MNZS.L Regulatory News (MNZS)

8 March 2016

John Menzies plc

Final Results for the year ended 31 December 2015

Financial Summary

Overview

• Implementation of the Group strategy on track

• Group earnings impacted by Aviation operational issues at London Gatwick - now resolved

• Aviation turnover up 6%

o Business performed well outside of the UK

o Strong cargo handling volumes driving margin improvement

o Ground handling hub wins performing well

• Distribution strategy delivering

o Good progress, media decline mitigated - operating profit £25.1m (2014: £24.0m)

o Distribution network rationalisation complete

o Winning new contracts in wider logistics market

o E-commerce bolt-ons acquired and integrated

• Impressive cash conversion[7] of 110% - robust balance sheet

• Successful conclusion to triennial pension funding plan

• Dividend up 4% to 16.8p

Iain Napier, Chairman of John Menzies plc said:

"Our updated strategy for both divisions is now embedded and we are making good progress towards our stated objectives.

"However, 2015 was a challenging year for the Group with operational issues at London Gatwick suppressing profits.

"Outside of the UK, the Aviation business continued to make progress, particularly in cargo handling and North American ground handling. Menzies Distribution performed strongly, whereby print media decline was fully mitigated and our expansion into the e-commerce fulfilment market gained real traction with the acquisitions of AJG Parcels and Oban Express, and a number of new contract wins.

"The Board is confident that we have strategies available to us in both of our operating divisions capable of delivering growth. We continue to evaluate the optimum structure for the Group to potentially further enhance shareholder value."

For further information:

John Menzies plc

Paula Bell, Chief Financial Officer 0131 459 8018

John Geddes, Group Company Secretary 0131 459 8018

FTI Consulting

Jonathon Brill/Alex Beagley 0203 727 1000

Notes to Editors

1. John Menzies plc is one of Scotland's largest companies. The group has two operating divisions, Menzies Aviation and Menzies Distribution. Both divisions operate in 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. Today the company is an international business with operations worldwide.

2. Menzies Aviation is a leading global provider of passenger, ramp and cargo services. The Menzies Aviation business is highly successful, operating at 146 airports in 31 countries, with annual turnover in excess of £700 million and supported by a team of over 20,000 highly-trained people. Menzies Aviation serves over 500 customers, handling over 1.2 million flights and 1.7 million tonnes of cargo per annum. Customers include Air France/KLM, Alaska Airlines, Cathay Pacific, easyJet, Emirates, IAG, Lufthansa, Norwegian Air Shuttle, Thai Airways and United Airlines. Best in class safety and security is the division's number one priority each day and every day.

3. Menzies Distribution operates one of the largest overnight logistics networks in the UK, providing final mile delivery for around 110 million delivery units each year serving customers in the press, travel and third-party logistics sectors. From 42 sites across Britain and Ireland, a team of around 3,500 employees pick, pack and cross-dock clients' materials, driving 135,500 miles each day to bring them to their ultimate destination.

In addition to its core role within the UK print media supply chain, delivering around six million magazines and newspapers every day, the division is expanding into both UK retail logistics and neutral consolidation within the fast-growing parcel delivery market.

Group Performance Review

During 2015 we performed a strategic refresh of both our divisions, Aviation and Distribution. Much progress has been made and in particular with our plans to diversify away from distribution of newsprint, which has declining volumes, into the growing e-commerce logistical delivery market.

Acquisitions to support growth in this new market included AJG Parcels and Oban Express during the year and in early 2016, a further acquisition of Thistle Couriers has been completed, providing opportunity for scaling our services in hard to reach areas. This strong progress has been offset disappointingly by operational challenges in our Aviation division at London Gatwick which have now been resolved. The impact was material and reduced Aviation and therefore Group earnings. The remainder of the global network has progressed and delivered to plan, with particularly strong growth in North America resulting from hub and base wins which are performing well.

The Group's turnover was £1,993.3m (2014: £1,999.9m). Underlying profit before tax fell to £38.2m (2014: £44.6m) as a result of the decline in profitability in the Aviation division. The decline in underlying profit before tax had a consequential impact on our underlying earnings per share which decreased to 42.7p (2014: 49.2p). Profit before tax was £18.2m (2014: £25.7m).

On a constant currency basis Group turnover was up 1% to £2,029.3m (2014: £1,999.9m) with underlying operating profit £5.0m lower as expected at £46.0m (2014: £51.0m).

Implementation of the Group's strategy is on track as we look simultaneously to drive growth and reshape the business.

Menzies Aviation

Aviation growth was underpinned by strong cargo volumes and the positive effect of ground handling hub wins in North America and Scandinavia in the last 15 months. Turnover was up 6% to £782.9m, while underlying operating profit was £6.0m lower at £24.2m reflecting the operational issues at London Gatwick and prior year contract losses in South Africa.

Outside of the UK the ground handling business continued to expand. Contracts were won and key hub operations, where increased scale drives higher returns, all performed well.

Overall we handled 1.2 million flight movements in the year, up 5% on a like-for-like basis. Over 500,000 movements were in the Americas where the year on year increase was 20% reflecting the new hub contracts won in late 2014 and continued organic expansion.

Net ground handling contract wins totalled 53, adding some £48m of annualised revenue which was less than experienced in 2014 and will therefore drive earnings growth in 2016 to be more weighted to the second half.

The biggest gain was Norwegian Air Shuttle's hub in Oslo and its major base in Copenhagen. Both operations started in April and have been successful. Since 2011 we have grown our relationship with Norwegian and now handle some 52,000 flights in 11 locations. Our relationship with United Airlines in the USA was expanded in the year with the award of new base operations in Lubbock, Cincinnati, Tucson and Wichita. These wins are the result of an excellent performance at United's hub operation in Denver. In 2016, we will handle some 126,000 flights for United from 34 locations.

Securing our existing customers remains our primary objective and key renewals during the year included Singapore Airlines across four locations in Oceania and the Star Alliance airlines and Qantas at London Heathrow. The Qantas renewal underpins the recovery at Heathrow with revenues secured through to late 2017 and beyond. Overall we renewed 40 ground handling contracts securing £71m of annualised revenue.

In the UK, significant issues were encountered at London Gatwick where increased labour costs, incurred in order to maintain contractual service levels, resulted in £6m of lost earnings. The contractual position has now been resolved and we do not anticipate any further issues. Within the rest of the UK service levels are being improved through operational excellence programmes that have been put in place to ensure a return to standards delivered elsewhere in the network.

The opportunities pipeline remains strong in ground handling and with a developed commercial approach in place we are confident that we will make further progress in 2016. Our priority will be to continue to focus on adding scale customers that allow us to achieve station density and drive earnings growth. In addition, we will continue to focus on service delivery that is underpinned by robust IT systems and programmes of continued improvement.

Our cargo business had another strong year with continuing margin improvement. Our recent focus on delivering service in markets that are not over supplied and where sensible returns can be generated is proving successful. Whilst the portfolio is performing well we continue to review our options at certain locations where the market dynamics are less favourable.

The contracts secured in late 2014 with KLM/Air France in Canada performed well, as did our US locations with Los Angeles in particular having a strong year. Overall we handled some 1.7 million tonnes of cargo, an increase of 3% on the previous year.

During the year we were net winners of eight cargo handling contracts and renewed a further 28 which represents £34m of annual revenue. The largest renewal was with Thai Airways across five locations in Australia and New Zealand. We further strengthened our good relationship with Thai Airways, renewing our contract at London Heathrow until 2018.

The Oceania region is our strongest cargo foothold and was extended by the gain of Virgin Australia's business. This win is our first in the Australian domestic cargo market and from October 2015, we now handle Virgin Australia in four locations.

In Continental Europe, as previously communicated, we are experiencing reduced cargo volumes as freighter planes decline in Amsterdam, creating a headwind for 2016.

Elsewhere in cargo handling we are seeing a move by the international carriers to develop more global relationships. Our position as a global player who consistently drives innovation in systems and safety ensures we are well placed to prosper from such initiatives. During the year, after an extensive audit process, we were pleased to secure preferred supplier status with both Cathay Pacific and Etihad. As we move into 2016 we are in a good position to develop these relationships.

AMI, our global cargo consolidation and forwarding company, continues to perform well. The North American and South Pacific regions in particular have led the business in extending the traditional airfreight wholesale model to include the growing international e-commerce traffic.

The broadening of our complementary services continues to be a focus. Progress was made through increased de-icing activities in Europe and line maintenance facilities in New Zealand. We will continue to review our options and expand where appropriate into these typically higher margin activities.

Menzies Distribution

Distribution outperformed management's expectations in the year, with underlying operating profit increasing to £25.1m (2014: £24.0m). This trading performance benefitted from impressive cost savings which offset the impact of World Cup stickers in 2014 and the decline in print media revenue. The network rationalisation programme has been completed and delivered to schedule, supporting future cost saving plans.

Sales of newspapers during the period were 3% down on an absolute and a like-for-like basis. We benefited from cover price increases in the second quarter and from successful contract wins which led to the introduction of newspapers and magazines to new retailers.

Sales declines of 4% across magazine categories on an absolute and a like-for-like basis were an improvement on 2014 helped by price increases, new launches, tie-ins to successful movies and one-off events such as the birth of the Royal baby and the general election in the UK.

Our network rationalisation programme has been successful and was delivered on time and on budget. The current footprint now represents a step change in how we conduct our business. From three super hubs (Linwood, Wakefield and Maidstone) some 25,000 magazine and newspaper customers are served. Magazines centrally packed are then trunked to our satellite network of spoke branches where they are married with the overnight newspaper operations and delivered on time to retailers 364 days a year.

Our gradual expansion into the UK parcel market, primarily as a neutral consolidator, continues successfully. During the year we acquired AJG Parcels Ltd for £7.5m. AJG handles around two million parcels per annum in the Scottish Highlands and Islands. Following this we acquired Oban Express, a complementary business to AJG, and since the year end have also acquired Thistle Couriers, an Aberdeen based parcel business that handles over 1,000 parcels per day. All three businesses now form Menzies Parcels which employs some 240 employees and handles over 2.8 million parcels per annum. Menzies Parcels is establishing a niche in the growing UK e-commerce fulfilment market and we will look to build our position going forward.

Our trucking business expanded during the year with new contracts, most significantly from wnDirect, Card Factory, WHSmith and B2C Europe. wnDirect, as an example, is an international e-commerce delivery business and we have been appointed to collect packaged orders from its retail customers and deliver these to processing centres in Derbyshire and Kent. These contract gains represent further steps to utilise our existing property and vehicle assets during daylight hours using our proven track record for a fast and effective logistics solution.

The new UK national living wage legislation commences from April 2016 and mostly affects our Distribution business. The additional cost in 2016 is estimated to be £2.5m, and we expect to substantially mitigate this increase with a number of improvement initiatives. This cost increase headwind is likely to prevail thereafter.

Group Operational Improvements

As our marketplace evolves we are committed to remaining at the forefront of innovation and safety. During 2015 we commenced a programme to upgrade our platforms to ensure our business is ready for the next stage of growth. Standardisation and consistency are the fundamentals to success and to ensure these fundamentals are achieved, we have consolidated a number of divisional functions such as IT, Human Resources, Safety & Security and Audit & Compliance into the centre. This move, whilst also giving the benefit of cost optimisation, has also allowed a common strategy to be followed.

Within our IT function we have completed the outsourcing of our IT data centres at both divisions, moving to a single Group solution with SunGard that is working well. Within our Aviation business we have invested in systems to ensure our teams have all the necessary tools to deliver high quality and efficient service to our customers. An investment in WorkBridge, a real time management system, will allow our operators to run stations at the optimum level, with the flexible allocation of staff to suit flight timetables and to react to off-schedule activity.

We have also invested in our customer offering with a new central Commercial function which allows us to target our key customers in a more structured and global way. We believe this investment will pay back as we deepen customer relationships and ultimately win more contracts.

Financial Overview

Finance costs

The net underlying finance charge in the year was £6.7m (2014: £6.4m). The level of cost reflects similar year on year levels of debt and effective rates of interest.

Exceptional and other items

Rationalisation costs of £3.5m in the year substantially related to the completion of our planned programme to streamline Distribution's network and operations. The costs to develop our strategic plans and to restructure the organisation have been £1.7m; and we incurred £0.6m of acquisition related exceptional costs. Non-cash costs of £4.7m were incurred in May 2015 relating to the impairment of assets after being unsuccessful in renewing our ground handling operating licences in Spain.

Tax and Earnings per Share

As a multinational business the Group is liable for taxation in multiple jurisdictions around the world. Our underlying tax charge for the year was £12.2m (2014: £14.4m), representing an effective underlying tax rate of 32% (2014: 32%).

Underlying earnings per share were 42.7p (2014: 49.2p), directly impacted by the reduction in profits. Earnings per share were 16.5p (2014: 22.7p), additionally affected by non-recurring items.

Defined benefit pension scheme

As at 31 December 2015, the scheme showed a deficit of £43.4m (2014: £59.0m) a decrease of £15.6m, largely reflecting ongoing employer contributions and an increase in the discount rate applied to the scheme liabilities. The Trustee's latest triennial actuarial valuation was completed at 31 March 2015 and the Trustee and the Company have agreed a long-term funding plan which results in additional annual contributions of £10.7m rising with the higher of inflation and the percentage change in annual shareholder dividends, up to 2025. This represents an annual cash saving of around £1m compared with the previous arrangement.

Cash flow and investment

Investments in the year included £9.9m for the earn-out payment relating to the Orbital Marketing Services Group and initial investment of £6.8m for the acquisitions of AJG Parcels and Oban Express. Operating cash flow was £64.8m (2014: £74.0m). Working capital management has been very strong again in 2015 and remains a key focus for the business. Free cash flow at £31.7m was £1.7m higher than 2014. Net capital expenditure totalled £20.3m (2014: £30.1m).

Treasury

The Group continues to operate on a strong financial footing. We benefit from a robust balance sheet built from strong operating cash flows across our divisions. At the year end net debt was £123.2m (2014: £110.9m), reflecting a £16.8m spend on acquisitions.

Our net debt to EBITDA ratio was 1.8 times and interest cover was 8.8 times at 31 December 2015, well within our covenanted levels. Furthermore, we have £64.3m of undrawn committed bank facilities.

The majority of Menzies Aviation's stations are located outside the UK and operate in currencies other than Sterling. The Group attempts to minimise the volatility of transactional foreign exchange as far as possible by using foreign exchange forward contracts. The translation of profits from overseas trading entities is not hedged and as a result the movement of exchange rates directly affects the Group's reported results. In the year, adverse movements in other European currencies and the Australian dollar were partly offset by a favourable movement in the US dollar.

Dividend

The Board wishes to follow a progressive policy to increase dividends over time. Accordingly, the Board has proposed a final dividend of 11.8p per share which is payable on 1 July 2016 to all shareholders on the register at 27 May 2016. The total (paid and proposed) dividend for the year is 16.8p per ordinary share up 4% from last year (2014: 16.2p per share).

Board Changes

During the year David Garman and Geoff Eaton joined the Board as Non-Executive Directors while Ian Harley and Octavia Morley stepped down.

Ian Harley stepped down at the Annual General Meeting on 15 May 2015 and Octavia Morley attended her last Board meeting on 18 December 2015 following the completion of nine years' service.

Post the year end Jeremy Stafford tendered his resignation and left the Company with immediate effect. As a result the Board, recognising the need for closer day to day management of the Aviation business, appointed Forsyth Black to the Board as Managing Director of Menzies Aviation. Forsyth has been with the Group for over 16 years fulfilling a variety of roles, initally within the Aviation division, where he was Senior Vice President of Africa, Middle East and India; and more recently as Managing Director of Menzies Distribution, where he sucessfully led a transformation of the division and diversification away from print media. The Board is confident that Forsyth will actively drive the delivery of the Aviation strategy.

Outlook

The Group continues to progress, with focus on both growth and reshaping the existing business. Since the year end we have completed the acquisition of Renaissance Aviation, the sole provider of ground and cargo handling services to a number of international airlines in Bermuda and Thistle Couriers, an Aberdeen based same day parcel fulfilment business. The profile of recent new business wins and our improving pipeline in Aviation indicates a greater second half weighting than usual.

We continue to anticipate opportunities arising from the aviation services market in North America. In line with our strategy, we will pursue opportunities that drive additional revenue streams from complementary services. Across the business we will continue to seek both organic and acquisition opportunities as we look to build scale in our growth markets.

We are well placed to benefit from future cost efficiencies as the rationalisation of our Distribution network delivers to plan although the implementation of the UK national living wage will represent a challenge for the business. We will continue to pursue e-commerce opportunities to increase our footprint as a neutral consolidator in the growing parcel and fulfilment markets.

We continue to execute against our strategy and remain confident in delivering long-term shareholder value.

GROUP INCOME STATEMENT

for the year ended 31 December 2015 (year ended 31 December 2014)

* Underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, 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.

* Underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, 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 2015 (year ended 31 December 2014)

GROUP AND COMPANY BALANCE SHEETS

as at 31 December 2015 (31 December 2014)

The accounts were approved by the Board of Directors on 7 March 2016 and signed on its behalf by:

GROUP AND COMPANY STATEMENT OF CASH FLOWS

for the year ended 31 December 2015 (year ended 31 December 2014)

* 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 2015 were approved and authorised for issue in accordance with a resolution of the Directors on 7 March 2016. John Menzies plc is a limited company incorporated in 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.

Basis of preparation

The consolidated accounts, which have been prepared under the historical cost convention and in accordance with EU Endorsed International Financial Reporting Standards (IFRS), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, incorporate the accounts of the Company and its subsidiaries, joint ventures and associates from the effective date of acquisition or to the date of deemed disposal.

As permitted by Section 408 of the Companies Act 2006 no Income Statement is presented by the Company.

New accounting standards and amendments affecting the Group

Several new standards and amendments are applicable for the first time in 2015. However, they do not impact the annual consolidated financial statements of the Group.

Standards and amendments to standards that have been issued but are not effective for 2015 and have not been early adopted are:

· Amendments to IAS 27: Equity Method in Separate Financial Statements - effective date 1 January 2016

· Amendments to IAS 1: Disclosure Initiative - effective 1 January 2016

· IFRS 9 Financial Instruments* - effective date 1 January 2018

· IFRS 15 Revenue from Contracts with Customers* - effective date 1 January 2018

· Annual Improvements to IFRSs - 2012 to 2014 cycle* - effective date 1 January 2016

· Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture* - effective date 1 January 2016

· IAS 27 (amendment) Separate Financial Statements: Equity method in separate financial statements* - effective date 1 January 2016

· Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation* - effective date 1 January 2016

· Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations* - effective date 1 January 2016

· IFRS 16 Leases - effective 1 January 2019

· Amendment to IAS 7: Disclosure Initiative* - effective 1 January 2017

· Amendment to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses* - effective 1 January 2017

*Not yet adopted for use in the European Union.

The above standards and amendments will be adopted in accordance with their effective dates and have not been adopted in these financial statements.

For standards with a future effective date, the Directors are in the process of assessing the likely impact and look to finalisation of the standards before formalising their view.

Basis of consolidation

The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings in which John Menzies plc has a controlling interest, using accounts drawn up to 31 December except where entities have non-coterminous year ends. In such cases, the information is based on the accounting period of these entities and is adjusted for material changes up to 31 December. Accordingly, the information consolidated is deemed to cover the same period for all entities throughout the Group.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has all of the following: power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting, or similar, rights of an investee, it considers all relevant facts and circumstances in assessing whether it has power over an investee, including: the contractual arrangement(s) with the other vote holder(s) of the investee, rights arising from other contractual arrangements, and the Group's voting rights and potential voting rights.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group obtains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interest having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in the Income Statement. Any investment retained is recognised at fair value.

Joint ventures and associates

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

The Group's investments in its associates and joint ventures are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment individually.

The Income Statement reflects the Group's share of the results of operations of the associate or joint venture. Any change in other comprehensive income of those investees is presented as part of the Group's other comprehensive income. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the Statement of Changes in Equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

The aggregate of the Group's share of profit or loss of an associate and a joint venture is shown on the face of the Income Statement outside operating profit and represents profit or loss after tax and non-controlling interests of the associate or joint venture.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss within the share of profit of an associate and a joint venture in the Income Statement.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in the Income Statement.

Menzies Bobba Ground Handling Services Private Ltd is 51% owned, Menzies Aviation Bobba (Bangalore) Private Ltd and Hyderabad Menzies Air Cargo Private Ltd are 49% owned and Menzies Macau Airport Services Ltd is 29% owned. They are treated as joint ventures in the Group accounts because the parties to each of the ventures work together with equal powers to control the entities. Each venturer in the respective entity retains the power of veto, and overall key strategic, operational and financial decisions require the unanimous consent of all parties.

The financial statements of each associate or joint venture are prepared for the same reporting period as the Group. The Indian joint ventures have a statutory year end of 31 March. Worldwide Magazine Distribution Ltd has a statutory year end of 30 April. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

Revenue

In the Distribution business, revenue is recognised on the despatched value of goods sold, excluding value-added tax. Product is sold to retailers on a sale or return basis. Revenue for goods supplied with a right of return is stated net of the value of any returns.

In the Aviation business, cargo handling and forwarding revenue is recognised at the point of departure for exports and at the point that the goods are ready for despatch for imports. Other ramp, passenger and aviation related services income is recognised at the time the service is provided in accordance with the terms of the relevant contract. Revenue excludes value-added and sales taxes and charges collected on behalf of customers.

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 or the remaining lease term if shorter

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 Income Statement in the period in which they arise and are recognised separately. The costs of past service benefit enhancements, settlements and curtailments are also recognised in the period in which they arise. The difference between actual and expected returns on assets during the year, including changes in actuarial assumptions, is 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.

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 temporary differences between the carrying amount of an asset or liability in the Balance Sheet and its tax base. Deferred tax arising from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, is not recognised. Deferred tax liabilities represent tax payable in future periods in respect of taxable temporary differences. Deferred tax assets represent tax recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits.

Deferred tax is determined using the tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date and are expected to apply when the deferred tax asset is realised or the deferred tax liability is settled. Deferred tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can 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 Statement of Comprehensive Income respectively.

Intangible assets

Goodwill

Business combinations since 1 January 2010 have been and continue to be accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed and included in exceptional items.

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 at least annually by assessing the recoverable amount of each Cash-Generating Unit to which the goodwill relates. When the recoverable amount of the Cash-Generating Unit is less than the carrying amount, an impairment loss is recognised. 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 is determined by discounting the expected future cash flows to be generated from that asset at the relevant risk-adjusted weighted average cost of capital for the Group. This amount is included in intangible assets as contracts. Separate values are not attributed to internally-generated customer relationships.

Contract amortisation is business-stream dependent. In the Distribution business, capitalised publisher contracts are not amortised due to the very long-term nature of the business. These contracts are tested annually for impairment using similar criteria to the goodwill test. In the Aviation business and core non-publisher contracts in the Distribution business, contracts are amortised on a straight-line basis over ten years as this period is the minimum time-frame management considers when assessing businesses for acquisition. Certain other contracts are amortised over the remaining life of the contract.

Computer software

Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly attributable to the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. These direct costs include the costs of software development employees. Computer software assets are amortised over their estimated useful 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 at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is recorded in the Balance Sheet as a finance lease obligation. The lease payments are apportioned between finance charges to 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 the applicable lease periods.

Trade receivables

If there is objective evidence that the Group will not be able to collect all of the amounts due under the original terms of an invoice, a provision on the respective trade receivable is recognised. In such an instance the carrying value of the receivable is reduced with the amount of the loss recognised in the 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 as derivatives to hedge the risk arising from the retranslation of foreign currency denominated items.

The Group has derivatives that are designated as hedges of overseas net investments in foreign entities (net investment hedges) and derivatives that are designated as hedges of the exchange risk arising from the retranslation of highly probable forecast revenue denominated in non-local currency of some of its overseas operations (cash flow hedges).

Derivative contracts entered into by the Group are expected to continue to be highly effective until they expire. The effectiveness of these contracts is monitored during the year. As a result, all derivatives have been recorded 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 are recorded in equity and are only recycled to the Income Statement on disposal of the overseas net investment.

Changes in the fair value of the effective portion of cash flow hedges are recorded in equity until such time as the forecast transaction occurs, at which time they are recycled to the Income Statement. If the occurrence of the transaction results in a non-financial asset or liability, then amounts recycled from equity are included in the cost of the non-financial asset or liability. If the forecast transaction remains probable but ceases to be highly probable then, from that point, changes in fair value are recorded in the Income Statement within finance costs. Similarly, if the forecast transaction ceases to be probable then the entire fair value recorded in equity and future changes in fair value are posted to the Income Statement within finance costs.

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and 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 own shares the consideration paid, including any directly attributable incremental costs, is deducted from the equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of.

Share-based payments

Equity-settled share-based payments are measured at fair value at the date of grant and recognised as an expense over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest unless the options do not vest as a result of a failure to satisfy market conditions. Fair value is measured by use of a relevant pricing model.

Estimates and judgements

The preparation of the consolidated accounts requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These estimates will, by definition, seldom equal the related actual results particularly given changes in economic conditions and the level 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.

Joint ventures and associates

Judgement is required to determine when the Group has joint control over an arrangement, which requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent. The Group has determined that the relevant activities for its joint arrangements are those relating to the operating and capital decisions of the arrangement, including the approval of the annual capital and operating expenditure budgets for the joint arrangement, as required by the joint venture agreements applicable to the entity's joint arrangements.

Intangible assets

On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired, provided they meet the criteria to be recognised. The fair values of these intangible assets are dependent on estimates of attributable future revenues, margins and cash flows, as well as appropriate discount rates. In addition, the allocation of useful lives to acquired intangible assets requires the application of judgement based on available information and management expectations at the time of recognition. See Note 9 for further details.

Impairment

Impairment testing is carried out on any assets that show indications of impairment and annually on goodwill and intangibles that are not subject to amortisation. This testing involves exercising management judgement about future cash flows and other events which are by their nature uncertain. See Note 9 for further details.

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 obligation. See Note 3 for further details.

Income taxes

The Group is subject to income tax in numerous jurisdictions and significant judgement is required in determining the provision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises provisions for tax based on estimates of the taxes that are likely to become due. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made. See Note 6 for further details.

The Group has in place a limited number of intragroup finance arrangements that are subject to enquiry by the relevant tax authority. The Group does not recognise potential benefits from such arrangements to its effective tax rate until the agreement of the relevant tax authority is considered reasonably certain and therefore an appropriate provision is held until that point.

Provisions

The Group exercises judgement in determining whether provisions are required in relation to onerous property leases. Judgement is necessary in assessing the likelihood of whether or not an alternative use can be found for these properties or a suitable tenant can be found in order to cover the cost of the lease. This likelihood will vary depending on the size, location and type of property.

Revenue recognition

Judgement must be exercised to ensure that revenue is recognised in accordance with contractual terms, including in relation to the level of expected returns.

Exceptional items

Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the Income Statement to enable a full understanding of the Group's financial performance. These exclude certain elements of intangible asset impairment and amortisation, which are also presented separately in the Income Statement.

Transactions which may give rise to exceptional items include restructuring of business activities (in terms of rationalisation costs and onerous lease provisions), gains or losses on the disposal of businesses and acquisition transaction and other related costs including changes in deferred consideration.

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. See Note 12 for further details.

Definitions and 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:

Turnover includes revenue from subsidiaries and the Group's share of revenue from joint ventures and associates.

Underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, 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.

Underlying profit before taxation is defined as underlying operating profit less net finance charges.

Underlying earnings per share is profit after taxation and non-controlling interest, but before intangible amortisation and impairment and exceptional items, divided by the weighted average number of ordinary shares in issue.

Free cash flow is defined as the cash generated after net capital expenditure, interest and taxation, before special pension contributions, acquisitions, disposals, cash raised, ordinary dividends and net spend on shares.

Debt to EBITDA ratio is net debt excluding financial derivatives and preference shares plus contractual deferred consideration divided by EBITDA being the 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 the net finance income or charge related to pensions.

2. SEGMENT INFORMATION

For management purposes the Group is organised into two operating divisions: Distribution and Aviation. The two divisions are organised and managed separately based upon their key markets. The Distribution segment provides newspaper and magazine distribution services along with marketing and logistics services across the UK and Ireland. The Aviation segment provides cargo and passenger ground handling services across the world.

The information presented to the Board for the purpose of resource allocation and assessment of segment performance is focused on the performance of each division as a whole but also contains performance information on a number of operating segments within the Aviation division. The Board assesses the performance of the operating segments based on a measure of adjusted segment result before exceptional items and intangibles amortisation. Net finance income and expenditure is not allocated to segments as this activity is managed by the central treasury function.

Segment information is presented in respect of the Group's reportable segments together with additional geographic and Balance Sheet information. Transfer prices between segments are set on an arm's-length basis.

Business segment information

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

* Pre-exceptional operating profit/(loss) is defined as operating profit/(loss) excluding intangible amortisation as shown in Note 4 and exceptional items but including the pre-tax share of results from joint ventures and associates.

Unallocated assets comprise deferred tax assets, cash and cash equivalents. Unallocated liabilities comprise retirement benefit obligation, borrowings, current income tax liabilities and deferred tax liabilities.

3. PENSION SCHEMES

The principal Group-funded defined benefit scheme in the UK is the Menzies Pension Fund (Fund) to which employees contribute. The charge to the Income Statement is assessed in accordance with independent actuarial advice from Hymans Robertson LLP (the Actuary) using the projected unit method. Certain Group subsidiaries participate in a number of pension schemes, which are of a defined contribution nature and some of which operate overseas. The Income Statement charge for defined contribution schemes represents the contributions payable.

The pension charge to operating profit in the Income Statement is:

Fund financial assumptions and information

The Actuary undertook a valuation of the Fund as at 31 December 2015 (2014: 31 December 2014) under IAS 19. In deriving the results the Actuary used the projected unit method and the following financial assumptions: