21st Mar 2006 07:02
Menzies(John) PLC21 March 2006 JOHN MENZIES PLC Preliminary results for the year ended 31 December 2005 Highlights• Turnover up 2% to £1,390.0m (2004: £1,369.2m)• Headline profit before tax* up 17% to £39.4m (2004: £33.6m)• Profit on ordinary activities** up 20% to £36.1m (2004: £30.0m)• Headline earnings per share up 19% to 52.2p (2004: 44.0p)• Free cash flow*** down 10% to £23.6m (2004: £26.3m)• Final dividend up 5.4% to 13.7p (2004: 13.0p) John Menzies had a strong year in 2005 and made good progress. Menzies Distribution held its profits close to last year's level. Thisperformance was achieved against the backdrop of contract renewals, asignificant drop in partwork sales and a decline in monthly magazine demand.Its results benefited from the strength of weekly magazine sales andsuccessfully implementing cost savings. Menzies Aviation had another successful year. It continued to build its profitswhich increased by 29%. Its drive to standardise its business processes overthe past two years has contributed significantly to this success. The new year is showing a very mixed picture. Since the start of the year,Menzies Distribution has experienced very tough markets and, even withintensified cost reduction initiatives, the division's performance will fallshort of last year if current trends continue. Menzies Aviation is moving aheadstrongly both organically, through recent contract wins, and by acquisition. Patrick Macdonald, Chief Executive, said: "We have delivered a strong set of results in 2005. In Menzies Distribution this year, we are implementing strategic initiatives toaddress the current market challenges. In Menzies Aviation, we are well placedto grow this business. Whilst we are still at an early stage in the year, we donot currently expect that the improvements in the performance of Aviation willfully offset the impact of the challenging environment in which Distribution isnow operating. We therefore expect that the Group's overall performance for2006 will be slightly behind our initial expectations. Looking further ahead, we believe the outlook for the Group is positive." *Headline profit before tax is defined as profit on ordinary activities afterinterest and before tax, goodwill amortisation and exceptional items. **Before taxation and exceptionals. ***Free cash flow is defined as the cash generated by the business after capitalinvestment, interest, tax and preference share dividends and beforeacquisitions, disposals, ordinary dividends and share issues. The comparative results for 2004 have been restated following the adoption ofFRS 20 'Share-based Payment' for 2005. This new accounting standard resulted inan additional profit & loss charge for 2004 of £0.3m. Enquiries:John Menzies plcPatrick Macdonald, Chief Executive 020 7233 5550Paul Dollman, Finance Director 020 7233 5550Investor Relations 0131 459 8186 Citigate Dewe RogersonGinny Pulbrook 020 7282 2945Anthony Kennaway 020 7282 1076 NOTES TO EDITORS 1. John Menzies plc, the time critical logistics company, is one of Scotland's largest companies. The company has two operating divisions, Menzies Distribution and Menzies Aviation. The divisions operate in distinct B2B sectors where success depends on providing an efficient, high quality, time-critical service to their customers and partners. 2. The company was established in 1833 and its head office is in Edinburgh, Scotland. Today the company is an international operation with businesses in Europe, North and South America, South East Asia, Australasia and Africa. 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 4.5 million newspapers (6 million on Sundays) and 2.5 million magazines (covering 3,000 magazine titles) each day, with deliveries to more than 21,300 customers. Its success in 2005 in achieving high standards is evidenced by winning the 'Wholesaler of the Year' award from the National Federation of Retail Newsagents and the Gold award at the Association of Circulation Executives awards. It also won the Orange Award for Bright Business at the National Business Awards for Scotland for its Launch Factory marketing initiative to maximise sales of new titles. 4. Menzies Aviation is one of the world's major independent suppliers of ground handling services to the aviation market providing passenger, ramp and cargo services for many of the world's leading airlines and some of the busiest international airports. The division employs over 10,500 people across the world at 93 airports in 23 countries servicing more than 500 aviation customers. The division won various awards in 2005, including the 'BA Way' award for the handler which most closely matches the way British Airways wants its outsourced handling performed and the 'Most Responsive Handler' award also from BA for the way in which it helped restart their operations at Houston after Hurricane Katrina. 5. Further information on John Menzies plc can be found at: www.johnmenziesplc.com, www.menziesdistribution.com and www.menziesaviation.com. DIVISIONAL PERFORMANCE Menzies Distribution £m 2005 2004 GrowthTurnover 1,104.3 1,109.4 0%Operating profit 30.7 30.5 1% before goodwill Performance Menzies Distribution's sales have in general continued previous trends, withoverall newspaper volumes showing small declines offset by cover priceincreases. In addition to this we have seen some shift from monthly to weeklymagazine sales, increasing towards the end of the year, and partwork sales havefallen by 21%, reverting to their 2003 levels. We have also seen a significantdecline in sales of phonecards. The impact of these factors was partly offsetby the 53rd week, which added 1% to sales and £0.6m to profits. Our performance reflects the cost benefits from recent productivity improvementsand decisive action taken to accelerate cost saving initiatives. These havepartly offset increased costs arising mainly from the increased volumes ofmagazine returns being processed for recycling and from fuel costs. We havecontinued to invest in the future of this business through IT development, stafftraining and process innovation. Developments in Menzies Distribution in 2005 Menzies Distribution continues to develop industry-leading processes to meet theneeds of all its customers, both publishers and retailers. We have appointed a new Managing Director, Ellis Watson, who joined us inSeptember from a background in the newspaper industry. He brings a freshoutlook and increased emphasis on customer service and on the development ofadditional services which can be provided from our network and skill base. Two new branches have been opened, in Dalgety Bay, Fife and in Swansea,replacing older smaller branches. This has also enabled us to complete thenational roll-out of our 'pack-by-light' IT-based system, which hassignificantly improved packing line management and packing accuracy. A next-generation magazine packing system has been installed in Sheffield, oneof our larger magazine distribution branches, and with further development willlead to significant productivity enhancements in our larger branches. Ourestablished Kardex system remains effective for our smaller units. During the year, we successfully introduced our 'Dial' performance informationand reporting system throughout our branch network. Its name derives from theperformance dials which are posted in each branch weekly, recording the accuracywith which we have fulfilled our service KPIs - principally packing accuracy anddelivery within agreed timings - which are made available to all customers. Forexample, performance for newspaper copies delivered accurately is runningconsistently above our 99.5% target level. We carried out our first customer survey, part of our drive to ensure that weunderstand fully the needs and information requirements of our customers, andthat we deliver accordingly. Our success in achieving this is evidenced by ourwinning the 'Wholesaler of the Year' award from the National Federation ofRetail Newsagents and the Gold award at the Association of CirculationExecutives awards. We also won the Orange Award for Bright Business at theNational Business Awards for Scotland for our 'Launch Factory' marketinginitiative to maximise sales of new titles. To enhance further our customer services to retailers, we launched our 'GreatService' project which includes a customer charter specifying the standard ofservice our customers can expect from us, a standard well above the industrybenchmark. As part of this initiative, we have set up a team of dedicated salesand development representatives across our network of branches. They visit ourcustomers regularly, to improve communication with them and to ensure that theyare fully aware of, and can benefit from, the other services which we provide,all aimed at boosting their sales and profits. Another key service provision rolled out in 2005 was our sales basedreplenishment system. We are working closely with many of our customers tomaximise the stocking efficiencies available to them and thus to achievereductions in returns levels. Contract renewals with publishers continue to progress satisfactorily and manyare now concluded. Although as anticipated we have experienced some marginreduction, we are pleased to secure these contracts for another five years andhave marginally increased market share through additional business. Position as we enter 2006 Menzies Distribution is a strong player in a major market. Newspaper volumescontinue to decline slowly. The number of magazine titles available continuesto grow, and initial trading results for 2006 indicate that the shift frommonthly to weekly magazine titles is continuing. Magazine sales overall havestarted the year disappointingly, and sales of partworks are running well belowprevious levels. The conditional acquisition of Chester Independent Wholesale Newsagents ("CIWN")provides a useful expansion of our geographical footprint into Cheshire andNorth Wales. This acquisition will initially have little impact on the Group'searnings per share. The Office of Fair Trading has yet to publish their final opinion on thedistribution system for magazines. We have developed contingency plans for arange of outcomes, and believe that we can meet the opportunities and challengeswhich may arise. We remain confident that we can reposition this business in this time of change,and that the value which we add to the distribution process will continue tounderpin our position as a major player in this market. Menzies Aviation £m 2005 2004 GrowthTurnover 285.7 259.8 10%Operating profit 13.3 10.3 29% before goodwill Performance Menzies Aviation's 10% increase in sales was driven by new contracts and startupoperations, particularly at Alaska Airlines' Seattle hub, with ground handlingrevenues up 19% in line with volumes. Cargo revenues were flat, with volumes ona like for like basis increased by 2.4% after adjusting for our exit from amajor cargo handling contract as part of the restructuring of our Heathrowwarehouses. Profits benefited from the improvements made to our UK cargo operations, withEurope cargo handling showing a £3.5m increase on 2004. Ground handling profitsthere were broadly flat due to the level of startup activity. This alsoaffected our US stations where startup costs including those at Seattleincreased losses by £1.1m. Asia Pacific region profits increased by £0.5m,benefiting from new contracts. Prior year profits of £10.3m also included £0.6m from Execair which was soldduring 2004. Developments in Menzies Aviation in 2005 Menzies Aviation has made good progress in realigning the underperforming partsof its business and in standardising its business practices, greatly improvingthe consistency of its service levels. Europe Our European cargo handling operations have benefited from our £1.5m investmentat Heathrow. This involved the refurbishment of our main 135,000 sq ftwarehouse and the closure of one of our three other cargo sheds there, andallowed us to improve operating procedures with an immediate improvement inoperating margins. It also involved the exit from a major contract, with theloss of revenue involved being more than offset by the overall infrastructuresavings. Amsterdam also performed well, with improved results benefiting fromthe first full year of a cargo contract won in 2004. Our UK ground handling operations have seen a significant growth in newcontracts at most of our stations including Heathrow, Edinburgh and Manchester.At Edinburgh, for example, we have moved from being the smallest to the largestindependent handler at the airport during the year as a result ofperformance-based contract wins. This growth has involved an increased level ofstartup costs. Americas In the USA, Menzies Aviation was awarded the contract to perform all rampoperations for Alaska Airlines at its Seattle hub, handling some 150 flightseach day. This important contract win is further evidence of the trend amongmajor airlines to outsource key services. Our ability to operate hubs such asthis and easyJet's UK Luton hub shows the importance of, and the added valuewhich can be brought by, independent ground handlers in this growing sector. Activity at our Los Angeles station also increased following several contractwins. Operating performance there has improved significantly following theintroduction of new systems such as our baggage reconciliation system 'RightBags On Board'. However, initial startup costs affected the region's results. Our Latin American operations are concentrated in Mexico, Peru, Venezuela and,together with our Caribbean operations, are performing well. Hurricane Wilmacaused significant damage to our Cancun operations which had just been awarded 'Best Station Worldwide' status by Britannia Airways. Although our servicesthere were up and running again quickly, the resulting drop in traffic is havingsome effect on our profits from Mexico. Asia Pacific Performance in this region continues to improve, with our Australia/New Zealandstations showing a useful profit increase although continuing to experiencetough price competition. A small acquisition helped to achieve greaterconsolidation and to generate economies of scale in New Zealand and hasstrengthened our position in this market. Hong Kong maintained the profitability achieved in 2004, and Macau increasedrevenues slightly despite a small decline in cargo volumes. Our investment instartup operations at Chengdu in south-west China is continuing to develop, withsome new contract activity. Other initiatives We are also rolling out the 'Dial' operating KPI measurement suite in MenziesAviation as we standardise our processes, focusing on service levels and staffutilisation efficiencies at all our stations to bring them into line with bestpractice. These include productivity measures such as man-hours per turn forflight turnrounds. During the year, Menzies Aviation conducted its first full customer survey. Thefeedback received was constructive, highlighting some further opportunities toimprove service levels. These are being addressed under a specific projectdesigned to ensure that we provide a consistent level of excellence at allstations. Our efforts have not gone unrecognised, and we were delighted toreceive during the year the 'BA Way' award for the handler which most closelymatches the way British Airways wants its outsourced handling performed and the'Most Responsive Handler' award also from BA for the way in which we helpedrestart their operations at Houston after Hurricane Katrina. Position as we enter 2006 Menzies Aviation has entered 2006 on a positive note. We are clear on where and how we can make profit in both our ground handling andcargo businesses, and are in a position to capitalise on this. We have established industry-leading systems to meet the needs of customers. Tocomplement our leading edge cargo tracking system, 'Hermes', we have developedproducts such as 'Ucheckin', a web based self service check-in platform for ourairline and airport customers and 'Right Bags On Board', which has delivereddramatic improvements in Los Angeles. Our businesses continue to evolve and adapt to changing market dynamics. AtHeathrow, while we did not retain the BAA airside inter-terminal bussing andbaggage transfer contract which will end in April 2006, we have won the new BAAlandside 'Heathrow LOOP' bussing contract which starts in January 2007. We intend to continue our growth in a market which has significant potential forexpansion through a mix of organic growth and targeted acquisitions. The conditional acquisition of Aeroground announced this month will give uscritical mass in important US cargo airports and will double our turnover in theregion. It has a strong strategic fit with our existing ground handling andcargo handling business in North America, with operations overlapping at fourairports and new sites at a further five. It will bring significant synergiesto our US West Coast cargo operations which will now be able to offer a widerrange of services to an expanded group of customers. We expect that thisacquisition will be earnings enhancing in 2006, and, together with our other USdevelopments, will bring our US operations to break even by the year end. We operate in global markets which, particularly in ground handling, aregenerally expected to continue current growth patterns. The opportunities whichexist in these markets, and which we are now better able to realise, point to apositive future. GROUP PERFORMANCE Cash Flow Free cash flow remains strong at £23.6m. Capital expenditure, at £22.1m (2004£16.2m), was increased by £5.9m, reflecting Menzies Aviation's investment inequipment to support startup operations and our emphasis on renewing andupgrading existing ground handling equipment. Menzies Distribution also openedtwo new branches, replacing two smaller units, and spent £3m on IT including theinstallation of the first of a new generation of automated magazine packingsystems. Net debt has reduced by £12.9m to £30.6m. Interest The interest cost at £0.8m was £2.1m below last year due to the full yearbenefit of the refinancing of a long-term bond in 2004, an increase in otherincome from the additional contribution in 2004 to the pension fund and loweraverage debt levels. Dividend The Board is recommending a final dividend of 13.7p per share, an increase of5.4%. This brings our full year dividend to 19.5p, an increase of 5.4%,supported by a healthy level of dividend and free cash flow cover. Thisreflects our confidence in our future prospects. Subject to the approval of the Annual General Meeting, the final dividend willbe paid on 30 June to shareholders on the register as at the close of businesson 2 June 2006. The shares will be quoted as ex-dividend on 31 May 2006. Strategy Over the last two years we have delivered against a consistent strategy: 1. Get the Basics Right2. Build Strong Businesses3. Grow from Strength. The results have been particularly evident at Menzies Aviation, where theleadership team has raised service levels and delivered that service moreconsistently across the network. We have been successful in turning aroundunderperforming stations in our 'Fix/Close/Sell' programme. The USA remains thelast loss-making part of the system and we believe that, with the additionalscale from our 2006 conditional purchase of Aeroground, the turnaround here iswell under way. Finally, we have developed new products and become morecustomer focused. We have formed strong relationships with a number of majorcustomers, including the fast-growing low-cost sector. We are now much moreconfident that we can invest successfully in growing Menzies Aviation and createsubstantial shareholder value as we do so. The right platforms are now in placeto grow the business more rapidly, both organically via contract wins atexisting and new stations, and by acquisition. Menzies Distribution is a much more mature division than Menzies Aviation. Itis well-established in its geographical territories and delivers a high standardof service to publisher and retailer customers alike. Our 2006 conditionalacquisition of Chester News enables us to extend that service into a new region.In the short term the business faces a tough consumer market. In addition,the sector is going through a number of changes, with contract renewals andchanges in product mix depressing yields. This, together with the growth insupermarkets, is creating significant pressure on the remaining independentwholesalers. In this environment, it is important to control costs tightly andwe are accelerating and intensifying our cost reduction initiatives. We arefinding new ways to help our customers sell greater product volumes with lesswaste. We are also seeking new growth opportunities with regional newspapersand through extensions of our 'Superleague' programme. Acquisitions since the year end We have acquired two new businesses since the year end. On 8 February, weannounced that Menzies Distribution had acquired CIWN, conditional on regulatoryapproval. On 8 March, we announced that Menzies Aviation had reachedconditional agreement to acquire Aeroground, Inc., a provider of cargo handlingservices to customers at 9 airports in USA and Canada. GROUP TRADING OUTLOOK Menzies Distribution has experienced a significantly softer market in the first10 weeks of 2006. The momentum in weekly magazines has softened and monthlymagazine sales are running 8% below the same period last year. Partwork saleshave been very disappointing at 37% below last year's weak figures. Newspapersales are in line with our expectations and stickers are well ahead. We areimplementing strategic initiatives to address the current market challenges but,if current trends continue, these will not be sufficient to offset the salesshortfall and the impact on margins of contract renewals. We therefore expectthat Distribution's performance will be lower than that achieved in 2005. We are well placed to grow Menzies Aviation, where revenues are running aboveour expectations supported by last year's contract wins. As a result of thistogether with contract wins in 2006 and the recent conditional acquisition ofAeroground, we expect that the division's performance for the coming year willbe well ahead of last year. Whilst we are still at an early stage in the year, we do not currently expectthat the improvements in the performance of Aviation will fully offset theimpact of the challenging environment in which Distribution is now operating.We therefore expect that the Group's overall performance for 2006 will beslightly behind our initial expectations. Looking further ahead, we believe the outlook for the Group is positive. Patrick MacdonaldChief Executive21 March 2006 GROUP PROFIT AND LOSS ACCOUNTfor the year ended 31 December 2005 (year ended 25 December 2004) 2005 2004 (restated) Notes £m £m TurnoverGroup and share of joint ventures andassociates 1 1,390.0 1,369.2 Less share of: Joint ventures (6.8) (15.6) Associates (21.1) (23.0) Group turnover 1,362.1 1,330.6 Net operating costs (1,329.0) (1,301.1) Group operating profit 33.1 29.5Share of operating profit in Joint ventures 1.0 0.6 Associates 2.8 2.8 Total operating profit pre-exceptional item 1 36.9 32.9Gain on disposal of business 3 - 7.6 Profit on ordinary activities before interest 36.9 40.5Net interest payable (2.0) (3.5)Other finance income 2 1.2 0.6 Profit on ordinary activities before taxation 36.1 37.6Taxation 4 (9.0) (8.3) Profit after taxation 27.1 29.3Minority interests (0.3) (0.3) Profit for the financial year 26.8 29.0Dividends (including non-equity) 5 (11.5) (10.7) Retained profit for the financial year 15.3 18.3 Earnings per ordinary share 6Headline 52.2p 44.0pFRS 3 46.5p 51.0pHeadline diluted 51.7p 43.7pFRS 3 diluted 46.0p 50.7p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES for the year ended 31 December 2005 (year ended 25 December 2004) 2005 2004 (restated) £m £mProfit for the financial year 26.8 29.0Actuarial (loss)/gain on defined benefit pensions 2 (9.4) 3.2Deferred tax associated with defined benefit 2.8 (1.0)pensions Currency translation (0.4) 0.6 19.8 31.8 Prior year adjustment for FRS 17 - (62.6)Total recognised gains/(losses) for the financial 19.8 (30.8)year GROUP AND COMPANY BALANCE SHEETSAs at 31 December 2005 (25 December 2004) Group Company 2005 2004 2005 2004 Notes £m £m £m £m £m £mFixed assetsIntangible assets 22.0 22.3 - -Tangible assets 121.8 116.1 36.4 33.4 Investments - joint ventures Share of gross assets 2.2 1.7 - - Share of gross liabilities (1.2) (0.9) - - Shareholder loans 0.3 0.3 - - 1.3 1.1 - - - associates 21.5 20.2 - - - subsidiaries - - 98.8 98.8 Total investments 22.8 21.3 98.8 98.8 166.6 159.7 135.2 132.2Current assetsStocks 13.0 11.1 - -Deferred tax asset 2.6 4.7 - -Debtors 97.9 95.2 108.0 63.0Cash at bank and in hand 22.0 27.0 7.5 16.7 135.5 138.0 115.5 79.7Creditors: amounts falling duewithin one yearBank loans and overdrafts (21.2) (28.4) (19.4) (12.5)Other (168.9) (162.9) (115.9) (104.4) (190.1) (191.3) (135.3) (116.9)Net current liabilities (54.6) (53.3) (19.8) (37.2)Total assets less current 112.0 106.4 115.4 95.0liabilities Creditors: amounts falling due aftermore than one yearLoans and other borrowings (31.3) (42.0) (31.2) (41.8)Other - (0.1) - -Provision for liabilities andchargesDeferred tax - - (0.5) -Other (7.2) (8.5) - - Net assets excluding net pension liabilities 73.5 55.8 83.7 53.2Net pension liabilities 2 (21.9) (16.3) (21.9) - Net assets 51.6 39.5 61.8 53.2 Capital and reservesCalled up share capital 14.7 14.4 14.7 14.4Share premium account 7 10.9 7.7 10.9 7.7Investment in own shares 7 (3.5) (3.3) - -Profit and loss account 7 6.2 (2.8) 13.2 8.1Capital redemption reserve 7 21.6 21.6 21.6 21.6Equity shareholders' funds 49.9 37.6 60.4 51.8Non-equity share capital 1.4 1.4 1.4 1.4Shareholders' funds 8 51.3 39.0 61.8 53.2Equity minority interests 0.3 0.5 - - 51.6 39.5 61.8 53.2 The accounts were approved by the Board of Directors on 20 March 2006 and signedon its behalf by: Patrick Macdonald, Chief Executive Paul Dollman, Group Finance Director GROUP CASH FLOW STATEMENT for the year ended 31 December 2005 (year ended 25 December 2004) 2005 2004 £m £m £m £mNet cash inflow from operating activities 46.9 36.9Dividends from joint ventures and associates 4.0 4.0Returns on investments and servicing of finance Interest received 2.5 2.4 Interest paid (4.4) (6.4) Preference dividends paid (0.1) (0.1) Minority interest dividends (0.2) -Net cash outflow from returns on investments and servicing (2.2) (4.1)of finance Tax paid (4.6) (4.9)Capital expenditure and financial investment Purchase of tangible fixed assets (22.1) (16.2) Sale of tangible fixed assets 1.6 0.6Net cash outflow from capital expenditure and financial (20.5) (15.6)investmentAcquisitions and disposals Investment in joint ventures and associates - (0.1) Other investments - (0.1) Purchase of subsidiaries (0.8) (3.2) Disposal of associates - 1.1 Disposal of subsidiaries - 11.5Net cash (outflow)/inflow from acquisitions and disposals (0.8) 9.2 Equity dividends paid (10.9) (10.3) Net cash inflow before use of liquid resources and 11.9 15.2financingManagement of liquid resources Decrease in short term deposits 4.2 8.8Net cash inflow from management of liquid resources 4.2 8.8Net cash inflow before financing 16.1 24.0Financing Proceeds from shares issued 3.5 1.8 Loan notes redeemed - 0.2 Sale of own shares - 0.4 Decrease in loans (7.9) (17.8)Net cash outflow from financing (4.4) (15.4) Increase in cash in the year 11.7 8.6 NOTES TO THE ACCOUNTS 1. SEGMENTAL ANALYSIS Turnover Operating profit Net assets 2005 2004 2005 2004 2005 2004 (restated) £m £m £m £m £m £mBy class of businessDistribution 1,104.3 1,109.4 30.7 30.5 30.7 29.4Aviation 285.7 259.8 13.3 10.3 107.7 100.3 1,390.0 1,369.2 44.0 40.8 138.4 129.7Corporate - - (3.8) (4.3) - - 1,390.0 1,369.2 40.2 36.5 138.4 129.7Goodwill amortisation - - (3.3) (3.6) - - 1,390.0 1,369.2 36.9 32.9 138.4 129.7Reconciliation of net assets:Net debt (30.6) (43.5)Unallocated net liabilities (56.2) (46.7)Net assets 51.6 39.5 By geographical originUnited Kingdom 1,224.5 1,223.1 29.5 24.9 68.6 69.1Continental Europe 69.1 65.5 5.8 5.0 20.7 19.0Americas 53.9 45.9 (1.4) - 16.8 13.1Rest of the World 42.5 34.7 3.0 3.0 32.3 28.5 1,390.0 1,369.2 36.9 32.9 138.4 129.7 Joint Ventures and Associates includedaboveDistribution Joint ventures - 10.2 - - - - Associates 10.8 12.6 0.1 0.2 0.9 0.7Aviation Joint ventures 6.8 5.4 1.0 0.6 1.3 1.1 Associates 10.3 10.4 4.5 4.4 20.6 19.5 27.9 38.6 5.6 5.2 22.8 21.3Goodwill amortisation - - (1.8) (1.8) - - 27.9 38.6 3.8 3.4 22.8 21.3 Joint Ventures and Associates bygeographical originUnited Kingdom 10.8 22.8 0.1 0.2 0.9 0.7Continental Europe 0.5 0.4 0.1 - 0.4 0.3Americas 6.3 5.0 0.9 0.6 0.9 0.8Rest of the World 10.3 10.4 2.7 2.6 20.6 19.5 27.9 38.6 3.8 3.4 22.8 21.3 Turnover by geographical origin and destination do not materially differ. Goodwill amortisation is attributable to Distribution - £0.3m (2004: £0.3m) andAviation - £3.0m (2004: £3.3m). The 2004 operating profit has been reduced by £0.3m following the adoption ofFRS 20 "Share-based Payment" for 2005. 2. PENSIONS Pension schemes FRS 17, "Retirement benefits" was fully adopted for 2004. The adoption of FRS17 has required a change to the accounting treatment of defined benefit pensionarrangements, such that the Group includes the assets and liabilities of thesearrangements in the Group's balance sheet. Current service costs, curtailmentand settlement gains and losses, and net financial returns are included in theprofit and loss account in the period to which they relate. Actuarial gains andlosses are recognised in the statement of total recognised gains and losses. FRS 17 movements The Actuary undertook a valuation of the Menzies Pension Fund as at 31 December2005 (2004: 31 December) under FRS 17. In deriving the results the Actuary used the projected unit method and thefollowing financial assumptions: 2005 2004 2003 % % %Rate of increase in 3.50 3.35 3.25salariesRate of increase in 3.30 3.25 3.25pensionsPrice inflation 3.00 2.85 2.75Discount rate 4.80 5.30 5.40 Net pension liabilities The assets/(liabilities) in the scheme and the expected rates of return as at 31 December 2005 were asfollows: Long term Value at Long term Value at Long term Value at rate of December rate of December rate of December return return return 2005 2004 2003 % % % £m £m £mEquities 7.5 128.9 7.5 104.9 8.0 117.9Bonds 4.5 40.3 5.0 31.6 5.4 30.9Property 6.0 38.7 6.0 31.2 - -Other 4.5 1.9 6.3 11.6 3.0 4.7Total market value of 209.8 179.3 153.5assetsPresent value of scheme (241.1) (202.6) (191.1)liabilitiesDeficit in scheme (31.3) (23.3) (37.6)Related deferred tax asset 9.4 7.0 11.3Net pension liabilities (21.9) (16.3) (26.3) FRS 17 movements 2005 2004Amounts charged to profit and loss account £m £mCurrent service cost 5.1 5.5Past service costs - -Total amount charged to profit and loss account 5.1 5.5 Amounts included as other finance income £m £m Expected return on pension scheme assets 11.5 10.5 Interest on pension liabilities (10.3) (9.9)Net financial return 1.2 0.6 Amounts recognised in the statement of total recognised gains and losses £m £m Actual return less expected return on assets 17.6 3.4Experience (losses)/gains on liabilities (0.4) 4.3Impact of changes in assumptions relating to the present value of scheme (26.6) (4.5)liabilitiesActuarial (loss)/gain (9.4) 3.2 Movement in the deficit during the year £m £m Deficit in the Fund brought forward (23.3) (37.6)Current service cost (5.1) (5.5)Employer contributions 5.3 16.0Net financial return 1.2 0.6Actuarial (loss)/gain (9.4) 3.2Deficit in the Fund carried forward (31.3) (23.3) FRS17 five year history The following disclosures will be built up over time as a five year history: % of scheme 2005 % of scheme 2004 % of scheme 2003 % of scheme 2002 assets/ £m assets/ £m assets/ £m assets/ £m liabilities liabilities liabilities liabilities Difference between actual and 8% 17.6 2% 3.4 9% 14.0 38% (46.0)expected return on schemeassets Experience (losses)/gains on - (0.4) 2% 4.3 1% 2.1 3% (4.7)scheme liabilitiesAmount recognised in 4% (9.4) 2% 3.2 4% 7.1 33% (54.1)statement of total recognisedgains and losses 3. EXCEPTIONAL ITEM On 12 August 2004 the Group sold its executive aviation handling business,Execair, to BBA Group plc for a gain of £7.6m. 4. TAXATION 2005 2004 (restated)(a) Analysis of charge in year £m £mCurrent taxUK corporation tax on profits for the year 7.2 6.2Overseas tax 1.8 1.1Adjustments to prior years' liabilities (2.4) -Share of joint ventures 0.3 0.2Share of associates 0.3 0.7Total current tax 7.2 8.2 Deferred taxOrigination and reversal of timing differences 1.2 3.6Adjustments to prior years' liabilities 0.2 (0.2) 1.4 3.4Pension 0.4 (3.3)Total deferred tax 1.8 0.1 Tax on profit on ordinary activities 9.0 8.3 There was no tax charge on the exceptional item in 2004. The tax charge for the year is lower (2004: lower) than the standard rate ofcorporation tax in the UK (30%). The differences are explained below: 2005 2004 (restated)(b) Factors affecting tax charge for the year £m £m Profit on ordinary activities before tax 36.1 37.6 Profit on ordinary activities multiplied by standard rate of corporation tax in the 10.8 11.3UK (30%) Effects of:Permanent differences (principally goodwill amortisation and exceptional items) 0.2 (1.0)Capital allowances in excess of depreciation and other timing differences (1.1) (0.7)Pension payments (0.5) (0.9)Utilisation of tax losses (2.5) (2.0)Adjustments to prior years' liabilities (2.4) -Unrelieved overseas losses 2.2 1.3Higher tax rates on overseas earnings 0.5 0.2Current tax charge for year 7.2 8.2 (c) Factors that may affect future tax charges No provision has been made for deferred tax on the sale of properties where potentially taxable gains have beenrolled over into replacement assets. Such tax would become payable only if the replacement assets were sold withoutit being possible to claim rollover relief, or the Group's existing capital losses could not be utilised. The totalamount unprovided for is £1.7m (2004: £2.4m). At present it is not envisaged that any tax will become payable in theforeseeable future. Some of the Group's overseas operations, particularly in the Netherlands, Hong Kong, Germany and the USA, havegenerated tax losses in the past, the future utilisation of which is uncertain. The Group has therefore notrecognised a deferred tax asset of £18.6m (2004: £18.8m) in respect of certain tax losses of overseas companies. No deferred tax asset has been provided in respect of capital losses within the Group. There are no current andbinding contracts to sell any of the Group's assets and no sales are anticipated in the foreseeable future. Therecoverability of these losses is therefore uncertain and as such, has not been provided in the accounts. The amountat 30% which may be recovered against future capital gains is £7.1m (2004: £7.9m). No deferred tax is recognised on the unremitted earnings of overseas subsidiaries, joint ventures and associates. Asthe earnings are continually reinvested, no tax is expected to be payable on them in the foreseeable future. 5. DIVIDENDS 2005 2004 £m £mDividends on equity shares:Ordinary - Interim paid, 5.8p (2004: 5.5p) per share 3.4 3.1 - Final proposed, 13.7p (2004: 13.0p) per share 8.0 7.5Dividends on non-equity shares:Preference shares 0.1 0.1 11.5 10.7 Dividends of £0.1m (2004: £0.1m) were waived by employee share trusts (Note 7)during the year. Subject to the approval of the Annual General Meeting, the final dividend willbe paid on 30 June to shareholders on the register as at the close of businesson 2 June 2006. The shares will be quoted as ex-dividend on 31 May 2006. 6. EARNINGS PER SHARE Headline FRS 3 2005 2004 2005 2004 (restated) (restated) £m £m £m £mOperating profit 36.9 32.9 36.9 32.9add back: goodwill amortisation 3.3 3.6 - -Exceptional item - - - 7.6Interest (0.8) (2.9) (0.8) (2.9)Profit before taxation 39.4 33.6 36.1 37.6Taxation (9.0) (8.3) (9.0) (8.3)Minority interests (0.3) (0.3) (0.3) (0.3)Preference dividends (0.1) (0.1) (0.1) (0.1)Earnings for the year 30.0 24.9 26.7 28.9 HeadlineEarnings per ordinary share (pence) 52.2 44.0Diluted earnings per ordinary share (pence) 51.7 43.7 FRS 3Earnings per ordinary share (pence) 46.5 51.0Diluted earnings per ordinary share (pence) 46.0 50.7 Number of ordinary shares in issue (millions)Weighted average 57.462 56.619Diluted weighted average 58.079 57.032 The weighted average number of fully paid shares in issue during the yearexcludes those held by the employee share trusts (Note 7). The diluted weightedaverage is calculated by adjusting for all outstanding share options which arepotentially dilutive, i.e. where the exercise price is less than the averagemarket price of the shares during the year. 7. RESERVES Group Company Profit Share Profit Share Investment and Capital premium and Capital premium in own loss redemption account loss redemption account shares account reserve account reserve £m £m £m £m £m £m £m At 25 December 2004 7.7 (3.3) (2.8) 21.6 7.7 8.1 21.6Share based payments - - 0.7 - - 0.2 -Actuarial loss (net of deferred - - (6.6) - - (6.6) -tax)Movement during the year 3.2 (0.2) - - 3.2 - -Profit for the year - - 26.8 - - 23.0 -Dividends - - (11.5) - - (11.5) -Currency translation - - (0.4) - - - -At 31 December 2005 10.9 (3.5) 6.2 21.6 10.9 13.2 21.6 The cumulative amount of goodwill resulting from acquisitions undertaken beforeApril 1998, which has been written off to reserves, is £28.9m (2004: £28.9m). Investment in own shares The Company's ordinary shares are held in trust for an employee share scheme.At 31 December 2005 the trusts held 721,927 (2004: 729,545) ordinary 25p shareswith a market value of £3,663,780 (2004: £3,797,282). 8. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 2005 2004 (restated) £m £mProfit for the financial year 26.8 29.0Dividends (11.5) (10.7)New share capital issued 3.5 1.8Investment in own shares (Note 7) (0.2) 0.4Share based payments 0.7 0.3Net actuarial (loss)/gain (6.6) 2.2Currency translation (0.4) 0.6Net increase in shareholders' funds 12.3 23.6Shareholders' funds at beginning of year 39.0 15.4Shareholders' funds at end of year 51.3 39.0 9. CASHFLOW 2005 2004 (restated) £m £m £m £m Operating Profit 36.9 32.9 Share based payments 0.7 0.3Depreciation 16.5 16.3Goodwill amortisation 1.5 1.8Net pension movement (0.3) (0.5)Working capital (4.1) (0.3)Cash spend on exceptionals - (0.1)Non cash items (4.3) (3.5)Operating cash flow 46.9 46.9 Purchase of fixed assets (22.1) (16.2)Sale of fixed assets 1.6 0.6Net capital expenditure (20.5) (15.6)Dividends from associates and joint ventures 4.0 4.0Net interest paid (1.9) (4.0)Preference and minority dividends paid (0.3) (0.1)Tax paid (4.6) (4.9) Free cash flow 23.6 26.3 Loan notes redeemed - 0.2Equity dividends paid (10.9) (10.3)Additional pension payment - (10.0)Acquisitions (0.8) (3.4)Disposals - 12.6Shares 3.5 2.2Total movement 15.4 17.6 Opening net debt (43.5) (63.3)Currency movement (2.5) 2.2Closing net debt (30.6) (43.5) 10. CONTINGENT LIABILITIES There are contingent liabilities, including those in respect of disposed andacquired businesses, which are not expected to give rise to any significant lossto the Group. In addition, in the normal course of business, the Company has guaranteedcertain trading obligations of its subsidiaries. 11. POST BALANCE SHEET EVENTS On 8 February 2006 the Group reached a conditional agreement to acquire theentire issued share capital of Chester Independent Wholesale Newsagents. It isanticipated that the transaction will be completed by the end of March 2006subject to regulatory approval. On 8 March 2006 the Group reached a conditional agreement to acquire the entireissued share capital of Aeroground Inc., a provider of air cargo handlingservices to customers at 9 airports in the USA and Canada. The total cashconsideration amounts to $28m with a further $2m payable dependent on the futureperformance of the business over the next two years. It is expected that thetransaction will be completed by the end of April 2006 subject to regulatoryclearance. 12. ACCOUNTING POLICIES This statement has been prepared in accordance with accounting standards andpolicies consistent with those set out in the Group Accounts for the year ended31 December 2005. 13. ACCOUNTS The figures used in this statement, which was approved by the directors on 20March 2006, are not the Group's statutory accounts within the meaning of Section240 of the Companies Act 1985 for the year, but are taken from those accounts.The auditors' report on the statutory accounts was unqualified and did notcontain a statement under Section 237 (2) to (4) of the Companies Act 1985. 14. ANNUAL REPORT The Annual Report and Accounts will be posted on 21 April 2006 and the AnnualGeneral Meeting will be held at the Roxburghe Hotel in Edinburgh on 25 May 2006at 12.15pm. Statutory accounts for the year ended 25 December 2004 have beendelivered to the Registrar of Companies, and those for the year to 31 December2005 will be delivered following the Company's Annual General Meeting. 15. INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group has prepared its consolidated financial statements for 2005 under UKGAAP, supplemented with pro forma IFRS financial information, rather than underIFRS as previously indicated. This is to comply with the Companies Act 1985 (asamended November 2004) and is a result of the accounting year commencing on 26December 2004 prior to the IFRS adoption date of 1 January 2005. The pro forma IFRS information is attached. The adoption of IFRS for the 2006 financial statements will not have anysubstantial impact on our reported results. BASIS OF PREPARATION The financial information presented in these financial statements has beenprepared on the basis of those International Financial Reporting Standards,International Accounting Standards, and International Financial ReportingInterpretations Committee (IFRIC) and Standard Interpretation Committee (SIC)interpretations that are expected to be applicable to 2006 financial reporting,with the exception of IAS 32 and IAS 39. International Financial ReportingStandards are subject to ongoing review and endorsement by the EuropeanCommission and as a consequence further adjustments to the accounting policiesand treatments may need to be made in the Report and Accounts for the yearending 30 December 2006. GROUP INCOME STATEMENT (unaudited)For the year ended 31 December 2005 Notes As Joint venture Effect As reported and associate of reported under presentation transition under UK GAAP* change to IFRS IFRS £m £m £m £m Revenue 1,362.1 - - 1,362.1Net operating costs (a) (1,329.0) - 1.3 (1,327.7) Operating profit 33.1 - 1.3 34.4Share of post tax results of joint ventures (b) 3.8 (0.6) - 3.2and associates Operating profit after joint ventures and 36.9 (0.6) 1.3 37.6associatesInterest payable (4.3) - (0.1) (4.4)Interest receivable (c) 2.3 - - 2.3Finance income 11.5 - - 11.5Finance charge (10.3) - - (10.3) Profit before taxation (d) 36.1 (0.6) 1.2 36.7Taxation (9.0) 0.6 (0.3) (8.7) Profit for the year 27.1 - 0.9 28.0 Attributable to equity shareholders 26.8 - 0.9 27.7 Atributable to minority interest 0.3 - - 0.3 27.1 - 0.9 28.0 \* The order and description of items presented "as reported under UK GAAP" havebeen amended to enable direct comparison with IFRS presentation. The principal adjustments made as a result of the transition to InternationalAccounting Standards are: £m £m(a) Reversal of subsidiary goodwill amortisation IAS 38 1.5 Capitalisation of software development expenditure previously written off as operating expenses IAS 38 0.6 Amortisation of software development costs IAS 38 (0.6) Reclassification of operating lease rentals to finance lease interest IAS 17 0.1 Goodwill adjustment for tax loss utilisation IAS 12 (0.3) 1.3 (b) Reversal of joint venture and associate goodwill amortisation IAS 38 1.8 Goodwill impairment IAS 38 (1.8) - (c) Reclassification of operating lease rentals to finance lease interest IAS 17 (0.1) (d) Adjustment to deferred tax liability IAS 12 (0.3) 0.9 GROUP BALANCE SHEET (unaudited)As at 26 December 2004 (IFRS opening position) Effect Notes of As As reported under transition reported UK GAAP* to IFRS under IFRS £m £m £mAssetsNon-current assetsIntangible assets (a) 22.3 2.6 24.9Property, plant and equipment (b) 116.1 (1.0) 115.1Investments 21.3 - 21.3Deferred tax assets (c) 12.8 0.3 13.1 172.5 1.9 174.4Current assetsInventories 11.1 - 11.1Trade and other receivables 95.2 - 95.2Cash and cash equivalents 27.0 - 27.0 133.3 - 133.3LiabilitiesCurrent liabilitiesBorrowings (28.5) - (28.5)Trade and other payables (d) (150.4) 7.5 (142.9)Current income tax liabilities (12.4) - (12.4) (191.3) 7.5 (183.8)Net current liabilities (58.0) 7.5 (50.5)Total assets less current liabilities 114.5 9.4 123.9 Non-current liabilitiesBorrowings (e) (42.0) (0.5) (42.5)Other (0.1) - (0.1)Provisions (f) (9.6) (0.4) (10.0)Retirement benefit obligations (g) (23.3) (1.1) (24.4) (75.0) (2.0) (77.0)Net assets 39.5 7.4 46.9 Shareholders' equityOrdinary shares 14.4 - 14.4Preference shares 1.4 - 1.4Share premium account 7.7 - 7.7Investment in own shares (3.3) - (3.3)Retained earnigs (2.8) 7.4 4.6Capital redemption reserve 21.6 - 21.6Total shareholders' equity 39.0 7.4 46.4Minority interest in equity 0.5 - 0.5 Total equity 39.5 7.4 46.9 \* The order and description of items presented "as reported under UK GAAP" havebeen amended to enable direct comparison with IFRS presentation. The principal adjustments made as a result of the transition to InternationalAccounting Standards are: £m £m(a) Capitalisation of software development expenditure previously written off as operating expenses IAS 38 1.2 Transfer of capitalised software development expenditure previously shown as plant and equipment IAS 38 1.4 2.6 (b) Operating lease reclassified as finance lease IAS 17 0.4 Transfer of capitalised software development expenditure previously shown as plant and equipment IAS 38 (1.4) (1.0) (c) Mid to bid pension valuation deferred tax adjustment IAS 12 0.3 (d) Reversal of the previously reported dividend accrual IAS 10 7.5 (e) Finance lease creditor as a result of reclassification of operating lease IAS 17 (0.5) (f) Adjustment to non-current deferred tax liability IAS 12 (0.4) (g) Mid to bid pension valuation IAS 19 (1.1) Cumulative adjustment to net assets 7.4 GROUP BALANCE SHEET (unaudited)As at 31 December 2005 Effect Notes of As As reported under transition reported UK GAAP* to IFRS under IFRS £m £m £m AssetsNon-current assetsIntangible assets (a) 22.0 3.6 25.6Property, plant and equipment (b) 121.8 (0.7) 121.1Investments (c) 22.8 - 22.8Deferred tax assets (d) 13.4 0.4 13.8 180.0 3.3 183.3Current assetsInventories 13.0 - 13.0Trade and other receivables 97.9 - 97.9Cash and cash equivalents 22.0 - 22.0 132.9 - 132.9LiabilitiesCurrent liabilitiesBorrowings (21.2) - (21.2)Trade and other payables (e) (154.8) 8.0 (146.8)Current income tax liabilities (14.1) - (14.1) (190.1) 8.0 (182.1)Net current liabilities (57.2) 8.0 (49.2)Total assets less current liabilities 122.8 11.3 134.1 Non-current liabilitiesBorrowings (f) (31.3) (0.5) (31.8)Provisions (g) (8.6) (0.7) (9.3)Retirement benefit obligations (h) (31.3) (1.3) (32.6) (71.2) (2.5) (73.7)Net assets 51.6 8.8 60.4 Shareholders' equityOrdinary shares 14.7 - 14.7Preference shares 1.4 - 1.4Share premium account 10.9 - 10.9Investment in own shares (3.5) - (3.5)Retained earnigs 6.2 8.8 15.0Capital redemption reserve 21.6 - 21.6Total shareholders' equity 51.3 8.8 60.1Minority interest in equity 0.3 - 0.3Total equity 51.6 8.8 60.4 \* The order and description of items presented "as reported under UK GAAP" havebeen amended to enable direct comparison with IFRS presentation. The principal adjustments made as a result of the transition to InternationalAccounting Standards are: £m £m (a) Capitalisation of software development expenditure previously written off as operating expenses IAS 38 1.3 Transfer of capitalised software development expenditure previously IAS 38 1.1 shown as plant and equipment Goodwill adjustment for tax loss utilisation IAS 38 (0.3) Reversal of subsidiary goodwill amortisation previously charged IAS 38 1.5 3.6 under UK GAAP (b) Operating lease reclassified as finance lease IAS 17 0.4 Transfer of capitalised software development expenditure previously IAS 38 (1.1) (0.7) shown as plant and equipment (c) Reversal of associates goodwill amortisation previously charged IAS 38 1.8 under UK GAAP Impairment of goodwill IAS 38 (1.8) - (d) Mid to bid pension valuation deferred tax adjustment IAS 12 0.4 (e) Reversal of the previously reported dividend accrual IAS 10 8.0 (f) Finance lease creditor as a result of reclassification of operating IAS 17 (0.5) lease (g) Adjustment to deferred tax liability IAS 12 (0.7) (h) Mid to bid pension valuation IAS 19 (1.3) Cumulative adjustment to net assets 8.8 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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