John Menzies plc
Annual Report 2006
the time critical
logistics company
John Menzies plc
the time critical
logistics company
John Menzies plc is a time critical logistics company
with two operating divisions, Menzies Aviation and
Menzies Distribution.
Menzies Aviation is rapidly expanding in terms of
revenue, contract wins and geographical spread.
Operating in growing markets, it is a top five
player in the global independent ground and cargo
handling sector with over 100 stations worldwide.
Menzies Distribution is a strongly cash generative
business with around 30% of the newspaper and
magazine wholesale distribution market in the UK,
and has a record of investment in innovation and
customer service delivery.
Both divisions operate in distinct B2B sectors where
success depends on providing an efficient, high
quality, time critical service to their customers and
partners.
CAUTIONARY STATEMENT:
This Annual Report contains information which readers might consider
to be forward looking statements relating to or in respect of the financial
condition, results, operations and businesses of John Menzies plc. Any such
statements involve risk and uncertainty because they relate to future events
and circumstances. There are many factors that could cause actual results
or developments to differ materially from those expressed or implied by any
such forward looking statements. Nothing in this Annual Report should be
construed as a profit forecast.
Contents
Our Business Divisions
Statements
Chairman’s Statement
Financial Highlights
Chief Executive’s Review
Business Review
Group Performance
Financial KPIs
Menzies Aviation
Menzies Distribution
Group Financial Review
Group Business Risks
Group Trading Outlook
Governance
Corporate Social Responsibility
Board of Directors
Executive Committee
Corporate Governance
Report on Directors’ Remuneration
Directors’ Report
Independent Auditors’ Report
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2
3
4
6
7
8
12
16
19
20
21
28
29
30
35
41
44
Financial Statements
Group Income Statement
46
Statement of Recognised Income and Expense 46
47
Group and Company Balance Sheets
48
Group and Company Cash Flow Statements
49
Notes to the Accounts
78
UK GAAP to IFRS Reconciliations
83
Five Year Summary
Shareholder Information
General Information
Annual General Meeting Explanatory Notes
Notice of Annual General Meeting
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Our Business Divisions
Menzies Aviation
Menzies Distribution
Menzies Aviation is a focused provider
of ground handling (passenger and
ramp) and cargo handling services.
The division has over 12,000 employees
worldwide, and operates at 108 airports
in 23 countries, serving more than
500 aviation customers.
Menzies Distribution is a leading
provider of added value distribution
and marketing services to the UK’s
newspaper and magazine supply chain.
The division has 4,000 employees at
22 hub and 17 spoke branches located
throughout the UK.
We provide the following services to airlines
Our services include:
and airport authorities:
Passenger
Management of passenger lounges, ticketing,
check-in and baggage services.
Ramp
Load control, passenger and baggage transfer
and ramp handling services; aircraft towing
and pushback; cabin cleaning and water
services; de-icing and other ancillary services.
Cargo
Our service provision includes ramp transfer,
load management, import and export
handling, warehousing, trucking and other
track and trace services. Our AMI business
provides airfreight and courier wholesaling
services and forwarder handling.
Newspaper and Magazine Distribution
We handle 4.8 million newspapers
(6.4 million on Sundays) and 2.6 million
magazines (covering 3,000 titles) every day.
Deliveries are made in the early hours of
the morning 364 days a year to more than
23,000 retail customers from Inverness to
the Isle of Wight.
Marketing Services
Services to multiple and independent retailers
include space and range planning, racking
and displays, and sales promotion, category
management and sales-based replenishment.
Services to publishers include helping to
launch new titles, ongoing sales promotion
and development, and bespoke services such
as data services and returns processing.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Chairman’s Statement
“ John Menzies is a strong, profitable company, and both
its divisions are leaders within their respective markets.
Menzies Aviation has excellent growth potential and
Menzies Distribution remains highly cash generative.”
WILLIAM THOMSON, CHAIRMAN
Results
2006 has been a year of contrast for the Group.
Menzies Aviation delivered another year of record growth,
delivering a third consecutive year of 25% or more growth
in profits. This market leading performance is a credit to
the excellent team we have at Aviation. The division is on a
strong growth curve and I look forward to further substantial
progress through organic and acquisitive expansion.
Menzies Distribution has experienced tough trading conditions
which impacted on profitability. This division however remains
a strong cash generative business, and management actions
in repositioning and adapting to a rapidly changing market
continue.
At Group level, underlying profit before taxation decreased
by 9%.
Dividend
To reflect the confidence your Board has in the future
performance of the Group, your Board is recommending
a final dividend of 14.4p per share, making a full year dividend
of 20.5p – an increase of 5%.
Board
Patrick Macdonald is to step down from his role as Chief
Executive with effect from 20 March. Over the last four years
he has transformed and developed the Company to a point
where the new management teams and operating disciplines
which he has put in place are now sufficiently robust to
implement successfully the key strategic goals set by the
Group Board for the divisions. Today’s reorganisation marks
a further logical step in the development of the Company.
I would sincerely like to thank Patrick for his significant
contribution in making the business what it is today. I am
delighted he will remain available to us until the end of April.
I wish him all continued success in the future.
As a result of this change Craig Smyth, Managing Director,
Menzies Aviation, and Ellis Watson, Managing Director,
Menzies Distribution, join the Board. They will continue to
be responsible for running their respective divisions each
with their own Operating Boards. Paul Dollman, Group Finance
Director, assumes responsibility for the Corporate Head Office
and will sit on both Operating Boards. Paul, Craig and Ellis will
all report to me.
As I previewed in my statement last year, Octavia Morley
joined your Board in April and after 11 years’ valuable service,
Michael Walker left your Board in May. An evaluation of the
Board, which was extended to its committees, was carried
out last year and, based on the results of that process, I remain
confident that the composition of the Board is appropriately
balanced and structured to meet the ambitions and challenges
of our business.
Staff
The performance of the Group during the last year reflects
the resilience and strength of our staff. It is their dedication
and commitment that stands this Group apart from its peers,
and I wish to express my gratitude to them.
Pension Fund
I am pleased to report that the Pension Fund was returned to
surplus at the year end. Paul Dollman, Group Finance Director,
who is chairman of the Trustees, will be stepping down from
this role at the end of the month, handing over to Professor
Ian Percy who is independent. This reflects best practice in
Pension Fund governance.
John M. Menzies
We were all greatly saddened when our Life President
and former Chairman died last month. He chaired the
Company for 46 years until 1997 and was a pivotal figure
in transforming the way the Company was run, particularly
the news distribution operations. He provided leadership
and vision, and played an instrumental role in determining
the strategic direction of the Group. He will be sorely missed
by all those who knew and worked for him.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Financial Highlights
Strategy
Looking forward both businesses will continue to focus on
customer service, innovation and tight financial discipline.
They both have clear strategies.
Financial highlights
The key priorities of Menzies Aviation are:
Revenue
Underlying profit before tax*
Free cash flow*
Underlying earnings per share*
Proposed final dividend per share
*Terms are defined on page 6
Revenue and profit analysis
Group Revenue
£1,450.4m
•
•
•
•
•
Organic growth at existing stations, by maintaining
a strong focus on delivering great service at the right
price while keeping costs lean.
Organic growth by opening new stations to achieve
network density in key regional markets.
Acquisitive growth to accelerate our achievement
of network density.
Developing and exploiting cross-sell and key account
opportunities across the network.
Maximising our position in this high-growth sector.
The key priorities of Menzies Distribution are:
•
•
•
•
Accelerating our programme to remodel the cost base
and protect the strong cash generation of the business.
Strengthening our clear No2 market position by working
more closely with our retailer and publisher customers to
benefit the consumer.
Developing innovative new products, services and revenue
streams.
A relentless focus on improving customer service,
productivity and operational excellence.
Prospects
John Menzies is a strong, profitable company, and both
its divisions are leaders within their respective markets.
Menzies Aviation has excellent growth potential and
Menzies Distribution remains highly cash generative.
I am confident that the medium-term outlook for the Group
is positive.
Divisional Operating Profit
WILLIAM THOMSON
CHAIRMAN
19 March 2007
£40.3m
£m
1,450.4
35.8
3.2
46.9p
14.4p
Aviation
£318.4m
22%
Distribution
£1,132.0m
78%
Aviation
£16.6m
41%
Distribution
£23.7m
59%
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Chief Executive’s Review
“ Over the last four years and through a period of significant
market change, John Menzies has become a much more
dynamic and robust business. Each division’s strategy is
clear and their leadership teams are now ready to take full
responsibility for operational delivery.”
PATRICK MACDONALD, CHIEF EXECUTIVE
Overview
During 2006 a strong performance from Menzies Aviation
was insufficient to offset tough market conditions in Menzies
Distribution.
Menzies Aviation delivered strong profit growth for the third
consecutive year, despite experiencing softer markets in cargo
in the second half of the year. This market leading set of results
justifies the Board’s increasing confidence in this business.
We continued to build the business in 2006 through a balanced
mix of organic and acquisitive growth. Across the network we
won a net 28 new contracts. We completed 8 acquisitions in
North America, Europe and Australia. We also announced a very
exciting joint venture which will start operations at two airports
in India in 2008.
Despite taking significant and rapid action to reduce costs,
trading at Menzies Distribution was adversely affected by
changing consumer habits and preferences. We believe these
changes are structural and partly driven by the proliferation
of new digital choices available to consumers. These include
broadband internet, MP3 players, multi-channel TV, electronic
games, etc. We have seen the most impact on monthly magazines
and partworks. We are investing in new technology to raise
productivity, including automated magazine packing and returns
processing systems. We have also strengthened our clear No2
position in the sector with two acquisitions.
Strategy
I am pleased that the table below shows how we have delivered
against our stated objectives for 2006. A further review of each
division and their developments can be found on pages 6 to 20.
delivering against strategy
What we set out to do in 2006:
Our 3-step strategy
Menzies Aviation
Menzies Distribution
1. Get the Basics Right
> Focus on consistency of service delivery
> Maintain strong financial disciplines
> Keep costs lean
> Reposition the business
> Remodel the cost base
2. Build Scaleable
Businesses
> Integrate new businesses
> Standardise and simplify operating
procedures across our network
> Focus on customer service
> Innovate/automate
3. Grow from Strength
> Expand through a mixture of organic
> Grow market share
growth and acquisitions
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
We have been following our three-step strategy for some time:
1 Get the Basics Right; 2 Build Scaleable Businesses; 3 Grow from
Strength.
Menzies Aviation has clearly benefited from this strategy and
is now building confidently from strength as it targets further
acquisitive and organic growth.
Menzies Distribution remains a strong, cash generative business
and is repositioning and adapting to the structural changes in
its market, principally by focusing relentlessly on the cost base.
I am confident they are both well positioned to prosper.
People
Our business relies 365 days a year on our people, who work
through all hours and conditions to deliver a world class service
to our customers. I would like to thank them for their innovation,
integrity and commitment. This is what differentiates us from
our competitors. Without them, we have no business.
To support our dedicated staff, we have developed and rolled
out a new Leadership Training programme across both operating
divisions. The programme has successfully raised leadership
performance levels and has been well received within the
businesses.
The two strong divisional leadership teams are key to the future
success of the Group. Craig Smyth and Ellis Watson are actively
developing their management teams to ensure we continue to
build the businesses and adapt to changing market conditions
– to be leaders rather than followers of market change. In
particular, we have strengthened the management structure
in Menzies Aviation to support the continuing high growth
rates the business anticipates delivering in the future.
Looking ahead
I remain very positive about the growth prospects for
Menzies Aviation as it focuses on growing quality earnings.
We have developed a business model differentiated from
the competition with a series of innovative products we
are uniquely capable of delivering across our network.
In a market that continues to be tough, I am confident that
the measures being implemented to reduce cost and improve
productivity at a much higher rate in Menzies Distribution will
make it leaner and fitter for the future.
We announced, just before the year end, our all-Ireland
joint venture with Eason & Son Limited, conditional on certain
regulatory and other approvals. This exciting venture will put
us in a position to work with publishers and retailers alike to
extend our service offering.
Over the last four years and through a period of significant
market change, John Menzies has become a much more dynamic
and robust business. Menzies Aviation is delivering on its high
growth potential internationally while Menzies Distribution is
repositioning and adapting to a rapidly changing market with
speed and energy. I am proud of the achievements of the strong
teams we have built at both divisions. Each division’s strategy
is clear and their leadership teams are now ready to take full
responsibility for operational delivery.
PATRICK MACDONALD
CHIEF EXECUTIVE
19 March 2007
What we achieved in 2006:
Menzies Aviation
Menzies Distribution
• Continuing strong growth path
> Aircraft turns up 25%
> Cargo tonnes up 41%
• Profit growth split 45% / 55% between organic
and acquisition
> 28 net contract wins
> 8 acquisitions
• Underlying USA business exits 2006 in profit
• Additional infrastructure to support future growth
• Two acquisitions and conditional all-Ireland joint
venture reinforces our No2 position
• Driving the cost base hard:
> Shop floor productivity
– automated returns processing systems
– automated magazine packing systems
– continuous process improvement
> Centralisation of functions
– regional contact centres
– central magazine allocation: i-Mag
– central newspaper allocation: i-News
> Branch network reconfigurations
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Business Review:
Group Performance
“ 2006 was a year of contrast for the Group with
Menzies Aviation showing substantial growth while
Menzies Distribution experienced tough market
conditions. Group profit before taxation was down 3%
and underlying profit before taxation was down 9%.”
PAUL DOLLMAN, GROUP FINANCE DIRECTOR
Group results
£m
Revenue
Profit before taxation
Underlying profit
before taxation1
Free cash flow2
Basic earnings per share
Underlying earnings
per share3
Final proposed dividend
per share
2006
1,450.4
35.6
2005
1,362.1
36.7
35.8
3.2
46.4p
39.4
24.2
48.2p
Growth
6%
(3%)
(9%)
(87%)
(4%)
46.9p
51.9p
(10%)
14.4p
13.7p
5%
1 Underlying profit before taxation is defined as profit before taxation,
goodwill and exceptional items.
2 Free cash flow is defined as the cash generated by the business after capital
investment, interest and taxation, and before special pension contribution,
acquisitions, disposals, ordinary dividend and share issues.
3 Underlying earnings per share is profit after taxation and minority interest
but before goodwill and exceptional items, divided by the weighted average
number of ordinary shares in issue.
4 Underlying operating profit includes the Division’s share of pre tax profit
from joint ventures and associates, and excludes exceptional items and
goodwill.
Performance
2006 was a year of contrast for the Group with
Menzies Aviation showing substantial growth while
Menzies Distribution experienced tough market conditions.
Group profit before taxation was down 3% and underlying
profit before taxation was down 9%.
Menzies Aviation produced a market leading performance
with underlying operating profit4 up 25% to £16.6m, the
third consecutive year of 25% or more growth. During the
year the business achieved excellent organic growth as well
as completing eight acquisitions. We have successfully turned
around our USA core business, which has been loss making
for some years. The Aviation division has a strong proven
management team and a stable business platform. It is
ideally placed to deliver further growth as a major player
in the aviation services market.
Menzies Distribution experienced tough trading conditions
with underlying operating profit4 down 23% to £23.7m,
mainly as a result of a rapidly changing marketplace,
particularly in monthly magazines and partworks. Contract
renewals, which are now substantially complete, resulted in
some margin reduction as expected. The management team
continues to pursue an accelerated productivity and efficiency
programme which is focused on three areas:- shop floor
productivity, centralisation of functions and branch network
reconfiguration.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Cash flow and investment
As expected, as we increased investment in both
divisions, free cash flow was down £21.0m to £3.2m.
In addition, Menzies Aviation invested £27.8m in eight
acquisitions during the year and at Menzies Distribution,
we acquired two independent UK wholesalers for £9.2m.
The Group further strengthened its pension fund
during 2006 with an additional payment of £5.7m
over and above the regular pension payment of £5.4m,
making a total contribution of £11.1m. Overall, the
pension fund ended 2006 with a small IAS19 surplus.
The Group’s net debt at the end of 2006 was £77.0m.
Exceptional items
Profit before tax and basic earnings per share reflect a
number of exceptional items, with a net gain of £3.0m.
The exceptional gains comprise a £5.8m benefit from
a change to the calculation of pension liability accruals
and a £2.5m gain from the sale of an investment in an
independent wholesaler. The exceptional costs comprise
£3.1m of spend relating to the integration of acquisitions
and to rationalisation at Menzies Aviation, and £2.2m
of rationalisation costs at Menzies Distribution.
Financial KPIs
Financial key performance indicators
Revenue – £m
1132.8
1260.3
1330.6
1362.1
1450.4
1,600
1,400
1,200
1,000
800
600
400
200
2002
2003
2004
2005
2006
Underlying PBT – £m
39.4
33.6
35.8
25.9
20.7
45
40
35
30
25
20
15
10
5
2002
2003
2004
2005
2006
Free cash flow – £m
30
25
20
15
10
5
26.3
23.6
20.7
6.0
2002
2003
2004
2005
2006
3.2
Underlying EPS – pence
51.9
46.9
44.0
32.9
24.8
60
50
40
30
20
10
2002
2003
2004
2005
2006
Full year dividend per share – pence
18.1
18.1
18.5
19.5
20.5
25
20
15
10
5
2002
2003
2004
2005
2006
Note: all terms are defined on page 6.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Business Review:
Menzies Aviation
“ Menzies Aviation produced a market
leading performance with underlying
operating profit up 25% to £16.6m,
the third consecutive year of 25%
or more growth.”
CRAIG SMyTH, MANAGING DIRECTOR
MENzIES AVIATION
£m
Revenue
Underlying operating profit5
2006
318.4
16.6
2005
268.6
13.3
Growth
19%
25%
Performance in 2006
Menzies Aviation had another excellent year. Growth in
revenue and underlying operating profit has been driven by
a combination of contract wins, with net gains of 28 contracts,
geographic expansion, particularly in Spain, and acquisitions.
We are developing an increasingly robust business model and
have a network of over 100 stations across 23 countries.
In ground handling, like for like6 flight turnarounds have grown
by 16% in 2006. Like for like cargo tonnes were down 2% as we
experienced weaker volumes particularly in the second half of
5 Underlying operating profit includes the Division’s share of pre tax
profit from joint ventures and associates, and excludes exceptional
items and goodwill.
6 Like for like excludes stations opened or closed during 2006.
Case Study: Operational excellence
One of the challenges resulting from the rapid growth of Menzies Aviation has been to quickly integrate new businesses
into the network while maintaining service consistency. The COMPLETE programme is designed to meet that challenge
by establishing a framework of business principles and performance metrics in order to drive operational excellence and
standardise business processes and working practices. As the business continues to develop COMPLETE will help ensure
that customers receive the same standards of service delivery wherever we operate.
One of our customers is a major European airline for which we provide a mix of ground and cargo handling services
at 10 locations in Western Europe, North America and Africa . They had this to say about us:
“ Over the years we have continued to be impressed by Menzies’ commitment
and service levels. Their on-the-ground teams are well trained and they are supported
by good equipment, quality IT and commercially-minded account managers.”
ensuring consistent levels
of service delivery worldwide
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
2006. With the help of our acquisition of Aeroground Inc,
a cargo handler in North America, total cargo tonnes were
up 41%.
We also experienced some foreign exchange pressures during
2006, especially with the weaker US dollar.
In order to ensure a strong infrastructure to support further
expansion, we invested in additional people and systems,
particularly within the central commercial and network
standards functions and at regional management level.
Europe, Middle East and Africa (EMEA)
EMEA continues to be our most profitable region. Further
progress was made with contract wins including easyJet at
Belfast and VLM at London City. At AMI, our wholesale freight
forwarding business, profitability was significantly improved
driven by cost reduction and revenue gains. The UK and
Netherlands cargo businesses remained broadly flat despite
weaker volumes and the loss of Emirates in the UK.
We made three acquisitions:- Malmo Main Air Cargo AB, which
establishes our first presence in Scandinavia; Top Service SRL,
a passenger services provider at Romania’s second airport,
Timisoara; and Express Baggage (Heathrow) Limited, a provider
of luggage repatriation services to major airlines at Heathrow
and five regional locations across the UK. These acquisitions
have been successfully integrated and trading has been in
line with our expectations.
We have expanded geographically, particularly in Spain,
where, in a joint venture with Ferrovial, we have won ground
handling licences at six airports and have secured a number of
important contracts including Ryanair, easyJet and Lufthansa.
Americas
We made significant progress in our underlying USA ground
handling business and it exited 2006 in profit. Our Mexico
business recovered more quickly from the 2005 hurricane than
anticipated. Peru benefited from strong cargo volumes and we
closed our loss making Brazil and Panama businesses during
the year.
1.
64.6mpassengers handled
0.43maircraft turns
2.
3.
1. Belt loaders are used for the safe loading and
unloading of baggage into and out of aircraft holds.
2. Specialist push-back tugs are used to help aircraft
move away from their stands.
3. Check-in staff wearing the Menzies uniform. Many of
our staff wear the uniforms of our airline customers.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Business Review:
Menzies Aviation (continued)
Case Study: Acquisition strategy
Our growth plans for this division include making selective acquisitions. We made
eight last year, four in each of our ground handling and cargo handling operations,
and some of these are shown on the opposite page. All potential acquisitions undergo
strict investment criteria and must fit in with our strategic rationale. These include:
• building regional network density
• delivering synergies
• creating cross selling opportunities
• developing a multi service product offering.
strict investment criteria
and strategic rationale
for all acquisitions
We completed three acquisitions during the year:-
Aeroground Inc, a cargo handler at nine airports across
North America; Catamount Holdings LLC, a Chicago based
cargo handler; and Integrated Airline Services Alliance LLC,
an east coast USA ground handler which specialises in low
cost airlines. Trading has been in line with our expectations
and these businesses are also being successfully integrated
with our existing business.
Asia Pacific
In our underlying business we secured a multi station
contract in Australia with Thai Airways, covering ground
and cargo handling. Hong Kong made strong progress
helped by contract wins.
We made two acquisitions in Australia during 2006:-
Perth Cargo Centre Pty Limited, a cargo handling business;
and Australian Airsupport Pty Limited, a ground handling
business in Brisbane. Together with our existing businesses
in Melbourne and Sydney, we now have operations in each
of the four key Australian gateways.
We secured two exclusive ten year joint venture contracts
for cargo handling at the new Hyderabad and Bangalore
airports which are being built as part of India’s airport
renewal programme. These are scheduled to commence
operations in 2008.
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strict investment criteria
and strategic rationale
for all acquisitions
Statements
Business Review
Governance
Financial Statements
Shareholder Information
1.56mtonnes of cargo handled 108stations worldwide
1. The acquisition of Aeroground Inc which operates from 9 locations
in North America early last year increased the volume of cargo we
handled in this region by over 400,000 tonnes.
2. We extended our geographical footprint to Scandinavia when we
purchased Malmo Main Air Cargo AB in Sweden, which has handled
over 20,000 tonnes since September.
3. The addition of Perth Cargo Centre Pty Ltd to our Australasia network
established our first station on the west coast of Australia and gave
us a presence at all four key gateways in Australia.
2
1
3
Key performance indicators
Menzies Aviation monitors a number of financial and
operational key performance indicators (KPIs) to help
achieve key business objectives.
The main financial KPIs are highlighted on page 7 of this
annual report.
The table below includes operational KPIs which are principally
aimed at monitoring levels of customer service and operational
effectiveness.
KPI
Ground handling
– labour hours per turn
Cargo handling
– labour hours per tonne
Ground handling
– on-time performance (%)
Aircraft damage – category A
incidents7 per 1,000 turns
2006
32.5
2.9
99.3
0.10
2005
37.3
3.2
99.3
0.12
Business objectives
Menzies Aviation has five key priorities:
•
Organic growth at existing stations, by maintaining
a strong focus on delivering great service at the right
price while keeping costs lean.
Organic growth by opening new stations to achieve
network density in key regional markets.
Acquisitive growth to accelerate our achievement
of network density.
Developing and exploiting cross-sell and key account
opportunities across the network.
Maximising our position in this high-growth sector.
•
•
•
•
We will continue to invest in supporting the infrastructure
to underpin growth and ensure delivery of consistent levels
of service.
7 Category A incidents are: (1) any event resulting in damage to an aircraft;
(2) any dangerous occurrence; or (3) any incident involving a serious
environmental hazard that contaminates the surrounding environment.
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Business Review:
Menzies Distribution
£m
Revenue
Underlying operating profit8
2006
1,132.0
23.7
2005
1,093.5
30.7
Growth
4%
(23%)
Performance in 2006
Revenue was up 4% mainly due to acquisitions. Like for like (lfl)
sales9 were down 1% reflecting the tougher sales environment
particularly for monthly magazines and partworks. Lfl magazine
sales fell by 3% while lfl newspaper sales were up 1%.
We are seeing structural changes in the magazine sector.
As broadband penetration increases and on-line content
becomes more sophisticated, consumers are spending more
time on the internet and less time on printed media. We
believe this contributed significantly to a 7% drop in lfl sales
of monthly magazines. Partwork sales, which peaked in 2004,
8 Underlying operating profit includes the Division’s share of pre tax profit
from joint ventures and associates, and excludes exceptional items and
goodwill.
9 Like for like sales exclude acquisitions and new business and have been
measured against the comparative sales of 2005.
“ Menzies Distribution has experienced tough
trading conditions which impacted on
profitability. This division however remains
a strong cash generative business and is
repositioning and adapting to a rapidly
changing market.”
ELLIS WATSON, MANAGING DIRECTOR
MENzIES DISTRIBUTION
Case Study: Investment
The new HS magazine packing technology being installed in a number of our branches is a semi automated,
multi-title horizontal picking line. The software-driven system greatly increases efficiency and accuracy of
planning and picking/packing ensuring on-time and accurate delivery to customers.
In September last year, www.i-Menzies.com was launched allowing our retailer customers to access account
information at their convenience and submit changes to their orders online – providing greater flexibility and
saving customers both time and money. Enhancements are planned to provide still greater functionality.
“ The ease of access along with time and cost saved on telephone calls to my supplying branch
has been the biggest benefit. Added to this, being able to view and print my paperwork and
change orders online has made the service a real asset in managing my business.”
An independent retailer
investing, innovating and
enhancing levels of service
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have now returned to 2002 sales levels. In 2006 lfl partwork
sales fell by 35%. Although gross profit from weekly magazine
sales was flat, lfl sales rose by 3% as some consumers moved
from monthly to weekly titles.
Underlying operating profit10 for the division fell by 23%
reflecting the significant drop in monthly magazine and
partwork sales and the margin reduction from contract
renewals with publishers.
Newspaper volumes continued their steady decline but
this reduction was offset by a number of price increases,
particularly on Sunday titles.
The contract renewal process for magazines and newspapers
is now substantially complete and we are pleased that
we have secured this business on five year contracts.
As anticipated, this has resulted in some margin reduction.
Stickers performed well due to World Cup 2006 and the
Doctor Who collection with lfl sales rising by 64%. With
no major football tournament occurring, we do not expect
this level of sales to be maintained in 2007.
10 Underlying operating profit includes the Division’s share of pre tax
profit from joint ventures and associates, and excludes exceptional
items and goodwill.
Acquisitions and joint ventures
Menzies Distribution acquired two independent newspaper
and magazine wholesalers during the year – Chester
Independent Wholesale Newsagents Limited and North West
Wholesale News Limited. The operational integration of these
businesses was successfully completed during 2006 and this
has reinforced our position as the No2 in the marketplace.
Just before the year end we entered into a conditional joint
venture agreement with Eason & Son Ltd (Eason). The deal
is subject to certain regulatory and other approvals. The joint
venture will see Menzies and Eason combine their newspaper
and magazine distribution businesses in Northern Ireland and
the Republic of Ireland. We expect the venture to start during
April in Northern Ireland and September in the Republic of
Ireland.
1. The new i-Menzies website.
2. Operational KPIs monitored include packing accuracy
and on time delivery for both newspapers and magazines.
3. The recently installed HS packing system in our york branch.
99.62%
Magazine packing
accuracy in 2006
1.
2.
3.
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Business Review:
Menzies Distribution (continued)
Case Study: Customer service
In 2006, we worked closely with Sainsbury’s to implement and roll out across 132 Menzies-served stores a
new web-based magazine returns management system. The system involves the use of handheld Personal Digital
Assistants which scan barcodes to capture data about each title such as its issue information, on sale and recall
dates. The system automates the manual process of checking if a magazine is due for returning to Menzies or
can remain on sale, helping to ensure Sainsbury’s don’t lose money on potential late returns.
“ We are really happy with the expertise and commitment Menzies provided when we
introduced the technology into our stores, and remain very satisfied with the ongoing
magazine scanning service they provide using the PDAs in our stores.”
Phil Carroll, Senior Buyer – Newspapers & Magazines, Sainsbury’s
delivering a world class
level of customer service
Cost initiatives
We have invested in our cost reduction programme during
the year and this helped deliver cost savings in real terms of
£2.7m during 2006, up from £1.1m in 2005. This programme
has concentrated on 3 areas:
Following the development of a new integrated system ‘i-Mag’,
we have successfully centralised our magazine allocation
function from branches into the Edinburgh Head Office. This
has delivered cost efficiencies and, through better controls,
has led to higher compliance with customer service metrics.
1) Shop floor productivity
New magazine packing systems have been installed at our
york, Chester, Leeds, Dundee and Cambuslang branches and
we have successfully trialled new equipment for processing
returns at our Dundee branch.
Our Continuous Process Improvement (CPI) programme has
been an important tool for management in seeking further
efficiencies in the cost base, aiding the delivery of significant
cost savings in 2006.
2) Centralisation of functions
We have set up a new regional contact centre in Sheffield
which covers almost 6,000 customers and has delivered
significant cost savings.
3) Branch network reconfiguration
The new magazine packing systems have enabled us to further
re-engineer our branch configuration and extend our ‘hub and
spoke’ network, whereby the smaller ‘spoke’ branches only
perform newspaper packing with magazine packing managed
from the larger ‘hub’. Successful ‘hub/spoke’ implementations
comprised Cambuslang/Dumfries and Chester/Preston.
Office of Fair Trading
The OFT has recently announced that there will be a further
delay to issuing a final opinion on a framework for assessing
how newspaper and magazine agreements comply with
competition law. During 2006, we significantly strengthened
our position as the No2 player in the market and remain
confident that we can meet the changing service requirements
of the industry.
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1. A Menzies Distribution vehicle making a delivery
to a Sainsbury’s store.
2. Newspaper packing accuracy in 2006 was 99.8%.
3. The magazine scanning system automates the
manual, labour intensive checking process.
4. A member of Menzies’ staff scanning magazines
at a Sainsbury’s store.
2.08bn
newspaper copies handled
1.
3.
4.
2.
972mmagazine copies handled
Key performance indicators
Menzies Distribution monitors a number of financial and
operational key performance indicators (KPIs) to help achieve
key business objectives.
The main financial KPIs are highlighted on page 7 of this
annual report.
The table below includes operational KPIs which are principally
aimed at monitoring levels of customer service and operational
effectiveness.
2006
KPI
2,079
Newspapers handled (million)
972
Magazines handled (million)
98.0%
Newspapers delivered on time
98.0%
Magazines delivered on time
99.8%
Newspaper packing accuracy
99.6%
Magazine packing accuracy
Newspaper returns processed on time 90.0%
2005
1,987
945
97.8%
96.5%
99.8%
99.7%
90.9%
Business objectives
Menzies Distribution is focused on four key priorities:
•
Accelerating our programme to remodel the cost base
and protect the strong cash generation of the business.
Strengthening our clear No2 market position by working
more closely with our retailer and publisher customers
to benefit the consumer.
Developing innovative new products, services and
revenue streams.
A relentless focus on improving customer service,
productivity and operational excellence.
•
•
•
To remodel the cost base, we will roll out new equipment for
processing returns at fifteen branches in 2007. Our continuous
process improvement (CPI) programme will continue with the
emphasis on productivity measures and benchmarking. We
plan to centralise our newspaper allocations function once
our new system, ‘i-News’, has been implemented. A second
contact centre at Linwood is scheduled for opening in the
second quarter of 2007. We will extend our ‘hub and spoke’
branch structure to include Dundee/Inverness/Aberdeen and
Leeds/Bradford.
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Financial Statements
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Business Review:
Group Financial Review
The Group now presents its first full-year Report and
Accounts in compliance with International Financial Reporting
Standards. Comparative IFRS financial information is presented
for the year ended 31 December 2005 as the date of transition
to IFRS for the Group was 26 December 2004, being the first
day of the comparative period. UK GAAP to IFRS reconciliations
are also presented in the Report and Accounts.
Shareholders’ Funds
Shareholders’ funds increased by £32.7m during the year
to £92.2m, as follows:
Cash Flow
Operating Profit
Share-based payments
Depreciation
Amortisation of intangibles
Net pension movement
Working capital
Cash spend on exceptional items
Non-cash items
Operating cash flow
£m
2006
£m
34.0
0.7
18.1
1.3
(6.5)
(12.3)
(2.5)
2.6
35.4
£m
2005
£m
34.4
0.7
16.2
1.2
(0.3)
(4.2)
–
(0.5)
47.5
Shareholders’ funds at December 2005
Profit for year
Taxation
Dividends
Minority interests
Net actuarial gain
Currency translation
Increase in share capital
Share-based payment
Shareholders’ funds at December 2006
£m
59.5
35.6
(8.4)
(11.6)
(0.1)
16.4
(1.7)
1.8
0.7
92.2
Cash Flow
The Group generated an operating cash flow of £35.4m in
2006 (2005: £47.5m). Share issues in 2006 raised a further
£1.8m. Some £61m was re-invested in the business whilst
dividend and tax payments accounted for £20.2m. Net debt
increased from £32.8m to £77m.
Purchase of property, plant
and equipment
Sale of property, plant
and equipment
Net capital expenditure
Dividends from associates
and joint ventures
Net interest paid
Minority dividends paid
Tax paid
Free cash flow
Equity dividends paid
Additional pension payment
Acquisitions
Shares
Other
Total movement
Opening net debt
Currency translation
Closing net debt
(25.4)
(22.1)
1.1
1.6
(24.3)
(20.5)
4.1
(3.4)
(0.1)
(8.5)
3.2
(11.6)
(5.7)
(37.0)
1.8
(0.4)
(49.7)
(32.8)
5.5
(77.0)
4.0
(2.0)
(0.2)
(4.6)
24.2
(10.9)
–
(0.8)
3.5
(0.6)
15.4
(45.7)
(2.5)
(32.8)
The statutory IFRS cash flow statement is shown on page 48.
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2006
£m
£m
2005
£m
£m
The results for the year include the following one-off
and/or material items, which the Group considers should
be highlighted:
Pensions
Income Statement
Current service cost
Past service credit
Expected return on
scheme assets
Interest on pension liabilities
Net financial return
Net credit/(charge)
Balance Sheet
Total market value of assets
Present value of scheme liabilities
Surplus/(deficit) in scheme
Related deferred tax (liability)/asset
Net pension assets/(liabilities)
(4.7)
5.8
13.4
(11.0)
11.5
(10.3)
2.4
3.5
237.2
(231.8)
5.4
(1.6)
3.8
(5.1)
–
1.2
(3.9)
208.5
(241.1)
(32.6)
9.8
(22.8)
With effect from 1 May 2006, the main UK pension scheme
changed from a final pensionable salary scheme to an average
salary scheme and employee contributions were increased.
Benefits accrued to current active members prior to 1 May 2006
are now linked to future price inflation rather than future
salary increases. The impact of these changes was a reduction
of £5.8m in the present value of the scheme liabilities in
respect of past service.
During the year the Group contributed cash of £11.1m,
comprising regular payments of £5.4m and an additional
payment of £5.7m in June 2006. Subsequent to the year end,
a further additional payment of £4.3m was made. The market
value of invested assets increased by 14% in the year to 30
December 2006, mainly as a result of strong investment
growth in the equity component of the assets.
The present value of scheme liabilities decreased by 10%
over the same period, mainly as a result of an increase in
the corporate bond rate from 4.8% in 2005 to 5.3% in 2006.
Reconciliation between IFRS operating profit
and underlying operating profit
IFRS operating profit
(a) pension credit
(b) gain on exchange of contract rights
(c) rationalisation and integration costs
(d) goodwill impairment
(e) contract amortisation
(f) joint venture and associate taxation
Underlying operating profit
£m
36.7
(5.8)
(2.5)
5.3
1.8
0.4
1.0
36.9
(a) the past service pension credit results from changes
to the main UK pension scheme, which have been
explained above;
(b) the Group transferred its 20% shareholding in an
independent distribution business to another wholesaler
in return for an interest in certain magazine distribution
contracts in the south-west London area, generating
a non-cash gain of £2.5m;
(c) the rationalisation costs result from an in-depth review
of existing business costs, comprising asset write-downs
and staff costs, and the integration costs relate to new
businesses, mainly in the US;
(d) under IFRS, previously capitalised goodwill is no longer
amortised. However, these results include an impairment
charge of £1.8m, reflecting the remaining life of the current
licence at Menzies Macau Aviation Services Ltd;
(e) IFRS requires the price paid for a business to be allocated
between goodwill and other intangible assets. Accordingly,
the Group has a new category of fixed asset in 2006 and
the amortisation charge for the year has been highlighted
as a new cost;
(f) IFRS operating profit is shown after deducting the Group’s
share of the tax charge in the joint ventures and associates
but is added back in this table to present a clearer trading
position.
Further details are disclosed in Note 5 to the accounts.
Interest
The net interest charge is analysed as follows:
Fixed rate sterling term loan
Floating rate sterling loan
US dollar loans
Preference shares
Cash / overdrafts
Other finance income
Net interest charge
2006
£m
2.0
0.5
1.4
0.1
(0.5)
(2.4)
1.1
2005
£m
2.0
0.1
0.9
0.1
(1.0)
(1.2)
0.9
The sterling term loan is at a fixed rate of 6.23%
and is repayable between 2007 and 2020.
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Taxation
The effective underlying tax rate for the year was 23.2%
compared with 23.6% in 2005 and is analysed as:
Distribution
Aviation
Business Review:
Group Financial Review (continued)
Other finance income is the net financial return from the
pension scheme under IAS19. The amount has increased due
to the additional cash contributed by the Group during 2006
and the higher returns on invested assets.
Tax due at UK rate
Non tax-deductible items
Unrelieved overseas losses
Overseas rate impact
Utilisation of tax losses
Adjustments in respect of prior years
Underlying tax rate
%
30.0
1.3
4.9
0.2
(4.5)
(8.7)
23.2
The tax rate on underlying earnings continues to be below the
standard UK rate as a result of the realisation of carry-forward
overseas tax losses, the creation of overseas deferred tax
assets on brought-forward losses and the resolution of prior
year matters.
Tax paid during the year was £8.5m. Payments are expected
to be slightly lower than this for the year to December 2007.
The tax effect of the exceptional items is a charge of £1.1m.
Goodwill and other intangible asset amortisation of £2.2m
does not attract any tax relief.
Acquisitions and Intangible Assets
During the year the Group acquired ten new businesses.
The consideration paid, in excess of the fair value of the net
assets acquired, has been allocated between goodwill and
other intangible assets, mainly customer contracts.
Capitalised goodwill amounts to £48.5m compared to £38m
in 2005. This goodwill is no longer amortised but rather is
subject to an annual impairment review.
Contracts capitalised in the year amount to £20.5m.
Amortisation periods for these contracts are business-stream
dependent and vary from zero to ten years. Where the
contracts are not amortised, they are subject to an annual
impairment test at cash-generating unit level, generally
considered to be ‘station’ level.
Property, plant and equipment
Purchases of property, plant and equipment totalled:
Plant &
Property Equipment
£m
9.1
Total
£m
9.5
15.5 15.9
24.6 25.4
£m
0.4
0.4
0.8
During the year Distribution invested some £9m in new
technology.
Aviation’s capital expenditure mainly comprised equipment
to service new contracts.
Working Capital
Working capital movement is analysed as follows:
Inventories
Trade and other receivables
Trade and other payables
2006
£m
1.0
0.4
(13.7)
(12.3)
2005
£m
(1.9)
(3.2)
0.9
(4.2)
The negative movement in working capital is all due to trade
and other payables. This was mainly a combination of the
timing of the year-end, the effect of acquisitions and foreign
exchange rate movements.
Treasury operations
From a Treasury perspective the main financial risks faced
by the Group are liquidity, interest rate fluctuations and
foreign exchange exposures. The Board has approved policies
for each of these risks, which are managed on a day-to-day
basis by Group Treasury. The purpose of these policies, which
remained unchanged throughout the year, is to ensure that
adequate funds are available to the Group at all times and
that financial risks arising from the Group’s operating and
investment activities are carefully managed. Accordingly,
Group policy is not to enter into transactions of a speculative
nature.
The Group Treasurer reports formally on a monthly basis to
a Treasury Committee under the chairmanship of the Group
Finance Director and operates within scope and authorisation
levels specified by the Board.
Liquidity: operations are financed by a mixture of shareholders’
funds and bank borrowings. The objective is to ensure a mix
of funding methods offering flexibility and cost effectiveness
to match the needs of the Group. Surplus cash is currently
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Governance
Financial Statements
Shareholder Information
Business Review:
Group Business Risks
The management of the business and the execution
of strategy are subject to a number of risks.
Risks are formally reviewed by each division on an annual
basis. A formal Group-wide review of risks is also performed
annually by the main Board and appropriate processes and
controls are put in place to monitor and mitigate these risks.
The key business risks affecting the Group are as follows:
Safety
This is the risk of safety incidents occurring within the
business. Both divisions have dedicated health and safety
teams who regularly visit operational sites monitoring health
and safety issues and driving improvements. They also
monitor legislative and regulatory changes. We work with
industry bodies to lead improvements and to benchmark our
performance. Monthly health and safety reports are tabled
at divisional and main Boards.
Changing business environment
This is the risk that we do not respond to a changing business
environment. In Menzies Distribution, 2006 saw a significant
change to consumer behaviour which adversely impacted
monthly magazine and partwork sales. At Menzies Aviation,
there was a tightening of security measures in the UK during
the year, particularly relating to on-flight baggage. A strategy
review exercise, which involves a full examination of market
conditions, is held each year prior to budget setting. Board
reports from each Managing Director, reviewing all aspects
of market conditions, are tabled for discussion each month.
Customer surveys have been introduced in both divisions
which we will repeat regularly.
held, and Group policy is to make major deposits only with
substantial institutions with high credit ratings. In addition
to its fully drawn down term loans of £31.1m the Group
has £42.5m of unutilised committed facilities, which are
committed to November 2009.
Interest rate fluctuations: the Group’s policy is to arrange
core debt with fixed rate borrowings. The term bank loan of
£31.1m is fixed at 6.23% and is repayable between 2007 and
2020. Foreign currency bank borrowings totalling £36.6m are
floating at rates ranging from 4.28% to 5.875%, which mature
within the next 34 months. Other borrowings and cash
deposits are at variable rates.
Foreign exchange exposures: the Group’s exposure to
currency risk at a transactional level is minimal, with day-to-
day transactions of overseas subsidiaries largely carried out
in local currency.
The Group’s exposure to balance sheet translation risk in
respect of its overseas net investments is minimised by
borrowings in the functional currency of the investment
and by use of derivative financial instruments, which have
the effect of converting sterling borrowings into borrowings
of the functional currency.
Approximately 13% of Group turnover and 45% of assets
are denominated in overseas currencies. The Group does not
actively hedge exchange rate movements on the translation
of overseas profits except where those profits are effectively
matched by foreign currency interest costs.
The majority of Menzies Aviation’s stations are located
outside the UK and operate in currencies other than sterling.
The rates of exchange to sterling for those currencies which
have principally affected the Group’s results were:
Average
for year to
Year end
December 30 December
2006
1.957
1.484
2006
1.853
1.468
Average
for year to
Year end
December 31 December
2005
1.717
1.455
2005
1.824
1.462
US$
Euro
Credit risk: the Group is exposed to credit related losses in
the event of non-performance by counterparties to financial
instruments, but mitigates such risk through its policy of
selecting only counterparties with high credit ratings.
Further disclosure in respect of the above is included in
Note 16 to the Accounts.
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Statements
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Governance
Financial Statements
Shareholder Information
Business Review:
Group Business Risks (continued)
Business Review:
Group Trading Outlook
Investment decisions
This is the risk of making the wrong corporate portfolio
investment decisions. A weekly investment review meeting
is held to review significant capital expenditure decisions and
all acquisitions and disposals. Projects are measured against
a number of strict financial criteria such as payback, net
present value and internal rate of return. Recommendations
from the investment review meetings must be ratified by the
main Board. All potential acquisitions are subject to rigorous
due diligence involving internal and external specialists.
People development
This is the risk that we do not successfully develop our people
and lose key management. To mitigate this risk, the Group has
introduced a leadership development programme and a regular
360° appraisal process. A number of incentive schemes linked
to the Group’s results have been designed to help retain key
managers.
External shock
This is the risk of the business being impacted by a major
external shock, such as terrorism, disease or natural disaster.
To mitigate this risk, we have emergency response procedures
in place at both divisions which deal with communication
guidelines, customer liaison, staff safety, contingency actions
and escalation procedures. In each division we have developed
strong leadership teams with broad experience of dealing with
a wide variety of operational issues.
Menzies Aviation
We are trading ahead of last year despite the continuing
softness in cargo volumes and the weaker US dollar.
We expect to see further growth in 2007.
We have won a number of contracts since the year end, most
notably British Airways ground and cargo handling in Sydney;
Virgin cargo handling in Chicago; Lufthansa ground handling
in Houston; and easyJet ground handling at London Gatwick,
Glasgow and East Midlands.
Our joint venture to handle cargo at the new Hyderabad and
Bangalore airports in India remains on track, and operations
are scheduled to commence in 2008.
We continue to differentiate ourselves from our competitors
by tailoring our products to meet customer needs, delivering
consistent levels of service, providing innovative IT solutions
and investing in infrastructure to underpin growth and
profitability.
Menzies Distribution
There are some signs of stability in the market and both
newspaper and magazine revenues have been flat in the first
10 weeks of 2007. As previously indicated, we have accelerated
cost saving initiatives and we expect to deliver further cost
savings in real terms in excess of £3m in 2007.
Group
We expect the Group to trade in line with our expectations
during 2007. As the Group continues to move towards the
higher rated aviation services market, we believe we are
well placed to increase shareholder value.
PATRICK MACDONALD
CHIEF EXECUTIVE
19 March 2007
PAUL DOLLMAN
GROUP FINANCE DIRECTOR
19 March 2007
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Social Responsibility
Introduction
Environmental, social and governance responsibility is
fundamental to the ongoing success of the Group.
We acknowledge the impact our business activities have
on the environment and communities in which we operate,
and have systems in place to identify, analyse and manage key
risks arising from our operations. This includes ensuring that
we comply with relevant environmental legislation.
We recognise that as an employer we have a responsibility
to our employees for their safety and welfare whilst at work.
This responsibility extends to their training and development,
as well as to setting appropriate standards for their dealings
with customers and suppliers. We take business conduct
seriously, and have policies and guidelines in place which set
standards concerning ethics, sound business practices and
wider governance issues.
Health & Safety
Loss
Injury
Damage
Stakeholders:
Employees
Customers
Suppliers
Regulators
Community
Shareholders
Ethics
Conduct
Integrity
Training
Development
Communication
Employees
Fuel
Waste
Energy
CO2 emissions
Environment
Board responsibility and management framework
The Board member with overall responsibility for environmental,
social and governance (“ESG”) risks is the Chief Executive,
supported by the two divisional Managing Directors. This
responsibility also specifically includes employees and health
and safety. Significant ESG issues arising in or affecting our
businesses are discussed at each Board meeting.
The Company recognises that being a socially responsible
company adds to and enhances the Company’s overall value,
both short and long term. For example, mishandled ESG
risks can be damaging to the Company’s reputation as an
employer, supplier or business partner. The financial costs from
mishandled ESG risks can affect the Company’s profitability.
The Board therefore has systems in place, including access
to adequate information, to identify and assess ESG risks,
and to ensure that these risks, and our exposure to them, are
managed appropriately.
The principal ESG risks to the Group include:
•
failure to retain and develop key staff;
•
failure to provide safe systems of work for staff;
•
failure to have systems in place that prevent the
occurrence of environmental hazards arising from
our operations;
failure to manage risks that can damage corporate
image and reputation;
failure to ensure that the Group’s operations are
conducted on a lawful, sound and ethical basis and
in compliance with Group Policies and Procedures;
failure to carry out adequate due diligence or business
planning on joint venture partners/acquisitions.
•
•
•
A description of the Company’s internal control system
for the management particularly of financial risks is in the
Corporate Governance report on pages 30 to 34. An analysis
of the key business risks facing the Group appears in the
Business Review on pages 19 to 20.
Although the remuneration of executives is not directly
related to attainment of ESG objectives, our bonus
arrangements allow senior managers to base a proportion
of performance related pay for executives on achieving
personal goals such as improving staff turnover rates or
improving injury or aircraft incident rates. These flexible
arrangements apply to station managers at Aviation and
branch managers at Distribution.
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All Managers and Staff
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Social Responsibility
(continued)
Health and Safety
Introduction
Good health and safety practices are integral both to employee
welfare and to the success of the Group. We are continually
reviewing our procedures and our training in order to develop
and adopt methods of working which reduce the likelihood
of accidents occurring.
Both divisions operate in a time critical environment:
newspaper deliveries work to a tight schedule, with any
delay losing sales for ourselves and our customers. Ground
handling operations focus on aircraft, where any slip can delay
departure or damage a customer’s aircraft.
together to set policy, agree standard operational procedures
and communicate regular safety awareness information to
the field organisation.
With operations in over 100 airports worldwide, our priority
has been to standardise safety processes over the past
year. One key feature of MORSE is that it incorporates an
intranet-based network reporting and investigation system
for the recording of all incidents, including near misses,
to UK standards with follow-up action taken so that lessons
are learned and shared. Additionally, a new Incident Review
Board chaired by the Managing Director meets quarterly
to review major (category A) incidents, shifting the
emphasis on prevention rather than cure.
Reports on health and safety performance are the first
operating item at all meetings of the Group Board, the
Executive Committee, and at Divisional Board meetings.
They include injury statistics and trends as well as lessons
learned, training performance, contacts with regulators
and legislative changes.
The Group’s health and safety policy statement, which is
published on our website, focuses on establishing a suitable
environment, providing proper training, and communication
and consultation with employees.
Each division has a specialist health and safety manager,
who is supported by local management.
Following the success of our first ever Group-wide health
and safety conference in 2005, this event was repeated
last year, with all our health and safety managers attending,
sharing best practice, as well as their practical solutions to
the everyday problems they experience worldwide.
Menzies Aviation
The division has a comprehensive safety management
programme called MORSE (Menzies Operating Responsibly
Safely and Effectively), which focuses on:
•
•
•
•
•
•
Personal Injury.
Aircraft Damages.
Damage to Equipment.
Emergency Response.
Security Awareness.
Avoiding the Cost of Carelessness.
The MORSE safety management system and network safety
team provides a dedicated resource within each region to
support the field organisation and ensure we maintain a
strong safety compliance focus. The network team works
MORSE has been rolled out to the new businesses we acquired
during 2006 and is now part of standard operating procedures
across our global network.
Menzies Distribution
The most common types of injuries in this business are those
sustained from manual handling, slips and trips, and moving
objects.
During the year, the division adopted stage 1 of the MORSE
system developed by Menzies Aviation and a poster campaign
was launched in all our branches, covering: vehicle safety,
separating transport and people activities, accident reporting,
protective equipment and manual handling.
The division has over the years greatly improved its vehicle
movement practices, separating workplace vehicle movements
from people movements, and has significantly reduced
the opportunity for accidents. Our practices were highly
commended in 2005 by the Freight Transport Association
and the Health & Safety Executive.
Our ‘pack-by-light’ newspaper allocation system has enabled
standardisation of pack sizes, reducing our exposure to lifting
injuries.
In terms of motor and vehicle related incidents, Distribution
continually keeps its fleet under review to ensure that the
most appropriate vehicles are used, for driving/training
purposes, loading/unloading and accessing routes for making
deliveries. Consideration is also given to environmental impact
when choosing fleet suppliers.
All staff receive health and safety training relevant to the tasks
they perform. CD based training materials are also available,
including our driver training programme which covers safety
as well as advanced driving skills to maximise fuel savings.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Employees
Recruitment and Equal Opportunities
The Board expects the Group to conduct its operations
based on sound ethical practices which are open and free
from discrimination and harassment, and will not tolerate
discrimination in any form. It has adopted and disseminated
appropriate policies and procedures, including clear
guidelines on matters such as competition law, bribery
and whistleblowing.
The principles of equal opportunities are recognised through
published employment policies which are designed to attract,
retain and motivate quality staff and to give full consideration
to the employment of disabled people and to staff who become
disabled, including providing support and retraining to enable
them to continue their employment. Full consideration is also
given to age discrimination laws, and our policies and practices
encourage recruitment and promotion based on merit,
irrespective of factors such as: age, gender, race, religious
beliefs or sexual orientation.
Reward
The Group recognises that its continuing success depends
on the quality and motivation of its employees. It aims to
ensure that its remuneration practices are competitive,
enabling it to attract, retain and motivate executives who
have the experience, skills and talents to operate and develop
its businesses to their maximum potential.
Incentives
Employees are able to develop a direct interest in the financial
performance of the Group through its savings-related share
option scheme, which is open to all UK employees, of whom
some 1,400 are members. Options are granted over the
Company’s shares at a discount of 20% from the prevailing
market price at the time of grant at an aggregate value based
on savings of up to £250 per month over three years. Some
800 employees (57% of those eligible to participate) took up
their invitation and subscribed to the 2006 sharesave scheme
in which some 500,000 shares are now held under option.
Injury and incident reporting
Both divisions utilise key performance measures to monitor
trends and to improve our performance in this area. However,
our two divisions operate in very different sectors, so comparing
injury or incident statistics between them or overall figures
against figures published by comparator companies would
be meaningless.
Menzies Aviation had 29 (2005: 27) injuries reportable under
UK RIDDOR with an equivalent rate per 100 FTE employees
of 1.2. This compares to a rate of 1.8 in the HSE’s transport
sector.
Menzies Distribution had 62 (2005: 50) incidents during the
year that resulted in injuries reportable under UK RIDDOR,
which is equivalent to an injury rate per 100 FTE employees
of 1.62 – again below the HSE’s transport sector figure of 1.8.
The total figure includes the two businesses we acquired
earlier last year.
In respect of Menzies Aviation’s overseas operations, there is
no comparable UK RIDDOR, as each country where it operates
has different reporting requirements. However, under the
MORSE incident reporting system, all injuries are reported
under different categories depending on seriousness, where
category A would be for the most serious incidents.
Category A level is not the same as UK RIDDOR, but it
includes major/serious incidents involving fatality, serious
harm, dangerous occurrence or aircraft damage, including
significant misses.
To provide some context, there were 76 category A incidents
altogether reported during 2006 (2005: 69), including,
regrettably, one fatality following a serious accident where
an employee fell between the Elevated Transfer Vehicle
and adjoining cargo pallets. Of the 76 incidents, 45 involved
aircraft damage and 31 involved personal injury. This total
of 31 includes injuries reported under UK RIDDOR that were
serious enough to be classed under MORSE as being category
A incidents.
Another significant figure that we monitor is number of
incidents involving aircraft damage per 1,000 turns handled,
which is an industry recognised measure. In 2006, our incident
rate per 1,000 aircraft turns for category A aircraft damage
was 0.10 (2005: 0.12) which compares against an IATA
published benchmark figure of 0.67 and IAHA’s figure
for 2006 of 0.15 per 1,000 turns.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Social Responsibility
(continued)
For staff in the UK, the Group offers many benefits. One
programme introduced last year through “you-at-work”
entitles employees to benefit from various discounts. Another
scheme allows staff to opt to receive part of their pay in
tax-free childcare vouchers. Other benefits offered to staff,
dependent on grade and location, include: private medical care,
subsidised staff restaurant, gym membership, and a company
car or car allowance.
The results of the Group-wide survey carried out in the
second half of 2005, involving all 14,800 employees, was
communicated to staff early in 2006. Staff feedback and
the action points identified by management were shared
with employees through video broadcasts, location visits
by management and briefings by local managers.
Environment
Training
All executives and managers, from the Chief Executive
downwards, undergo annual Personal Development Plan
assessments. Leadership Development Programmes were
introduced in September 2006, together with trials of
pilot schemes for the introduction of one-to-one coaching
programmes.
All new employees are given induction training designed to
ensure that they can fulfil their tasks safely, particularly where
this involves lifting. All the Group’s commercial vehicle drivers
are given driver training designed to help them to drive safely,
economically and with consideration to those around them.
Each division has resources made available to it to ensure the
training needs of its staff carrying out particular functions and
tasks are fully met.
Managers are also encouraged to foster a work-based culture
based on values espoused as part of a campaign launched in
2005, promoting and providing guidance on ethical business
practices and professional conduct concerning dealings with
all our stakeholder groups such as customers, suppliers and of
course employees. These “Integrity Guidelines” are supported
by Board policies and reinforced in workshops and for example
through our employee communication programme.
Communication and Consultation
A comprehensive internal communication programme
exists to ensure that all employees throughout the Group
are kept informed about the direction and performance of
their own division and of the Group as a whole. The Group’s
final and interim results are communicated to all employees,
supplemented by presentations being made during location
visits by the Chief Executive, the Group Finance Director, or
divisional management.
Environmental Policy
The Board acknowledges its responsibilities for ensuring that
environmental risks arising from the activities of its businesses
are properly identified, managed and controlled, and that its
businesses are compliant with all local laws, as well as with
best practice – the latter where it is practicable.
Each of our two divisions has its own environmental
policy, which has been approved by the divisional boards
and is integrated within existing management structures
and implemented through normal business practices and
procedures.
These environmental policies address the following areas:
•
•
•
•
•
•
•
allocating roles, responsibilities and resources;
complying with legislation and best practice;
monitoring, verification and auditing of compliance;
data collection, analysis and reporting;
risk identification, assessment and management;
communication and dissemination of information;
adopting technology and working practices that are
modern, environmentally friendly and energy efficient;
working with customers and suppliers to address
environmental issues affecting our businesses.
•
At Group level, environmental issues affecting the
businesses are reported by each Managing Director to the
Executive Committee and by the Chief Executive to the
Board. Environmental risks associated with new businesses
are always assessed as part of our due diligence process
on all acquisitions. Our operating procedures are reviewed
following reporting of any significant actual or near miss
incidents involving safety issues or environmental hazards.
Operational management also have to certify periodically
compliance with local environmental regulations. There
were no incidents last year which posed a significant
environmental risk to the Group’s operations, and systems
are in place to prevent their occurrence. These systems
are reviewed periodically.
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Business Review
Governance
Financial Statements
Shareholder Information
Fuel
Menzies Aviation
The division operates various vehicles in connection with
its activities. Typically, these are on and off airport activities
and include: bussing, trucking (cargo between airports) and
air freight couriering by AMI.
The on airport activities involve use of specialist Ground
Servicing Equipment (“GSE”) for both our ground and cargo
handling businesses. Other than passenger steps and baggage
or cargo carts (“dollies”), which need to be towed, most
GSE can be driven and run on diesel or LPG. These include:
hydraulic loaders, aircraft push back tugs, conveyor belt
loaders, and tow tractors which pull passenger steps and
dollies. This equipment is not designed to travel long distances
so the mileage is low.
We also operate a fleet of forklift trucks for warehouse
activity in our cargo handling operations. Of these forklift
trucks, 84% run on LPG. As an estimate, our cargo handling
operations at Manchester airport in the UK (a typical station)
produced 10 tonnes of CO2 emissions in 2006. If replicated
across our stations with cargo handling operations, this
equates to 480 tonnes of CO2 in total for this part of our
business. Our ground handling operations worldwide are
estimated to have produced 440 tonnes of CO2 emissions
in total last year.
Our “Connect” bussing operation at London Heathrow
has a fleet of 68 single deck passenger buses that transport
some 20,000 workers daily to and from off airport sites to the
airport, including Terminal 5 construction workers. This service
is under contract to BAA who supply our buses with fuel.
Accordingly, these figures and associated CO2 emission levels
are disclosable for CSR purposes by BAA. For information,
however, the volume of CO2 emitted from this operation
in 2006 was 3,250 tonnes.
Our UK trucking operation involves a fleet of twenty 38 tonne
articulated units with trailers which transport cargo between
airports, mainly in the UK and Ireland. Total mileage for 2006
was c. 2,200,000 miles, equivalent to 2,700 tonnes of CO2
emission (including those for AMI – see below). The division
also has trucking operations in the USA and in Sweden, most
of which are provided through subcontractors. Estimated CO2
emissions from these operations total c. 1,170 tonnes.
AMI’s business consists of mainly forwarder handling and
courier and air freight wholesaling. The transfer of freight
and courier packages to and from airports is handled by our
UK trucking operations.
Menzies Aviation – CO2 emissions in 2006 (tonnes)
Ground and cargo handling
Trucking
Total
920
3,870
4,790
Menzies Distribution
The business operates 437 vehicles ranging from transit
vans to 26 tonne articulated commercial vehicles. 47% of our
fleet are transit vans. A further 1,147 vehicles are operated
by contractors in the newspaper and magazine distribution
process. Our fleet comprises diesel only vehicles and is
supplied by 6 suppliers, the largest being Ford who supplies
47% of our fleet on a leased basis. Lease terms typically run
for between 3 and 5 years, so we operate a modern fleet.
All new additions to our fleet since January 2007 run on
Euro IV engines.
Third party contractors carry out some 66% of our delivery
mileage. The same focus on costs and health and safety,
which influences Distribution’s own choice of vehicles, affects
its choice of subcontractor. Those who can optimise delivery
mileages and have modern, well-maintained vehicles that are
most suitable for the task are selected.
Fuel cost is a significant overhead in our Distribution business
and we have over the years looked at ways to minimise this:
for example, by looking at the way we plan our delivery routes
and run patterns, and also investing in driver training. These
initiatives have been a success – both have received industry
recognition and awards.
Menzies Distribution – CO2 emissions in 2006 (tonnes)
Nos. of vehicles
Delivery mileage (miles)
CO2 emissions (tonnes)
Own fleet Contractors
1,147
26.5m
12,960
437
13.5m
8,087
Total
1,584
40m
21,046
Energy consumption
At Menzies Distribution, energy consumption during the year
amounted to 29,292,104 kWh, down 7% on 2005. Some 25%
of supply is from “green” sources. Due to the international
spread of operations at Menzies Aviation, comparable figures
are not yet available.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Social Responsibility
(continued)
Waste
At Menzies Distribution, packaging waste, namely cardboard
and polythene, and office paper are by-products of our
activities. We have waste compactors installed in 17 hub
branches. The total volume of waste uplifted in 2006 was
5,460 tonnes (2005: 3,466 tonnes) of which 11% (2005: 0.3%)
is recycled and the remainder sent to landfill.
In terms of unsold or “returned” products handled, under
our contracts with newspaper and magazine publishers, we
are responsible for the collection of unsold copies from retail
outlets. For magazine publishers, we are further responsible
for recycling unsold magazines, whereas newspaper publishers
retain the responsibility for managing the flow to recycling
of unsold newspaper copies.
Newspaper publishers outsource the physical uplift and
recycling from our premises via third party agents with whom
we work closely to integrate an efficient transition from
our processes to their collection. In 2006, we facilitated the
consignment to recycling of 104,000 tonnes of newsprint.
For magazines, we are responsible for cleansing the unsold
copies of polythene wrapping and cover mounted gifts where
this is required to facilitate the subsequent de-inking process.
Thereafter we manage a logistics service to consolidate
unsold copy from all of our branches, primarily feeding into
UPM Shotton for conversion into future newsprint. All unsold
magazine products which are not required for re-sale are
consigned for paper recycling. In 2006, some 60,000 tonnes
of unsold magazines were processed for recycling.
The division also handles unsolds of other products such as
collectible partworks and sticker collections. These are sent
back to publishers for subsequent reuse.
The waste elements stripped from magazines to cleanse
pre recycling are currently consigned to landfill. Menzies
Distribution is active in industry initiatives aimed at reducing
the volumes of such material to landfill and supporting
initiatives to increase consumer awareness of the magazine
recycling opportunity.
Case Study:
Charitable giving
“ Like ourselves our JV partner, Menzies Aviation, truly believes that we can make a
difference helping young, poor children overcome their disadvantages in life from
neglect and abuse through a better education, proper diet and health care. Our joint
sponsorship of the San Miguel Parish School, which has properly equipped classrooms,
a library, chapel and dining, computing and sports facilities, has helped give more than
300 children in Lima a better start in life. Menzies’ generous financial sponsorship over
the years has helped make this possible.”
Señor Oswaldo Sandoval, Chairman of the Board, Sandoval S.A. – our JV ground and cargo handling partner in twelve locations throughout Peru
we helped over 100 charities
in the UK and overseas in 2006
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Community Investment
The Group employs more than 15,000 people in 23 countries
all around the world, many of whom participate in various
forms of charitable, voluntary and other community related
work. We are therefore supportive of these initiatives,
and encourage and support these through the work of
our Community Investment team.
Each year the Board approves a budget for charitable
donations of around one percent of gross dividends for
the previous financial year, which in 2006 was £112,000.
Donations are made through either the John M. Menzies
Community Fund or the Charities Fund.
The John M. Menzies Community Fund supports the work
of our employees whether engaging in voluntary work or other
charitable or community-related projects. It makes individual
cash awards of up to £350 per employee, or £700 per team
of employees, undertaking a charitable or community project.
Such awards are made in consultation with the Managing
Directors of each business. During 2006, some 22 projects
were supported by this Fund.
3
2
1
4
Breakdown of Charities
Fund donations in 2006
1. Sport & Arts 18%
2. Environment & heritage 3%
3. Health, education and
research 44%
4. Care, welfare, children and
poverty 35%
The Charities Fund is the Company’s main channel for
supporting charitable causes or investing in community
projects. Its activities are managed by a Charities Committee,
which is chaired by the Chief Executive and meets quarterly
each year. Altogether, the Charities Fund receives over three
hundred applications every year from very diverse charities
and projects, both local and international.
Applications are received throughout the year and donations
are approved by the Charities Committee. In 2006, some 91
organisations benefited from charitable donations made.
1. The San Miguel Parish School, which we co-sponsor,
welcomes Patrick Macdonald during a visit to our
operations in Peru last year.
2. More than 300 boys and girls have benefited from the
programme known as the Educado project.
3. Some of the charities we supported last year.
4. A selection of certificates of appreciation received last year
from charities.
1.
4.
RBGE logotype, v 1.0
- black on white
2.
RBGE logotype, v 1.0
- PMS 555 on white
3.
RBGE logotype, v 1.0 rvrs
- White out of PMS 555
Note the use of a special
version for reversing out
RBGE logotype, v 1.0 rvrs
- White out of Black
Note the use of a special
version for reversing out
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RBGE logotype, v 2.0
RBGE logotype, v 3.0
RBGE logotype, v 4.0
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Board of Directors
4
8
6
7
5
3
1
2
1 Patrick Macdonald See biography on opposite page.
2 Paul Dollman See biography on opposite page.
3 William Thomson (Notes 1,4) was appointed Chairman in 2002. He has
been a non-executive director since 1987, and chairs the Nominations
Committee. He is Chairman of E G Thomson (Holdings) Ltd, a shipping
and logistics group with interests in Asia, British Assets Trust plc
and Fidelity Japanese Values plc, and is a non-executive director of
Dobbies Garden Centres plc. Age 66.
4 Ian Harrison (Notes 1,2) was appointed a non-executive director
in 1987. He is a director of Record Currency Management Ltd, an
institutional investment management company specialising in
currency management for pension funds worldwide. Age 50.
5 David Coltman (Notes 1,3,4) was appointed a non-executive director
in 2001 and Senior Independent Director in 2006, and chairs the
Remuneration Committee. He has held various senior positions with
airlines in the UK and with United Airlines in Chicago, and is Chairman
of Edinburgh Worldwide Investment Trust plc. Age 64.
6 Iain Robertson (Notes 1,2) was appointed a non-executive director
in 2004 and chairs the Audit Committee. Previously a director of
The Royal Bank of Scotland Group plc, he is Chairman of British Empire
Securities and General Trust plc, Cairn Capital Ltd and BT Scotland.
He is a chartered accountant. Age 61.
7 Dermot Jenkinson (Notes 1,3,4) was appointed to the Board in
1986 and held various executive responsibilities before assuming
a non-executive role in 1999. He is founder and Chairman of beCogent
Ltd, a contact centre and related consultancy business, and is a
director of a number of other private companies. Age 52.
8 Octavia Morley (Notes 1,2,3) was appointed a non-executive director
in 2006. She was previously executive director, marketing director
and commercial director at Woolworths plc, and held positions as
managing director, ecommerce at Asda Stores Ltd and as buying
and merchandising director at Laura Ashley plc. Age 38.
Notes:
1. Non-executive
3. Member of Remuneration Committee
2. Member of Audit Committee
4. Member of Nominations Committee
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Executive Committee
6
3
4
5
1
2
1 Patrick Macdonald was appointed to the Board as Chief Executive
in 2003. Previously with GE Capital as Vice President responsible for
global sourcing, he has also held senior positions with The Boston
Consulting Group and Unilever. Age 44.
2 Paul Dollman was appointed as Group Finance Director in 2002.
A chartered accountant, he was previously Finance Director for William
Grant & Sons Ltd, and has also held senior financial positions with
Inveresk PLC, Maddox Group plc and Clydesdale Retail Group. Age 50.
3 Craig Smyth was a founder executive of the Aviation division and
has worked for Menzies Aviation for 14 years. In 2003, he moved from
being the Chief Financial Officer into the operational & commercial
role as Vice President, Americas and was appointed the Managing
Director of Menzies Aviation in February 2004. He is a chartered
accountant. Age 39.
4 Ellis Watson was appointed Managing Director of Menzies
Distribution in September 2005. Prior to this he was Managing
Director of National Newspapers at Trinity Mirror plc and of
Celador International. His media career began with 9 years at
News International, where latterly he was Marketing Director.
He was also previously Chairman of the Newspaper Publishers
Association, the trade body for daily national newspapers. Age 39.
5 Alastair Couper was appointed Group Financial Controller in 2002.
Prior to his current role, he worked in the Aviation business for
5 years as finance director of UK cargo. Before that, he worked for
5 years for BP in their oil exploration business and for 7 years with
KPMG. Age 44.
6 John Geddes was appointed as Company Secretary in 2006.
A chartered secretary, he joined the Group in 1997 and was previously
Company Secretary of Menzies Aviation plc. His career has also
included posts at Bank of Scotland and Guinness plc. Age 38.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Governance
Corporate Governance Statement
The Board is committed to maintaining high standards of corporate governance.
The Company has applied throughout the year under review all the provisions of Section 1 of the Combined Code of Corporate
Governance 2003 (the “Code”), other than the provisions concerning committee independence explained below.
The Board
Composition
The Board currently consists of eight directors, six of whom are non-executive (including the Chairman) and two executive. The
roles of the Chairman and Chief Executive are separate and clearly defined. Non-executive directors are appointed for an initial
term of three years, and all directors are required under the Articles to retire and offer themselves for re-election at least every
three years.
Independence
Three of the non-executive directors, David Coltman, Iain Robertson and Octavia Morley, are independent under the terms of the
Code, where the number required for smaller companies is two. Michael Walker retired as a director and as Senior Independent
Director on 25 May 2006, and David Coltman was appointed Senior Independent Director in his place.
Dermot Jenkinson and Ian Harrison are not independent under the terms of the Code due to their shareholding and length of
service. However, they continue to provide an invaluable source of advice and support to the Board and its committees. They not
only represent the continuing involvement of the founding Menzies family, but also contribute effectively to the Board and the
work of its committees. They bring to the Board a breadth of skills and experience from their knowledge of the Company, and
from their backgrounds in business and general management.
At least two of the members on each of the Audit and Remuneration Committees are independent (being a majority) including
the chairman of these committees. The Nominations Committee only has one independent member and in this respect it is not
fully compliant with the Code. However, the Board feels that given the current challenges faced by, and the continuing changing
shape of, the Company, the current structure and composition of the Board and of the Nominations Committee is appropriate.
Board and Committee meetings and attendance in 2006
W R E Thomson
P J Macdonald
P B Dollman
D A Coltman
D J Jenkinson
I C L Harrison
O K Morley
I S Robertson
M J Walker (ret’d)
Board
10/10
10/10
10/10
10/10
10/10
10/10
8/8
10/10
4/4
Nominations
Committee
2/2
–
–
1/1
2/2
–
–
–
1/1
Audit
Committee
–
–
–
–
2/2
4/4
2/2
4/4
–
Remuneration
Committee
–
–
–
3/3
2/2
1/1
2/2
–
0/1
A description of the Board’s committees is provided below, and the chairman and membership of each committee can be found
in the Directors’ biographies on pages 28 and 29.
The Board met ten times in 2006 and has a formal schedule of matters specifically reserved to it for decision. These include:
strategic plans, the approval of financial statements, acquisitions and disposals, major non-recurring projects and major capital
expenditures. It also delegates specific responsibilities with written terms of reference to the Board Committees detailed below.
Information of an appropriate quality is issued in a timely manner to assist the Board in performing its duties. New directors
receive an appropriate induction tailored to their needs. All members of the Board have access to the advice and services of the
Company Secretary and may take independent professional advice as appropriate at the expense of the Company.
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Business Review
Governance
Financial Statements
Shareholder Information
At least one meeting of the Board each year is held at an operating division’s offices, and directors are encouraged to visit
both divisional operations at other times, and to undertake such activities and training as is appropriate or may be required
or desirable in order to carry out their duties.
Board Performance Evaluation
The Board is supportive of the principles and provisions of the Code on Board Performance Evaluation, and first undertook a
rigorous process of performance evaluation of the whole Board and of its individual members in December 2004/January 2005,
with the assistance of external consultants.
The Board’s policy is to conduct performance evaluations internally on an annual basis, using external consultants to refresh
the process every 3 – 5 years.
A formal performance evaluation was undertaken during 2006 using specially designed questionnaires, and the process
was extended to include its committees. The results of the questionnaires were reviewed by the Board and the Chairman
also met with Board members individually.
The non-executive directors held one meeting last year without the Chairman being present at which his performance was
reviewed.
Communication with Shareholders
The Board has developed a comprehensive programme to ensure that effective communication with shareholders, analysts and
the financial press is maintained throughout the year. Through its annual and interim reports, results and other announcements,
as well as through presentations to institutional shareholders and the dissemination of information via the Group’s website at
www.johnmenziesplc.com, the Board seeks to present its strategy and performance in an objective and balanced manner.
Shareholders attending the Annual General Meeting are invited to ask questions during the meeting and also to meet the
directors after the formal business of the meeting has concluded. The Chairmen of the Audit and Remuneration Committees
are also available to answer questions from any shareholder at the meeting. Full details of proxy votes cast on each resolution
are made available to shareholders at the meeting and, in keeping with best practice, are made available on the Company’s
website after the meeting.
The Board receives reports at each of its meetings on any meetings held with shareholders or analysts, and the Chairman
and Senior Independent Director are also available for contact by shareholders at any time.
Board Committees
The Board has established committees with defined terms of reference. The Board’s policy on the membership of its
committees is that all non-executive directors should contribute and to keep membership fresh one member of each
committee be changed every two years. Accordingly, no change to existing committee membership is proposed for 2007.
The Nominations, Remuneration and Audit Committees each consist of three non-executive directors. The chairmen of the
Audit and Remuneration Committees will be chosen from directors who are independent under the terms of the Code, and
it is the Board’s intention that they will serve for three years. The inclusion of Dermot Jenkinson on the Remuneration and
Nominations Committees and of Ian Harrison on the Audit Committee respectively does not comply with the Code and an
explanation is given above.
The Board has also delegated operational matters to an Executive Committee.
Nominations Committee
The Nominations Committee has terms of reference modelled closely on those set out in the Code, and its responsibilities
include recommending new Board appointments and succession planning. The Chief Executive normally attends each meeting.
A copy of the terms of reference is available on the Company’s website.
The Board as a whole is responsible for making new appointments to the Board on the recommendation of the Nominations
Committee and for nominating recommended candidates for election by shareholders on first appointment and thereafter
for re-election at relevant intervals.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Governance
(continued)
The Committee at one of its meetings held in 2006 reviewed the structure, balance and composition of the Board and its
committees, and concluded that these remained appropriate.
Remuneration Committee
The Report on Directors’ Remuneration on pages 35 to 40 details the constitution and role of the Remuneration Committee,
and how the principles of the Code relating to directors’ remuneration have been applied.
Audit Committee
The Audit Committee assists the Board in the execution of its responsibilities for corporate governance and internal control,
and has adopted terms of reference modelled closely on those set out in the Code. The Group Finance Director and certain
senior financial executives as appropriate, together with representatives from the internal and external audit teams, attend
each meeting. A copy of the terms of reference is available on the Company’s website.
A full description of the work of the committee, including details of how it has discharged its responsibilities, appears below.
Executive Committee
The Executive Committee is chaired by the Chief Executive and consists of the executive directors together with the managing
director of each division and certain senior executives. It is responsible for the implementation of strategy and plays a central
role in planning, budgeting, and risk identification and management within the Group’s operations. It normally meets twelve
times a year.
The members of this Committee are shown on page 29.
Internal Control
The directors are responsible for the Group’s system of internal control, which covers financial, operational and compliance
controls together with risk management. Whilst no system can provide absolute guarantee and protection against material loss,
the system is designed to give the directors reasonable assurance that problems can be identified promptly and remedial action
taken as appropriate. The directors, through the Board’s review of risk and the work of the Audit Committee, have reviewed the
effectiveness of the system of internal control for the accounting period under review and consider that it accords with revised
guidance. There were no material weaknesses in the Group’s system of internal control relating to financial control during the
year.
The key features of the Group’s internal control system are:
Control Environment
A key factor in the Group’s approach to internal control is the recognition of the need for risk awareness and the ownership
of risk management by executives at all levels. Each operating division has its own Board. A Statement of Group Policies
and Procedures sets out the responsibilities of these Divisional Boards, including authority levels, reporting disciplines and
responsibility for risk management and internal control. Certain activities, including treasury, taxation, insurance, pension
and legal matters are controlled centrally with reports reviewed by the Board as appropriate.
Risk Identification and Review
Key identified risks, both financial and non financial (the latter including environmental, social and governance “ESG” risks),
are reviewed by the Board as well as at operating Divisional Board level on an ongoing basis, with a formal annual review
of risks and controls taking place, supported by the Group’s Controls Assurance provider (described further on page 33). The
Executive Committee also reviews each division’s performance, strategy and risk management. Annual compliance statements
on internal control are certified by each Divisional Board. A Treasury Review Committee meets regularly to review the adequacy
of the Group’s facilities against potential utilisation and commitments, as well as to monitor and manage the Group’s exposure
to interest rate and currency movements. Further details on how the Board manages ESG risks in particular is given in the
Corporate Social Responsibility report on pages 21 to 27.
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PB
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Financial Reporting
There is a comprehensive Group-wide system of financial reporting. Figures reported include profit, cash flows, capital
expenditure, balance sheet and relevant performance indicators. Each operating division prepares an annual budget which is
approved by the Board. Thereafter a formal re-forecasting exercise is undertaken at least twice during the year. Actual monthly
results are monitored against budget, forecasts and the previous year’s results. Any significant variances are investigated and
acted upon as appropriate.
Investment Appraisal
There are clearly defined investment guidelines for capital expenditure. All such expenditure is subject to formal authorisation
procedures, with major proposals being considered by the Board. Post investment appraisals are conducted for all material capital
projects.
Audit Committee
The Audit Committee plays a critical role within the Company’s system of internal control and risk management and a full
description of its work is given below.
A description of the remit and work of the Audit Committee
The members of this committee, together with biographical information, are identified on page 28.
The Committee has delegated authority from the Board for ensuring adherence to the Code provisions and related guidance
concerning the following matters which it is responsible for:
•
monitoring the integrity of the financial statements and reviewing significant accounting policies, judgements and estimates
contained within them;
reviewing the effectiveness of the internal control and risk management systems, including control over financial reporting;
reviewing the effectiveness of the internal audit function, including the business risk programme;
reviewing the Group’s policies and practices concerning business conduct, ethics and integrity and on whistleblowing; and
overseeing all aspects of the relationship with the external auditors, including their appointment, the audit process, the
supply of non audit services and monitoring their effectiveness and independence.
•
•
•
•
The Committee met four times in 2006 and a full report of its activities and of findings and recommendations from each
meeting is given to the Board.
During the year, the Committee formally reviewed and approved (prior to the Board) draft annual and interim reports (including
the statements on internal control and the work of the Committee), associated preliminary and interim results announcements
and the two trading statements made by the Company. This aspect of its work focused on key accounting policies, estimates and
judgements, including on significant or unusual transactions or changes to these. In doing so the Committee reviewed the reports
of management and the controls assurance (internal audit) provider and took into account the views of the external auditors.
The Committee also reviewed the Group’s internal control structure, approved the scope of work of and fees for the controls
assurance provider and debated whether the internal audit function should be brought in-house. It concluded that due to the
complexity of the Group’s business and the international nature of the aviation business, the internal audit function was best
served by continuing to outsource to Deloitte, given their global spread and resources.
Findings from the internal audit programme (on financial and key non financial risks) and areas identified for improvement
are reviewed by the Committee and prioritised for action by management. The Committee reviews follow-up reports from
management to ensure that any weaknesses identified in internal audit reports submitted to it are fully addressed and that
improved procedures are adopted.
The Committee also reviewed the work of management on updating the Group’s Business Risk register, which involved assessing
key risks at Group and Divisional level according to their significance, likelihood and impact, as well as the Company’s exposure
to and management of these risks. After taking into account reports from the controls assurance provider, the Committee was
satisfied that management had appropriate risk management strategies and systems in place to address these.
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33
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Corporate Governance
(continued)
The Committee reviewed and approved the audit plan as well as the findings of the external auditors from its review of the
interim announcement and its audit of the annual financial statements. It also assessed the effectiveness of the external
auditors and of the audit process through meetings and interviews with management and key finance staff. As part of this,
it keeps under review the objectivity and independence of the external auditors and the nature and extent of the non-audit
services which they provide. These services consist mainly of acquisition-related due diligence, where their knowledge of the
Group’s business processes and controls makes them best placed to undertake this work cost-effectively on the Group’s behalf.
The external auditors do not deal with the Group’s tax affairs. The Committee believes that the level and scope of these
non-audit services does not impair the objectivity of the auditors.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Report on Directors’ Remuneration
Remuneration Committee
The Remuneration Committee (“the Committee”) determines the remuneration of the Chairman, the executive directors and the
managing directors of each division on behalf of the Board. It has formal Terms of Reference set by the Board modelled on the
Combined Code, which are displayed on the Company’s website.
The Committee’s membership is shown on page 28 and no change is proposed for 2007. David Coltman will therefore continue
to chair the Committee until the expiry of his three year term, subject to the requirement to retire by rotation. The Company
Secretary is the secretary of the Committee.
Patrick Macdonald, Chief Executive, attends meetings as appropriate. Paul Dollman, Group Finance Director, who also has
responsibility for executive remuneration, attends meetings as appropriate. Research commissioned from Kepler Associates was
used by the Committee in its determination of executive bonus payments and review of executive remuneration. No legal advice
was sought by the Committee during the year.
Members of the Committee have no personal financial interest other than as shareholders in the matters to be decided and no
day-to-day involvement in the running of the business of the Group.
The Board extended its review of its own performance to the performance of the Committee during the year. The evaluation
questionnaires from each Committee member indicated that there were no significant matters concerning the operation of the
Committee that needed addressing.
Annual General Meeting
A resolution to approve this report will be tabled at the AGM. The Chairman of the Committee is available to answer questions
from shareholders on the decisions of the Committee.
Remuneration Policy and Practice
The Group recognises that its continuing success depends on the quality and motivation of its employees. The Group aims to
ensure that its remuneration practices are competitive, thereby enabling it to attract, retain and motivate executives who have
the experience, skills and talents to operate and develop its businesses to their maximum potential.
The Committee applies these principles with regard to the executive directors and to the managing directors of each division,
and also reviews the policies underlying the remuneration of senior executives. Directors’ salaries are maintained at competitive
levels for comparable positions based on information provided by Kepler Associates reflecting, where appropriate, the
international nature of the business. Additional rewards for success are built into the remuneration package through incentives
designed to share with these directors any increasing profitability of the Group and increased wealth generated for shareholders.
The Company introduced new incentive arrangements, including various share incentive plans, in 2005. In considering and
determining suitable remuneration packages for the executive directors the Committee has given full consideration to the
relevant best practice provisions set out in the Combined Code. The Committee also determines the extent to which all
performance targets are met, using research findings as described above.
The Committee was asked to review the Company’s remuneration and incentive structures for executive directors and other
senior executives towards the end of last year. It was felt by the Board that the Company’s existing incentive schemes did not
operate as well as was intended. On the Committee’s recommendation, the Board is proposing to adopt a new 2007 Divisional
Performance Share Plan (“DPSP”) to augment the Company’s existing share incentive plans as part of the Company’s policy
of ensuring that its remuneration practices remain competitive. Executive directors and other senior executives will only be
awarded conditional shares either under this new plan or the 2005 Performance Share Plan and not both.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Report on Directors’ Remuneration
(continued)
The DPSP is the same in practically all respects as the 2005 Performance Share Plan, except that the performance conditions
are based on the achievement of targeted Divisional Financial Results (“DFR”), rather than Total Shareholder Return. The DFR are
set at threshold and stretch level; at the stretch level, the performance target has been externally verified by Kepler Associates
as being equivalent to achieving upper quartile performance. For Menzies Distribution, the DFR are based on operating profit,
reduction in operating costs and income from new revenue streams, and for Menzies Aviation the DFR are based on operating
profit.
Further details of the DPSP are set out on pages 88 to 89, with a summary provided on page 86.
Basic Salary and Benefits
Salaries are reviewed annually, on appointment, or on change in position or responsibility. In addition to salary, the executive
directors may receive additional benefits covering car allowance, private medical insurance and life cover. Patrick Macdonald also
receives a cash allowance in place of any pension entitlement above the ‘earnings cap’.
Annual Bonus Scheme
The executive directors participate in a discretionary bonus scheme which is subject to the achievement of challenging
Group and individual business and personal targets designed to encourage excellent performance. Bonus payments are
non-pensionable.
The 2006 bonus scheme contained performance targets that were de-linked from budget, and include Threshold, Target and
Stretch levels derived from a review of the historical and projected performance of the Group and its peers together with an
analysis of analysts’ expectations. The Stretch level represents upper quartile performance.
The calculation of bonus awards was also de-linked from salary, with payment of £75,000 on achieving Target for the
Chief Executive and £50,000 for the other executive director, increasing on a straight line basis to a maximum payment of three
times these amounts for performance between Target and Stretch.
Bonus entitlement commences at Threshold and increases on a straight line basis. Up to 20% of any entitlement is dependent
on the extent to which identified personal key result areas are achieved.
Bonus awards for 2006 performance were made to Patrick Macdonald (£40,500) and Paul Dollman (£28,800).
Bonus Co-investment Plan
Executive directors may elect to invest up to 50% of their annual bonus in shares of the Company which qualify for an award
of up to 2:1 matching shares dependent on achieving a performance target set prior to election.
The performance target for the 2006 Plan is for real 3%-8% per annum EPS growth above the Group’s 2005 EPS over the three
years to December 2008, with the number of shares vesting being calculated on a straight-line basis from a nil award at 3% to
a full award at 8%. Any dividends accrued on shares which vest are paid in cash on vesting.
Patrick Macdonald and Paul Dollman purchased shares under the Plan in 2006, and the John Menzies Employee Benefit Trust
holds sufficient shares to cover any shares which may vest.
Performance Share Plan
Executive directors and the managing directors of each division are awarded a number of conditional shares annually under the
Performance Share Plan (“PSP”) as determined by the Committee. The number of shares involved is reviewed each year but has
not changed since the plan was introduced in 2005. The maximum number of conditional shares which may be awarded to any
individual under the rules of the plan in any year is 100,000.
The shares awarded in 2006 will vest after three years if the Company’s TSR is equal to or outperforms the FTSE 250 Index TSR
for the three years to December 2008. The number of shares to vest will be based on the extent of any outperformance, with
shares vesting on a straight line basis up to 100% of the award for performance at 30% above the Index’s TSR. Any dividends
accrued on shares which vest are paid in cash on vesting.
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37
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Executive directors and the managing directors of each division will only be awarded a number of conditional shares under either
the proposed Divisional Performance Share Plan or the existing PSP and not both.
The John Menzies Employee Benefit Trust holds sufficient shares to cover any shares which may vest under both this PSP and the
proposed new plan.
Share Options
Prior to the introduction of the above share schemes in 2005, share options were granted to each executive director normally
on an annual basis at a level of one times salary. All grants were discretionary, and awards could be varied depending on specific
circumstances.
Paul Dollman and Patrick Macdonald were granted options at three times salary during 2002 and 2003 respectively, reflecting
market conditions at the time of their recruitment, and awards of one times salary in 2004. These awards were subject to
EPS-based performance conditions which have now been fully met.
Service Contracts
The executive directors have service contracts with the Company, the dates of which are listed in the table of remuneration
below. The Group’s practice on notice periods is that they should be for an initial period of two years following appointment,
reducing thereafter to 12 months’ notice, with any termination payment restricted to the actual loss incurred by the director.
All executive directors who served during the year have or had service contracts on this basis.
The Remuneration Committee considers that the notice periods stated above are reasonable and in the interests of shareholders
having due regard to prevailing market conditions and practice among companies of comparable size.
Non-executive Directors
The remuneration of the non-executive directors is determined by the Board on the recommendation of the Chief Executive on
an annual basis and takes account of market rates based on independent advice as required. The non-executive directors and the
Chairman do not have service contracts, being appointed for an initial period of three years, subject to review thereafter, and do
not participate in any of the Group’s bonus, share or pension schemes.
Performance Graph
The following graph compares the Company’s total shareholder return for the five years to December 2006 with the equivalent
performance of the FTSE 250 Index. The directors consider that, given the scale and global spread of the businesses within the
Group, the most appropriate comparison is with this index.
FTSE250
Menzies
225
200
175
150
125
100
75
50
Dec 01
Dec 02
Dec 03
Dec 04
Dec 05
Dec 06
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Report on Directors’ Remuneration
(continued)
The following sections of this Report have been audited.
Directors’ Emoluments
Directors’ emoluments for the year to 30 December 2006 (31 December 2005) were:
Salary/fees
Benefits
Bonus
Total
Date of
appointment (a)
2006
£’000
2005
£’000
2006
£’000
2005
£’000
2006
£’000
2005
£’000
2006
£’000
2005
£’000
25.5.06
25.8.02
8.8.02
Chairman
W R E Thomson
Executive Directors
P J Macdonald (b)
P B Dollman
Non-executive Directors
25.5.06
D J Jenkinson
25.5.06
I C L Harrison
30.4.04
D A Coltman
I S Robertson
28.4.05
O K Morley (first appointed 1.4.06) 25.5.06
28.4.05
M J Walker (retired 25.5.06)
122
116
371
257
31
33
49
36
23
13
935
362
250
29
35
47
33
–
31
903
–
80
17
–
–
–
–
–
–
97
–
73
15
–
–
–
–
–
–
88
–
41
29
–
–
–
–
–
–
70
–
122
116
53
43
–
–
–
–
–
–
96
492
303
488
308
31
33
49
36
23
13
1,102
29
35
47
33
–
31
1,087
Notes
(a) For executive directors, this is the date of their service contract, and for non-executive directors, the date of appointment
or latest date of re-election to the Board.
(b) Provision of pension benefits under the Group’s approved pension arrangements is restricted as a consequence of the
Finance Act 1989 (the ‘earnings cap’). Patrick Macdonald elected to receive a salary supplement in lieu of the balance of
his pension entitlement amounting to £57,111 (2005: £55,630) which is included in his total of benefits.
Share Plans
P J Macdonald
P B Dollman
At 31 Dec
2005
360,577
97,856
45,000
9,886
2,683*
410*
205,166
58,714
30,000
11,559
2,680*
606*
78*
1,561*
–
Granted
during
year
–
–
45,000(d)
5,906(e)
–
–
–
–
30,000(d)
4,816(e)
–
–
–
–
510*
Exercised
during
year (a)
–
–
–
–
2,683
–
–
–
–
–
2,680
606
–
–
–
Market
price at
date of
exercise
(pence)
–
–
–
–
490
–
–
–
–
–
510.5
470
–
–
–
Lapsed
during
year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 30 Dec
2006
360,577(b)
97,856(c)
90,000
15,792
–
410*
205,166(b)
58,714(c)
60,000
16,375
–
–
78*
1,561*
510*
Exercise
(pence)
Date
price exercisable
Expiry
from
date
312 13/05/06 12/05/13
418 07/05/07 06/05/14
286 01/12/06 01/06/07
388 01/12/07 01/06/08
329 08/11/05
07/11/12
418 07/05/07 06/05/14
275 01/11/05 01/05/06
286 01/12/06 01/06/07
388 01/12/07 01/06/08
467 01/12/08 01/06/09
348 01/12/09 01/06/10
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Governance
Financial Statements
Shareholder Information
Notes
(*) Other than where indicated, all the above options were granted under the Company’s executive share option schemes with
the exception of those items marked * which have been granted under the savings-related share option scheme. The cost
to the Company of these employee share-based plans is shown in note 20 to the accounts.
(a) The gain, measured as the difference between the option exercise price and the closing market value of the shares involved
on the day of exercise, made by Patrick Macdonald on exercise of his 2,683 savings-related options was £5,473, and that
made by Paul Dollman on exercise of his 2,680 and 606 savings-related options was £7,426 in aggregate.
(b) The performance conditions attaching to these options have been met in full. The options are exercisable on a sliding scale
if growth in headline earnings per share exceeds RPI plus 3%-8% per annum in the three years to December 2005, adjusted
to normalise pension and tax charges.
(c) The performance conditions attaching to these options have been met in full. The options are exercisable on a sliding scale
if growth in headline earnings per share exceeds RPI plus 3%-8% per annum in the three years to December 2006, adjusted
to normalise pension and tax charges.
(d) Award of conditional shares during the year under the Performance Share Plan, subject to performance conditions as noted
above, at a market price of 530p (2005: 582p), vesting on the day on which the Company announces its preliminary results
for the year to December 2008 (2005 share awards: December 2007).
(e) Award of conditional matching shares during the year under Bonus Co-investment Plan, subject to performance conditions
as noted above, at a market price of 530p (2005: 595p), vesting on the day on which the Company announces its preliminary
results for the year to December 2008 (2005 share awards: December 2007).
(f) The market price for shares in John Menzies plc ranged from 425p to 599p during the year and was 506p at 30 December 2006.
Pensions
Scheme Benefits
The executive directors are members of the Menzies Pension Fund, a contributory defined benefit scheme which provides
pension on retirement at age 60 of up to two-thirds of pensionable earnings, or the ‘earnings cap’ if lower, together with
additional benefits as below. Pensionable earnings are based on salary excluding bonuses.
Unfunded Arrangement
The pensionable salaries for Patrick Macdonald and Paul Dollman are restricted as a consequence of the ‘earnings cap’.
Patrick Macdonald has elected to receive a salary supplement in lieu of his unapproved pension entitlement. Paul Dollman has
an unfunded pension undertaking from the Company to provide in total the same level of pension as if the ‘earnings cap’ did
not apply. This entitlement is effective from his date of appointment as a director.
Pension details are as follows:
Director
P J Macdonald
P B Dollman (d)
Increase in
accrued
pension
during year
£’000 pa
4
8
Total accrued
pension
entitlement
at 30 Dec 2006 (a)
£’000 pa
15
37
Age
44
50
Transfer Value (b)(c)
30 Dec 2006
£’000
128
406
31 Dec 2005
£’000
88
295
Increase excl
members’
contributions
£’000
32
95
Notes:
(a) Accrued pension entitlements are the amounts which would be paid at normal retirement date if the director left service
as at 30 December 2006, with no allowances for increases in the period between leaving service and normal retirement date.
The entitlements disclosed above include unfunded benefits.
(b) Transfer values represent the value of the assets which the pension scheme (together with the Company where appropriate)
would need to transfer to another pension provider on transferring its liability in respect of the directors’ pension
entitlements. They do not represent sums payable to individual directors.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Report on Directors’ Remuneration
(continued)
(c) Transfer values have been calculated in accordance with ‘Retirement Benefit Schemes (GN 11)’ published by the Institute
of Actuaries and the Faculty of Actuaries. This methodology determines the values attributable to the deferred pensions
for younger members by reference mainly to the UK All-Share Index and for members nearing normal retirement date mainly
to the Gilts Over 15 Years Index and the Index-linked Over 5 Years (5% inflation) Index.
(d) The unfunded transfer value at 30 December 2006 relating to Paul Dollman, calculated on a cash equivalent transfer value
basis, totalled £244,700.
(e) The total of the transfer values for unfunded pension entitlements as above, held on the Company’s balance sheet at
30 December 2006 for current and former directors, calculated on an IAS 19 basis, totalled £710,114, from which an annual
pension of £15,915 p.a. is paid to former directors.
By order of the Board
J F A GEDDES
SECRETARY
19 March 2007
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41
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Directors’ Report
Principal Activities and Results
The principal activities of the Company and its subsidiaries (“the Group”) are the wholesale distribution of newspapers
and magazines and the provision of ground and cargo handling services at airports.
Business Review
The Company is required to produce a statutory business review of Group operations. A review of the Group’s business
performance, developments during the year and its position at the year end for the 52 weeks to 30 December 2006 is contained
on pages 6 to 20. The review incorporates a commentary on likely future developments, and on principal risks and uncertainties.
A separate review summarising the Group’s approach to employee, health and safety, and community and environmental
matters is contained in the Corporate Social Responsibility report on pages 21 to 27.
Directors and their Interests
The directors who served during the year are shown below. The directors as at the end of the financial year, and their
biographies, are shown on page 28. Their interests in the ordinary shares of the Company were as follows:
W R E Thomson
P J Macdonald
P B Dollman
D J Jenkinson
I C L Harrison
D A Coltman
O K Morley (appointed 1.4.06)
I S Robertson
M J Walker (retired 25.5.06)
Beneficial
Beneficial
Beneficial
Beneficial
See Note
Non-beneficial
Beneficial
See Note
Beneficial
Beneficial
Beneficial
30 December 2006
4,000
21,578
14,623
2,098,360
2,514,885
3,570,360
2,122,832
2,514,885
15,000
0
20,000
n/a
31 December 2005
4,000
13,693
8,929
2,098,360
2,514,885
3,570,360
2,122,832
2,514,885
15,000
n/a
20,000
1,000
Note: These holdings are joint beneficial interests.
In addition to the above holdings, William Thomson and Iain Robertson, as directors of a subsidiary which is a trustee
of employee benefit trusts in which they have no beneficial interest, have non-beneficial interests in 418,361 shares.
There have been no subsequent changes to these interests as at 19 March 2007.
No director had any material interest in any contract, other than a service contract as set out on page 37.
Under the Company’s Articles of Association, a third of the Board, or a number nearest to a third, must retire by rotation.
Additionally, the Combined Code requires non-executive directors serving for more than 9 years to offer themselves up for
annual re-election. The directors who retire and, being eligible, offer themselves for re-election at the Annual General Meeting
(“AGM”) are William Thomson, David Coltman, Dermot Jenkinson and Ian Harrison.
All four directors have undergone a formal performance evaluation and the performance of each continues to be effective
and to demonstrate commitment to their role including commitment of time for Board and committee meetings and their
other duties.William Thomson, who is Chairman, has extensive leadership skills and experience, and provides highly valued
advice and support to the executive management team. David Coltman, who is Senior Independent Director, has international
experience and commercial expertise and knowledge particularly in the aviation sector. Dermot Jenkinson contributes from
his breadth of experience gained from his knowledge of the Company and through a wide range of general management roles.
Ian Harrison provides counsel and support to the Board and brings particular skills relating to pension investment and currency
management. The latter two also represent the interests of our major shareholder.
The Board recommends to shareholders re-elections of William Thomson, David Coltman, Dermot Jenkinson and Ian Harrison.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Directors’ Report
(continued)
Directors’ and Officers’ Liability Insurance
The Company maintains liability insurance for the directors and officers of the Company and its subsidiaries. No director
or officer was in receipt of any indemnity from the Company during the year.
Substantial Shareholdings
In addition to the directors’ interests, the Company has been notified of the following interests of three per cent or more
in its issued ordinary share capital as at 19 March 2007.
D C Thomson & Co. Ltd
The estate of the late Mr J M Menzies
Ameriprise Financial Inc and its group
(Threadneedle Asset Management Ltd)
Mr D F Ramsay
Mrs S J Speke
Mrs K P Slater
Legal & General Group plc
Number of
Shares
5,190,000
4,189,650
Percentage of
Issued Capital
8.7
7.1
3,419,800
2,589,878
2,039,920
1,981,552
1,802,931
5.9
4.4
3.4
3.3
3.0
Share Incentive Schemes
The Company operates various share incentive schemes for its directors, information on which is shown in the Remuneration
Report. It also operates share incentive schemes for its executives, and a save-as-you-earn scheme for its UK employees, details
on which are set out in Note 20 to the Accounts on pages 69 to 73.
Dividends
The directors recommend the payment of a final dividend of 14.4p per ordinary share, payable on 29 June to members on
the Register as at the close of business on 1 June 2007. The shares will be quoted as ex-dividend on 30 May 2007.
This final dividend, together with the interim dividend of 6.1p per ordinary share paid on 30 November 2006, makes a total
dividend of 20.5p per ordinary share for the year ended 30 December 2006.
Directors’ Responsibilities and Going Concern
The directors are required by law to prepare financial statements for each financial year which give a true and fair view of the
state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss and cash flows of the
Group for the financial year then ended.
In preparing the financial statements the directors are required to:
• maintain adequate accounting records;
•
apply suitable accounting policies in a consistent manner and make reasonable and prudent judgements and estimates where
necessary;
comply with the provisions of the Companies Act 1985 and International Financial Reporting Standards as adopted by the
European Union;
•
• prepare the financial statements on a going concern basis.
The directors are satisfied that, after making appropriate enquiries, the Group has adequate resources to continue in business
for the foreseeable future and, accordingly, consider that it is appropriate to adopt the going concern basis in preparing the
financial statements.
The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors
are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Disclosure of information to and reappointment of Auditors
The directors have confirmed that they are confident that, so far as they are aware, there is no relevant audit information
of which the Company’s auditors are unaware. The directors have confirmed that they have taken all steps that ought to have
been taken in order to make themselves aware of any relevant audit information and to establish that the Company’s auditors
are aware of that information.
A resolution to re-appoint PricewaterhouseCoopers LLP as auditors to the Company and authorising the Board to set their
remuneration will be proposed at the AGM.
Supplier Payment Policy
The Group does not operate a standard code in respect of payments to suppliers. Each division is responsible for agreeing the
terms and conditions under which business transactions with its suppliers are conducted, including the terms of payment. It is
Group policy that payments to suppliers be made in accordance with the agreed terms, provided that the supplier has performed
in accordance with all relevant terms and conditions.
At the year end, the amount owed to trade creditors by the Group was equivalent to 32.8 days (2005: 34.0 days) of purchases
from suppliers.
Donations
It is the Company’s policy not to make political donations, and no political donations were made during the year (2005: nil).
Details of charitable donations made by the Group are contained in the Corporate Social Responsibility report on page 27.
The total amount donated in 2006 was £112,000 (2005: £125,000).
Annual General Meeting
The Notice of Meeting and explanations of the Special Business to be transacted at the Annual General Meeting which will
be held on 24 May at the Roxburghe Hotel, Edinburgh can be found on pages 85 to 92 of this Annual Report.
By order of the Board
J F A GEDDES
SECRETARY
19 March 2007
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Independent Auditors’ Report
To the Members of John Menzies plc
We have audited the Group and Parent Company financial statements (the ‘‘financial statements’’) of John Menzies plc for the
year ended 30 December 2006 which comprise the Group Income Statement, the Group and Parent Company Balance Sheets,
the Group and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Recognised Income and
Expense and the related notes. These financial statements have been prepared under the accounting policies set out therein.
We have also audited the information in the Directors’ Remuneration Report that is described as having been audited.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements
in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are
set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in
accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This
report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section
235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial
statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance
with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also report
to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.
The information given in the Directors’ Report includes that specific information presented in the Business Review that
is cross referred from the Business Review section of the Directors’ Report.
In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration
and other transactions is not disclosed.
We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the
Combined Code (2003) specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does
not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an
opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. The other information comprises only the Chairman’s Statement, the Chief Executive’s Review, the Business Review,
the Corporate Governance Statement, the Directors’ Report and the unaudited part of the Directors’ Remuneration Report. We
consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the
financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary
in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the
Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity
or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial
statements and the part of the Directors’ Remuneration Report to be audited.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Opinion
In our opinion:
•
•
•
the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union,
of the state of the Group’s affairs as at 30 December 2006 and of its profit and cash flows for the year then ended;
the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European
Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the Parent Company’s affairs
as at 30 December 2006 and cash flows for the year then ended;
the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in
accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation;
and the information given in the Directors’ Report is consistent with the financial statements.
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND REGISTERED AUDITORS
EDINBURGH
19 March 2007
Notes:
(a) The maintenance and integrity of the John Menzies plc website is the responsibility of the directors; the work carried out
by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group Income Statement
for the year ended 30 December 2006 (year ended 31 December 2005)
Revenue
Net operating costs
Operating profit
Share of post-tax results of joint ventures and associates
Operating profit after joint ventures and associates
Analysed as:
Underlying operating profit
Exceptional items
Intangible amortisation
Share of tax on joint ventures and associates
Operating profit after joint ventures and associates
Finance income
Finance charges
Profit before taxation
Taxation
Profit for the year
Attributable to equity shareholders
Attributable to minority interests
Earnings per ordinary share
Basic
Diluted
Notes
2
3
2
2
5
5
7
7
8
10
Statement of Recognised Income and Expense
for the year ended 30 December 2006 (year ended 31 December 2005)
Profit for the year
Actuarial gain / (loss) on defined benefit pensions
Deferred tax associated with defined benefit pensions
Net exchange adjustments
Net gains / (losses) not recognised in Income Statement
Total recognised income for the year
Attributable to equity shareholders
Attributable to minority interests
Notes
4
2006
£m
1,450.4
(1,416.4)
2005
£m
1,362.1
(1,327.7)
34.0
2.7
36.7
36.9
3.0
(2.2)
(1.0)
36.7
15.6
(16.7)
35.6
(8.4)
27.2
27.0
0.2
27.2
34.4
3.2
37.6
40.3
–
(2.1)
(0.6)
37.6
13.8
(14.7)
36.7
(8.7)
28.0
27.7
0.3
28.0
46.4p
46.1p
48.2p
47.7p
2006
£m
27.2
23.4
(7.0)
(1.7)
14.7
41.9
41.7
0.2
41.9
2005
£m
28.0
(9.6)
2.9
0.1
(6.6)
21.4
21.1
0.3
21.4
The parent company Statement of Recognised Income and Expense includes the profit for the year of £31.1m (2005: £23m)
and a net actuarial gain on defined benefit pensions of £16.4m (2005: a net actuarial loss of £6.7m). There are no minority
interests in the parent company.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group and Company Balance Sheets
as at 30 December 2006 (31 December 2005)
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Derivative financial assets
Deferred tax assets
Retirement benefit obligations
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Derivative financial liabilities
Trade and other payables
Current income tax liabilities
Net current (liabilities) / assets
Total assets less current liabilities
Non-current liabilities
Borrowings
Other payables
Derivative financial liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligations
Net assets
Shareholders’ equity
Ordinary shares
Share premium account
Investment in own shares
Retained earnings
Capital redemption reserve
Total shareholders’ equity
Minority interest in equity
Total equity
Group
Company
Notes
2006
£m
2005
£m
2006
£m
2005
£m
11
12
13
16
19
4
14
16
16
16
15
16
15
16
19
19
4
20
21
21
21
21
22
59.0
133.3
18.9
0.3
3.8
5.4
25.6
121.1
22.8
0.1
13.8
–
–
39.0
99.8
0.3
–
5.4
–
36.8
98.8
0.1
9.8
–
220.7
183.4
144.5
145.5
12.0
110.8
1.5
18.8
13.0
97.9
0.6
22.0
–
152.6
1.5
0.5
–
108.0
0.6
7.5
143.1
133.5
154.6
116.1
(8.8)
(0.4)
(153.1)
(9.8)
(21.3)
(0.5)
(145.9)
(14.1)
(4.9)
(0.4)
(94.3)
(3.0)
(19.4)
(0.5)
(105.0)
(2.1)
(172.1)
(181.8)
(102.6)
(127.0)
(29.0)
(48.3)
52.0
(10.9)
191.7
135.1
196.5
134.6
(88.3)
(0.9)
(0.1)
(7.0)
(3.2)
–
(99.5)
92.2
14.8
12.6
(3.5)
46.3
21.6
91.8
0.4
92.2
(33.2)
–
(0.5)
(7.2)
(2.1)
(32.6)
(75.6)
(88.2)
–
(0.1)
–
(2.4)
–
(33.1)
–
(0.5)
–
(0.5)
(32.6)
(90.7)
(66.7)
59.5
105.8
67.9
14.7
10.9
(3.5)
15.5
21.6
59.2
0.3
14.8
12.6
–
56.8
21.6
105.8
–
14.7
10.9
–
20.7
21.6
67.9
–
59.5
105.8
67.9
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The accounts were approved by the Board of Directors on 19 March 2007 and signed on its behalf by:
Patrick Macdonald, Chief Executive
Paul Dollman, Group Finance Director
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group and Company Cash Flow Statements
for the year ended 30 December 2006 (year ended 31 December 2005)
Cash flows from operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing activities
Loan repaid by joint venture
Acquisition of subsidiaries
Net cash acquired with subsidiaries
Purchase of property, plant and equipment
Intangible asset additions
Proceeds from sale of property, plant and equipment
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Finance lease additions
Repayment of borrowings
Proceeds from borrowings
Dividends paid to ordinary shareholders
Dividends paid to minority interests
Amounts provided to subsidiaries
Net cash from / (used in) financing activities
Notes
23
25
25
24
24
29.7
2.1
(5.5)
(8.5)
17.8
0.1
(38.1)
1.1
(25.4)
(0.5)
1.1
4.1
Group
Company
2006
£m
2005
£m
2006
£m
2005
£m
47.5
2.5
(4.5)
(4.6)
(14.5)
1.7
(5.4)
(3.3)
(5.6)
1.7
(3.8)
(2.3)
40.9
(21.5)
(10.0)
–
(0.8)
–
(22.1)
(0.6)
1.6
4.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57.6)
(17.9)
1.8
0.1
(15.3)
58.9
(11.6)
(0.1)
–
33.8
3.5
–
(11.3)
3.4
(10.9)
(0.2)
–
(15.5)
1.8
–
(15.2)
58.9
(11.6)
–
(20.2)
13.7
3.5
–
(12.2)
20.1
(10.9)
–
(0.2)
0.3
(Decrease) / increase in net cash and cash equivalents
24
(6.0)
7.5
(7.8)
(9.7)
Effects of exchange rate movements
Opening net cash and cash equivalents
Closing net cash and cash equivalents*
(0.2)
18.7
12.5
–
11.2
18.7
(0.2)
5.9
(2.1)
–
15.6
5.9
24
*Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
1. Introduction and accounting policies
Accounting policies
Basis of consolidation
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 1985 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.
IFRS 1
IFRS 1 ‘First time adoption of International Financial Reporting
Standards’ requires that accounting policies be adopted that
are compliant with IFRS and that these policies be applied
retrospectively to all periods presented. IFRS 1 does, however,
contain the option to take advantage of certain exemptions
to retrospective application.
The Group has elected to take the following permitted
exemptions:
(a) the acquisition accounting of business combinations
completed prior to the transition date has not been
restated. The net book value of goodwill as at the
transition date has been treated as the deemed cost
of goodwill under IFRS;
(b) the net book value at the transition date of those tangible
fixed assets that were revalued prior to the transition date
has been treated as deemed cost;
(c) IFRS requires the tracking of all cumulative foreign
exchange adjustments taken to reserves. These amounts
are reversed upon any subsequent disposal of the business
to which it relates. The cumulative translation differences
at the transition date are assumed to be zero;
(d) the provisions of IFRS 2 ‘Share Based Payment’ have been
applied only to awards made after 7 November 2002.
In addition, the Group has adopted ‘Amendments to
IAS 19 Employee Benefits’. The Group has selected the
option available within this standard, similar to FRS 17 under
UK GAAP, for immediate recognition of all actuarial gains and
losses outside of the Income Statement in the Statement
of Recognised Income and Expense.
The Group prepared its consolidated financial statements
for 2005 under UK GAAP, supplemented with pro-forma IFRS
financial information. This was to comply with the Companies
Act 1985 (as amended November 2004) and was a result
of the accounting year commencing on 26 December 2004,
prior to the IFRS adoption date of 1 January 2005.
The Group now presents its first full-year IFRS-compliant
Report and Accounts. Comparative IFRS financial information
is presented for the year ended 31 December 2005, as the date
of transition to IFRS for the Group was 26 December 2004,
being the first day of the comparative period. UK GAAP to IFRS
reconciliations are also presented in this Report and Accounts.
In accordance with Section 230 of the Companies Act 1985
no income statement is presented for the Company.
A summary of the more significant accounting policies,
which have been consistently applied, is set out below.
The following new standards, amendments to standards
and interpretations have been issued but are not effective
for 2006 and have not been adopted early:-
IFRS 7 ‘Financial Instruments: Disclosures’ and IAS 1
‘Amendments to Capital Disclosures’, both effective for annual
periods beginning on or after 1 January 2007. The Group has
assessed the impact of IFRS 7 and the amendment to IAS 1, and
will apply IFRS 7 and the amendment to IAS 1 for annual periods
beginning 1 January 2007. These Standards are for disclosure
purposes only and will have no effect on reported results.
IFRIC 7 ‘Applying the Restatement Approach under IAS 29’,
effective for annual periods beginning on or after 1 March
2006. None of the Group’s subsidiaries has a functional
currency affected by hyperinflation. Management does
not expect the interpretation to be relevant for the Group.
IFRIC 8 ‘Scope of IFRS 2’, effective for annual periods beginning
on or after 1 May 2006. IFRIC 8 relates to transactions which
involve the issue of equity transactions where the identifiable
consideration received is less than the fair value of the equity
instruments issued. The Group will apply IFRIC 8 from 1
January 2007 but management does not expect it to have
any impact on the Group’s operations.
IFRIC 9 ‘Reassessment of Embedded Derivatives’, effective
for annual periods beginning on or after 1 June 2006.
Management believes that this interpretation should not
have a significant impact on the reassessment of embedded
derivatives as the Group already assesses whether embedded
derivatives should be separated using principles consistent
with IFRIC 9.
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Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
1. Introduction and accounting policies
(continued)
Taxation
Current tax is the amount of tax payable or recoverable
in respect of the taxable profit or loss for the period.
Revenue
Distribution – revenue is recognised on the weekly invoiced
value of goods sold, excluding value-added tax.
Aviation – cargo 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 in accordance
with when the service was performed. Revenue excludes
value-added and sales taxes, charges collected on behalf
of customers and intercompany transactions.
Property, plant and equipment
Property, plant and equipment is stated at cost, including
acquisition expenses, less accumulated depreciation.
Depreciation is provided on a straight-line basis at the
following rates:
Freehold and long leasehold properties – over 50 years
Short leasehold properties – over the remaining lease term
Plant and equipment – over the estimated life of the asset.
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 recognised income and expense.
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.
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, in which case it is recognised directly in equity.
Intangible assets
Goodwill
Goodwill arising on consolidation represents the excess
of the cost of an acquisition over the fair value of the Group’s
share of the net assets of the acquired subsidiary, associate
or joint venture at the date of acquisition. 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 immediately in the income
statement.
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Financial Statements
Shareholder Information
Goodwill arising on the acquisition of joint ventures and
associates is included within the carrying value of the
investment.
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.
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 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. At
Distribution, contracts capitalised are not amortised due to
the very long-term nature of the business in the UK. These
contracts are, however, tested annually for impairment using
similar criteria to the goodwill test. At Aviation, 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.
Development costs
Development expenditure incurred on individual projects
is carried forward only if all the criteria set out in IAS 38
“Intangible assets” are met. Following the initial recognition
of development expenditure, the cost is amortised over
the project’s estimated useful life, usually three 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 (charged 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.
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.
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. Direct costs include the costs of software development
employees. Costs are amortised over their estimated useful
lives.
Any differences arising on the translation of the opening net
investment, including goodwill, in overseas subsidiaries, joint
ventures and associates, and of applicable foreign currency
loans, are dealt with as adjustments to reserves. All other
exchange differences are dealt with in the income statement.
Derivative financial instruments and hedging activities
The Group uses forward contracts and cross-currency swaps
as derivatives to hedge the risk arising from the retranslation
of foreign currency denominated items.
The Group has derivatives which are designated as hedges of
overseas net investments in foreign entities (net investment
hedges) and derivatives which 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 our overseas operations (cash flow hedges).
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Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
1. Introduction and accounting policies
(continued)
In all cases, the derivative contracts entered into by
the Group have been highly effective during the reporting
period, and are expected to continue to be highly effective
until they expire. As a result, all derivatives have been
recorded using hedge accounting, which is explained below.
All derivatives are initially recorded on the balance sheet at fair
value either on transition from UK GAAP at 26 December 2004
or on the date they are entered into if that is a later date.
All derivatives are subsequently 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, however, the occurrence of the
transaction results in a non-financial asset or liability, then
amounts recycled from equity would be 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 would be 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 would
be posted to the income statement within finance costs.
Any ineffective portion of movements in the fair value of
hedging instruments is recognised in the income statement
within finance costs.
Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the
future. These estimates will, by definition, seldom equal the
related actual results. The Board has considered the critical
accounting estimates and assumptions used in the Accounts
and concluded that the main area of significant risk which
may cause a material adjustment to the carrying amount of
assets and liabilities within the next financial year is in respect
of the assumptions used to calculate pension benefits. The
assumptions include corporate bond yields, investment return,
price and salary inflation and mortality assumptions. Full
details of assumptions used to calculate the pension assets
and liabilities are found in Note 4.
Exceptional items
Exceptional items are those one-off and/or material items
which the Group considers should be highlighted due to their
scope and nature.
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.
These are more fully discussed in the Business Review on
pages 18 and 19.
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Statements
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Governance
Financial Statements
Shareholder Information
2. Segmental analysis
Primary business segments
2006
Revenue
Operating profit / (loss)
Share of post-tax results of joint ventures
Share of post-tax results of associates
Operating profit / (loss) after joint ventures and associates
Analysed as:
Underlying operating profit / (loss) *
Pension credit
Gain on exchange of contract rights
Rationalisation and integration costs
Contract amortisation (Note 11)
Goodwill impairment (Note 11)
Share of tax on joint ventures and associates
Operating profit / (loss) after joint ventures and associates
2005
Revenue
Operating profit / (loss)
Share of post-tax results of joint ventures
Share of post-tax results of associates
Operating profit / (loss) after joint ventures and associates
Analysed as:
Underlying operating profit / (loss) *
Goodwill impairment (Note 11)
Share of tax on joint ventures and associates
Operating profit / (loss) after joint ventures and associates
Distribution
£m
Aviation
£m
Corporate
£m
Group
£m
1,132.0
318.4
– 1,450.4
28.0
–
–
28.0
23.7
4.0
2.5
(2.2)
–
–
–
28.0
8.9
1.0
1.7
11.6
16.6
1.3
–
(3.1)
(0.4)
(1.8)
(1.0)
11.6
(2.9)
–
–
(2.9)
(3.4)
0.5
–
–
–
–
–
(2.9)
34.0
1.0
1.7
36.7
36.9
5.8
2.5
(5.3)
(0.4)
(1.8)
(1.0)
36.7
£m
£m
£m
£m
1,093.5
268.6
– 1,362.1
30.6
–
0.1
30.7
30.7
–
–
30.7
7.5
0.7
2.4
10.6
13.3
(2.1)
(0.6)
10.6
(3.7)
–
–
(3.7)
(3.7)
–
–
(3.7)
34.4
0.7
2.5
37.6
40.3
(2.1)
(0.6)
37.6
* Underlying operating profit / (loss) is defined as operating profit / (loss) excluding intangible amortisation as shown
in Note 5(b) and exceptional items but including the pre-tax share of results from joint ventures and associates.
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Statements
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Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
2. Segmental analysis (continued)
2006
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Segment net assets / (liabilities)
Unallocated net liabilities
Net assets
2005
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Segment net assets / (liabilities)
Unallocated net liabilities
Net assets
2006
Capital expenditure
Depreciation
Amortisation of intangible assets
Goodwill impairment
Gain on disposal of property, plant and equipment
2005
Capital expenditure
Depreciation
Amortisation of intangible assets
Goodwill impairment
Gain on disposal of property, plant and equipment
Secondary geographic segments
United Kingdom
Continental Europe
Americas
Rest of the World
Distribution
£m
Aviation
£m
Corporate
£m
148.9
182.6
3.4
(98.3)
(46.9)
(16.3)
50.6
135.7
(12.0)
£m
£m
129.3
150.1
£m
1.7
(96.9)
(41.6)
(15.6)
32.4
108.5
(13.9)
£m
9.2
5.2
0.5
–
–
£m
6.7
4.6
0.6
–
–
£m
15.9
11.7
0.8
1.8
0.2
£m
15.2
10.7
0.3
2.1
0.5
£m
–
1.0
–
–
–
£m
–
0.9
–
–
–
Group
£m
335.8
28.0
363.8
161.5
(110.1)
(271.6)
174.3
(82.1)
92.2
£m
281.1
35.8
316.9
(154.1)
(103.3)
(257.4)
127.0
(67.5)
59.5
£m
25.1
17.9
1.3
1.8
0.2
£m
21.9
16.2
0.9
2.1
0.5
Revenue
Capital expenditure
Segment assets
2006
£m
2005
£m
1,254.9 1,213.7
68.6
47.6
32.2
80.9
76.5
38.1
2006
£m
14.4
5.6
3.0
2.1
1,450.4 1,362.1
25.1
2005
£m
12.4
3.4
4.2
1.9
21.9
2006
£m
253.2
30.1
27.6
24.9
2005
£m
187.4
32.0
26.5
35.2
335.8
281.1
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Statements
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Governance
Financial Statements
Shareholder Information
3. Net operating costs
Goods for resale and consumables
Other operating charges
Employment costs (Note 4)
Intangible assets amortisation (Note 11)
Goodwill impairment (Note 11)
Depreciation (Note 12)
Other operating charges include:
Operating leases and hire charges – plant and machinery
Rent of properties
Gain on disposal of property, plant and equipment
During the year the Group (including its overseas subsidiaries) obtained the
following services from the Group’s auditors at costs as detailed below:
Audit services
Audit of parent company and consolidated accounts
Audit of the company’s subsidiaries pursuant to legislation
Non-audit services
Corporate finance services
Other services
4. Employees
Wages and salaries
Share-based payments
Social security costs
Pension charge
The average number of full-time equivalent persons employed during the year was:
Distribution
Aviation
Corporate
2006
£m
1,086.9
59.3
251.0
1.3
–
17.9
1,416.4
2005
£m
1,036.8
51.6
221.9
0.9
0.3
16.2
1,327.7
9.7
23.9
(0.2)
0.2
0.4
0.2
0.2
2006
£m
219.6
0.7
22.1
242.4
8.6
251.0
2006
number
3,573
10,374
31
13,978
8.4
20.3
(0.5)
0.2
0.4
0.2
–
2005
£m
194.2
0.7
19.5
214.4
7.5
221.9
2005
number
3,670
7,982
40
11,692
The numbers above include 7,909 full-time equivalent persons employed outside the UK (2005: 5,731).
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Statements
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Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
4. Employees (continued)
Pension schemes
With regard to the principal Group-funded defined benefit scheme in the UK (the Menzies Pension Fund), to which the employees
contribute, the charge to the income statement is assessed in accordance with independent actuarial advice from Aon Consulting
(“the Actuary”) using the projected unit method. Certain Group subsidiaries operate overseas and participate in a number of
pension schemes, which are largely of a defined contribution nature. The income statement charge for defined contribution
schemes represents the contributions made.
The pension charge to the income statement is analysed as follows:
Menzies Pension Fund
Other schemes
2006
£m
4.7
3.9
8.6
2005
£m
5.1
2.4
7.5
The Actuary undertook a valuation of the Menzies Pension Fund as at 30 December 2006 (2005: 31 December) under IAS 19.
In deriving the results the Actuary used the projected unit method and the following financial assumptions:
Rate of increase in salaries
Rate of increase in pensions (prior to 1 April 2006)
Rate of increase in pensions (after 1 April 2006)
Price inflation
Discount rate
2006
%
3.60
3.35
2.50
3.10
5.30
2005
%
3.50
3.30
–
3.00
4.80
Assumptions regarding future mortality experience are set based on advice from the Actuary in accordance with published
statistics and experience in the business.
The average life expectancy in years of a pensioner retiring at 65 on the balance sheet date is:
Male
Female
2006
18.3
21.1
The average life expectancy in years of a pensioner retiring at 65, 20 years after the balance sheet date, is:
Male
Female
2006
19.2
22.0
2005
18.3
21.1
2005
19.2
22.0
Fair value of assets (and expected return on assets)
Long-term
Value at Long-term
Equities
Bonds
Property
Other
Total value of assets
Defined benefit obligation
Recognised in balance sheet
Related deferred tax (liability) / asset
Net pension assets / (liabilities)
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rate of December
2006
return
£m
%
7.5
5.0
6.5
5.0
147.6
39.9
44.3
5.4
237.2
(231.8)
5.4
(1.6)
3.8
Value at
rate of December
2005
return
£m
%
7.5
4.5
6.0
4.5
128.1
40.1
38.4
1.9
208.5
(241.1)
(32.6)
9.8
(22.8)
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Financial Statements
Shareholder Information
Components of pension expense
Amounts charged to the Income Statement
Current service cost
Past service credit
Total amount (credited) / charged to the Income Statement
Amounts included in finance costs
Expected return on pension scheme assets
Interest on pension liabilities
Net financial return
Pension (income) / expense
Amounts recognised in the Statement of Recognised Income and Expense
Gain on assets
Actuarial gain / (loss) on defined benefit obligation
Actuarial gain / (loss)
Change in scheme assets during the year
Fair value of assets at start of year
Expected return on assets
Company contributions
Employee contributions
Benefits and expenses paid
Gain on assets
Fair value of assets at end of year
Change in defined benefit obligation during the year
Defined benefit obligation at start of year
Current service cost
Past service credit
Interest cost
Employee contributions
Benefits and expenses paid
Actuarial (gain) / loss on defined benefit obligation
Defined benefit obligation at end of year
History of experience gains and losses
Gain on scheme assets
Actuarial gain / (loss) on defined benefit obligation
2006
£m
4.7
(5.8)
(1.1)
£m
13.4
(11.0)
2.4
(3.5)
£m
12.0
11.4
23.4
£m
208.5
13.4
11.1
1.5
(9.3)
12.0
237.2
£m
241.1
4.7
(5.8)
11.0
1.5
(9.3)
(11.4)
231.8
2005
£m
5.1
–
5.1
£m
11.5
(10.3)
1.2
3.9
£m
17.4
(27.0)
(9.6)
£m
178.2
11.5
5.3
1.2
(7.5)
19.8
208.5
£m
202.6
5.1
–
10.3
1.2
(7.5)
29.4
241.1
% of scheme
assets/
obligations
% of scheme
assets/
obligations
2006
£m
2005
£m
5% 12.0
5% 11.4
9.5% 19.8
(29.4)
12.2%
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Statements
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Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
5. Underlying performance
(a) Exceptional items – £3m
Pension credit – £5.8m
With effect from 1 May 2006, the principal Group-funded defined benefit scheme in the UK changed from a final pensionable
salary scheme to an average salary scheme and employee contributions were increased. Benefits accrued to current active
members prior to 1 May 2006 are now linked to future price inflation rather than future salary increases. The impact of these
changes is a reduction of £5.8m in the present value of the scheme liabilities in respect of past service.
Gain on exchange of contract rights – £2.5m
During the year, the Group transferred its 20% shareholding in T Cox & Son (Tonbridge) Limited to another wholesaler in return
for an interest in certain magazine distribution contracts in the south-west London area. The fair value of the contractual rights
acquired and the shares disposed are considered to be equivalent, and both are estimated at £2.5m. As the shareholding had
no carrying value in the Group’s balance sheet, there is effectively no cost of disposal to offset against the interests received.
As a result, a non-cash gain of £2.5m is created.
Rationalisation and integration costs – £5.3m
Costs of rationalising excess capacity, comprising asset write-downs and staff costs, and integration costs for new businesses.
(b) Intangible amortisation – £2.2m
Goodwill impairment – £1.8m
As permitted under the transitional requirements of IFRS 1, the acquisition accounting of business combinations completed
prior to the transition date has not been restated. As a result, assets which were previously capitalised as goodwill have not
been reclassified as other intangible assets. Accordingly, these financial statements include an impairment charge of £1.8m
(2005: £1.8m) reflecting the remaining life of the current licence at Menzies Macau Aviation Services Ltd. A further charge
of £0.3m in 2005 related to an adjustment under IAS 12 for tax loss utilisation in the Netherlands.
Contract amortisation – £0.4m
A new charge for 2006 (Note 11) on the application of IFRS to acquisitions.
The taxation effect of the exceptional items is a charge of £1.1m.
6. Directors
A detailed analysis of Directors’ remuneration, together with shareholdings and options, is provided on pages 35 to 40.
7. Finance costs
Finance income:
Bank deposits
Expected return on pension scheme assets (Note 4)
Finance charges:
Bank loans and overdrafts
Preference dividends
Interest on pension liabilities (Note 4)
Net finance costs
58
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2006
£m
2.2
13.4
15.6
(5.6)
(0.1)
(11.0)
(16.7)
(1.1)
2005
£m
2.3
11.5
13.8
(4.3)
(0.1)
(10.3)
(14.7)
(0.9)
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59
Statements
Business Review
Governance
Financial Statements
Shareholder Information
8. Taxation
(a) Analysis of charge in year
Current tax
UK corporation tax on profits for the year
Overseas tax
Adjustments to prior years’ liabilities
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments to prior years’ liabilities
Retirement benefit obligations
Total deferred tax
Tax on profit on ordinary activities
(b) Current and deferred tax related to items charged / (credited) directly to equity
Deferred tax on actuarial gain / (loss) on retirement benefit obligations
Current tax on net exchange adjustments
Tax charge / (credit) reported in equity
2006
£m
5.5
1.5
(3.1)
3.9
0.1
–
0.1
4.4
4.5
8.4
7.0
0.4
7.4
(c) Reconciliation between tax charge and the product of accounting profit multiplied by the Group’s domestic tax
rate for the years ended 30 December 2006 and 31 December 2005 is as follows:
Profit before tax
Profit before tax multiplied by standard rate of corporation tax in the UK (30%)
Non-deductible expenses
Depreciation on non-qualifying assets
Tax-exempt gain on exchange of contracts
Unrelieved overseas losses
Profits covered by losses forward
Recognition of overseas losses in deferred tax
Higher tax rates on overseas earnings
Adjustments to prior years’ liabilities
Deferred tax on undistributed reserves of associate
Joint venture and associate post-tax result (included in profit before tax) at 30%
At the effective corporation tax rate of 23.6% (2005: 23.7%)
35.6
10.7
0.9
0.3
(0.8)
2.6
(1.5)
–
0.1
(3.1)
–
(0.8)
8.4
2005
£m
7.2
1.8
(2.4)
6.6
1.5
0.2
1.7
0.4
2.1
8.7
(2.9)
0.1
(2.8)
36.7
11.0
(0.5)
0.5
–
2.2
(2.5)
(0.4)
1.3
(2.2)
0.3
(1.0)
8.7
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
8. Taxation (continued)
(d) Factors that may affect future tax charges
The Group has estimated tax losses carried forward, which arose in subsidiary companies operating in the undernoted
jurisdictions, that are available for offset against future profits of those subsidiaries. Deferred tax assets have not been
recognised in respect of these losses as they have arisen in subsidiaries that have either been loss-making for some time
or where it is unclear that profits will be available to fully utilise the losses.
USA
Netherlands
Hong Kong
Republic of Ireland
Germany
Australia
Losses
£m
20.4
5.8
7.0
0.9
19.1
1.9
Expiry
Carry forward indefinitely
Not earlier than 1 January 2012
Carry forward indefinitely
Carry forward indefinitely
Carry forward indefinitely
Carry forward indefinitely
The Group has capital losses in the UK of approximately £23.2m, that are available for offset against future taxable gains arising
in the UK. No deferred tax asset has been recognised in respect of these losses.
A deferred tax asset of £0.5m has been recognised in relation to losses carried forward by a subsidiary operating in the USA,
in circumstances where that subsidiary has incurred losses in the current and preceding years. The deferred tax asset has been
recognised on the basis of the US acquisitions during the year, which have a history of profitability, and future projections.
A deferred tax liability of £0.7m (2005: £0.7m) has been recognised on the unremitted earnings of an associate.
9. Dividends
Dividends on equity shares:
Ordinary – Final paid in respect of 2005, 13.7p per share
– Final paid in respect of 2004, 13.0p per share
– Interim paid in respect of 2006, 6.1p (2005: 5.8p) per share
2006
£m
8.0
–
3.6
11.6
2005
£m
–
7.5
3.4
10.9
Dividends of £0.1m (2005: £0.1m) were waived by employee share trusts (Note 21) during the year.
In addition, the directors are proposing a final dividend in respect of the full year to 30 December 2006 of 14.4p per ordinary share,
which will absorb an estimated £8.5m of shareholders’ funds. Payment will be made on 29 June 2007 to shareholders on the register
at close of business on 1 June 2007.
Preference share dividends have been reclassified as interest payable.
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61
Statements
Business Review
Governance
Financial Statements
Shareholder Information
10. Earnings per share
Operating profit
add back:
intangible amortisation
share of tax on joint ventures and associates
exceptional items
less:
Finance costs
Share of post-tax results of joint ventures and associates
Profit before taxation
Taxation
Tax charge on exceptional items
Minority interests
Earnings for the year
Basic
Earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)
Underlying*
Earnings per ordinary share (pence)
Diluted earnings per ordinary share (pence)
Number of ordinary shares in issue (millions)
Weighted average
Diluted weighted average
Basic
Underlying*
2006
£m
–
2.2
1.0
(3.0)
(1.1)
2.7
35.8
(9.4)
1.1
(0.2)
27.3
2005
£m
34.4
2.1
0.6
–
(0.9)
3.2
39.4
(9.3)
–
(0.3)
29.8
46.9
46.6
51.9
51.3
2006
£m
34.0
–
–
–
(1.1)
2.7
35.6
(8.4)
–
(0.2)
27.0
2005
£m
34.4
–
–
–
(0.9)
3.2
36.7
(8.7)
–
(0.3)
27.7
46.4
46.1
48.2
47.7
58.206
58.544
57.462
58.079
The weighted average number of fully paid shares in issue during the year excludes those held by the employee share trusts
(Note 21). The diluted weighted average is calculated by adjusting for all outstanding share options which are potentially
dilutive, i.e. where the exercise price is less than the average market price of the shares during the year.
* Underlying earnings are presented as an additional performance measure. They are stated before intangible amortisation
and exceptional items.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
11. Intangible assets
Cost
At 31 December 2005
Acquisitions (Note 25)
Exchange of contract rights (Note 5)
Additions
Disposals
Currency translation
At 30 December 2006
Amortisation
At 31 December 2005
Amortisation charge
Disposals
Currency translation
At 30 December 2006
Net book value
At 30 December 2006
At 31 December 2005
Cost
At 25 December 2004
Acquisitions
Additions
Disposals
Currency translation
At 31 December 2005
Amortisation
At 25 December 2004
Amortisation charge
Impairment charge (Note 5)
Disposals
Currency translation
At 31 December 2005
Net book value
At 31 December 2005
At 25 December 2004
Goodwill
£m
Contracts Computer
software
£m
£m
23.6
15.5
–
–
–
(1.6)
37.5
0.4
–
–
(0.2)
0.2
–
18.0
2.5
–
–
(0.4)
20.1
–
0.4
–
–
0.4
4.2
–
–
0.5
(0.3)
–
4.4
1.8
0.9
(0.3)
–
2.4
Total
£m
27.8
33.5
2.5
0.5
(0.3)
(2.0)
62.0
2.2
1.3
(0.3)
(0.2)
3.0
37.3
23.2
19.7
–
2.0
2.4
59.0
25.6
£m
£m
£m
£m
22.3
0.6
–
–
0.7
23.6
–
–
0.3
–
0.1
0.4
23.2
22.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.4
–
0.6
(0.8)
–
4.2
1.7
0.9
–
(0.8)
–
1.8
26.7
0.6
0.6
(0.8)
0.7
27.8
1.7
0.9
0.3
(0.8)
0.1
2.2
2.4
2.7
25.6
25.0
Impairment test for goodwill and contracts
Goodwill
Goodwill is no longer amortised but is tested annually for impairment. Management assesses the value-in-use of the asset
based on forecast pre-tax cash flows from each cash-generating unit over a ten-year period discounted at 8%.
Contracts
Contract amortisation is business-stream dependent. At Distribution, contracts capitalised are not amortised due to the very
long-term nature of the business in the UK. These contracts are, however, tested annually for impairment using similar criteria
to the goodwill test. At Aviation, 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.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
12. Property, plant and equipment
Freehold
property
£m
39.6
3.2
0.3
–
(0.2)
(0.1)
Cost
At 31 December 2005
Acquisitions (Note 25)
Additions
Transfers / inter-group
additions
Disposals
Currency translation
At 30 December 2006
42.8
Depreciation
At 31 December 2005
Charge for the year
Accelerated write-down
Disposals
Currency translation
At 30 December 2006
5.4
0.8
–
–
–
6.2
Net book value
Long
leasehold
property
£m
0.7
0.9
–
–
(0.1)
–
1.5
0.2
–
–
–
–
0.2
Group
Company
Short
Plant and
leasehold equipment
property
£m
£m
Total
Freehold
property
£m
£m
Long
leasehold
property
£m
Short
Plant and
leasehold equipment
property
£m
£m
36.4
–
0.5
(0.1)
–
–
124.1 200.8
7.8
25.1
3.7
24.3
0.1
(7.5)
(2.9)
–
(7.8)
(3.0)
37.6
–
–
3.2
–
–
0.6
–
–
–
–
–
0.3
–
–
–
–
–
1.7
–
–
–
–
–
Total
£m
40.2
–
–
3.2
–
–
36.8
141.8 222.9
40.8
0.6
0.3
1.7
43.4
11.6
2.0
–
–
(0.1)
13.5
62.5
15.1
0.2
(6.9)
(1.2)
79.7
17.9
0.2
(6.9)
(1.3)
69.7
89.6
1.5
0.9
–
–
–
2.4
At 30 December 2006
At 31 December 2005
36.6
34.2
1.3
0.5
23.3
24.8
72.1 133.3
61.6 121.1
38.4
36.1
Cost
At 25 December 2004
Additions
Transfers / inter-group
additions
Disposals
Currency translation
At 31 December 2005
Depreciation
At 25 December 2004
Charge for the year
Disposals
Transfers / inter-group
additions
Currency translation
39.3
1.1
(0.6)
(0.2)
–
39.6
4.8
0.8
(0.2)
–
–
0.7
–
36.1
1.4
108.2 184.3
21.9
19.4
34.0
–
–
–
–
–
(1.5)
0.4
0.6
(6.0)
1.9
–
(7.7)
2.3
3.6
–
–
0.7
36.4
124.1 200.8
37.6
0.6
0.3
0.2
–
–
–
–
10.7
2.0
(1.1)
53.5
13.4
(5.3)
69.2
16.2
(6.6)
–
–
–
0.9
–
0.9
0.7
0.8
–
–
–
0.2
–
–
–
–
0.2
–
–
–
–
At 31 December 2005
5.4
0.2
11.6
62.5
79.7
1.5
0.2
0.2
0.2
–
–
–
–
0.2
0.4
0.4
0.6
–
–
–
–
0.2
0.1
–
–
–
0.3
–
0.1
0.3
–
–
–
–
1.5
0.1
–
(0.1)
–
1.5
3.4
1.1
–
(0.1)
–
4.4
0.2
0.2
39.0
36.8
–
–
34.9
–
1.7
–
–
1.7
–
0.1
–
1.4
–
1.5
5.3
–
–
40.2
1.1
0.9
–
1.4
–
3.4
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63
Net book value
At 31 December 2005
At 25 December 2004
34.2
34.5
0.5
0.5
24.8
25.4
61.6 121.1
54.7 115.1
36.1
33.3
0.4
0.4
0.1
0.1
0.2
36.8
–
33.8
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
13. Investments
Cost excluding goodwill
At 31 December 2005
Transfers / New investments
Share of profits after tax
Dividends received
Loan repayment
Impairment provision
Currency translation
At 30 December 2006
Goodwill
At 31 December 2005
Impairment provision
Currency translation
At 30 December 2006
At 30 December 2006
At 31 December 2005
Shares in
joint
ventures
£m
Loans to
joint
ventures
£m
Group
Shares in
associates
Loans to
associates
Other
Total
Company
Subsidiaries
£m
£m
£m
£m
1.0
–
1.0
(1.0)
–
–
–
1.0
–
–
–
–
0.3
–
–
–
(0.1)
–
–
0.2
6.4
(0.2)
3.5
(3.1)
–
(0.2)
(0.4)
6.0
–
–
–
–
14.8
(1.8)
(1.8)
11.2
0.1
–
–
–
–
–
–
0.1
–
–
–
–
0.2
0.2
–
–
–
–
–
0.4
–
–
–
–
8.0
–
4.5
(4.1)
(0.1)
(0.2)
(0.4)
7.7
14.8
(1.8)
(1.8)
11.2
1.0
1.0
0.2
0.3
17.2
21.2
0.1
0.1
0.4
0.2
18.9
22.8
£m
98.8
1.0
–
–
–
–
–
99.8
–
–
–
–
99.8
98.8
The Group’s share of the results, assets and liabilities of joint ventures and associates:
Joint ventures
Talma Menzies SRL
Freshport BV
Associates
Menzies Macau Airport Services Ltd
Worldwide Magazine Distribution Ltd
Menzies Chengdu Aviation Services Ltd
14. Trade and other receivables
Trade receivables
Other receivables
Prepayments
Amounts owed by Group companies
Country of % Interest
held
Incorporation
Revenue
£m
Profit
after tax
£m
Assets
£m
Liabilities
£m
Peru
Netherlands
50
50
7.3
0.5
Macau
UK
China
29
31.67
40
8.0
2.4
2.4
20.6
0.9
0.1
3.2
–
0.3
4.5
1.7
0.5
(0.9)
(0.3)
4.7
1.2
1.9
10.0
(1.1)
(0.4)
(0.3)
(3.0)
Group
Company
2006
£m
82.8
13.6
14.4
–
110.8
2005
£m
75.7
11.1
11.1
–
97.9
2006
£m
–
4.9
0.7
147.0
2005
£m
–
5.1
1.7
101.2
152.6
108.0
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
15. Trade and other payables
Due within one year
Trade payables
Other payables
Other taxes and social security costs
Amounts owed to Group companies
Due after more than one year
Other payables
16. Financial instruments
Group
Company
2006
£m
2005
£m
2006
£m
2005
£m
97.7
49.8
5.6
–
96.7
44.1
5.1
–
153.1
145.9
–
10.8
0.2
83.3
94.3
–
12.2
0.2
92.6
105.0
0.9
–
–
–
The objectives, policies and strategies pursued by the Group in relation to financial instruments are described within
the Business Review on pages 18 and 19.
Maturity profile
Borrowings due within one year:
Bank loans and overdrafts
Finance lease creditor
Unsecured loan stock
Net derivative assets
Total borrowings due within one year
Borrowings due after one year:
Loans repayable between one and two years
Loans repayable between two and five years
Loans repayable after five years
Preference shares
Finance lease creditor
Net derivative (assets) / liabilities
Total borrowings due after one year
Total borrowings
Less: Cash at bank and in hand and short-term deposits
Net debt
Group
Company
2006
£m
2005
£m
2006
£m
2005
£m
8.6
0.1
0.1
8.8
(1.1)
7.7
1.4
61.2
23.8
1.4
0.5
88.3
(0.2)
88.1
95.8
18.8
77.0
21.2
–
0.1
21.3
(0.1)
21.2
1.2
4.5
25.6
1.4
0.5
33.2
0.4
33.6
54.8
22.0
32.8
4.9
–
–
4.9
(1.1)
3.8
1.3
61.2
23.8
1.4
0.5
88.2
(0.2)
88.0
91.8
0.5
91.3
19.4
–
–
19.4
(0.1)
19.3
1.1
4.5
25.6
1.4
0.5
33.1
0.4
33.5
52.8
7.5
45.3
Other than trade receivables and payables, there are no financial assets or liabilities excluded from the above analysis.
No financial assets or liabilities were held or issued for trading purposes.
The Company has issued 1,394,587 cumulative preference shares of £1 each. These shares are not redeemable and pay
an interest coupon of 9% semi-annually.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
16. Financial instruments (continued)
Borrowing facilities
At 30 December 2006, the Group had undrawn committed facilities of £42.5m (2005: £32.9m) with the following expiry profile:
Less than one year
Between one and two years
2006
£m
23.8
18.7
42.5
2005
£m
32.9
–
32.9
In addition to these undrawn committed facilities, the Group has undrawn uncommitted facilities totalling £10m (2005: £15.1m).
Fair values
Set out below is an analysis of the fair and book value of the Group’s financial instruments as at 30 December 2006.
2006
Book value
£m
2006
2005
Fair value Book value
£m
£m
2005
Fair value
£m
Primary financial instruments held or issued to finance the Group’s operations:
Short-term borrowings
Medium-term borrowings
Long-term borrowings
7.7
62.6
25.5
95.8
7.7
62.7
26.0
96.4
21.2
5.7
27.9
54.8
21.3
6.1
29.7
57.1
Cash and deposits
18.8
18.8
22.0
22.0
Derivative financial instruments
Assets
Forward foreign exchange contracts (non-current)
Forward foreign exchange contracts (current)
Liabilities
Forward foreign exchange contracts (current)
Forward foreign exchange contracts (non-current)
Group
Company
2006
£m
2005
£m
2006
£m
2005
£m
0.3
1.5
(0.4)
(0.1)
1.3
0.1
0.6
(0.5)
(0.5)
(0.3)
0.3
1.5
(0.4)
(0.1)
1.3
0.1
0.6
(0.5)
(0.5)
(0.3)
The fair values of the derivative financial instruments were determined by reference to quoted market prices. The derivative
financial instruments are classified as current or non-current based on the remaining maturity of the related hedged item.
Forward foreign exchange contracts
The notional principal amounts of the outstanding forward foreign exchange contracts are:
Euro
US dollar
Czech crown
Australian dollar
New Zealand dollar
Group
Company
2006
million
29.6
47.5
319.2
8.1
2.9
2005
million
25.8
51.5
319.2
8.1
2.9
2006
million
29.6
47.5
319.2
8.1
2.9
2005
million
25.8
51.5
319.2
8.1
2.9
EUR
USD
CZK
AUD
NZD
The fair values of provisions, preference shares and other financial liabilities are not considered to be materially different from
their book values.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Interest rate and currency risk profile of financial assets and liabilities
Financial assets and liabilities
The interest rate and currency profile of the Group’s financial assets and liabilities (excluding trade receivables and trade
payables) at 30 December 2006 is shown below.
Currency
Sterling
Euro
US dollar
Hong Kong dollar
Australian dollar
Other
Floating
rate
financial
assets
£m
Fixed
rate
financial
assets
£m
2006
Total
financial
assets
£m
Floating
rate
financial
assets
£m
Fixed
rate
financial
assets
£m
2005
Total
financial
assets
£m
6.3
3.1
4.0
0.4
2.2
1.4
17.4
1.2
–
0.2
–
–
–
1.4
7.5
3.1
4.2
0.4
2.2
1.4
18.8
10.7
4.4
2.4
0.9
0.9
1.1
20.4
1.6
–
–
–
–
–
1.6
12.3
4.4
2.4
0.9
0.9
1.1
22.0
The floating rate financial assets of £17.4m (2005: £20.4m) are at interest rates linked to Base rates and LIBID. The fixed rate
financial assets of £1.4m (2005: £1.6m) are one-month fixed sterling deposits at rates between 5% and 5.2%, and a one-month
fixed US dollar deposit at 5.21% (2005: six-month fixed deposit at 4.4%).
Currency
Sterling
Euro
US dollar
Net derivative (assets) / liabilities
Floating
rate
financial
liabilities
£m
Fixed
rate
financial
liabilities
£m
2006
Total
financial
liabilities
£m
Floating
rate
financial
liabilities
£m
Fixed
rate
financial
liabilities
£m
2005
Total
financial
liabilities
£m
27.4
0.1
36.5
(1.3)
62.7
33.1
–
–
–
33.1
60.5
0.1
36.5
(1.3)
95.8
2.7
0.3
17.4
0.3
20.7
34.1
–
–
–
34.1
36.8
0.3
17.4
0.3
54.8
Floating rate financial liabilities of £62.7m (2005: £20.4m) comprise bank loans, overdrafts, unsecured loan stock, cross-currency
basis swaps and forward contracts. Interest on these liabilities is determined by reference to short term rates linked to Base
rates and LIBOR.
Fixed rate financial liabilities comprise a loan repayable between 2007 and 2020 of £31.1m (2005: £32.2m) on which interest is at
a fixed rate of 6.23% (2005: 6.23%), preference shares of £1.4m (2005: £1.4m) and finance lease creditors of £0.6m (2005: £0.5m).
This loan has a weighted average maturity of 8 years (2005: 8.8 years).
17. Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
within one year
within two to five years
after five years
Group
Property
Other
Company
Property
2006
£m
21.9
68.5
39.3
2005
£m
19.1
74.1
7.7
2006
£m
6.3
6.5
0.4
2005
£m
7.2
7.3
1.9
129.7
100.9
13.2
16.4
2006
£m
0.8
2.4
1.9
5.1
2005
£m
0.8
3.2
1.9
5.9
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
18. Capital commitments
Contracted but not provided – property, plant and equipment
19. Provisions
Deferred tax
Assets
Accelerated capital allowances and other temporary differences
Retirement benefit obligations
Liabilities
Accelerated capital allowances and other temporary differences
Retirement benefit obligations
Net deferred tax (assets) / liabilities
(0.6)
(11.7)
Movement in year:
Income Statement – retirement benefit obligations
– other
Statement of Recognised Income and Expense
Transfer from current tax
Acquired with / transfer from subsidiary
Other – property related
At beginning of year
Provided during year
Utilised during year
At end of year
4.4
0.1
7.0
–
(0.4)
11.1
2006
£m
7.2
3.1
(3.3)
7.0
0.4
1.7
(2.9)
0.7
–
(0.1)
2005
£m
8.5
1.3
(2.6)
7.2
Group
Company
2006
£m
4.9
2005
£m
4.5
2006
£m
–
2005
£m
–
Group
Company
2006
£m
2005
£m
2006
£m
2005
£m
3.8
–
3.8
1.6
1.6
3.2
4.0
9.8
13.8
2.1
–
2.1
–
–
–
0.8
1.6
2.4
2.4
4.4
0.3
7.0
–
–
11.7
–
9.8
9.8
0.5
–
0.5
(9.3)
–
–
–
–
0.5
0.5
The property-related provision is in respect of obligations for vacated leasehold properties where applicable sublet income may
be insufficient to meet obligations under head leases.
Contingent liabilities
There are contingent liabilities, including those in respect of disposed and acquired businesses, which are not expected to give
rise to any significant loss to the Group.
In addition, in the normal course of business, the Company has guaranteed certain trading obligations of its subsidiaries.
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Statements
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Governance
Financial Statements
Shareholder Information
20. Share capital
Authorised
73,056,248 ordinary shares of 25p each
Allotted, called up and fully paid
Opening – 58,708,035 ordinary shares of 25p each
Allotted under share option schemes*
Closing – 59,255,537 ordinary shares of 25p each
2006
£m
2005
£m
18.3
18.3
14.7
0.1
14.8
14.4
0.3
14.7
As a result of options being exercised, 547,502 (2005: 944,601) ordinary shares having a nominal value of £0.1m (2005: £0.3m)
were issued during the year at a share premium of £1.7m (2005: £3.2m).
* Included in this total are nil (2005: 132,458) ordinary shares of 25p each allotted to directors under the executive share option
scheme and 606 (2005: 2,680) ordinary shares of 25p each allotted to the directors under the savings-related share option
scheme with a nominal value of £152 (2005: £33,785).
Potential issue of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company under the executive share option scheme
approved by the shareholders, details of which are shown below. Options on 193,227 shares were exercised in 2006 and
42,177 options lapsed.
Date of grant
Exercise price
(pence)
Mar-96
Oct-96
Feb-97
Apr-98
Feb-99
Jan-00
Apr-02
Nov-02
May-03
May-04
520
540
461
492
348
391
331
329
312
418
Exercise
period
1999-2006
1999-2006
2000-2007
2001-2008
2002-2009
2003-2010
2005-2012
2005-2012
2006-2013
2007-2014
2006
Number
–
–
15,000
32,500
5,000
19,437
32,207
205,166
403,915
278,801
992,026
2005
Number
17,500
2,500
27,500
115,300
10,000
36,937
39,242
205,166
452,759
320,526
1,227,430
Employees, including senior executives, also hold options to subscribe for shares in the Company under the savings-related share
option scheme approved by the shareholders, details of which are shown below. Options on 354,275 shares were exercised in
2006 and 233,032 options lapsed.
Year of grant
2002
2003
2004
2005
2006
Exercise price
(pence)
275
286
388
467
348
Exercise
period
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2006
Number
–
35,210
271,566
266,992
489,275
2005
Number
81,559
353,762
343,736
375,386
–
1,063,043
1,154,443
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
20. Share capital (continued)
Company Share Option Schemes
The Company operates the following share-based payment arrangements:
(a) Executive Share Option Scheme (“ESOS”)
Options under the ESOS may be granted to executive directors and senior employees of the Group on an annual basis
and mature only after three years upon which they become exercisable. The exercise period is usually seven years from maturity
and special rules apply to employees who leave the employment of the Group due to ill health, retirement or redundancy.
Options are granted with a fixed exercise price equal to the market price of shares under option at the date of grant.
Options granted under the ESOS adopted in September 2000, are subject to performance conditions and lapse if these are not
achieved. The performance hurdles require that for each annual grant three-year growth targets set by the Board are achieved.
Growth is typically measured by growth in underlying earnings per share (“EPS”) as compared to RPI plus between 3% and
8% per annum over three years, adjusted to normalise pension and tax charges.
(b) Savings-related Share Option Scheme
The Company operates a savings-related share option scheme which is open to all eligible UK employees. Typically, employees
who are eligible to participate include full and part-time employees who work at least 16.5 hours per week, after any probationary
period. Annual grants of options are made in October each year and become exercisable after three years. Employees enter into
a savings contract with the Yorkshire Building Society, who administer the scheme. The options are granted at a 20% discount of
the share price at the date of grant and lapse if not exercised within six months of maturity. Special provisions apply to employees
who leave their employment due to ill health, redundancy or retirement.
(c) Performance Share Plan (“PSP”)
Under the PSP, the Board can grant executive directors and senior employees of the Group selected by the Remuneration
Committee an award of conditional shares. The shares will vest at the end of three years if Total Shareholder Return (“TSR”)
reaches targets set by the Board. If percentage growth in the Company’s TSR for the three financial years is greater than the TSR
for the FTSE250 Index by 30% or more, then the percentage of the award vesting is 100%. If the growth is greater than the TSR
for the FTSE250 Index but less than 30% greater, then the percentage of the award vesting will be calculated on a straight-line
basis. If growth is equal to or less than TSR for the FTSE250 Index, then the percentage of the award vesting is nil. There will be
no retesting of performance targets.
Awards may be made by the Board at any time but no award will be made more than 10 years after the adoption of the PSP.
At the end of each three-year performance period, the Remuneration Committee will notify each participant of the extent to
which the performance targets have been met and the number of shares that will vest. Shares will be met from existing issued
shares held under employee benefit trusts. Participants will also be paid an amount equal to the net dividends on those shares
which actually vest which would have been paid during the performance period.
The conditional shares are not transferrable and lapse immediately if the participant leaves the employment of the Group,
although special rules apply in the case of particular circumstances such as death, ill health, redundancy or other circumstances
at the discretion of the Remuneration Committee. No participant may be made an award of more than 100,000 shares in any
year. Share awards are valued using scenario-modelling.
(d) Long-Term Incentive Scheme (“LTIS”)
The terms under which share awards are made under the LTIS to senior employees are the same as for the PSP, other than as
follows. The shares will vest at the end of three years if underlying EPS reaches targets set by the Board. If the percentage real
EPS growth in the Company’s underlying EPS for three financial years is greater than RPI + 8% p.a. or more, then the percentage
of the award vesting is 100%. If the EPS growth is greater than the RPI by between 3% and 8% p.a., then the percentage of the
award vesting will be calculated on a straight-line basis. If EPS growth is RPI + 3% p.a. or less, then the percentage of the award
vesting is nil. There will be no retesting of performance targets.
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Statements
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Governance
Financial Statements
Shareholder Information
(e) Bonus Co-investment Plan (“Plan”)
The Plan offers executive directors and other senior executives selected by the Board the opportunity to invest part of their
annual cash bonus for a financial year in the Company’s shares entitling them, provided certain performance targets are met,
to a grant of additional matching shares in the ratio of up to 2:1. The maximum amount of the annual cash bonus which may
be eligible for matching is 50%. The net of tax amount is applied in the purchase of shares.
The first bonus award which qualified for investment in shares under the Plan was the award for the financial year ended
December 2004 and the last qualifying bonus award will be for the financial year which commences 10 years after the adoption
of the Plan.
Performance targets are based on real growth in earnings measured over three financial years. If the percentage growth in the
Company’s EPS is RPI + 8% or more, then the number of matching shares that will vest is 2. For EPS growth of between RPI +
3% p.a. and RPI + 8% p.a., the number of matching shares vesting will be calculated on a straight-line basis. No matching shares
will vest for EPS percentage growth of RPI + 3% p.a. or less.
Similar provisions apply in respect of dividends, transferability of rights and leavers.
(f) Shadow Option Scheme
The Company also operated a cash-settled Shadow Option Scheme for certain senior executives up to 31 December 2004. Grants
were made on a discretionary basis normally once a year. The Shadow Option price was the market price at the date of grant and
the shadow options mature after three years. The period for exercising was restricted to six months after the date of maturity,
after which the shadow options lapse. Discretionary provisions were applied to leavers.
The performance targets applied were also based on three year real earnings growth. The 2004 shadow options are exercisable
in 2007 if the percentage EPS growth exceeds RPI + 3%-8% p.a., with any gain capped at 300p per shadow option.
Fair values of share options
Options are valued using the Black Scholes option-pricing model. No performance conditions are included in the fair value
calculations.
The fair value per option granted after November 2002 and the assumptions used in the calculation are as follows:
Executive Share Option Scheme
Savings-Related Option Scheme
Shadow
Options
Grant date
Share price at grant date (pence)
Exercise price (pence)
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free rate
Expected dividends expressed
as a dividend yield *
Fair value per option (pence)
IFRS 2 charge per option **
418
418
10
312
312
8
329
329
1
450
348
723
May-04 May-03 Nov-02 Oct-06 Oct-05 Oct-04 Oct-03 May-04
418
418
15
35,210 222,600
3.5
25.0%
3.5
3.5
4.7%
485
388
892
278,801 403,915 205,166 489,275 266,992 271,566
3
25.0%
3.5
3.5
4.7%
3
25.0%
10
4
4.5%
3
25.0%
10
4
5.1%
3
25.0%
3.5
3.5
4.5%
3
25.0%
3.5
3.5
4.5%
3
24.5%
3.5
3.5
4.2%
3
24.5%
10
4
4.1%
555.5
467
773
357
286
891
4.0%
76
70
4.5%
49
45
5.2%
50
50
3.8%
104
63
3.8%
132
81
3.9%
126
77
4.0%
88
54
3.8%
104
75
70
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
20. Share capital (continued)
The expected volatility is based on the historical volatility over the last three years. The expected life is the average expected
period to vesting. The risk-free rate of return is the zero coupon UK government bonds of a term consistent with the assumed
award life.
* Based on the daily 12-month trailing dividend yield averaged over the 12 months prior to valuation date.
** The difference between the fair value and IFRS 2 charge per option is due to adjustments for forfeiture risk.
Performance Share Plan
Long-Term Incentive Scheme
Bonus
Co-Investment Plan
Grant date
Share price at grant date (pence)
Number of employees
Shares awarded
Contractual life (years)
Expected departure *
Expected outcome of
meeting performance criteria
Fair value per share (pence)
IFRS 2 charge per share award **
* Risk of forfeiture
** Adjusted for forfeiture risk
Mar-06
530
4
135,000
3
0%
583.5
1
Sep-05 Apr-05
582
3
42,500 105,000
3
0%
3
0%
476
1
Sep-06 Mar-06
541.5
22
1,667 111,667
3
27%
3
27%
583.5
1
Sep-05 Apr-05 Mar-06 Apr-05
595
2
15,690 21,445
3
14%
582
22
2,500 104,478
3
27%
3
27%
3
14%
530
3
41%
217
217
41%
238
238
41%
237
237
52%
541.5
205
52%
541.5
205
52%
583.5
220
52%
582
219
52%
530
237
52%
595
264
Movement in share options
A reconciliation of conditional share movements of executive share options, savings-related share options and shadow options
is shown below:
Executive Share Option Scheme
Savings-Related Option Scheme
Weighted
average
exercise
price (p)
2006
Number
Weighted
average
exercise
price (p)
2005
Number
Outstanding at start of year
Granted
Forfeited / Expired
Exercised
Outstanding at end of year
Exercisable
1,227,430
–
(42,177)
(193,227)
992,026
713,225
369 1,843,031
–
–
(60,209)
448
422
(555,392)
356 1,227,430
454,145
331
389
–
418
430
369
393
Shadow Option Scheme
Weighted
average
exercise
price (p)
2006
Number
Weighted
average
exercise
price (p)
2005
Number
Outstanding at start of year
Granted
Forfeited
Exercised
Outstanding at end of year
Exercisable
557,600
–
(39,797)
(295,203)
222,600
–
359
–
358
315
418
–
928,700
–
(60,459)
(310,641)
557,600
–
350
–
340
335
359
–
Weighted
average
exercise
price (p)
2006
Number
Weighted
average
exercise
price (p)
2005
Number
1,154,443
495,907
(233,032)
(354,275)
1,063,043
35,210
374 1,340,465
380,228
348
(177,041)
399
286
(389,209)
386 1,154,443
81,559
286
315
467
337
276
374
275
Performance Share Plan, Long-Term Incentive
Scheme and Bonus Co-investment Plan
Weighted
average
exercise
price (p)
2006
Number
Weighted
average
exercise
price (p)
2005
Number
289,445
273,357
(22,855)
–
539,947
–
584
535
565
–
559
–
–
289,445
–
–
289,445
–
–
584
–
–
584
–
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Summary information on all outstanding options
Range of exercise
prices (pence)
Weighted average
exercise price (pence)
Number of shares
Weighted average
remaining life (years)
– expected
– contractual
Executive
Share Option Scheme
Savings-Related
Option Scheme
Shadow
Option Scheme
PSP, LTIS and Bonus
Co-investment Plan
2006
2005
2006
2005
2006
2005
2006
2005
312-540 312-540 286-467 275-467
418 312-418 476-595 582-595
356
418
992,026 1,227,430 1,063,043 1,154,443 222,600
374
386
369
359
583
557,600 539,947 289,445
559
1.2
4.4
1.2
4.4
2.1
2.1
2.1
2.1
1.2
1.2
1.2
1.2
2.2
2.2
1.2
1.2
The weighted average share price during the year for executive share options and savings-related options exercised over the year
was 422p and 286p respectively (2005: 430p and 276p respectively).
Total IFRS 2 charge for share-based incentive schemes
The total charge for the year relating to employee share-based plans was £0.7m (2005: £0.9m), £0.7m (2005: £0.7m) of which
related to equity-settled share based payment transactions. After tax, the total charge was £0.5m (2005: £0.6m).
21. Statement of changes in shareholders’ equity
Ordinary
shares
£m
Share Investment
in own
shares
£m
premium
account
£m
Capital
Retained redemption
reserve
earnings
£m
£m
Group
At 31 December 2005
Profit for the year
Dividends
New share capital issued
Share-based payments
Actuarial gain (net of deferred tax)
Exchange adjustments
At 30 December 2006
At 25 December 2004
Profit for the year
Dividends
New share capital issued
Investment in own shares
Share-based payments
Actuarial loss (net of deferred tax)
Exchange adjustments
At 31 December 2005
14.7
–
–
0.1
–
–
–
14.8
14.4
–
–
0.3
–
–
–
–
14.7
10.9
–
–
1.7
–
–
–
12.6
7.7
–
–
3.2
–
–
–
–
10.9
(3.5)
–
–
–
–
–
–
(3.5)
(3.3)
–
–
–
(0.2)
–
–
–
(3.5)
15.5
27.0
(11.6)
–
0.7
16.4
(1.7)
46.3
4.6
27.7
(10.9)
–
–
0.7
(6.7)
0.1
15.5
Total
£m
59.2
27.0
(11.6)
1.8
0.7
16.4
(1.7)
21.6
–
–
–
–
–
–
21.6
91.8
21.6
–
–
–
–
–
–
–
21.6
45.0
27.7
(10.9)
3.5
(0.2)
0.7
(6.7)
0.1
59.2
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
21. Statement of changes in shareholders’ equity (continued)
Ordinary
shares
£m
Share Investment
in own
shares
£m
premium
account
£m
Capital
Retained redemption
reserve
earnings
£m
£m
Company
At 31 December 2005
Profit for the year
Dividends
New share capital issued
Share-based payments
Actuarial gain (net of deferred tax)
At 30 December 2006
At 25 December 2004
Profit for the year
Dividends
New share capital issued
Share-based payments
Actuarial loss (net of deferred tax)
At 31 December 2005
14.7
–
–
0.1
–
–
14.8
14.4
–
–
0.3
–
–
14.7
10.9
–
–
1.7
–
–
12.6
7.7
–
–
3.2
–
–
10.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20.7
31.1
(11.6)
–
0.2
16.4
56.8
15.1
23.0
(10.9)
–
0.2
(6.7)
20.7
Total
£m
67.9
31.1
(11.6)
1.8
0.2
16.4
21.6
–
–
–
–
–
21.6
105.8
21.6
–
–
–
–
–
21.6
58.8
23.0
(10.9)
3.5
0.2
(6.7)
67.9
The profit for the year for the company of £31.1m (2005: £23m) is the same under both IFRS and UK GAAP. Other than
presentational changes there is no difference in the company balance sheet.
Investment in own shares
The Company’s ordinary shares are held in trust for an employee share scheme. At 30 December 2006 the trusts held 714,082
(2005: 721,927) ordinary 25p shares with a market value of £3,615,040 (2005: £3,663,780).
22. Minority interests
At beginning of year
Share of profit after tax
Dividend
Movement in the year
At end of year
2006
£m
0.3
0.2
(0.1)
–
0.4
2005
£m
0.5
0.3
(0.2)
(0.3)
0.3
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Governance
Financial Statements
Shareholder Information
23. Cash generated from operations
Operating profit
Depreciation and accelerated write-down
Amortisation of intangible assets
Share-based payments
Goodwill adjustment for tax loss utilisation
Gain on sale of contract rights
Gain on sale of property, plant and equipment
Pension charge
Past service pension credit
Pension contributions in cash
Rationalisation and integration costs
Cash spend on rationalisation and integration costs
Decrease / (increase) in inventories
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables and provisions
Cash generated from acquisitions during the year was not material.
24. Analysis of changes in net borrowings
Cash at bank and in hand
Bank overdrafts
Net cash and cash equivalents
Bank loans due within one year
Loan stock due within one year
Preference shares
Finance leases
Debt due after one year
Derivative financial (liabilities) / assets (net)
2006
£m
34.0
18.1
1.3
0.7
–
(2.5)
(0.2)
4.7
(5.8)
(11.1)
5.3
(2.5)
1.0
0.4
(13.7)
29.7
2005 Cash flows
£m
£m
Currency
translation
£m
22.0
(3.3)
18.7
(17.9)
(0.1)
(1.4)
(0.5)
(31.3)
(0.3)
(32.8)
(3.0)
(3.0)
(6.0)
15.3
–
–
(0.1)
(58.1)
(0.8)
(49.7)
(0.2)
–
(0.2)
0.3
–
–
–
3.0
2.4
5.5
2005
£m
34.4
16.2
0.9
0.7
0.3
–
(0.5)
5.1
–
(5.4)
–
–
(1.9)
(3.2)
0.9
47.5
2006
£m
18.8
(6.3)
12.5
(2.3)
(0.1)
(1.4)
(0.6)
(86.4)
1.3
(77.0)
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Governance
Financial Statements
Shareholder Information
Notes to the Accounts
(continued)
25. Acquisitions
During the year, the Group acquired 100% of the share capital or trading assets of the following businesses:
Aviation
Aeroground
Inc
Malmo Catamount
Holdings
LLC
Main Air
Cargo AB
Integrated
Airline
Services
Express
Perth
Cargo
Baggage
Centre (Heathrow)
Ltd
Pty Ltd
Ltd
Pty Ltd
Other
Other
Other
Total
Total
Total
Date of acquisition
03/05/06 17/08/06 28/08/06 31/08/06 15/09/06 01/11/06
Purchase consideration:
Cash paid
Acquisition costs
Deferred consideration
Total purchase consideration
Fair value of net assets acquired
Goodwill
£m
£m
£m
£m
£m
£m
£m
£m
15.3
1.2
0.5
17.0
7.0
10.0
2.0
0.1
0.7
2.8
0.3
2.5
2.1
0.1
0.6
2.8
2.8
–
3.2
0.1
–
3.3
3.3
–
0.8
0.1
0.4
1.3
1.3
–
2.7
0.1
–
2.8
0.6
2.2
0.1
–
–
0.1
(0.3)
0.4
26.2
1.7
2.2
30.1
15.0
15.1
The assets and liabilities arising from the acquisitions are as follows:
Non-current assets:
Intangible assets (contracts) – fair value
Property, plant and equipment
Current assets
Cash / (bank overdraft)
Current liabilities
Non-current liabilities
Net assets acquired
£m
£m
£m
£m
£m
£m
£m
£m
4.1
1.0
3.7
0.9
(2.7)
–
7.0
–
–
1.5
–
(1.2)
–
0.3
2.1
0.4
1.1
–
(0.7)
(0.1)
2.8
2.1
1.2
–
–
–
–
3.3
1.2
1.1
0.2
(1.0)
(0.1)
(0.1)
1.3
–
0.1
1.1
0.1
(0.7)
–
0.6
–
0.1
0.6
0.1
(1.1)
–
(0.3)
9.5
3.9
8.2
0.1
(6.5)
(0.2)
15.0
A further performance-related payment of US$1m may become payable in respect of Aeroground Inc up to April 2008.
Other acquisitions include Top Services SRL, a passenger handling business in Romania, and Australian Airsupport Pty Limited,
a ramp and passenger handling business in Brisbane. The consideration paid in each case was not material.
Distribution
On 31 March 2006, the Group acquired the entire issued share capital of Chester Independent Wholesale News Limited,
and on 29 May 2006, the entire issued share capital of North West Wholesale News Limited.
Purchase consideration:
Cash paid
Acquisition costs
Deferred consideration
Total purchase consideration
Fair value of net assets acquired
Goodwill
£m
9.9
0.3
0.7
10.9
10.5
0.4
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Governance
Financial Statements
Shareholder Information
The assets and liabilities arising from the acquisitions are as follows:
Non-current assets:
Intangible assets (contracts) – fair value
Property, plant and equipment
Current assets
Cash
Current liabilities
Net assets acquired
£m
8.5
3.9
5.5
1.0
(8.4)
10.5
The acquired businesses contributed revenues of £89m from the date of acquisition. If the businesses had been acquired on
1 January 2006 revenues contributed would have been £153m. Due to divisionalisation and reorganisation of the businesses
acquired, it has not been possible to meaningfully calculate the profit impact. However, the results from acquisitions were not
material.
26. Related party transactions
During the year the Group transacted with related parties in the normal course of business and on an arm’s length basis.
Details of these transactions are shown below:
Related party
Talma Menzies SRL (Peru)
Freshport BV
Menzies Chengdu Aviation Services Ltd
Amounts
owed
to related
Sales to Purchases party at 30
related from related December
2006
party
£m
£m
party
£m
0.6
0.4
0.1
–
–
–
0.1
–
–
Group
share
holding
%
50
50
40
The amounts owed to / (due by) the parent company from dealings with subsidiary companies is disclosed in Notes 14 and 15.
Certain activities, including treasury, taxation, insurance, pension and legal matters are provided by the parent company
to subsidiary companies and are recharged on a cost-plus basis.
Key management compensation
Salaries and other short-term employee benefits
Termination benefits
Share–based payments
27. Subsidiary companies
2006
£m
0.9
0.2
0.1
2005
£m
0.6
–
0.1
The principal subsidiaries, Menzies Distribution Limited, Menzies Group Holdings Limited, Menzies Aviation plc and Menzies
Aviation Holdings Limited are ultimately wholly owned by the Company and operate mainly in the United Kingdom. The issued
share capital of these subsidiaries is mainly in the form of equity shares.
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Business Review
Governance
Financial Statements
Shareholder Information
UK GAAP to IFRS Reconciliations
Group Income Statement
for the year ended 31 December 2005
Revenue
Net operating costs
Operating profit
Share of post-tax results of joint ventures and associates
Operating profit after joint ventures and associates
Interest payable
Interest receivable
Finance income
Finance charge
Profit before taxation
Taxation
Profit for the year
Attributable to equity shareholders
Attributable to minority interest
Notes
(a)
(b)
(c)
(d)
Joint venture
As reported and associate
under presentation of transition
to IFRS
change
£m
£m
UK GAAP*
£m
Effect As reported
under
IFRS
£m
1,362.1
(1,329.0)
33.1
3.8
36.9
(4.3)
2.3
11.5
(10.3)
36.1
(9.0)
27.1
26.8
0.3
27.1
–
–
–
(0.6)
(0.6)
–
–
–
–
(0.6)
0.6
–
–
–
–
–
1.3
1.3
–
1.3
(0.1)
–
–
–
1.2
(0.3)
0.9
0.9
–
0.9
1,362.1
(1,327.7)
34.4
3.2
37.6
(4.4)
2.3
11.5
(10.3)
36.7
(8.7)
28.0
27.7
0.3
28.0
* The order and description of items presented “as reported under UK GAAP” have been amended to enable direct comparison
with IFRS presentation.
The principal adjustments made as a result of the transition to International Accounting Standards are:
(a) Reversal of subsidiary goodwill amortisation
Capitalisation of software development expenditure
previously written off as operating expenses
Amortisation of software development costs
Reclassification of operating lease rentals to
finance lease interest
Goodwill adjustment for tax loss utilisation
(b) Reversal of joint venture and associate goodwill amortisation
Goodwill impairment
(c) Reclassification of operating lease rentals to finance lease interest
(d) Adjustment to deferred tax liability
IAS 38
IAS 38
IAS 38
IAS 17
IAS 12
IAS 38
IAS 38
IAS 17
IAS 12
£m
1.5
0.6
(0.6)
0.1
(0.3)
1.8
(1.8)
£m
1.3
–
(0.1)
(0.3)
0.9
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group Balance Sheet
as at 26 December 2004 (IFRS opening position)
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Derivative financial assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Derivative financial liabilities
Trade and other payables
Current income tax liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial liabilities
Other
Provisions
Retirement benefit obligations
Net assets
Shareholders’ equity
Ordinary shares
Preference shares
Share premium account
Investment in own shares
Retained earnings
Capital redemption reserve
Total shareholders’ equity
Minority interest in equity
Total equity
Notes
(a)
(b)
(c)
(d)
(e)
(f)
(g)
As reported
Effect
under of transition
to IFRS
£m
UK GAAP*
£m
22.3
116.1
21.3
–
12.8
172.5
11.1
95.2
–
27.0
133.3
(28.5)
–
(150.4)
(12.4)
(191.3)
(58.0)
114.5
(42.0)
–
(0.1)
(9.6)
(23.3)
(75.0)
39.5
14.4
1.4
7.7
(3.3)
(2.8)
21.6
39.0
0.5
39.5
2.6
(1.0)
–
–
0.3
1.9
–
–
–
–
–
–
–
7.5
–
7.5
7.5
9.4
(0.5)
–
–
(0.4)
(1.1)
(2.0)
7.4
–
–
–
–
7.4
–
7.4
–
7.4
Effect As reported
under
IFRS
£m
of IAS 32
& 39
£m
–
–
–
0.2
–
0.2
–
(0.3)
0.9
–
0.6
24.9
115.1
21.3
0.2
13.1
174.6
11.1
94.9
0.9
27.0
133.9
(0.1)
(0.4)
0.1
–
(28.6)
(0.4)
(142.8)
(12.4)
(0.4)
(184.2)
0.2
0.4
(1.4)
(0.1)
–
–
–
(1.5)
(1.1)
–
(1.4)
–
–
0.3
–
(1.1)
–
(1.1)
(50.3)
124.3
(43.9)
(0.1)
(0.1)
(10.0)
(24.4)
(78.5)
45.8
14.4
–
7.7
(3.3)
4.9
21.6
45.3
0.5
45.8
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* The order and description of items presented “as reported under UK GAAP” have been amended to enable direct comparison
with IFRS presentation.
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group Balance Sheet
as at 26 December 2004 (IFRS opening position) (continued)
The principal adjustments made as a result of the transition to International Accounting Standards are:
(a) Capitalisation of software development expenditure
previously written off as operating expenses
Transfer of capitalised software development expenditure
previously shown as plant and equipment
(b) Operating lease reclassified as finance lease
Transfer of capitalised software development expenditure
previously shown as plant and equipment
£m
£m
IAS 38
IAS 38
IAS 17
1.2
1.4
0.4
2.6
IAS 38
(1.4)
(1.0)
(c) Mid to bid pension valuation deferred tax adjustment
(d) Reversal of the previously reported dividend accrual
IAS 12
IAS 10
(e) Finance lease creditor as a result of reclassification of operating lease
IAS 17
(f) Adjustment to non-current deferred tax liability
(g) Mid to bid pension valuation
Cumulative adjustment to net assets
IAS 12
IAS 19
0.3
7.5
(0.5)
(0.4)
(1.1)
7.4
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Statements
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Governance
Financial Statements
Shareholder Information
Group Balance Sheet
as at 31 December 2005
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Derivative financial assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Liabilities
Current liabilities
Borrowings
Derivative financial liabilities
Trade and other payables
Current income tax liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Borrowings
Derivative financial liabilities
Provisions
Retirement benefit obligations
Net assets
Shareholders’ equity
Ordinary shares
Preference shares
Share premium account
Investment in own shares
Retained earnings
Capital redemption reserve
Total shareholders’ equity
Minority interest in equity
Total equity
Notes
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
As reported
Effect
under of transition
to IFRS
£m
UK GAAP*
£m
22.0
121.8
22.8
–
13.4
180.0
13.0
97.9
–
22.0
132.9
(21.2)
–
(154.8)
(14.1)
(190.1)
(57.2)
122.8
(31.3)
–
(8.6)
(31.3)
(71.2)
51.6
14.7
1.4
10.9
(3.5)
6.2
21.6
51.3
0.3
51.6
3.6
(0.7)
–
–
0.4
3.3
–
–
–
–
–
–
–
8.0
–
8.0
8.0
11.3
(0.5)
–
(0.7)
(1.3)
(2.5)
8.8
–
–
–
–
8.8
–
8.8
–
8.8
Effect As reported
under
IFRS
£m
of IAS 32
& 39
£m
–
–
–
0.1
–
0.1
–
–
0.6
–
0.6
(0.1)
(0.5)
0.9
–
0.3
0.9
1.0
(1.4)
(0.5)
–
–
(1.9)
(0.9)
–
(1.4)
–
–
0.5
–
(0.9)
–
(0.9)
25.6
121.1
22.8
0.1
13.8
183.4
13.0
97.9
0.6
22.0
133.5
(21.3)
(0.5)
(145.9)
(14.1)
(181.8)
(48.3)
135.1
(33.2)
(0.5)
(9.3)
(32.6)
(75.6)
59.5
14.7
–
10.9
(3.5)
15.5
21.6
59.2
0.3
59.5
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* The order and description of items presented “as reported under UK GAAP” have been amended to enable direct comparison
with IFRS presentation.
Statements
Business Review
Governance
Financial Statements
Shareholder Information
Group Balance Sheet
as at 31 December 2005 (continued)
The principal adjustments made as a result of the transition to International Accounting Standards are:
(a) Capitalisation of software development expenditure
previously written off as operating expenses
Transfer of capitalised software development expenditure
previously shown as plant and equipment
Goodwill adjustment for tax loss utilisation
Reversal of subsidiary goodwill amortisation
previously charged under UK GAAP
(b) Operating lease reclassified as finance lease
Transfer of capitalised software development
expenditure previously shown as plant and equipment
(c) Reversal of associates’ goodwill amortisation
previously charged under UK GAAP
Impairment of goodwill
(d) Mid to bid pension valuation deferred tax adjustment
(e) Reversal of the previously reported dividend accrual
(f) Finance lease creditor as a result of reclassification of operating lease
IAS 17
(g) Adjustment to deferred tax liability
(h) Mid to bid pension valuation
Cumulative adjustment to net assets
IAS 12
IAS 19
£m
£m
IAS 38
1.3
IAS 38
IAS 38
IAS 38
IAS 17
1.1
(0.3)
1.5
0.4
3.6
IAS 38
(1.1)
(0.7)
1.8
(1.8)
IAS 38
IAS 38
IAS 12
IAS 10
–
0.4
8.0
(0.5)
(0.7)
(1.3)
8.8
Group and Company Cash Flow Statements
The only differences to the Group and Company Cash Flow Statements as a result of the adoption of IFRS were presentational.
Accordingly, no table of these adjustments has been included.
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Statements
Business Review
Governance
Financial Statements
Shareholder Information
Five Year Summary
Revenue
Distribution
Aviation
Operating profit
Distribution
Aviation
Corporate
Pension credit – SSAP24
Underlying operating profit
Exceptional items
Intangible amortisation
Share of tax on joint ventures and associates
Profit before interest
Net finance costs
Profit / (loss) before taxation
Per ordinary share
Dividends – payable
Underlying earnings
Basic earnings
IFRS
UK GAAP
2006
£m
2005
£m
2004
£m
2003
£m
2002
£m
1,132.0
318.4
1,093.5 1,086.6 1,033.5
226.8
244.0
268.6
936.9
195.9
1,450.4 1,362.1 1,330.6 1,260.3 1,132.8
23.7
16.6
40.3
(3.4)
–
36.9
3.0
(2.2)
(1.0)
36.7
(1.1)
35.6
30.7
13.3
44.0
(3.7)
–
40.3
–
(2.1)
(0.6)
37.6
(0.9)
36.7
30.5
10.3
40.8
(4.3)
–
36.5
7.6
(3.6)
–
40.5
(2.9)
37.6
26.2
2.4
28.6
(4.8)
–
23.8
(17.2)
(3.6)
–
3.0
(3.1)
(0.1)
28.7
3.7
32.4
(7.0)
3.6
29.0
(4.7)
(3.5)
–
20.8
(3.1)
17.7
20.5p
46.9p
46.4p
19.5p
51.9p
48.2p
18.5p
44.0p
51.0p
18.1p
24.8p
(11.4)p
18.1p
32.9p
18.2p
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Governance
Financial Statements
Shareholder Information
General Information
Internet
The Group operates a website which can be found at www.johnmenziesplc.com. This site is regularly updated to provide
you with information about the Group and each of its operating divisions. In particular all of the Group’s press releases and
announcements can be found on the site together with copies of the Group’s accounts.
Share Registrar
Any enquiries concerning your shareholding should be directed to the Company’s Registrar and clearly state the shareholder’s
name, address and Shareholder Reference Number (SRN). The contact details are noted as follows:
The John Menzies plc Registrar
Computershare Investor Services PLC, PO Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH
Tel: 0870 703 6303
Email: web.queries@computershare.co.uk
or visit www.computershare.com
The Registrar should be notified in writing promptly of any change in a shareholder’s address.
Computershare’s online Investor Centre also enables you to view your shareholding and update your address and payment
instructions online. You can register at www.computershare.com/investor/uk. In order to register you will need your Shareholder
Reference Number (SRN), which you can find on your share certificate or tax voucher. If you have an older share certificate issued
by Capita IRG, your SRN is the 10 digit investor code.
Share Price
The current share price of John Menzies plc ordinary shares can be seen on the Group’s website.
Low Cost Dealing Service
The Group has arranged a low cost dealing service for those wishing to buy or sell shares in John Menzies plc. To use this service
please call 0845 601 0995 and quote ref: LOW C0014.
Alternatively write to:
John Menzies plc – Share Dealing Service
Stocktrade, PO Box 1076, 10 George Street, Edinburgh EH2 2PZ
Payment of Dividends
It is in the interests of shareholders and the Company for dividends to be paid directly into bank or building society accounts.
Any shareholder who wishes to receive dividends in this way should contact the Company’s Registrar to obtain a dividend
mandate form.
The provisional dates of dividend payments in the year, subject to their approval/recommendation, are:
Ordinary shares
9% Preference shares
Final dividend for 2006
Interim dividend for 2007
29 June 2007
30 November 2007
30 March 2007
28 September 2007
Investor Relations
For further copies of the Group’s accounts or other investor relations enquiries, please contact:
John Menzies plc
108 Princes Street, Edinburgh EH2 3AA
Tel: 0131 225 8555
Fax: 0131 226 3752
Email: info@johnmenziesplc.com
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Explanatory Notes to the Notice of Meeting
The Notice of Meeting appears on pages 90 to 92. The following information provides additional background to several
of the resolutions proposed.
Resolution 3 – Appointment of Directors
The Board recommends that the following Directors be elected at this meeting:
Craig Smyth
As Craig has been appointed to the Board since the last Annual General Meeting (“AGM”) he comes up for election at this
meeting. He was appointed a Director on 20 March, was a founder executive of the Aviation division and has worked for
Menzies Aviation for 14 years. In 2003, he moved from being the Chief Financial Officer into the operational and commercial
role as Vice President, Americas and was appointed the Managing Director of Menzies Aviation in February 2004. He is a
chartered accountant. Age 39.
Ellis Watson
Ellis was also appointed to the Board on 20 March and therefore also comes up for election at this meeting. Ellis was appointed
Managing Director of Menzies Distribution in September 2005. Prior to this he was Managing Director of National Newspapers at
Trinity Mirror plc and of Celador International. His media career began with 9 years at News International, where latterly he was
Marketing Director. He was also previously Chairman of the Newspaper Publishers Association, the trade body for daily national
newspapers. Age 39.
The Board recommends that the following Directors, who retire by rotation and offer themselves for re-election at this meeting,
be re-elected:
William Thomson
William was appointed Chairman in 2002. He has been a non-executive director since 1987, and chairs the Nominations
Committee. He is Chairman of E G Thomson (Holdings) Ltd, a shipping and logistics group with interests in Asia, British Assets
Trust plc and Fidelity Japanese Values plc, and is a non-executive director of Dobbies Garden Centres plc. Age 66.
David Coltman
David was appointed a non-executive director in 2001 and Senior Independent Director in 2006, and chairs the Remuneration
Committee. He has held various senior positions with airlines in the UK and with United Airlines in Chicago, and is Chairman
of Edinburgh Worldwide Investment Trust plc. Age 64.
Dermot Jenkinson
Dermot was appointed to the Board in 1986 where he held various executive responsibilities before assuming a non-executive
role in 1999. He is founder and Chairman of beCogent Ltd, a contact centre and related consultancy business, and is a director
of a number of other private companies. Age 52.
Ian Harrison
Ian was appointed a non-executive director in 1987. He is a director of Record Currency Management Ltd, an institutional
investment management company specialising in currency management for pension funds worldwide. Age 50.
William Thomson, who is Chairman, has extensive leadership skills and experience, and provides highly valued advice and
support to the executive management team. David Coltman, who is Senior Independent Director, has international experience
and commercial expertise and knowledge particularly in the aviation sector. Dermot Jenkinson contributes from his breadth of
experience gained from his knowledge of the Company and through a wide range of general management roles. Ian Harrison
provides counsel and support to the Board and brings particular skills relating to pension investment and currency management.
The latter two also represent the interests of our major shareholder.
Each of these four directors retiring by rotation has undergone a formal performance evaluation and the performance of each
continues to be effective and to demonstrate commitment to their role including commitment of time for board and committee
meetings and their other duties.
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Explanatory Notes to the Notice of Meeting (continued)
Resolution 7 – Adoption of a new Divisional Performance Share Plan
Following an in-depth review of our remuneration and incentive structures, we are recommending the adoption of a new
divisional share incentive plan primarily for senior executives. The main features are set out below and a summary of the rules
can be found on pages 88 to 89.
It was felt by the Board that the Company’s current incentive schemes did not operate as intended at the divisional level.
Following a review by the Remuneration Committee, the Board is recommending that a new 2007 Divisional Performance Share
Plan (“DPSP”) be adopted to augment the Company’s existing share incentive plans as part of the Company’s policy of ensuring
that its remuneration practices remain competitive. Executive directors and other senior executives receiving an award of
conditional shares under this DPSP will not also receive awards under the existing 2005 Performance Share Plan.
The performance conditions are based on the achievement of targeted Divisional Financial Results (“DFR”) at threshold and
stretch level; at the stretch level, the performance target has been externally verified as being equivalent to achieving upper
quartile performance. For Menzies Distribution, the DFR are based on operating profit, reduction in operating costs and income
from new revenue streams, and for Menzies Aviation the DFR are based on operating profit.
The main features of the DPSP are as follows:
•
•
•
No shares vest unless actual DFR for the final year of the 3-year performance period beat the threshold target.
100% of shares vest for performance over the final year of the 3-year period exceeding the stretch target.
Pro rata vesting in between.
Annual grants of conditional shares which vest if actual DFR of the relevant division outperform target DFR. For the first
cycle of the plan the following vesting conditions are proposed:
–
–
–
The Remuneration Committee will review the appropriateness of these performance conditions at the beginning of each cycle.
An amount equal to net dividends accrued over the performance period will be paid at vesting but only on shares which
actually vest.
Copies of the Rules of the proposed 2007 Divisional Performance Share Plan will be available for inspection at the registered
office of the Company, and at the offices of Maclay Murray & Spens LLP at 1 London Wall, London EC2Y 5AB, from 19 April
2007 to (and including) the date of the Annual General Meeting during normal business hours on any day (Saturdays, Sundays
and public holidays excepted) and will also be available at the Roxburghe Hotel, 38 Charlotte Square, Edinburgh for at least 15
minutes before the Annual General Meeting until its conclusion.
Resolution 8 – Communications by Electronic Means and Amendment to Articles of Association
This resolution is being proposed in light of the new provisions about company communications, including electronic
communications (for example via the Company’s website or by email), which have recently been introduced by the Companies
Act 2006 (the “2006 Act”). The Companies Act 1985 (as amended) (the “1985 Act”) allowed companies to use electronic
communications in certain contexts, for instance, to send annual accounts and notices of meetings to shareholders. Currently,
following shareholder approval in 2000, the Company’s Articles of Association permit the Company to communicate with
shareholders by electronic means as permitted under the 1985 Act, although not by publishing documents on the Company’s
website.
The new provisions in the 2006 Act apply more generally to all types of company communications made pursuant to the 2006
Act. The authority that is being sought by Resolution 8 is consistent with the new arrangements under the 2006 Act and with
the provisions of the UKLA’s new Transparency Rules which contain additional requirements for listed companies in relation to
electronic communications. The Resolution also seeks shareholder approval to changes to the Company’s Articles of Association
to reflect the new arrangements.
The authority and amendments to the Articles will not of themselves force either the Company or any individual shareholder
to send or receive notices, documents or information by electronic means. They will, however, allow the Company to
approach shareholders for their individual agreement to use electronic mail and/or publication on its website for Company
communications.
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Shareholders will at all times be able to request hard copies of any document published electronically and they will be able
to revoke their consent to the Company communicating with them electronically at any time.
Copies of the existing Articles of Association of the Company and the proposed amended Articles of Association will be available
for inspection at the Company’s registered office, and at the offices of Maclay Murray & Spens LLP at 1 London Wall, London
EC2Y 5AB, from 19 April 2007 to (and including) the date of the Annual General Meeting during normal business hours on any
day (Saturdays, Sundays and public holidays excepted) and will also be available at the Roxburghe Hotel, 38 Charlotte Square,
Edinburgh for at least 15 minutes before the Annual General Meeting until its conclusion.
Resolution 9 – Authority to allot shares for cash free from pre-emption rights
This resolution proposes, on the same basis as last year, to disapply pre-emption rights of shareholders on the allotment of
equity securities for cash up to a limit of 5% of the issued ordinary share capital, being shares to an aggregate nominal value of
£740,694. The authority under this resolution would expire on the date of the next Annual General Meeting or 23 August 2008,
whichever is earlier.
Resolutions 10 and 11 – Authority for the Company to purchase its own shares
The directors consider that it would be advantageous for the Company to renew the authority to purchase its own ordinary
and 9% cumulative preference shares in case the opportunity presents itself where such course of action would be in the best
interests of shareholders generally.
Under the terms of these special resolutions the maximum number of shares to be purchased is 5,925,553 ordinary shares
(representing 10% of the issued ordinary share capital) and 1,394,587 9% cumulative preference shares. The minimum price
payable is the par value of 25p per ordinary share and £1 per 9% cumulative preference share. The maximum price payable is
an amount equal to 105% of the average middle market quotations in respect of the ordinary shares and 110% of the average
middle market quotations in respect of the 9% cumulative preference shares (both as shown in the London Stock Exchange
Daily Official List) for five business days prior to the date of purchase.
This authority will only be exercised where in the opinion of the Board it is likely to result in an increase in earnings per share
and would be in the best interests of shareholders generally. Any shares purchased by the Company under this authority will
be cancelled, unless the shares are purchased by the Company to hold as treasury shares.
These authorities would expire on the date of the next Annual General Meeting or 23 August 2008, whichever is earlier.
Proxy Form
A proxy form, which covers all resolutions to be proposed at the Annual General Meeting, is provided for use by holders
of ordinary shares and should be read in conjunction with the Notice of Meeting. Completed forms of proxy should be returned
as soon as possible but in any event no later than 12.15pm on Tuesday 22 May 2007. Completion of a proxy form will not prevent
a shareholder from attending and voting at the Annual General Meeting if he/she so wishes.
Appointment of a proxy through CREST
To appoint one or more proxies or to give an instruction to a proxy (whether previously appointed or otherwise) via the
CREST system, CREST messages must be received by the issuer’s agent (ID number 3RA50) not later than 48 hours before
the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined
by the timestamp generated by the CREST system) from which the issuer’s agent is able to retrieve the message. For further
information on CREST procedures, limitations and system timings please refer to the CREST Manual. The Company may treat as
invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35 (5) (a) of the Uncertificated Securities
Regulations 2001.
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Summary of the Principal Features
of the John Menzies plc 2007 Divisional Performance Share Plan
Introduction
The John Menzies plc 2007 Divisional Performance Share Plan offers executives the opportunity to benefit from the success
of the Company, as measured by the achievement of target Divisional Financial Results (“DFR”). The DFR for Menzies Distribution
are based on Operating Profits, Cost Savings and Income from New Revenue Streams, and for Menzies Aviation are based on
Operating Profits. The DFR relate to the Division of the Company by which the executive who benefits through the award of
shares is employed.
Shares will vest at the end of three years if DFR reaches targets set by the Board.
The following summarises the main features of the Plan and its operation.
1. Eligibility
Executive directors and senior employees of the Company or its subsidiaries who are selected by the Remuneration Committee
(for Directors) or the Board (for other executives) are eligible to participate in the DPSP.
2. Grants of Awards
The Board may, normally within 42 days of the preliminary announcement of the Company’s results, grant to executives an award
of conditional shares under the rules of the DPSP. An Award Certificate will set out the number of conditional shares being awarded
and the Performance Targets which will determine the extent to which the number of shares stated in the Award Certificate will vest.
3. Performance Targets
Performance Targets will normally relate to a period of three financial years (‘the Performance Period’), and are intended to be
challenging. A Threshold and a more demanding Stretch Performance Target for each set of DFR will be set by the Board before
awards are made. The Stretch Performance Target for each Division has been verified by external remuneration consultants to be
equivalent to upper quartile performance. Targets will normally be based on improvements to performance measured against DFR
at the end of the period relative to the DFR at the beginning of the period. The Performance Targets for the first period will be:
DFR at the end of the third financial year to December 2009
Percentage award vesting
Less than the Threshold Performance Target
Equal to or greater than the Stretch Performance Target
Greater than the Threshold Performance Target but less than the
Stretch Performance Target
Nil
100%
To be calculated on a straight line basis,
with the total number of shares vesting
rounded down to the nearest whole number.
4. Commencement, Duration and Amendment of the DPSP
The first award under the DPSP will be made 42 days after the adoption of the DPSP by shareholders at the 2007 Annual General
Meeting. No award may be made more than 10 years after the adoption of the DPSP.
The DPSP may be altered at any time provided that no alteration is made which adversely affects the participants without their
consent, and no amendments to the advantage of participants or to the definitions of those eligible, Performance Targets or
Divisional Financial Results may be made without shareholder consent.
5. Vesting of Shares
The Remuneration Committee (for Directors) or the Board (for other executives) will notify each participant as soon as practicable
after the end of the Performance Period of the extent to which the Performance Targets have been met and the number of
shares which will be awarded or vest (if any) for the Performance Period. The Company will thereafter procure the transfer of
the appropriate number of these vested shares which will represent the post-tax value of this award. The Company will pay the
relevant income tax on the award, by sale on the participant’s behalf if agreed of the appropriate number of the total vested shares.
The value of the vested shares shall be calculated using the quoted share price at the close of the day prior to which the above
notification is dated, and the date of the transfer shall be the date of the notification for the purposes of any announcement
of this dealing in the Company’s shares.
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6. Dividends
Within 42 days of the transfer of the vested shares, the Company will pay to each participant an amount equal to the net
dividends which would have been paid during the Performance Period on those shares which actually vest.
7. Taxation
Income tax and national insurance contributions are due on any shares which vest, at the date of vesting, and on any dividend
payment. All payments or transfers of shares under the DPSP will be made on a net of tax basis as appropriate.
8. Loss of or Limitations on Rights
If a participant leaves the employment of the Group, rights attaching to all shares held for him/her under the DPSP shall
immediately lapse, although special rules apply on leaving due to ill health, retirement, redundancy, disposal/change of control
of the Company, death, or in other circumstances where the Remuneration Committee (for Directors) or the Board (for other
executives) deems it appropriate. Under these special rules, they may determine whether and if so, how many shares will vest,
taking into account the Performance Targets and how much of the Performance Period has elapsed.
No share will be transferred to a participant while his/her employment is suspended on grounds of gross misconduct or where
any statutory, regulatory or other legal provision restricts the Company or the executive from dealing in shares.
No award may be assigned or transferred (except to personal representatives on the participant’s death).
9. Other Matters
9.1 Limit of awards
The maximum annual award for each participant will be limited to 100,000 shares. No more than 10% of the issued ordinary
share capital of the Company shall be issued pursuant to the DPSP and any other employees’ share scheme in a 10 year period,
and no more than 5% of the issued ordinary share capital of the Company shall be issued pursuant to the DPSP and any other
discretionary executive share option scheme in any 10 year period.
9.2 Rights
The inclusion of a participant in this Scheme or the terms of an Award shall not afford the participant any rights or additional
rights to compensation or damages in consequence of the loss or termination of his/her office or employment with the Group
for any reason whatsoever (including wrongful or unfair dismissal), or from the lapsing of any share awards. Awards will not be
pensionable.
9.3 Variation of Share Capital
The number of shares in any award may be adjusted on any variation of the share capital of the Company in such manner as the
Remuneration Committee deems to be fair and reasonable.
9.4 Change of Control
In the event of a takeover of the Company, awards will vest immediately subject to determination by the Remuneration
Committee of the extent to which the Performance Targets have been met as at the date of change of control.
9.5 Interpretation
In the event that there is any difference in the interpretation of the Rules in this Summary and the Rules themselves, then the
Rules take precedence. Participants may request a copy of the Rules at any time.
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Notice of Annual General Meeting
The Annual General Meeting of John Menzies plc will be held in the Roxburghe Hotel, 38 Charlotte Square, Edinburgh on
Thursday 24 May 2007 at 12.15pm to transact the following business:
Ordinary Business
To consider and if thought fit pass the following resolutions which will be proposed as ordinary resolutions:
1. To receive the Directors’ Report and Accounts for the year ended 30 December 2006 and the Report of the Auditors thereon.
2. To declare a final dividend on the ordinary shares.
3. To elect as directors:
(i) Craig Smyth
(ii) Ellis Watson
To re-elect as directors:
(iii) William Thomson
(iv) David Coltman
(v) Dermot Jenkinson
(vi) Ian Harrison
4. To approve the Report on Directors’ Remuneration for the year ended 30 December 2006.
5. To re-appoint PricewaterhouseCoopers LLP as Auditors.
6. To authorise the directors to fix the Auditors’ remuneration.
7. To approve and adopt the Rules of the John Menzies plc 2007 Divisional Performance Share Plan (“DPSP”), the main features
of which are summarised on pages 88 to 89 of the Annual Report and Accounts 2006, in the form produced to the meeting
and signed by the Chairman for the purposes of identification, subject to such modifications as the directors may consider
necessary or desirable to take account of the requirements of the UK Listing Authority and the London Stock Exchange or
for the purposes of implementing and giving effect to the DPSP.
Special Business
To consider and if thought fit pass the following Resolutions which will be proposed as Special Resolutions:
8. That:
(i) the Company be and is hereby permitted (subject to the requirements of the Companies Act 2006 and the Articles of
Association of the Company) to send or supply notices, documents or information to members by making them available
on a website or by other electronic means; and
(ii) those amendments (as shown by text being underlined or deleted) contained in the printed document produced to the
meeting and initialled by the Chairman for the purpose of identification be and are hereby approved as amendments to
the Articles of Association of the Company.
9. That the directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities
(within the meaning of Section 94 of the Companies Act 1985) pursuant to the authority conferred by Resolution number 9
passed at the Annual General Meeting of the Company held on 9 May 2003 as if Section 89 of the Companies Act 1985 did
not apply to such allotment, provided that this power shall be limited to:
(a) the allotment (otherwise than pursuant to sub-paragraph (b) below) of equity securities which are, or are to be, wholly
paid up in cash to an aggregate nominal value of £740,694, and for this purpose an issue of securities convertible into or
giving the right to subscribe for ordinary shares shall be deemed to be an allotment of the number of shares which would
be required to satisfy the conversion or subscription price provided in the terms and conditions of the issue; and
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(b) the allotment of equity shares in connection with a rights issue to ordinary shareholders in proportion (as nearly as may
be) to the respective numbers of ordinary shares held by them, subject to the directors having a right to aggregate and
sell for the benefit of the Company all fractional entitlements which may arise in apportioning equity securities among
ordinary shareholders of the Company, and subject to such exclusions or other arrangements as the directors may deem
necessary or expedient in relation to legal or practical problems under the requirements of any regulatory or other
authority in any jurisdiction;
and that the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the Company
or on 23 August 2008 which ever is earlier, provided that the Company may before such expiry make an offer or arrangement
which would or might require equity shares to be allotted after such expiry and the directors may allot equity securities in
pursuance of such offer or agreement as if the power hereby conferred had not expired.
10. That the Company be and is hereby authorised to make market purchases (within the meaning of Section 163(3) of the
Companies Act 1985) of any of its own ordinary shares of 25p each (the “ordinary shares”), provided that:
(a) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting or on 23 August 2008,
whichever is earlier, except in relation to the purchase of ordinary shares for which a contract was concluded before the
authority expired and which might or will be executed wholly or partly after its expiration;
(b) the maximum number of shares hereby authorised to be purchased is 5,925,553 ordinary shares in aggregate; and
(c) the maximum price which may be paid for each ordinary share is an amount equal to 105% of the average of the middle
market quotations for ordinary shares of the Company derived from the London Stock Exchange Daily Official List for
the five business days prior to the date of conclusion of the contract for such purchases, and the minimum price is 25p,
in each case exclusive of the expenses of purchase.
11. That the Company be and is hereby authorised to make market purchases (within the meaning of Section 163(3) of the
Companies Act 1985) of any of its own 9% cumulative preference shares of £1 each (the “preference shares”), provided that:
(a) the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting or on 23 August 2008,
whichever is earlier, except in relation to the purchase of preference shares for which a contract was concluded before the
authority expired and which might or will be executed wholly or partly after its expiration;
(b) the maximum number of shares hereby authorised to be purchased is 1,394,587 preference shares in aggregate; and
(c) the maximum price which may be paid for each preference share is an amount equal to 110% of the average of the
middle market quotations for shares of the Company derived from the London Stock Exchange Daily Official List for the
five business days prior to the date of conclusion of the contract for such purchases, and the minimum price is £1, in each
case exclusive of the expenses of purchase.
By order of the Board
J F A GEDDES
SECRETARY
19 April 2007
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Notice of Annual General Meeting
(continued)
Notes
Entitlement to Attend Meeting
Members who wish to attend the meeting must be entered on the Company’s register of members by 12.15pm on Tuesday 22 May
2007, and the number of votes they may cast will be the number of shares they hold as shown by the register at that date.
Proxies
A person entitled to attend and vote is entitled to appoint one or more proxies to attend and, on a poll, to vote on his/her behalf.
A proxy need not be a member of the Company. A form of proxy is enclosed for ordinary shareholders which, to be valid, must
be completed in accordance with the instructions printed on it and lodged with the registrars of the Company at least 48 hours
before the time of the meeting.
Appointment of a proxy will not prevent a member from attending and voting at the Annual General Meeting should he/she
decide to do so.
For members of CREST who wish to appoint a proxy through the CREST system, please refer to the instructions on page 87.
Documents
The register of interests of directors in the share capital of the Company and copies of their service agreements are available for
inspection at the registered office of the Company during normal business hours and will be available at the meeting.
Copies of the Rules of the proposed 2007 Divisional Performance Share Plan and of the Company’s existing and proposed
amended Articles of Association will be available for inspection at the registered office of the Company and at the offices of
Maclay Murray & Spens LLP at 1 London Wall, London EC2Y 5AB on weekdays during business hours (excluding public holidays)
from the date of this notice until the end of the Annual General Meeting and also at the meeting until it ends.
Dividend
The final dividend on the ordinary shares, if approved, will be paid on 29 June 2007 to members whose names appear on the
register at the close of business on 1 June 2007.
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Principal Addresses and Advisers
Principal Business Addresses
Principal Advisers
John Menzies plc
108 Princes Street
Edinburgh EH2 3AA
Tel: +44 (0) 131 225 8555
Fax: +44 (0) 131 226 3752
Email: info@johnmenziesplc.com
Menzies Distribution
2 Lochside Avenue
Edinburgh Park
Edinburgh EH12 9DJ
Tel: +44 (0) 131 467 8070
Fax: +44 (0) 131 469 4797
Menzies Aviation
Aviation House
923 Southern Perimeter Road
London Heathrow Airport
Hounslow
Middlesex TW6 3AE
Tel: +44 (0) 20 8750 6000
Fax: +44 (0) 20 8750 6001
Auditors
PricewaterhouseCoopers LLP
Erskine House
68-73 Queen Street
Edinburgh EH2 4NH
Corporate Financial Advisers
and Joint Brokers
Hoare Govett Limited
250 Bishopsgate
London EC2M 4AA
Joint Brokers
Bell Lawrie
48 St Vincent Street
Glasgow G2 5TS
This Annual Report is printed on chlorine free, recyclable,
biodegradable paper produced at a mill that is certified
to the ISO14001 environmental management standard.
Designed and produced by Emperor Design Consultants Ltd
John Menzies plc
108 Princes Street, Edinburgh EH2 3AA
Tel: +44 (0) 131 225 8555
Fax: +44 (0) 131 226 3752
Email: info@johnmenziesplc.com
Web: www.johnmenziesplc.com
Registered in Scotland with company number SC34970
Registered office address as above