 31 15.2 17.4 - (1.7) - 5.0 21.6 57.5 - 57.5December 2011 At 31 15.1 15.8 - (0.9) - 31.5 21.6 83.1 - 83.1December 2009 Loss for the - - - - - (2.6) - (2.6) - (2.6)year Other - - - - - 20.7 - 20.7 - 20.7comprehensive income Total - - - - - 18.1 18.1 18.1comprehensive income New share - 0.5 - - - - - 0.5 - 0.5capital issued Share-based - - - - - 0.2 - 0.2 - 0.2payments Dividends - - - - - (7.7) - (7.7) - (7.7)paid At 31 15.1 16.3 - (0.9) - 42.1 21.6 94.2 - 94.2December 2010
* Recycled to income statement on disposal of associated undertaking (Note 4).
GROUP AND COMPANY STATEMENT OF CASH FLOWS
for the year ended 31 December 2011 (year ended 31 December 2010)
Group Company 2011 2010 2011 2010 Notes £m £m £m £m Cash flows from operating activities Cash generated from 11 62.2 58.2 (9.3) (10.4)operations Interest received 1.3 1.0 0.2 - Interest paid (6.3) (6.4) (5.8) (5.5) Tax paid (10.0) (5.1) (3.0) (0.3) Net cash from operating 47.2 47.7 (17.9) (16.2)activities Cash flows from investing activities Investment in joint (1.2) 1.0 - -ventures and associates Loan repaid by joint - 0.1 - -venture Proceeds from disposal of - 1.6 - -investments Acquisitions 14 (1.7) (1.7) - - Net cash acquired with 0.5 - - -subsidiaries Purchase of property, plant (21.8) (11.6) - -and equipment Intangible asset additions (4.5) (3.9) - - Proceeds from sale of 5.5 4.1 2.5 -property, plant and equipment Dividends received from 6.7 7.9 - -equity accounted investments Net cash used in investing (16.5) (2.5) 2.5 -activities Cash flows from financing activities Proceeds from issue of 1.2 0.5 1.2 0.5ordinary share capital Purchase of own shares (2.4) (2.6) (2.4) (2.6) Repayment of borrowings 10 (49.9) (88.7) (49.9) (88.7) Proceeds from borrowings 10 37.7 50.2 37.7 50.2 Dividends paid to ordinary (12.2) (7.7) (12.2) (7.7)shareholders Amounts repaid by - - 41.1 64.8subsidiaries
Net cash from financing activities (25.6) (48.3) 15.5 16.5
Increase/(decrease) in net 10 5.1 (3.1) 0.1 0.3cash and cash equivalents Effects of exchange rate (0.1) 0.8 - -movements Opening net cash and cash 18.2 20.5 0.1 (0.2)equivalents Closing net cash and cash 10 23.2 18.2 0.2 0.1equivalents*
* Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.
Notes to the Accounts
The consolidated accounts of the Group for the year ended 31 December 2011 wereapproved and authorised for issue in accordance with a resolution of thedirectors on 5 March 2012. John Menzies plc is a limited company incorporatedin Scotland and is listed on the London Stock Exchange.
1. Accounting policies
A summary of the more significant accounting policies, which have been consistently applied, is set out below.
New Accounting Standards and Interpretations
The following 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:
IAS24 Related Party Disclosures (Revised)
IAS32 Classification of Rights Issues (Amendment to IAS32 Financial Instruments - Presentation)
IFRIC14 Amendment to IFRIC14 Prepayment of a Minimum Funding Requirement
IFRIC19 Extinguishing Financial Liabilities with Equity Instruments
The following new standards, amendments to standards and interpretations have been issued but are not effective for 2011 and have not been early adopted:
IAS1 Presentation of items in other comprehensive income - effective date 1 July 2012
IAS12 Income Taxes (Amendment) - Deferred Taxes: Recovery of underlying assets - effective date 1 January 2012
IAS19 Employee Benefits (Revised) - effective date 1 January 2013
IFRS9 Financial Instruments - effective date 1 January 2015
IFRS10 Consolidated Financial Statements - effective date 1 January 2013
IFRS11 Joint Ventures - effective date 1 January 2013
IFRS12 Disclosure of interests in other entities - effective date 1 January 2013
IFRS13 Fair Value Measurement - effective date 1 January 2013
IAS19 Employee Benefits (Revised) will become effective for the Group in its2013 accounts. Under IAS 19 (Revised) the interest charge on retirement benefitliabilities and the expected return on pension plan assets will be replaced bya net interest income or expense on net defined benefit assets or liabilitiesbased on high-quality corporate bond rates. We are still assessing thepotential impact, but this is likely to increase our reported net financecosts. The volatility of reported net finance costs is also expected toincrease. We do not expect the effect on the net assets of the Group to bematerial. Other standards and interpretations issued, but not yet effective,are not expected to have a material effect on the Group's net assets orresults.
As permitted by Section 408 of the Companies Act 2006 no income statement is presented by the Company.
Basis of consolidationThe consolidated accounts, which have been prepared under the historical costconvention and in accordance with EU Endorsed International Financial ReportingStandards (IFRS), IFRIC interpretations and the Companies Act 2006 applicableto companies reporting under IFRS, incorporate the accounts of the Company andits subsidiaries, joint ventures and associates from the effective date ofacquisition or to the date of deemed disposal.The consolidated accounts of the Group include the assets, liabilities andresults of the Company and subsidiary undertakings in which John Menzies plchas a controlling interest, using accounts drawn up to 31 December except whereentities have non-coterminus year ends. In such cases, the information is basedon the accounting period of these entities and is adjusted for material changesup to 31 December. Accordingly, the information consolidated is deemed to coverthe same period for all entities throughout the Group.
Joint ventures and associates
A joint venture is an entity in which the Group holds an interest on a long-term basis and which is jointly controlled by the Group and one or more other venturers under a contractual agreement.
An associate is an undertaking, not being a subsidiary or joint venture, overwhich the Group has significant influence and can participate in the financialand operating policy decisions of the entity.The Group's share of the results of joint ventures and associates is includedin the Group Income Statement using the equity method of accounting.Investments in joint ventures and associates are carried in the Group BalanceSheet at cost plus post-acquisition changes in the Group's share of the netassets of the entity, less any impairment in value. The carrying values ofinvestments in joint ventures and associates include acquired goodwill.
Revenue
Distribution - revenue is recognised on the weekly dispatched value of goodssold, excluding value-added tax. Product is sold to UK retailers on a sale orreturn basis. Revenue for goods supplied with a right of return is stated netof the value of any returns.Aviation - cargo revenue is recognised at the point of departure for exportsand at the point that the goods are ready for dispatch for imports. Other ramp,passenger and aviation-related services income is recognised at the time theservice is provided in accordance with the terms of the contract. Revenueexcludes value-added and sales taxes, charges collected on behalf of customersand intercompany transactions.
Property, plant and equipment
Property, plant and equipment is stated at cost, including acquisition expenses, less accumulated depreciation. Depreciation is provided on a straight-line basis at the following rates:
Freehold and long leasehold properties - over 50 years
Short leasehold properties - over the remaining lease term
Plant and equipment - over the estimated life of the asset between 3 and 20 years
Inventories
Inventories, being goods for resale and consumables, are stated at the lower of purchase cost and net realisable value.
Pensions
The operating and financing costs of pensions are charged to the incomestatement in the period in which they arise and are recognised separately. Thecosts of past service benefit enhancements, settlements and curtailments arealso recognised in the period in which they arise. The difference betweenactual and expected returns on assets during the year, including changes inactuarial assumptions, are recognised in the statement of comprehensive income.
Pension costs are assessed in accordance with the advice of qualified actuaries.
With regard to defined contribution schemes, the income statement charge represents contributions made.
Pension financing costs are shown separately in the income statement.
Taxation
Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period.
Deferred tax is provided in full, using the liability method, on temporarydifferences between the carrying amount of an asset or liability in the balancesheet and its tax base. Deferred tax arising from the initial recognition of anasset or liability in a transaction, other than a business combination, that atthe time of the transaction affects neither accounting nor taxable profit orloss, is not recognised. Deferred tax liabilities represent tax payable infuture periods in respect of taxable temporary differences. Deferred tax assetsrepresent tax recoverable in future periods in respect of deductible temporarydifferences, the carry forward of unused tax losses and the carry forward ofunused tax credits.Deferred tax is determined using the tax rates and tax laws that have beenenacted or substantively enacted at the balance sheet date and are expected toapply when the deferred tax asset is realised or the deferred tax liability issettled. Deferred tax is provided on temporary differences arising oninvestments in subsidiaries, joint ventures and associates, except where thetiming of the reversal of the temporary difference can be controlled and it isprobable that the temporary difference will not reverse in the foreseeablefuture. A deferred tax asset is recognised only to the extent that it isprobable that future taxable profits will be available against which the assetcan be utilised.
Current and deferred tax is recognised in the income statement except if it relates to an item recognised directly in equity or in other comprehensive income, in which case it is recognised directly in equity or in the Group Statement of Comprehensive Income respectively.
Intangible assets
Goodwill
Business combinations from 1 January 2010 are accounted using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed and included in administrative expenses.
Business combinations prior to 1 January 2010 were accounted using the purchasemethod. Transaction costs directly attributable to the acquisition formed partof the acquisition costs and subsequent adjustment to contingent considerationhave been recognised as part of goodwill.
Goodwill arising on acquisitions before 26 December 2004 (the date of transition to IFRS) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.
Goodwill acquired is recognised as an asset and reviewed for impairment atleast annually by assessing the recoverable amount of each cash-generating unitto which the goodwill relates. When the recoverable amount of thecash-generating using is less than the carrying amount, an impairment loss isrecognised. Any impairment is recognised in the income statement.
Goodwill arising on the acquisition of joint ventures and associates is included within the carrying value of the investment.
Contracts
The fair value attributed to contracts at the point of acquisition isdetermined by discounting the expected future cash flows to be generated fromthat asset at the risk-adjusted weighted average cost of capital for the Group.This amount is included in intangible assets as "contracts" and amortised overthe estimated useful life on a straight-line basis. Separate values are notattributed to internally-generated customer relationships.Contract amortisation is business-stream dependent. At Distribution, contractscapitalised are not amortised due to the very long-term nature of the businessin the UK. These contracts are, however, tested annually for impairment usingsimilar criteria to the goodwill test. At Aviation, contracts are amortised ona straight-line basis over ten years as this period is the minimum time-framemanagement considers when assessing businesses for acquisition.
Computer software
Costs associated with developing or maintaining computer software programs arerecognised as an expense as incurred. Costs that are directly attributable withthe production of identifiable and unique software products controlled by theGroup, and that will probably generate economic benefits exceeding costs beyondone year, are recognised as intangible assets. Direct costs include the costsof software development employees. Costs are amortised over their estimateduseful lives, usually three to five years.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets acquired under finance leases are capitalised in the balance sheet attheir fair value or, if lower, at the present value of the minimum leasepayments, each determined at the inception of the lease. The correspondingliability to the lessor is recorded in the balance sheet as a finance leaseobligation. The lease payments are apportioned between finance charges (chargedto the income statement) and a reduction of the lease obligations.
Rental payments under operating leases are charged to the income statement on a straight-line basis over applicable lease periods.
Trade receivables
If there is objective evidence that the Group will not be able to collect allof the amounts due under the original terms of an invoice, a provision on therespective trade receivable is recognised. In such an instance, the carryingvalue of the receivable is reduced, with the amount of the loss recognised
inthe income statement.Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Foreign currencies
Foreign currency assets and liabilities of the Group are translated at the rates of exchange ruling at the balance sheet date. The trading results of overseas subsidiaries, joint ventures and associates are translated at the average exchange rate ruling during the year, with the exchange difference between average rates and the rates ruling at the balance sheet date being taken to reserves.
Any differences arising on the translation of the opening net investment, including goodwill, in overseas subsidiaries, joint ventures and associates, and of applicable foreign currency loans, are dealt with as adjustments to reserves. All other exchange differences are dealt with in the income statement.
Derivative financial instruments and hedging activities
The Group uses forward contracts and cross-currency swaps as derivatives to hedge the risk arising from the retranslation of foreign currency denominated items.
The Group has derivatives which are designated as hedges of overseas netinvestments in foreign entities (net investment hedges) and derivatives whichare designated as hedges of the exchange risk arising from the retranslation ofhighly probable forecast revenue denominated in non-local currency of some ofour overseas operations (cash flow hedges).In all cases, the derivative contracts entered into by the Group have beenhighly effective during the reporting period, and are expected to continue tobe highly effective until they expire. As a result, all derivatives have beenrecorded using hedge accounting, which is explained below.
All derivatives are measured at fair value, which is calculated as the present value of all future cash flows from the derivative discounted at prevailing market rates.
Changes in the fair value of the effective portion of net investment hedges arerecorded in equity, and are only recycled to the income statement on disposalof the overseas net investment.Changes in the fair value of the effective portion of cash flow hedges arerecorded in equity until such time as the forecast transaction occurs, at whichtime they are recycled to the income statement. If, however, the occurrence ofthe transaction results in a non-financial asset or liability, then amountsrecycled from equity would be included in the cost of the non-financial assetor liability. If the forecast transaction remains probable but ceases to behighly probable then, from that point, changes in fair value would be recordedin the income statement within finance costs. Similarly, if the forecasttransaction ceases to be probable then the entire fair value recorded in equityand future changes in fair value would be posted to the income statement withinfinance costs.Provisions
Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation.
Share capital
Ordinary shares are classed as equity. Where the Company purchases its ownshares the consideration paid including any directly attributable incrementalcosts, is deducted from the equity attributable to the Company's equity holdersuntil the shares are cancelled, reissued or disposed of.
Share-based payments
Equity-settled share-based payments are measured at fair value at the date ofgrant and recognised as an expense over the vesting period. The amountrecognised as an expense is adjusted to reflect the actual number of shareoptions that vest unless the options do not vest as a result of a failure tosatisfy market conditions. Fair value is measured by use of a relevant pricingmodel.
USE OF ESTIMATES AND JUDGEMENTS
The preparation of the consolidated accounts requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets, liabilities, income and expenses.These estimates will, by definition, seldom equal the related actual resultsparticularly so given the prevailing difficult economic conditions and thelevel of uncertainty regarding their duration and severity.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The most important estimates and judgements are set out below.
- Intangible Assets
On the acquisition of a business it is necessary to attribute fair values toany intangible assets acquired (provided they meet the criteria to berecognised). The fair values of these intangible assets are dependent onestimates of attributable future revenues, margins and cashflows, as well asappropriate discount rates. In addition, the allocation of useful lives toacquired intangible assets requires the application of judgement based onavailable information and management expectations at the time of recognition.
- Impairment
IFRS requires companies to carry out impairment testing on any assets that showindications of impairment and annually on goodwill and intangibles that are notsubject to amortisation. This testing involves exercising management judgementabout future cashflows and other events which are, by their nature, uncertain.
- Retirement Benefits
The assumptions underlying the calculation of retirement benefits are important and based on independent advice. Changes in these assumptions could have a material impact on the measurement of the Group's retirement benefit obligations.
- Income Taxes
The Group is subject to income tax in numerous jurisdictions and significantjudgement is required in determining the provision for tax. There are manytransactions and calculations for which the ultimate tax determination isuncertain. The Group recognises provisions for tax based on estimates of thetaxes that are likely to become due. Where the final tax outcome is differentfrom the amounts that were initially recorded, such differences will impact thecurrent income tax and deferred tax provisions in the period in which suchdetermination is made.
EXCEPTIONAL ITEMS
Exceptional items are those material items which, by virtue of their size orincidence, are presented separately in the income statement to enable a fullunderstanding of the Group's financial performance. These exclude certainelements of intangible asset impairment and amortisation, which are alsopresented separately in the income statement.
Transactions which may give rise to exceptional items include restructurings of business activities (in terms of rationalisation costs and onerous lease provisions) and gains or losses on the disposal of businesses.
DIVIDEND DISTRIBUTIONS
Final ordinary dividends are recognised as liabilities in the accounts in the period in which the dividends are approved by the Company's shareholders.
FINANCIAL RISK FACTORS
The Group is exposed to financial risks: liquidity risk, interest rate fluctuations, foreign exchange exposures and credit risk.
Definitions & Non-GAAP measures used by management
Management believes that the following non-GAAP or adjusted measures provide a useful comparison of business performance and reflect the way in which the business is controlled:
- Underlying profit before taxation is defined as profit before taxation, intangible amortisation and exceptional items.
- Underlying operating profit includes each division's share of pre-tax profitfrom joint ventures and associates, and excludes intangible amortisation andexceptional items.- Underlying earnings per share is profit after taxation and non-controllinginterest, but before intangible amortisation and exceptional items, divided bythe weighted average number of ordinary shares in issue.
- Turnover includes revenue from subsidiaries, joint ventures and associates.
- Free cash flow is defined as the cash generated by the business after net capital expenditure, interest and taxation, before special pension contributions, acquisitions, disposals, cash raised, ordinary dividends and net spend on shares.
- Total debt to EBITDA ratio. Total debt is net debt plus guarantees and excluding financial derivatives and preference shares. EBITDA is underlying operating profit plus depreciation and computer software amortisation.
- Interest cover is EBITA divided by external interest charge. EBITA is underlying operating profit plus computer software amortisation. External interest charge excludes net financial income/(charge) related to pensions.
2. SEGMENT INFORMATION
For management purposes the Group is organised into two operating divisions: Distribution and Aviation.
These two divisions are organised and managed separately based upon their keymarkets. The Distribution segment provides newspaper and magazine distributionservices across the UK along with marketing services. The Aviation segmentprovides cargo and passenger ground handling services across the world.The information presented to the Board for the purpose of resource allocationand assessment of segment performance is focused on the performance of eachdivision as a whole but also contains performance information on a number ofoperating segments within the Aviation division. The Board assesses theperformance of the operating segments based on a measure of adjusted segmentresult before exceptional items and intangibles amortisation. Net financeincome and expenditure are not allocated to segments as this type of activityis driven by the central treasury function. The Board does not monitor assetsand liabilities on a divisional basis.
Segment information is presented in respect of the Group's reportable segments together with additional
geographic and balance sheet information. Transfer prices between segments areset on an arm's length basis.Business segment information Revenue Pre-exceptional operating profit/ (loss) 2011 2010 2011 2010 £m £m £m £m Distribution 1,337.0 1,338.2 28.8 28.8 Aviation - ground handling 402.8 369.8 24.3 21.8 - cargo handling 161.2 156.7 8.1 5.0 - cargo forwarding 112.8 98.7 3.5 2.3 - discontinued - 0.8 - (1.2) - unallocated costs - - (3.6) (3.3) 676.8 626.0 32.3 24.6 Corporate - - (1.2) (1.2) 2,013.8 1,964.2 59.9 52.2 Joint ventures and associates (114.1) (126.6) - - 1,899.7 1,837.6 59.9 52.2
A reconciliation of segment pre-exceptional operating profit/(loss) to profit before tax is provided below.
Distribution Aviation Corporate Group 2011 £m £m £m £m Operating profit 25.2 23.1 (1.3) 47.0 Share of post-tax results 0.7 4.2 - 4.9of joint ventures Share of post-tax results - 0.5 - 0.5of associates Operating profit after 25.9 27.8 (1.3) 52.4joint ventures and associates Net finance expense (3.9) Profit before tax 48.5 Analysed as: Pre-exceptional operating 28.8 32.3 (1.2) 59.9profit/(loss)* Gain on disposal of - 4.0 - 4.0interest in associate (Note 4) Gain on disposal of - - 1.0 1.0property, plant and equipment (Note 4) Rationalisation costs (2.5) (1.7) - (4.2)(Note 4) Onerous lease provision - - (1.1) (1.1)(Note 4) Impairment provision (Note - (1.8) - (1.8)4b) Contract amortisation - (3.7) - (3.7)(Note 9) Share of interest on joint - 0.4 - 0.4venture and associates Share of tax on joint (0.4) (1.7) - (2.1)ventures and associates Operating profit after 25.9 27.8 (1.3) 52.4joint ventures and associates 2010 £m £m £m £m Operating profit 24.8 9.5 3.4 37.7 Share of post-tax results 1.2 4.2 - 5.4of joint ventures Share of post-tax results - 1.8 - 1.8of associates Operating profit after 26.0 15.5 3.4 44.9joint ventures and associates Net finance expense (7.4) Profit before tax 37.5 Analysed as: Pre-exceptional operating 28.8 24.6 (1.2) 52.2profit/(loss)* Pension credit (Note 4) - - 4.6 4.6 Impairment provisions - (4.0) - (4.0)(Note 4a&b) Rationalisation costs (2.3) - - (2.3)(Note 4) Contract amortisation - (3.3) - (3.3)(Note 9) Share of interest on joint - 0.2 - 0.2ventures and associates Share of tax on joint (0.5) (2.0) - (2.5)ventures and associates Operating profit after 26.0 15.5 3.4 44.9joint ventures and associates * Pre-exceptional operating profit/(loss) is defined as operating profit/(loss)excluding intangible amortisation as shown in Note 4(b) and exceptional itemsbut including the pre-tax share of results from joint ventures and associates. Distribution Aviation Corporate Group 2011 £m £m £m £m Segment assets 174.9 267.5 4.0 446.4 Unallocated assets 39.8 Total assets 486.2 Segment liabilities (112.3) (93.2) (16.8) (222.3) Unallocated liabilities (179.9) Total liabilities (402.2) Segment net assets/ 62.6 174.3 (12.8) 224.1(liabilities) Unallocated net liabilities (140.1) Net assets 84.02010 £m £m £m £m Segment assets 176.7 270.0 4.1 450.8 Unallocated assets 38.0 Total assets 488.8 Segment liabilities (113.7) (86.9) (17.6) (218.2) Unallocated liabilities (184.8) Total liabilities (403.0) Segment net assets/ 63.0 183.1 (13.5) 232.6(liabilities) Unallocated net liabilities (146.8) Net assets 85.8
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.
Distribution Aviation Corporate Group 2011 £m £m £m £m Capital expenditure 5.5 16.3 - 21.8 Depreciation 5.3 16.4 0.8 22.5 Amortisation of intangible 2.3 3.7 - 6.0assets Goodwill impairment (Note 4) - 1.8 - 1.8 Gain on disposal of property, (0.1) (0.4) - (0.5)plant and equipment 2010 £m £m £m £m Capital expenditure 3.4 9.3 - 12.7 Depreciation 5.9 17.2 0.9 24.0 Amortisation of intangible 1.7 3.6 - 5.3assets Goodwill impairment - 1.8 - 1.8 (Gain)/loss on disposal of (0.4) 0.7 - 0.3property, plant and equipment Geographic information Revenue Segment non-current assets 2011 £m 2010 2011 £m 2010 £m £m United Kingdom 1,431.4 1,412.9 146.0 153.5 Continental 147.5 128.0 36.7 32.2Europe Americas 145.9 140.9 24.1 24.3 Rest of the 174.9 155.8 53.2 60.4World 1,899.7 1,837.6 260.0 270.4
3. PENSION SCHEMES
With regard to the principal Group-funded defined benefit scheme in the UK (theMenzies Pension Fund), to which the employees contribute, the charge to theincome statement is assessed in accordance with independent actuarial advicefrom Hymans Robertson LLP ("the Actuary"), using the projected unit method.Certain Group subsidiaries operate overseas and participate in a number ofpension schemes, which are of a defined contribution nature. The incomestatement charge for defined contribution schemes represents the contributionspayable.
The pension charge to the income statement is analysed as follows:
2011 2010 £m £m Menzies Pension Fund 0.6 1.7 Other schemes 9.4 7.3 10.0 9.0FINANCIAL ASSUMPTIONS
The Actuary undertook a valuation of the Menzies Pension Fund as at 31 December 2011 (2010 : 31 December) under IAS 19.
In deriving the results the Actuary used the projected unit method and the following financial assumptions:
2011 2010 % % Rate of increase in salaries 2.80 3.30 Rate of increase in pensions (prior to 1 May 3.40 3.402006) Rate of increase in pensions (from 1 May 2006 2.50 2.50to 1 June 2010) Rate of increase in pensions (after 1 June 1.00 1.002010) Price inflation 2.80 3.30 Discount rate 4.90 5.40
Assumptions regarding future mortality experience are set based on advice from the Actuary in accordance with published statistics and experience in the business. As a result of the March 2009 triennial valuation, the scheme memberships were analysed into further categories and scheme mortality by category was adjusted in light of better information to take account of experience.
The average life expectancy in years of a pensioner retiring at 65 on thebalance sheet date is: 2011 2010 Male 20.1 20.0 Female 21.8 21.7
The average life expectancy in years of a pensioner retiring at 65, 20 years after the balance sheet date is:
2011 2010 Male 20.7 20.6 Female 22.9 22.8
Fair value of assets (and expected return on assets)
2011 2010 Long-term Value at Long-term Value at rate of December rate of December return return % £m % £m Equities 6.5 147.4 7.7 158.4 Bonds 4.9 64.6 5.4 57.1 Property 5.5 27.8 6.7 26.1 Other 0.5 2.2 0.5 0.2 Total value of assets 242.0 241.8 Defined benefit (306.3) (289.6)obligation Recognised in balance (64.3) (47.8)sheet Related deferred tax 16.1 12.9asset Net pension liabilities (48.2) (34.9)Sensitivity analysisA reduction in the discount rate will increase the assessed value of thedefined benefit obligation and a rise in the discount rate will decrease theassessed value of the defined benefit obligation. The overall effect of achange in the discount rate for the Fund of 0.1% would be an increase/decreaseto the defined benefit obligation of around 2% or £6m.
The effect of changing the assumption regarding life expectancy by one year longer than the disclosed table would be to increase the assessed value of the defined benefit obligation by around 3% or £9m.
Components of pension expense
2011 2010 Amounts charged/(credited) to operating £m £mprofit Current service cost 0.7 1.7 Gains on curtailments and settlements (0.1) (4.6) 0.6 (2.9) Amounts included in finance costs £m £m Expected return on pension scheme assets 16.8 15.2 Interest on pension liabilities (15.4) (16.6) Net financial income/(charge) 1.4 (1.4) Pension income (0.8) (1.5) Amounts recognised in the Statement of £m £mcomprehensive income (Loss)/gain on assets (12.5) 18.2 (Loss)/gain on defined benefit obligation (13.5) 11.3 Actuarial (loss)/gain (26.0) 29.5 Change in scheme assets during the year £m £m Fair value of assets at start of year 241.8 211.9 Expected return on assets 16.8 15.2 Company contributions 8.7 5.7 Employee contributions 1.1 1.2 Assets distributed on settlements (0.3) - Benefits and expenses paid (13.6) (10.4) (Loss)/gain on assets (12.5) 18.2 Fair value of assets at end of year 242.0 241.8
The actual return on scheme assets was a loss of £29.3m (2010: a gain of £ 33.4m).
Change in defined benefit obligation during £m £mthe year
Defined benefit obligation at start of year 289.6 296.4
Current service cost 0.7 1.7 Interest cost 15.4 16.6 Gains on curtailments and settlements - (4.6) Employee contributions 1.1 1.2 Liabilities extinguished on settlements (0.4) - Benefits and expenses paid (13.6) (10.4)
(Loss)/gain on defined benefit obligation 13.5 (11.3)
Defined benefit obligation at end of year 306.3 289.6
The net impact on the scheme liability of changing the inflation measure from RPI to CPI during 2010 was a £7m reduction in the liability.
Expected employer contributions for 2012 are estimated to be £9m.
History of experience gains and losses
2011 2010 2009 2008 2007 £m £m £m £m £m (Loss)/gain on scheme assets (12.5) 18.2 26.4 (78.1) (2.7) Percentage of scheme assets 5.2% 7.5% 12.5% 42.8% 1.0% Actuarial (loss)/gain on (13.5) 11.3 (76.4) 29.4 (0.5)defined benefit obligation Percentage of scheme 4.4% 3.9% 25.8% 13.5% 0.2%liabilities Total value of assets 242.0 241.8 211.9 182.4 250.2 Defined benefit obligation (306.3) (289.6) (296.4) (218.0) (240.7) Recognised in balance sheet (64.3) (47.8) (84.5) (35.6) 9.54 (a) EXCEPTIONAL ITEMS 2011 2010 Notes £m £m Gain on disposal of interest in (i) 4.0 - associate Gain on disposal of property, (ii) 1.0 - plant and equipment Rationalisation costs (iii) (4.2) (2.3) Onerous lease provision (iv) (1.1) - Pension credit (v) - 4.6 Impairment provisions (vi) - (2.2) (0.3) 0.1
(i) On 6 July 2011 Menzies Aviation and Swissport Handling SA signed a
termination agreement bringing the 39% associate undertaking arrangement
in Spain to an end. The termination agreement split the existing 6 airport operations whereby Menzies Aviation acquired 100% control of operations at Alicante, Murcia, Jerez and Almeria (Note 14) while Swissport Handling acquired 100% control of the operations at Madrid and Lanzarote. The split was agreed following an independent review of the
individual operations and the calculation of the gain on the transaction
remains subject to an ongoing completion valuation exercise.
(ii) During the year the Group sold a surplus freehold property for
consideration of £2.5m.
(iii) Costs of rationalising excess capacity comprised asset write-downs and
staff redundancy costs in Distribution £2.5m (2010: £2.3m) and in Aviation £1.7m (2010: nil)
(iv) This provision is in respect of future obligations on a vacated leasehold
property following the sub-tenant entering administration. (v) During 2010 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.
(vi) As a result of a decline in 2010 volumes and revenues in the UK cargo handling business and an excess supply capacity in the market the acquired goodwill in respect of Menzies World Cargo was tested for impairment in accordance with IAS 36 and a goodwill charge of £2.2m was
recognised, leaving a residual balance of £0.3m. The recoverable amount
of the cash-generating unit was measured based on a value in use calculation and a pre-tax discount rate of 11%. 4 (b) INTANGIBLE AMORTISATION 2011 2010 £m £m Goodwill impairment (i) (1.8) (1.8) Contract amortisation (ii) (3.7) (3.3) (5.5) (5.1)(i) As permitted under the transitional requirements of IFRS1, 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 £1.8m (2010: £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.
The taxation effect of the exceptional items is a net credit of £1.0m
(2010: net charge of £0.9m). 5. FINANCE COSTS 2011 2010 £m £m Finance income: Bank deposits 1.3 1.1 1.3 1.1 Finance charges: Bank loans and overdrafts (6.1) (6.8) Preference dividends (0.1) (0.1) (6.2) (6.9) Net finance costs (4.9) (5.8) 6. TAXATION
(a) Analysis of charge in year
2011 2010 £m £m Current tax UK corporation tax on profits for the year 4.9 4.8 Overseas tax 6.6 4.8 Adjustments to prior years' liabilities (0.1) (1.4) Total current tax 11.4 8.2 Deferred tax Origination and reversal of temporary (3.6) 0.3differences Impact of UK rate change (0.2) (0.1) Adjustments to prior years' liabilities (0.1) (1.1) (3.9) (0.9) Retirement benefit obligations 2.6 2.0 Total deferred tax (1.3) 1.1 Tax on profit on ordinary activities 10.1 9.3(b) Current and deferred tax related to items (credited)/ charged outsideprofit or loss 2011 2010 £m £m Deferred tax on actuarial (loss)/gain on (7.1) 8.4retirement benefit obligations Deferred tax on fair value movement on 0.2 -interest rate hedges Impact of UK rate change 1.3 0.4 Current tax on net exchange adjustments (0.5) (0.1) Tax (credit)/charge reported outside profit (6.1) 8.7or loss
(c) Reconciliation between tax charge and the product of accounting profit multiplied by the Group's domestic tax rate for the years ended 31 December 2011 and 31 December 2010 is as follows:
2011 2010 £m £m Profit before tax 48.5 37.5 Profit before tax multiplied by standard 12.9 10.5rate of corporation tax in the UK 26.5% (2010: 28%) Non-deductible expenses (principally 3.7 2.7goodwill impairment and intangible amortisation) Depreciation on non-qualifying assets 0.3 0.6 Unrelieved overseas losses 0.9 1.0 Utilisation of previously unrecognised (1.1) (0.8)losses Lower tax rates on overseas earnings (0.4) - Joint venture and associate post-tax (1.5) (2.0)result (included in profit before tax) Adjustments to prior years' liabilities (0.2) (2.6)
Impact of UK rate change on deferred tax (0.2) (0.1)
Gain on Swissport transaction (1.2) - Overseas deferred tax assets recognised (3.1) - At the effective corporation tax rate of 10.1 9.320.8% (2010: 24.8%) The UK Government has announced that the main rate of UK corporation tax willbe reduced from the current rate of 26% which has applied from 1 April 2011, to23%, by means of a series of 1% annual reductions. The reduction in the UKcorporation tax rate to 25% from 1 April 2012 was enacted on 19 July 2011. Asthis rate was enacted at the balance sheet date, and reduces the tax rateexpected to apply when temporary difference reverse, it had the effect ofreducing the UK deferred tax asset. However as most of the UK deferred taxasset relates to the UK pension deficit, which has arisen predominantly due toactuarial gains/losses taken to other comprehensive income, the majority of thereduction was debited to other comprehensive income and does not have amaterial effect on the effective tax rate or on profit for the year. It isexpected that this treatment will also apply in relation to the further ratereductions announced by the Government. Those further rate reductions are to beincorporated within future legislative acts and so will not be substantivelyenacted until later periods. The estimated effect of the further reductions inthe rate to 23% by 2014 would be to decrease the net UK deferred tax asset by £0.9m.
(d) Factors that may affect future tax charges
The Group has estimated tax losses carried forward, which arose in subsidiarycompanies operating in the undernoted jurisdictions that are available foroffset against future profits of those subsidiaries. Deferred tax assets havenot been recognised in respect of these losses as they have arisen insubsidiaries where it is not probable that future taxable profits will beavailable against which such assets could be utilised. Losses Expiry £m USA 39.8 Carry forward indefinitely South Africa 3.1 Carry forward indefinitely Germany 23.4 Carry forward indefinitely Norway 10.7 Carry forward indefinitely Sweden 2.5 Carry forward indefinitely
The Group has capital losses in the UK of approximately £17.7m that are available for offset against future taxable gains arising in the UK. No deferred tax asset has been recognised in respect of these losses.
7. DIVIDENDS 2011 2010 £m £m Dividends on equity shares: Ordinary - Interim, in lieu of final, paid in - 4.8 respect of 2009, 8p per share Final paid in respect of 2010, 14p 8.1 - (2009: nil) per share - Interim paid in respect of 2011, 7p 4.1 2.9 (2010: 5p) per share 12.2 7.7
Dividends of £0.5m were waived by employee share trusts during 2011 (2010: £ 0.1m).
The directors are proposing a final dividend in respect of the year 31 December2011 of 17p per ordinary share, which will absorb an estimated £10.3m ofshareholders' funds. Payment will be made on 22 June 2012 to shareholders onthe register at the close of business on 25 May 2012.
Treasury shares
The Company's ordinary shares are held in trust for an employee share scheme.At 31 December 2011 the trusts held 2,163,232 (2010: 1,727,793) ordinary 25pshares with a market value of £11,465,130 (2010: £8,163,822).8. EARNINGS PER SHARE Basic Underlying* 2011 2010 2011 2010 £m £m £m £m Operating profit 47.0 37.7 47.0 37.7
Share of post-tax results of joint 5.4 7.2 5.4 7.2 ventures and associates
Add back: Exceptional items (Note 4(a)) - - 0.3 (0.1) Intangible amortisation (Note 4 - - 5.5 5.1(b)) Share of interest on joint - - (0.4) (0.2)ventures and associates Share of tax on joint ventures and - - 2.1 2.5associates Net finance costs (3.9) (7.4) (3.5) (7.2) Profit before taxation 48.5 37.5 56.4 45.0 Taxation (10.1) (9.3) (10.1) (9.3) Exceptional tax - - (3.1) (1.6) Non-controlling interests (0.5) (0.1) (0.5) (0.1) Earnings for the year 37.9 28.1 42.7 34.0 Basic Earnings per ordinary share 64.9p 47.8p (pence) Diluted earnings per ordinary 63.2p 47.7p share (pence) Underlying* Earnings per ordinary share 73.2p 57.9p(pence) Diluted earnings per ordinary 71.2p 57.7pshare (pence) Number of ordinary shares in issue (millions) Weighted average 58.363 58.753 Diluted weighted average 59.989 58.892 The weighted average number of fully paid shares in issue during the year
excludes those held by the employee share trusts. 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 year.
* Underlying earnings are presented as an additional performance measure. They are stated before exceptional items and intangible amortisation.
9. INTANGIBLE ASSETS Goodwill Contracts Computer Total Software £m £m £m £m Cost At 31 December 2010 60.7 51.7 16.5 128.9 Acquisitions (Note 14) 0.8 6.2 - 7.0 Additions - 0.1 4.4 4.5 Currency translation 0.3 (1.3) - (1.0) At 31 December 2011 61.8 56.7 20.9 139.4 Amortisation and impairment At 31 December 2010 10.5 11.0 6.9 28.4 Amortisation charge - 3.7 2.3 6.0 Currency translation 0.2 (0.3) - (0.1) At 31 December 2011 10.7 14.4 9.2 34.3 Net book value At 31 December 2011 51.1 42.3 11.7 105.1 At 31 December 2010 50.2 40.7 9.6 100.5 Cost At 31 December 2009 58.3 50.0 12.6 120.9 Acquisitions 0.3 1.3 - 1.6 Additions - - 3.9 3.9 Currency translation 2.1 0.4 - 2.5 At 31 December 2010 60.7 51.7 16.5 128.9 Amortisation and impairment At 31 December 2009 8.1 7.4 4.9 20.4 Amortisation charge - 3.3 2.0 5.3 Impairment (Note 4(a)) 2.2 - - 2.2 Currency translation 0.2 0.3 - 0.5 At 31 December 2010 10.5 11.0 6.9 28.4 Net book value At 31 December 2010 50.2 40.7 9.6 100.5 At 31 December 2009 50.2 42.6 7.7 100.5
Goodwill acquired through business combinations and intangible assets with indefinite lives have been allocated at acquisition to cash generating units (CGU's) that are expected to benefit from the business combination. The carrying amount of the goodwill and intangible assets with indefinite lives have been allocated to the operating units as per the table below.
2011 2010 Goodwill Contracts Goodwill Contracts £m £m £m £m Aviation Netherlands Cargo 7.8 - 8.0 - North American Cargo 8.1 - 8.0 - Australia Cargo 7.0 - 7.0 - UK Cargo 0.3 - 0.3 - South Africa 2.9 - 3.5 - Scandinavia 3.1 - 3.1 - Ogden worldwide 10.3 - 9.5 - Other 4.3 - 4.3 - 43.8 - 43.7 - Distribution Turners News 4.8 - 4.8 - EM News Distribution (NI) Ltd - 3.1 - 3.1 Chester Independent Wholesale - 7.1 - 7.1News Ltd North West Wholesale News Ltd - 2.7 - 2.7 The Network - field marketing - 2.0 - 1.4 Other 2.5 4.1 1.7 3.8 7.3 19.0 6.5 18.1 Total 51.1 19.0 50.2 18.1The Group tests goodwill and intangible assets with indefinite lives annuallyfor impairment, or more frequently if there are indications that these might beimpaired. The basis of these impairment tests including key assumptions are setout below.The recoverable amounts of the CGUs are determined from value in usecalculations. These calculations use future cash flow projections based onfinancial forecasts approved by management. The key assumptions for theseforecasts are those regarding revenue growth, net margin, capital expenditureand the level of working capital required to support trading, which managementestimates based on past experience and expectations of future changes in themarket.The post-tax discount rate assumptions of 8% (2010: 8%) is based on the Group'sweighted average post-tax cost of capital having considered the uncertaintyrisk attributable to individual CGUs. The equivalent pre-tax discount rate is10.7% (2010: 11%). The pre-tax rate has been applied to pre-tax cash flows.
Aviation
Aviation contracts are amortised on a straight-line basis over ten years asthis period is the minimum time-frame management considers when assessingbusinesses for acquisition. The carrying value of Aviation contracts is £23.3m(2010: £22.6m) and the average remaining amortisation period is 7 years (2010:8 years).Value in use calculations are based on Board approved budgets and plans for athree year period. Cash flows beyond the three year period are extrapolated bygrowth rates that reflect management's specific location expectations for 2015and 2016 incorporating a long-term growth rate derived using the best availablemarket information (such as Boeing's 2011 Aviation Industry Review) adjustedfor the specific risks and challenges relating to Menzies Aviation. Short-termrevenue growth rates over 2015 and 2016 range from 2.2% to 6.5% (2010: 2.2% to6.5%) and longer term revenue growth rates range from 0.5% to 3.5% (2010: 1% to3.5%). Net margin assumptions are based on historic experience.Base case forecasts show significant headroom above carrying value for eachCGU. Sensitivity analysis has been undertaken for each CGU to assess the impactof any reasonably possible change in key assumptions. There is no reasonablypossible change that would cause the carrying values to exceed recoverablecosts.
In 2010, the company recognised an impairment of £2.2m in relation to its UK Cargo operations which was included in Net Operating Costs in the Income Statement.
Distribution
Distribution contracts are not amortised due to the very long-term nature ofthe business in the UK. The Group distributes to approximately 45% of the UKretail market and has only one major competitor. In such circumstances theBoard considers that there is no foreseeable limit to the period over which thecontracts are expected to generate cash flows and have been determined to havean indefinite life. These contracts are, however, tested annually forimpairment using similar criteria to the goodwill test.Value in use calculations are based on Board approved three year plansextrapolated to a 5-year period using short-term growth rates of between 0% and2% that reflect management's specific business expectations for 2015 and 2016incorporating a long-term growth rate of between 0% and 2%. Net marginassumptions are based on historic experience.Base case forecasts show significant headroom above carrying value for eachCGU. Sensitivity analysis has been undertaken for each CGU to assess the impactof any reasonably possible change in key assumptions. There is no reasonablypossible change that would cause the carrying values to exceed recoverableamounts.10. ANALYSIS OF CHANGES IN NET BORROWINGS 2010 Cash Currency 2011 flows translation £m £m £m £m Cash at bank and in hand 26.6 (2.1) (0.1) 24.4 Bank overdrafts (8.4) 7.2 - (1.2)
Net cash and cash equivalents 18.2 5.1 (0.1) 23.2
Bank loans due within one (51.8) 49.9 - (1.9)year Loan stock due within one (0.1) - - (0.1)year Preference shares (1.4) - - (1.4) Finance leases (0.2) - - (0.2) Debt due after one year (61.8) (37.2) - (99.0) Net derivative liabilities (1.9) (0.5) 1.7 (0.7) (99.0) 17.3 1.6 (80.1)The currency translation movement results from the Group's policy of hedgingits overseas net assets, which are denominated mainly in US$ and Euro. Thetranslation effect on net debt is offset by the translation effect on netassets resulting in an overall net exchange loss of £6.2m (2010: gain of £6.2m). This net (loss)/gain is recognised in other comprehensive income.11. CASH GENERATED FROM OPERATIONS Group Company 2011 £m 2010 £m 2011 £m 2010 £m Operating profit/(loss) 47.0 37.7 (1.0) (1.0) Depreciation 22.5 24.0 0.8 0.9 Amortisation of intangible 6.0 5.3 - -assets Impairment provisions (Note 4 - 2.2 - -(a)) Share-based payments 1.7 0.8 0.4 0.2 Onerous lease provision 1.1 - 1.1 - Cash spend on onerous leases (0.9) (1.4) (0.7) (0.9) (Gain)/loss on sale of property, (0.5) 0.3 - -plant and equipment Gain on disposal of associate (4.0) - - -investment Exceptional gain on disposal of (1.0) - (1.0) -property, plant and equipment Pension charge 0.7 1.7 0.1 0.1 Pension credit (0.1) (4.6) (0.1) (4.6) Pension contributions in cash (8.7) (5.7) (8.7) (5.7) Rationalisation costs 4.2 2.3 - - Cash spend on rationalisation (2.7) (1.5) - -costs Increase in inventories (1.7) (1.6) - -
(Increase)/decrease in trade and (3.1) (3.9) (0.1) 0.1 other receivables
Increase/(decrease) in trade and 1.7 2.6 (0.1) 0.5other payables and provisions 62.2 58.2 (9.3) (10.4)12. FINANCIAL INSTRUMENTS Group Company 2011 2010 2011 2010 £m £m £m £m Derivative financial instruments Cash Flow Hedges Foreign exchange forward (1.2) 0.3 (1.2) 0.3contracts Interest rate swaps (0.3) (1.2) (0.3) (1.2) Foreign Currency Net Investment Hedge Foreign exchange forward 0.8 (1.0) 0.8 (1.0)contracts Total derivative financial (0.7) (1.9) (0.7) (1.9)instruments Current (0.4) (1.2) (0.4) (1.2) Non-current (0.3) (0.7) (0.3) (0.7) (0.7) (1.9) (0.7) (1.9)
The Group only enters into derivative financial instruments that are designated as hedging instruments.
The fair values of foreign currency instruments are calculated by reference tocurrent market rates. The fair value of interest rate swaps are calculated byreference to current market rates taking into account future cash flows.
Fair Value Hierarchy
As at 31 December 2011, the Group held the following financial instruments measured at fair value. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1 quoted (unadjusted) prices in active markets for identical assets or : liabilities Level 2 other techniques for which all inputs which have a significant effect: on the recorded fair value are observable, either directly or indirectly Level 3 techniques which use inputs which have a significant effect on the : recorded fair value that are not based on observable market data Assets measured at fair value
Financial assets at fair value Total Level 1 Level 2 Level 3 through the income statement
£m £m £m £m Foreign exchange contracts - 1.5 - 1.5 -hedged Liabilities measured at fair value
Financial liabilities at fair Total Level 1 Level 2 Level 3 value through the income
statement £m £m £m £m Foreign exchange contracts - 1.9 - 1.9 -hedged Interest rate swaps 0.3 - 0.3 -During the year ended 31 December 2011, there were no transfers between Level 1and Level 2 fair value measurements, and no transfers into and out of Level
3fair value measurements. Group Company 2011 2010 2011 2010 £m £m £m £m Interest-bearing loans and borrowings Obligations under finance 0.2 0.2 - -leases Bank overdrafts 1.2 8.4 0.9 8.3 Non-amortising bank loans 78.6 88.0 78.6 88.0 Amortising term loan 22.3 25.6 22.3 25.6 Preference shares 1.4 1.4 1.4 1.4 Unsecured loan stock 0.1 0.1 - - Total interest-bearing loans & 103.8 123.7 103.2 123.3borrowings Current 3.4 60.5 2.8 60.2 Non-current 100.4 63.2 100.4 63.1 103.8 123.7 103.2 123.3Interest-bearing loans and Maturity borrowings
Obligations under finance leases January 2012 - July 2013
Bank overdrafts n/a Non-amortising bank loans January 2012 - June 2014 Amortising term loan March 2020 Preference shares Non-redeemable Unsecured loan stock On demand (by July 2012)
Other than trade receivables and payables, there are no financial assets or liabilities excluded from the above analysis.
No financial assets or liabilities were held or issued for trading purposes.
The Company has issued 1,394,587 cumulative preference shares of £1 each. These shares are not redeemable and pay an interest coupon of 9% semi-annually.
The amortising term loan is repayable between 2012 and 2020 with interest payable at a fixed rate of 6.23%.
The loan has a weighted average maturity of 3 years (2010: 3 years).
Non-amortising bank loans are drawn against unsecured, committed revolving bank credit facilities maturing between January 2012 and June 2014.
Group Company 2011 2010 2011 2010 £m £m £m £m Net Debt Derivative financial 0.7 1.9 0.7 1.9instruments Interest-bearing loans and 103.8 123.7 103.2 123.3borrowings Total borrowings 104.5 125.6 103.9 125.2 Less: cash at bank, cash in 24.4 26.6 1.1 8.4hand and short-term deposits 80.1 99.0 102.8 116.8 2011 2010 Book Fair Book Fair value value value value £m £m £m £m Financial assets and financial liabilities Short-term borrowings 2.0 2.4 52.0 52.0 Medium-term borrowings 88.5 90.3 47.5 48.8 Long-term borrowings 11.9 13.8 15.6 17.6 Derivative financial 0.7 0.7 1.9 1.9instruments Finance leases 0.2 0.2 0.2 0.2 Bank overdrafts 1.2 1.2 8.4 8.4 Total financial assets and 104.5 108.6 125.6 129.1financial liabilities Less: cash at bank, cash in 24.4 24.4 26.6 26.6hand and short-term deposits Net Debt 80.1 84.2 99.0 102.5
The fair value of the fixed term, amortising borrowing is calculated as the present value of all future cash flows discounted at prevailing market rates.
Trade and other receivables and trade and other payables carrying values are assumed to approximate their fair values due to their short-term nature.
A separate table has not been prepared analysing the Company's book values andfair values. The £0.6m difference in book values relates to interest bearingloans and borrowings and is deemed to be short-term in nature. Floating Fixed rate 2011 Total Floating Fixed rate 2010 Total rate financial financial rate financial financial financial liabilities liabilities financial liabilities liabilities liabilities liabilities Currency £m £m £m £m £m £m Sterling 54.7 48.7 103.4 21.4 102.0 123.4 US Dollar 0.2 - 0.2 - - - Euro 0.1 - 0.1 - - - South 0.1 - 0.1 0.3 - 0.3African rand Net 0.7 - 0.7 1.9 - 1.9derivative liabilities 55.8 48.7 104.5 23.6 102.0 125.6 Group Company As 31 December 2011, the 2011 2010 2011 2010expiry profile of undrawn committed facilities was as follows: £m £m £m £m Less than one year - 58.0 - 58.0 Between one and two years 0.2 - 0.2 - Between two and five years 68.1 12.1 68.1 12.1 68.3 70.1 68.3 70.1 Cash Flow Hedges
Foreign exchange forward contracts
At 31 December 2011 the Group held foreign currency forward contracts designed as hedges of transaction exposures arising from non-local currency revenue. These contracts were in line with the Group's policy to hedge significant forecast transaction exposures for a maximum 18 months forward.
The cash flow hedges of non-local revenue were assessed to be highly effective.
Interest rates swaps
The Group's policy is to minimise exposures to interest rate risk by ensuring an appropriate balance of long-term and short-term floating rates.
During 2011 the Group hedged the exposure to interest rate rises by use of interest rate swap agreements, whereby the Group pays a fixed rate of interest and receives a variable rate of LIBOR+margin on the notional amount.
Of the £75m of these interest rate swaps at the start of the year, £50m maturedin July 2011 with the remaining £25m maturing in June 2012. No new swaps wereentered into during 2011.At 31 December 2011, 46.9% (2010: 88.6%) of the Group's borrowings were fixed. 2011 2010 Assets Liabilities Assets Liabilities £m £m £m £m Fair value of Cash Flow - (1.2) 0.4 (0.1)Hedges - currency forward contracts Fair value of Cash Flow - (0.3) - (1.2)Hedges - interest rate swaps - (1.5) 0.4 (1.3) Current - (1.2) 0.4 (0.5) Non current - (0.3) - (0.8) - (1.5) 0.4 (1.3)For 2011, if interest rates on UK pound-denominated borrowings had been 0.5%higher/lower with all other variables held constant, post-tax profit for theyear would have been £0.3m (2010: £0.1m) lower/higher, mainly as a result ofhigher/lower interest expense on floating rate borrowings.
Foreign currency net investment hedges
The Group's treasury policy is to hedge the exposure of currency denominated assets to foreign exchange risk. This is primarily achieved using forward contracts denominated in the relevant foreign currencies.
Gains or losses on the retranslation of these hedges are transferred to reserves to offset any gains or losses on translation of the net investments in the subsidiary undertakings.
The notional principal amounts of the outstanding forward foreign exchangecontracts are: Group Company 2011 2010 2011 2010 million million million million Euro EUR 15.0 16.0 15.0 16.0 US dollar USD 30.5 31.8 30.5 31.8 Czech koruna CZK 99.0 99.0 99.0 99.0 Australian AUD 10.9 11.9 10.9 11.9dollar New Zealand NZD 1.7 2.5 1.7 2.5dollar Swedish krona SEK 25.5 17.5 25.5 17.5 Indian rupee INR 750.0 630.6 750.0 630.6 South African ZAR 55.0 67.0 55.0 67.0rand Sterling Equivalent 2011 2010 £m £m Euro EUR 12.5 13.7 US dollar USD 19.6 20.3 Czech koruna CZK 3.2 3.4 Australian AUD 7.2 7.8dollar New Zealand NZD 0.9 1.2dollar Swedish krona SEK 2.4 1.7 Indian rupee INR 9.1 9.0 South African ZAR 4.4 6.5rand 2011 2010 Assets Liabilities Assets Liabilities £m £m £m £m Fair value of foreign 1.5 (0.7) 0.9 (1.9)currency net investment hedges Current 1.5 (0.7) 0.9 (1.9) Non-Current - - - -
Foreign currency sensitivity
For 2011, if the UK pound had weakened/strengthened by 10% against the USdollar or the Euro, with all other variables held constant the effect wouldhave been: 2011 2010 Change in Change in Effect on Effect on Effect on Effect GBP/USD GBP/EUR Profit Equity Profit on Rate Rate Before Before Equity Tax Tax £m £m £m £m +10% 0.3 (2.6) 0.3 (2.7) -10% (0.3) 3.2 (0.3) 3.4 +10% 0.8 (1.4) 0.7 (1.6) -10% (0.8) 1.7 (0.7) 2.0
The Group's exposure to foreign currency changes for all other currencies is not material.
Capital Risk ManagementThe Group manages the capital structure in order to minimise the cost ofcapital whilst ensuring that it has access to ongoing sources of finance suchas the debt capital markets. The Group defines capital as net debt (see Note10) and equity attributable to equity holders of the company (see Group andcompany statement of changes in equity). The only externally imposed capitalrequirements for the Group are total debt to EBITDA and interest cover underthe terms of the Bank Facilities, with which the Group has fully compliedduring both the current period and the prior period. To maintain or adjust thecapital structure, the Group may adjust the dividend payment to shareholdersand/or issue new shares.Credit RiskThe Group considers its exposure to credit risk at 31 December to be asfollows: 2011 2010 £m £m Bank deposits 24.4 26.6 Trade receivables 132.8 133.4 157.2 160.0For banks and financial institutions, the Group's policy is to transact withindependently rated parties with a minimum rating of 'A'. If there is noindependent rating, the Group assesses the credit quality of the counterpartytaking into account its financial position, past experience and other factors.
Liquidity Risk
The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows.
The following is an analysis of the Group's financial liabilities and derivative financial liabilities into relevant maturity based on the remaining period at the balance sheet date to the contractual maturity date.
The amounts disclosed in the table are the contractual undiscounted cash flows.Floating rate interest is estimated using the prevailing rate at the balancesheet date.
Net values of transaction hedging are disclosed in accordance with the contractual terms of these derivative instruments.
2011 Due Due Due Due over within 1 between between 5 years year 1-2 years 2-4 years £m £m £m £m Interest bearing loans (6.2) (4.9) (94.3) (11.1)and borrowings Preference shares (0.1) (0.1) (0.4) (1.5) Other liabilities (0.2) - - - Trade and other (211.6) (1.8) - -payables Financial derivatives (60.5) (0.3) - - Total (278.6) (7.1) (94.7) (12.6) 2010 Due Due Due Due over within 1 between between 5 years year 1-2 years 2-4 years £m £m £m £m Interest bearing loans (61.4) (3.1) (46.9) (15.1)and borrowings Preference shares (0.1) (0.1) (0.3) (1.5) Other liabilities (0.1) (0.1) - - Trade and other (205.9) (1.9) - -payables Financial derivatives (64.3) (0.3) - - Total (331.8) (5.5) (47.2) (16.6)13. CONTINGENT LIABILITIES
In the normal course of business, the Company has guaranteed certain trading obligations of its subsidiaries.
14. ACQUISITIONS
During the year, the Group acquired 100% of the share capital or trading assets of the following businesses:
Division Aviation Aviation Distribution Distribution Name Swissport Traymate Media on the Other Total Menzies Limited Move Date of Acquisition 06/07/2011 12/08/ 04/07/2011 2011 £m £m £m £m £m Purchase consideration Cash Paid - 0.3 1.2 0.2 1.7 Fair value of assets 9.8 - - - 9.8disposed Deferred consideration - - - 0.6 0.6 Total purchase 9.8 0.3 1.2 0.8 12.1consideration Fair value of net assets 9.8 0.3 0.4 0.8 11.3acquired Goodwill - - 0.8 - 0.8
The assets and liabilities arising from the acquisitions are as follows:
Non current assets Intangible assets (contracts) - 5.1 0.2 0.3 0.6 6.2fair value
Property, plant and equipment 2.9 0.1 - -
3.0 Current assets 4.6 - 0.5 0.2 5.3 Cash 0.5 - - - 0.5 Current liabilities (3.3) - (0.4) - (3.7) Net assets acquired 9.8 0.3 0.4 0.8 11.3Included in the £0.8m goodwill recognised above are certain intangible assetsthat cannot be individually separated and reliably measured from the acquireedue to their nature. These items include anticipated business growth, synergiesand an assembled workforce.
The fair value of the Swissport Menzies intangible asset remains provisional pending an external fair value calculation.
The fair value of the trade receivables amounts to £3.2m and the gross amount of trade receivables is £3.4m. None of the trade receivables has been impaired.
The acquired businesses contributed revenues of £8.6m from the date of acquisition. If the businesses had been acquired on 1 January 2011 revenues contributed would have been £17.6m. The results from acquisitions were not material.
15. CASH FLOW HEDGE RESERVE
This reserve records the portion of the gains or losses on hedging instruments used as cash flow hedges that are determined to be effective.
16. RELATED PARTY TRANSACTIONS
During the year the Group transacted with related parties in the normal courseof business on an arm's length basis. Details of these transactions are shownbelow: Group Sales to Amounts Amounts share related owed to owed by holding party related related party at party at 31 31 December December 2011 2011 Related Party % £m £m £m
Swissport Menzies Handling Ute Note 4 0.5 - -
Menzies Bobba Ground Handling 51 0.4 - 0.1Services Private Ltd Hyderabad Menzies Air Cargo 49 0.9 - 0.1Private Ltd Menzies Aviation Bobba 49 0.1 - -(Bangalore) Private Ltd Menzies Macau Airport Services 29 0.2 - 0.1Ltd EM News (NI) Ltd 50 0.5 4.3 - EM News (Ireland) Ltd 50 0.8 - 0.1
Key management personnel include individuals who are executive directors of theGroup and divisional boards having authority and responsibility for planning,directing and controlling activities of the key operating divisions asdisclosed in the segmental analysis. Remuneration of key management personnelis as follows: 2011 2010 £m £m Short-term employee benefits 4.8 4.9 Post-employment pension and medical 0.4 0.3benefits Termination benefits - - Share-based payments 1.7 0.8 6.9 6.0Certain activities, including treasury, taxation, insurance, pension and legalmatters are provided by the parent company to subsidiary companies and arerecharged on a cost-plus basis. The amount recharged and settled in respect of2011 was £0.3m (2010: £0.3m).17. CASHFLOW 2011 2010 £m £m £m £m Operating profit 47.0 37.7 Share-based payments 1.7 0.8 Depreciation 22.5 24.0 Amortisation of 6.0 5.3intangibles Net pension movement (1.8) (1.0) Working capital (3.1) (2.9) Exceptional items 0.3 (0.1) Cash spend on (3.6) (2.9)exceptional items Dividends from associates and joint 6.7 7.9ventures Non-cash items (0.5) 0.3 Operating cash flow 75.2 69.1 Purchase of property, plant and (21.8) (11.6) equipment Intangible asset additions (4.5) (3.9) Sale of property, plant and 5.5 0.7 equipment Net capital expenditure (20.8) (14.8) Net interest paid (5.0) (5.4) Tax paid (10.0) (5.1) Free cash flow 39.4 43.8 Equity dividends paid (12.2) (7.7) Additional pension (6.3) (3.0)payment Acquisitions (1.7) (1.7) Cash raised from asset - 5.0sales and leasebacks Net cash acquired with subsidiaries 0.5 - Other investments (1.2) 1.1 Net spend on shares (1.2) (2.1) Total movement 17.3 35.4 Opening net debt (99.0) (132.3) Currency movement 1.6 (2.1) Closing net debt (80.1) (99.0)18. ACCOUNTING POLICIESThis statement has been prepared in accordance with accounting standards andpolicies consistent with those set out in the Group Accounts for the year ended31 December 2011.19. ACCOUNTS
The figures used in this statement, which was approved by the directors on 5March 2012, are not the Group's statutory accounts within the meaning ofSection 434 of the Companies Act 2006 for the year, but are taken from thoseaccounts. The auditors' report on the statutory accounts was unqualified anddid not contain a statement under Section 428 (4(f)) of the Companies Act 2006.
20. ANNUAL REPORT
The Annual Report and Accounts will be available on 5 April 2012 and the AnnualGeneral Meeting will be held at the Roxburgh Hotel in Edinburgh on 18 May 2012at 2.00pm. Statutory accounts for the year ended 31 December 2010 have beendelivered to the Registrar of companies and those for the year to 31 December2011 will be delivered following the Company's Annual General Meeting.
XLONRelated Shares:
MNZS.L