MNZS.L Regulatory News (MNZS)

10 March 2015

John Menzies plc

Final Results for the year ended 31 December 2014

Financial Summary

Overview

· Group underlying operating profit down 9% in constant currency - in line with revised expectations

o Distribution continues to be resilient and highly cash generative

o Aviation turnover growth of 9% at constant currency - profitability held back by start-up costs, operational and integration issues

· Strong financial position

o Operating cash flow of £74.0m

o Net debt of £110.9m

· Strategic refresh

o Distribution reshape in 2014 with clear business streams

o Review of Aviation business

§ Highlights attractive market growth dynamics

§ Confirms strong positioning

§ New approach focused on five strategic priorities, with a renewed emphasis on operational excellence

· Dividend rebased to enable investment in growth opportunities

Jeremy Stafford, Chief Executive of John Menzies plc said:

"It has been a mixed year for the Group. Distribution has been resilient and we are pleased with the performance. Top line growth in Aviation has been strong, however earnings have been impacted by increased start-up costs and previously announced operational difficulties at London Heathrow. Although these issues are now largely resolved, this will impact the first half of 2015.

"After the challenges of 2014, our focus for 2015 will be on operational excellence and targeted growth. Our strategic refresh that we announced in November is now complete. While we continue to work on our detailed implementation plans, we now have a clear direction for the Group.

"As we move into 2015, we have excellent prospects in growing markets. There is much to do as we prepare for the next phase of the Group's development, and we do so with confidence."

For further information:

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 distinct B2B sectors where success depends on providing an efficient, high quality, time-critical service to their customers and partners. The company was established in 1833 and its head office is in Edinburgh, Scotland. Today the company is an international business with operations worldwide.

2. Menzies Aviation is a leading global provider of passenger, ramp and cargo services. The Menzies Aviation business is highly successful, operating at 149 airports in 31 countries, with annual revenue in excess of £700m and supported by a team of over 20,000 highly-trained people. Menzies Aviation serves over 500 customers, handling over 1 million flights and 1.5 million tonnes of cargo per annum. Customers include easyJet, Cathay Pacific, British Airways, Alaska Airlines, Lufthansa, Thai Airways and many others. Best in class safety and security is the division's #1 priority each day, every day.

3. Menzies Distribution is a leading provider of added-value distribution and marketing services to the newspaper and magazine supply chain in the UK and Ireland. The division handles around 5 million newspapers and 2 million magazines (covering some 3,000 magazine titles) each day, with deliveries to around 25,000 customers. The division employs 3,600 people at 36 sites throughout the UK and Ireland and is a strongly cash generative business, with around 45% of the newspaper and magazine wholesale distribution market in the UK. It has a track record of investment in innovation and customer service delivery.

4. Further information on John Menzies plc can be found at: www.johnmenziesplc.com, www.menziesaviation.comand www.menziesdistribution.com

Group Performance Overview

2014 has proved to be a mixed year. The Group's turnover was £1,999.9m (2013: £2,000.3m) up 3% on a constant currency basis. Underlying profit before tax fell to £44.6m (2013: £53.1m) largely as a result of the decline in profitability in the Aviation division and the adverse impact of currency of £3.5m. The decline in underlying profit before tax and an increased effective global tax rate had a consequential impact on our underlying earnings per share which decreased to 49.2p (2013: 65.6p). Profit before tax was £25.7m (2013: £42.1m).

Menzies Distribution

Our Distribution business delivered a robust result in 2014 and exceeded our expectations. Newsprint and magazine declines were offset by a number of positive actions maintaining 2013 profit levels into 2014 at £24.0m (2013: £24.3m). The result was boosted by slightly better than expected sales volume in the core category areas, a strong performance by Orbital Marketing Services and ancillary sales related to the FIFA World Cup. Cost saving initiatives again delivered as we innovated and continued to rationalise our branch network. This programme drove a further £3.4m of cost savings in the year.

Overall sales of newspapers and magazines were down 3% on an absolute and like for like basis. During the year newspaper sales benefited from a number of cover price increases in H1. Newspaper sales value on a like for like basis was down 1% with magazines down 6%.

We are part way though our UK distribution network rationalisation programme in order to best serve our customers and match capacity to declining volume. During 2014 we reduced our main hubs from 10 to 8 and created a magazine super-hub in Maidstone. The programme will continue into 2015 addressing further planned initiatives.

The Orbital Marketing Services business acquired in late November 2012 outperformed and we expect to pay a contractual earn out during 2015. The travel brochure distribution business is largely integrated into the core distribution network and the e-fulfilment business has grown with new contracts signed in the charity and cosmetics sectors.

Our retail consultancy business, FORE, had a strong year landing a significant contract to place newspaper product into over 500 Aldi stores. This contract provided FORE with the category management business while also adding newspaper volume to the core business through the delivery of product in our territories.

Menzies Aviation

Turnover in the Aviation division grew 2%, 9% in constant currency, reflecting the ongoing strong market growth dynamics that persist. We continued to grow our footprint during the year demonstrating our ability to win new contracts, particularly by operating ground handling hubs for airlines. Important large ground handling contract wins have been secured with key clients as a new wave of outsourcing gathers momentum particularly in the US. Cargo handling again performed strongly following increased tonnage through existing locations and new contract wins in Australia and Canada.

Ground handling turns were up 15% in the year reflecting the prior year acquisitions in Australia and Colombia together with the new hub operations. Cargo handling tonnes were up 10% following growth from existing customers in Continental Europe, contract wins in Australia and new operations at four locations across Canada.

Start-up costs to support new contracts were expensed and were £1.9m higher than the prior year. At constant currency underlying operating profit was £33.7m (2013: £37.8m) reflecting both the investment in our new contract wins and the impact of the operational challenges. The division's strict working capital management has been a highlight driving good cash flows in the year.

Unprecedented operational challenges were experienced in the year as we communicated to shareholders in our November trading update. At London Heathrow increased costs were incurred to protect service levels during disruption while the airport closed a terminal and carriers were relocated. The change of terminal caused an amount of contract churn and margin erosion, coupled with a new market entrant and very competitive contract negotiations. Operational matters are now largely resolved and new contracts have been secured with American Airlines and Royal Jordanian Airlines. During 2015 we will re-organise our management focus by terminal, driving density and synergies where possible and re-structuring accordingly.

During the year, significant opportunities emerged within the North American ground handling market. The renegotiation of terms with regional flying partners and within labour contracts following Chapter 11 restructuring, and the subsequent consolidation of US domestic airlines, increased the pace and scale of outsourcing. Significant contract gains were made during the year, including regional hub operations for Delta Air Lines in Detroit and United Airlines in Denver. We also strengthened our footprint with low cost carriers winning a contract to handle WestJet Airlines at one of their main bases in Toronto, Canada. These three contracts alone add some 200,000 turns per annum and Denver is now our largest ground handling operation by aircraft turns.

Since the year end we have secured a seven year contract with Norwegian Airshuttle to operate their hub operation in Oslo together with important bases in Gothenburg and Copenhagen. Norwegian Airshuttle is one of Europe's leading low cost airlines and this significant win deepens our existing relationship.

Tempering the contract gains were a number of losses including SA Express, our anchor customer in South Africa, British Airways who transferred flights from London Heathrow Terminal 1 to their in-house operation at Terminal 5, and contracts lost in Colombia reflecting the difficult integration of the prior year acquisition.

Overall, we were net winners of 60 contracts that will contribute an additional £76m of revenue per annum. Contract renewals included some 122 contracts securing £164m of revenue primarily on three year terms. In particular, we were pleased to renew our existing contract with easyJet at London Gatwick for five years where we will handle some 60 base aircraft and 59,000 turns per annum at their main base.

Looking ahead we see excellent growth opportunities for aviation services, particularly in North America where the outsourcing trend by traditional airlines is gaining real traction. We continue to seek to expand but will do so in a logical and structured manner, playing to our strengths and adding more products to our offering where the local market has capacity.

Financial Overview

Finance Costs

The net finance charge in the year was £7.4m (2013: £8.2m). The reduction largely reflected the impact of lower interest rates on the Group's defined benefit pension scheme liabilities.

Exceptional and Other Items

Planned costs of the Distribution network rationalisation were £3.7m. Following the acquisition of Orbital Marketing Services in 2012, we are pleased that performance was ahead of our expectations and as a result £2.3m of additional deferred consideration becomes payable in the first half of 2015. In Colombia, we have lost a number of contracts and these are unlikely to be replaced in the foreseeable future and as a result intangible assets have been impaired by a net £3.2m. Non-recurring items total £9.2m in the year. After exceptional costs and other items profit before tax was £25.7m (2013: £42.1m).

Taxation and Earnings per Share

As a multinational business we are liable to taxation in multiple jurisdictions around the world. The Group's tax charge for the year was £11.7m (2013: £11.7m). Tax paid totalled £8.2m (2013: £10.1m). As previously announced the underlying tax rate was 32% (2013: 25%) reflecting the rising proportion of profits in higher tax rate jurisdictions.

The decline in underlying profit before tax and an increased effective global tax rate had a consequential impact on our underlying earnings per share which decreased to 49.2p (2013: 65.6p).

Defined Benefit Pension Scheme

As at 31 December 2014, the scheme showed a deficit of £59.0m (2013: £45.8m) an increase of £13.2m, largely reflecting a reduction in the discount rate applied to the scheme liabilities, partly offset by increased returns on assets and ongoing increased employer contributions. The Trustee's next fund actuarial valuation is due at 31 March 2015. As part of this process the Trustee and the Company will agree a long-term funding strategy.

Cash Flow and Investment

During the year ended 31 December 2014, despite reduced earnings the Group delivered increased operating cash flow of £74.0m (2013: £68.3m). The main focus has been to reduce working capital against a backdrop of increasing revenue. After capital expenditure to support our contract wins, free cash flow was £30.0m (2013: £32.6m). Investment in capital expenditure and acquired businesses totalled £33.3m (2013: £33.5m) and included £8.1m investment for the hub wins in North America.

Treasury

The Group continues to be on a strong financial footing. We have a robust Balance Sheet built from strong operating cash flows across the divisions and our total debt to EBITDA ratio of 1.96 times at 31 December 2014 is well within our covenant level of 3.0 times. Our interest cover is 10.5 times.

At 31 December 2014, the Group's net debt was £110.9m (2013: £103.5m) which was comfortably below the available committed lending facilities of £240.2m. £55.0m of facilities are due for renewal in January 2016 and their refinance will take place during the second half of 2015; the balance is not due for renewal before 2017.

The majority of the Aviation division's stations are 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 through the use of 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 affect the Group's reported results, which in 2014 was £3.5m adverse (2013: £0.7m). The impact was particularly as a result of Sterling strengthening against the Australian dollar, South African rand, Czech koruna, Indian rupee, US dollar and the euro.

Strategic Refresh

As announced at our trading update in November, the Board asked management to refresh the strategic focus of the Group and this is now complete. Whilst we continue to work on our plans, we now have a clear direction for the Group. We will focus on growing the Group but will do so with greater discipline and precision.

In the Distribution market, we have defined five core business streams in which we will operate and are now focused on identifying areas where we can broaden our offering, and become a participant in the growing e-commerce logistics market. Our work continues in this area, and we will provide a fuller update at the time of our Interim Results in August 2015.

Within the Aviation sector, we will focus on five key priorities: deepening our relationships with key customers; winning ground handling contracts at crucial hub and base airports, already an area of strength for our business; growing complementary revenues, such as those from de-icing and lounge services, which complement our established businesses; re-focusing geographical investments to channel our investment into only the most promising markets; and expanding our presence in those emerging markets which are projected to hold a greater share of air traffic in the future. Looking at each of these in turn:

Deepening key customer relationships

The division's key customers fall into three main groupings. Firstly, Low Cost Carriers (LCCs) and regional airlines, where we are growing market share, and Menzies Aviation is the world's leading LCC ground handler. We achieve this position through our dedicated focus on service while adding value to our customers. Secondly, the traditional carriers where we are partnering with these customers to optimise global service levels while achieving cost synergies for our customers. Thirdly, many Asian and Middle Eastern carriers are fast growing and we are working with them to help roll out their services.

Pursue regional hubs and bases

Having experienced significant growth in the outsourcing of LCC bases over the last 10 years, management believes that the next phase of growth in ground handling outsourcing will involve the network carriers and their regional operations, led by North American-based carriers. We have seen this happening already with our contract wins with Delta Air Lines in Detroit and United Airlines in Denver. The Detroit contract, for example, is first generation outsourcing and is a key regional jet hub that feeds Delta's mainline operations. Importantly, there was minimal capital investment required as we are using airline-owned equipment.

The North American network carriers typically self-handle over three million turns annually, with approximately one million of these at regional hubs. This provides a significant opportunity for growth in outsourcing at regional hubs and Menzies is well placed, through its Simplicity USA brand, to take advantage of the growth in this segment.

Our growth is not limited to North America. We won the contract for Norwegian Airshuttle at its international hub at Gardermoen Airport in Oslo. In Latin America, we have for several years provided ground handling services to VivaAerobus, a significant LCC in the region. Their main base is in Monterrey and comprises 33,000 turns per annum. This relationship has subsequently been extended to over 20 airports in Mexico.

Accelerate complementary services offering

The division's historic approach to cross-selling complementary services has been opportunistic and therefore our coverage is thinly spread across our markets. We believe that there are significant opportunities to deepen our offering in this area, including serviced lounges, de-icing and aircraft cleaning. The rationale for our airline customers is that it enables them to contract with fewer suppliers, thereby growing our relationships with them while strengthening retention. These activities are typically higher margin for us and we will appraise and target existing airports and markets in the initial phase.

Re-focus geographical investment

Our investment programme will focus on where we see the most significant opportunities for the division in the medium term. The acceleration of outsourcing in established markets such as North America provides us with excellent hub and base opportunities.

Expand in emerging markets

There are three main areas of focus in emerging markets. Eastern Europe is an exciting market with growing passenger numbers. The Middle East is an important area of focus with strong base airlines continuing to grow their footprint. South East Asia is a sizeable opportunity for growth with a large number of hub and base opportunities. All of these regions are being continually assessed to ensure that we pursue the right opportunities, at the right price, in the right markets.

To support all of these initiatives we will evolve our business tools and systems while continuing to invest in our people. We have a robust Balance Sheet to build from and we have today announced a re-basing of our dividend to contribute to our investment in growth.

Our future success will depend on maximising the use of our resources, ensuring that we generate the greatest possible value from our people and infrastructure, and uniting as a Group to drive us towards our goals.

Dividend

The Board has considered very carefully the decision to rebase the dividend. There are a number of factors that have come together to lead to this decision.

In addition to our 2014 trading performance we have increased demands on our cash going forward including the final payment of £10.5m for the Orbital acquisition. In addition in the Aviation division we are seeing considerable global opportunity, in particular with the potential in the USA, for both organic and acquisitive investment into the business.

While at the same time as maintaining flexibility, we want to continue to operate with a conservative balance sheet, which is important to our customers, the Company and our shareholders.

Accordingly, the Board has recommended a final dividend of 8.1p per share which is payable on 3 July 2015 to all shareholders on the register at 29 May 2015. The total (paid and proposed) dividend for the year is 16.2p per ordinary share.

Outlook

Both operating divisions are delivering to plan. Due to the contract churn and operational issues in 2014 the 2015 results will be more than usually weighted to the second half.

As we move into 2015, we have excellent prospects in growing markets. Some foreign exchange volatility persists and the outcome of the Spanish ground handling tenders has been delayed but as we move forward there is much to do as we prepare for the next phase of the Group's development, and we do so with confidence.

GROUP INCOME STATEMENT

for the year ended 31 December 2014 (year ended 31 December 2013)

* 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 2014 (year ended 31 December 2013)

GROUP AND COMPANY BALANCE SHEETS

as at 31 December 2014 (31 December 2013)

The accounts were approved by the Board of Directors on 9 March 2015 and signed on its behalf by:

GROUP AND COMPANY STATEMENT OF CASH FLOWS

for the year ended 31 December 2014 (year ended 31 December 2013)

* 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 2014 were approved and authorised for issue in accordance with a resolution of the Directors on 9 March 2015. 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.

New accounting standards and interpretations affecting the Group

The following accounting standards and interpretations have been adopted in these accounts and have not resulted in any change to prior year results but have resulted in some amended disclosures, that are reflected in these financial statements.

IFRS 10 Consolidated Financial Statements sets forth the requirements for the preparation and presentation of consolidated financial statements and supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. The standard defines a uniformly applicable control concept for all company forms to serve as the basis for determining which companies are to be fully consolidated. Control is only deemed to exist if the Group is exposed, or has rights, to variable returns from its involvement with a company and has the ability to use its power over that company to affect the amount of that company's returns.

IFRS 11 Joint Arrangements prescribes the accounting for joint arrangements and supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Venturers. A joint arrangement is deemed to exist if the Group through a contractual agreement jointly controls activities managed with a third party. Joint control is only deemed to exist if decisions regarding the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified as either joint operations or joint ventures. The Group recognises the share of assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with its rights and obligations. The investment in a joint venture is accounted for using the equity method in accordance with the provisions of the amended IAS 28 Investments in Associates and Joint Ventures. Investments in joint ventures have been accounted for under the equity method in previous years. Following reassessment, Menzies Macau Airport Services Ltd has been reclassified from an associate to a joint venture with no impact on the primary statements. The Group only holds a 29% share in Menzies Macau Airport Services Ltd but when the concept of power and ability to influence returns is taken into account the Group is effectively an equal partner and hence this investment represents a joint venture rather than an associate.

IFRS 12 Disclosure of Interests in Other Entities prescribes the information to be disclosed in the notes to the financial statements about interests in subsidiaries, associates, joint arrangements and structured entities.

The revised IAS 27 Separate Financial Statements now mostly concerns accounting for interests in subsidiaries, associates and joint ventures in separate financial statements under IFRS.

The publication of IFRS 13 Fair Value Measurement in May 2011 was revised in May 2013. The recoverable amount of a cash-generating unit now only has to be disclosed for periods in which an impairment loss has been recognised or reversed. Additional disclosures are required when an impairment loss is recognised and the recoverable amount is based on fair value less costs of disposal.

Standards and interpretations that have also been adopted in these accounts and have not had a material impact on the Group's accounts in the period of initial application

- IAS 32 Financial Instruments: Presentation on offsetting financial assets and financial liabilities

- IAS 19 - Defined benefit plans - employee contributions

- Annual Improvements to IFRSs - 2010 to 2012 cycle

- Annual Improvements to IFRSs - 2011 to 2013 cycle

- IAS 36 (amendment) Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets

- IAS 39 (amendment) Financial Instruments: Novation of Derivatives and Continuation of Hedge Accounting

- IFRIC 21 Levies

- Improvements to IFRSs (issued May 2012)

Standards and amendments to standards that have been issued but are not effective for 2014 and have not been early adopted

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

- IFRS 15 Revenue from Contracts with Customers* - effective date 1 January 2017

- Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities, Applying the Consolidation Exception* - effective date 1 January 2016

- Amendment to IAS 1 Cash Flow Statements: Disclosure Initiative* - effective date 1 January 2016

- 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

*Not yet adopted for use in the European Union.

The above standards and interpretations 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.

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

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 in the subsidiaries 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 both 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. When 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

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 and amortised over the estimated useful life on a straight-line basis. 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 for 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.

Computer software

Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly attributable with 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 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 and cross-currency swaps 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 re-assessing 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.

Use of 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.

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.

Total debt to EBITDA ratio is net debt plus guarantees and excluding financial derivatives and preference shares 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 across the UK and Ireland along with marketing services. 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 driven 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(c) 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 (the Fund), to which employees contribute to. 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:

Financial assumptions

The Actuary undertook a valuation of the Fund as at 31 December 2014 (31 December 2013) under IAS 19. In deriving the results the Actuary used the projected unit method and the following financial assumptions: