MNZS.L Regulatory News (MNZS)

John Menzies plc

Final Results for the year ended 31 December 2017

Financial Summary

Overview

Group - 2017 was a transformational year

- Group successfully completed its largest ever acquisition (ASIG) for US$202m

- Record reported underlying operating profits delivered - up 41% at £77.9m

- Exceptional charge of £27.1m relating to corporate transactions and pension de-risking

- Sale process for Menzies Distribution is underway

- Underlying EPS up 20%

- Proposed final dividend of 14.5p giving a total dividend of 20.5p for the year, up 11%

Menzies Aviation - An excellent year delivering strong growth

- ASIG acquisition completed and integrating well. Projected synergy target being exceeded

- Underlying business performing well

- Investment in people and processes ensuring industry leading position maintained

- Commercial progress continued with excellent net contract gain position

Menzies Distribution - A solid performance

- Underlying operating profit in line with last year at £24.8m

Dr Dermot F. Smurfit, Chairman of John Menzies plc said:

"I am delighted to again report a positive set of results.

"At Menzies Aviation we completed and are successfully integrating the Group's largest ever acquisition which after a period of stabilisation offers exciting growth opportunities. Overall, the business has performed well with many new contracts gained and we continue to invest in our people and systems in pursuit of our excellence manifesto.

"I am very pleased that despite a number of distractions Menzies Distribution produced a solid performance, holding underlying profits flat in the face of declining volume and increasing wage costs.

"We continue to make good progress on our separation plans and a sale process for Menzies Distribution is now underway.

"The Board is focused on creating a global pure play Aviation Services business and is excited by the opportunities that presents. We have a strong management team who are delivering against our strategic objectives.

"We are a very well placed, well-funded Group operating in a structural growth market and we look to the future with confidence."

Notes

1. Turnover is revenue plus the Group's share of revenue from joint ventures and associates. 2016 turnover has been restated upward by £0.9m for the impact of recognising a sales return reserve (see note 16).

2. Underlying operating profit is operating profit adjusted for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, contract amortisation, and the Group's share of interest and tax on joint ventures and associates.

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

4. Operating cash flow is operating profit adjusted for depreciation, amortisation, income and dividends from joint ventures and associates, pension and share based payments, and movements in working capital and provisions.

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

6. Performance at constant currency has been calculated by translating non-Sterling earnings for the current period into Sterling at the exchange rates used for the same period in the prior year. No adjustment has been made for the impact of acquisitions in the current period.

Notes to Editors

John Menzies plc provides essential support services to fast-moving markets, operating 24/7 in 36 countries around the world. Established in 1833 and headquartered in Edinburgh, the company's primary business is the provision of services to the global aviation industry through its Aviation Division.

Menzies Aviation is a leading global provider of passenger, ramp and cargo services. Menzies Aviation operates at 212 airports in 34 countries, supported by a team of some 32,500 highly-trained people. Each year Menzies Aviation serves some 1,000 customers, handling 1.4 million flights, 1.6 million tonnes of cargo and fuelling 3.7 million turnarounds. Customers include Air Canada, Air France-KLM, Alaska Airlines, American Airlines, Cathay Pacific, Delta Air Lines, easyJet, Emirates, Frontier Airlines, IAG, Lufthansa, Norwegian Air Shuttle and United Airlines. Best in class safety and security is the number one priority each day and every day.

Menzies Distribution operates one of the largest overnight logistics networks in the UK, providing final mile delivery for over 100 million delivery units each year serving customers in the press, travel and third-party logistics sectors. In addition to its core role within the UK print media supply chain, delivering over five million magazines and newspapers every day, the division is expanding into both UK retail logistics and neutral consolidation within the fast growing parcel delivery market.

For further information:

John Menzies plc

Giles Wilson, Chief Financial Officer 0131 459 8018

John Geddes, Corporate Affairs Director 0131 459 8018

FTI Consulting

Jonathon Brill/Alex Beagley 020 3727 1000

Chairman's Statement

My first full year as Chairman of John Menzies plc has proven to be an exhilarating one that has strongly reinforced my belief in the significant potential that exists within the Group. The acquisition of ASIG at the beginning of 2017 was a transformational deal that substantially increased the pipeline of opportunities available to us and, significantly, represented a step change in the trajectory of our Aviation business. Unsurprisingly, therefore, the seamless integration of ASIG into our operations was a key focus during 2017. To ensure a robust platform was in place to support the enlarged business, a dedicated integration team was established and tasked with the successful integration of the business and anticipated synergy delivery. I'm pleased to report that the integration team are delivering on time and are exceeding the projected synergy target.

From a Group structure perspective, I, together with my fellow Board members, continue to believe there is strategic merit in and potential shareholder value to be created by separating the Aviation and Distribution Divisions into strategically focused and independent businesses. Accordingly, following termination of discussions with the DX (Group) plc and as announced in our Trading Update in November 2017, the Board appointed NM Rothschild to assist in undertaking a strategic review of Distribution with the objective of assessing the optimum route to split the Group and create two strong market players. Following the review, a sale process for Menzies Distribution has begun.

Governance

In our journey to be regarded as the undisputed market leader in the Aviation Services industry in terms of the quality of service we provide, we recognise that we must distinguish ourselves from our competitors through setting the highest standards in safety, security and performance. Our continuous drive to enforce standardisation and transparency across our networks is critical to achieving this, together with the rigorous corporate governance systems and processes we have implemented that ensure risks are mitigated and quality prioritised. Health, safety and security are at the heart of our business activities; optimum health, safety and security practices promote the interests of our stakeholders and are fundamental to the welfare of our People and the success of the Group more generally.

Board Changes

Dermot Jenkinson, the Company's longest serving Director, intimated his intention to retire from the Board in August of last year. Dermot formally stepped down at the end of October 2017, having first been appointed to the Board in 1986 as an Executive Director and serving as a Non-Executive Director from 1999 onwards. I would, again, like to thank Dermot for the outstanding contribution he made to the Group throughout his 32 year tenure; over the years he not only provided continued representation of the founding Menzies family's interests, but also possessed a deep insight and knowledge of our business which, when coupled with his astute business acumen, proved invaluable.

I was delighted to welcome a new Non-Executive Director, Philipp Joeinig, to the Board in June 2017. Philipp's considerable Aviation Services and management consultancy experience serves to broaden the Board's knowledge base and skillset and also strengthens the Group's overall leadership as it positions itself to become the market leader in the Aviation Services industry. I am confident that our current Board, together with Senior Management, is well-positioned to drive the Group's strategic objectives and priorities in 2018 and tackle the ever-changing needs of our operations.

Looking Forward

Throughout 2018 we will remain on our quest to become the premium provider in the Aviation Services industry. We will continue to explore ways of creating shareholder value through optimisation of the Group's structure whilst investing in infrastructure and innovation throughout our networks. Underpinning this will be the required investment in our People, which remains a high priority for the Board as evidenced by the constitution of our new Human Resources Board Committee at the beginning of 2017 and the inaugural appointment of Claire Hall as Group EVP People. As a people-focused business these are both developments that I am excited about and which underline our strong commitment to investing in our most valued resource.

Both myself and the rest of your Board look forward to 2018 with renewed vigour.

Current Trading and Outlook

2018 has started well. Menzies Aviation is trading ahead of last year, even after accounting for the impact of the upside of the extra month of trading from the ASIG acquisition and year on year foreign exchange headwinds. Underlying volumes are strong, synergy benefits are being realised and contract win momentum continues. Across the network, our commercial and business development teams are busy pursuing many opportunities to grow the business both organically and through acquisition, whilst also pursuing the many exciting opportunities available within the into-plane fuelling and fuel farm management markets.

Trading at Menzies Distribution is in line with our expectations and the sale process for the division continues to plan.

The Board is focused on creating a global pure play Aviation Services business and is excited by the opportunities that presents. We are a very well placed, well-funded Group operating in a structural growth market and we look to the future with confidence.

Group Performance Review

Group performance in 2017 improved significantly with underlying operating profit up 41% (34% in constant currency) and underlying profit before tax up 35% (27% in constant currency). The improvement was the result of a strong performance at Menzies Aviation, particularly as a result of the completion of the ASIG acquisition in February. The Group's profit before tax was £26.7m reflecting the significant level of investment in the ASIG acquisition and integration, the work to demerge and sell the Menzies Distribution business and the de-risking and restructuring of the Company's defined benefit pension scheme.

Menzies Aviation continues to go from strength to strength. The recently acquired ASIG business is integrating well, synergies are tracking ahead of expectations and we are developing many new opportunities for growth. Contract win momentum continued with constant currency turnover excluding the impact of ASIG up 11% year on year, while we continue to benefit from our investments into infrastructure and innovation. Menzies Distribution remains a strong business, performing well despite cost and volume pressures. Turnover of the Aviation segment exceeded that of Distribution for the first time in 2017.

The Group's turnover was £2,517.7m (2016: £2,077.6m). Underlying profit before tax grew to £67.1m (2016: £49.7m) following a strong performance in Menzies Aviation and favourable foreign exchange translation. The Group's profit before tax was £26.7m (2016: £19.8m). Group underlying earnings per share rose to 57.2p (2016: 47.8p).

Menzies Aviation - Business Review  

2017 has been a very busy year for the business with the acquisition and successful integration of ASIG. Underlying operating profit was up 72% to £58.8m, a record for the division. This is a result of not only the ASIG contribution but also the continuing growth of the underlying business, successful commercial and business development initiatives and our network-wide drive for margin improvement.

In acquiring ASIG we broadened our portfolio of customers and services. This when combined with our existing portfolio and investment into systems and processes significantly broadens our customer offering and creates many new business development opportunities. We are a major player in a structural growth market and we will look to expand into new territories as well as growing within our existing footprint.

Our commitment to our excellence manifesto that was launched in the business in Q2 of 2017 is making tangible progress. Centralised functions have a relentless drive for standardisation and efficiency and we are implementing this approach across our network. In 2017, we continued to invest to ensure we remain recognised as the leading player in the market, providing airlines with a service provision that allows them to outsource their operations and therefore not invest in their own handling provisions.

Our growth plans both commercially and on a business development front progressed during the year with excellent contract gain momentum and a far greater commercial focus on our key customers. In addition to the ASIG acquisition, we also made two other acquisitions, one in Gold Coast, Australia and the other in Budapest, Hungary, both of which were bolt on cargo businesses. These acquisitions complement existing operations and strengthen our product offering in the respective regions.

The second half of the year brought with it some challenges outside of the Group's control. Our operations experienced three hurricanes and an earthquake within a six-week period. Operations in Sint Maarten were badly hit as the island was devastated by Hurricane Irma. Operations ceased for a period but are now gradually returning although it will not be until Q4 of 2018 that we expect a normal flight schedule to be in place. Operations in Florida were also impacted for a short while before returning to normal. However, our business model is resilient and our portfolio broad and diversified therefore the impact of these incidents were absorbed by gains elsewhere in the business.

During the year we continued our focus on margin improvement. This involved every station seeking to improve the returns that they make. We are almost at the end of the tail of contracts entered into some years ago that do not deliver acceptable returns. As previously stated, we did not retain the business of easyJet at London Gatwick, which involved some 60,000 annual turns and some £26m of annual revenue. Whilst this contract renewal was priced in line with our internal disciplines, we were unfortunately not successful. As this demonstrates, going forward we will always seek to match risk and reward. Importantly, there was no earnings dilution as a result of this loss. Across the ASIG portfolio we inherited a number of contracts that were sub-optimal. We have re-priced many but where we were unable to do so we either took decisive action to close the operations, as we did at JFK, New York, or we parted company amicably with our customer as was the case with Delta Air Lines at Atlanta.

The integration of ASIG is nearing a successful end. The transitional services agreement with the vendor BBA Aviation plc was exited on time on 31 July and the business is now fully integrated into our core systems. Synergy attainment has been a key focus and we are delighted that the initial annualised target of £10.5m for 2017 was validated and exceeded. We now expect synergies to exceed £15m annually by the end of 2018.

Volumes across the network were positive. Absolute cargo volumes were up 5%, reflecting underlying volume improvement, new contracts and acquisitions. Ground handling turns were up 11% on an absolute basis. This reflected prior year contract wins (particularly at London Gatwick), the addition of ASIG and was despite the loss of Alaska Airlines hub operation in Seattle that was in-sourced in April 2017. During the year we carried out 3.7 million into-plane fuelling turns. Core volumes in the USA and the UK were slightly behind budget but this was offset by contract wins.

Commercially we had a very strong year with 150 net contract wins. The contracts were spread across the regions with 74 in the Americas, 45 in EMEA and 31 in the Rest of the World. Significant contracts were won in Europe with IAG, in Americas with American Airlines and Southwest Airlines and in Australia with Cathay Pacific. We were disappointed to lose the business of Etihad at four locations in Australia and Amsterdam, this profitable business was lost despite the delivery of excellent service although we believe we were not destined to retain the contracts. Whilst this represents significant profit leakage to the Australian and the Dutch businesses we are seeking to replace the tonnage with new customers or increased volume from existing customers and early signs are positive.

Renewing our existing business is vital and we were delighted to renew 154 contracts representing £119m of revenue with no yield diminution. This is testament to our commercial offering and the safe and consistent service that we deliver.

In general, market pricing is sensible with major players seeming to focus on adequate returns. However, certain markets, most recently the UK, are still susceptible to new market entrants with low pricing models that we believe are not sustainable. We will always seek to match risk and reward and will not be drawn into a price war in any region. Quality, safe and secure operations that deliver on-time performance will always be our 'unique selling proposition'. This is evidenced by the launch of our excellence manifesto and continuing investment into industry leading systems and processes.

All three regions performed well during the year. In the Americas region the team performed very well given the scale of the new operations that ASIG brought, together with the challenge of expanding the underlying business. Significant opportunities now exist to cross-sell services and our commercial teams are working hard in this area. Following the acquisition we now have enhanced relationships with a number of US airlines and we hope to be able to expand our offering to them beyond fuelling. General contract momentum was encouraging with ground handling contracts won at Los Angeles with Sun Country Airlines and fuelling contracts at San Francisco with American Airlines and Southwest Airlines. Key renewals with Viva Aerobus at 25 locations in Mexico and fuelling contracts with UPS at 14 locations in the USA were also secured. Within North America, the labour market continues to be difficult for all market participants as unemployment is at record low levels and staff retention is an industry-wide issue, leading to higher level of overtime to support the operations. To secure service at a number of locations we have incurred extra cost that we have only been able to pass onto the airlines in certain locations. This is an ongoing area of focus for the Americas management team.

EMEA, our largest geographical region, delivered a strong financial performance. Challenges materialised from the failure of Air Berlin and Monarch Airlines, as well as selective contract losses. In November, we secured a multi airport deal with IAG across the UK, Scandinavia and the Republic of Ireland that includes the business of British Airways, Vueling, Iberia, Iberia Express and Aer Lingus. The deal included some key renewals but also the provision of new services such as de-icing in Edinburgh, Glasgow and Aberdeen as well as the opening of operations in Dublin where we will handle all of IAG's flights excluding the hub operations of Aer Lingus. This is a significant multi airport deal with a key global customer. The cargo business in the region had a good year with strong underlying volumes particularly in Prague, London Heathrow and Amsterdam. As previously mentioned, we bolstered our cargo presence in Eastern Europe with the acquisition of Farnair in Budapest which will complement our existing ground handling business and allows us to offer a full service provision to airlines. Key contracts were renewed during the year including a number of contracts inherited from ASIG at London Heathrow. Within the fuelling business the UK performed very well with excellent operating standards. We also landed our first expansion of the fuels business in Europe outside of the UK with contracts to maintain and operate fuel farms and deliver into-plane fuelling at Nice and Bordeaux with World Fuel Services. Operations commenced on 1 January 2018. Significant opportunities exist to expand the fuelling business throughout Europe and we are excited by the prospects. Disappointingly, our proposed joint venture with Oman Air in Oman has been hit by further delays outside our control and we do not have any visibility on when operations may start.

In the Rest of the World, where our operations are more focused towards cargo handling, the business benefited from strong cargo volume. Key contract renewals were secured, with the exception of Etihad, and we prospered with a number of new contracts particularly with Asian and Chinese carriers such as Air China, Sichuan Airlines and Vietnam Airlines. We continue to develop our relationship with Cathay Pacific which has delivered benefits to all regions and within Oceania we added their business in Adelaide, Perth and Christchurch. Our expansion plans for South East Asia continued with the opening of an office in Malaysia and we will start handling operations in Indonesia in 2018. South East Asia remains an area of focus for Menzies Aviation as the local market has a high number of attractive airports where in-sourced operations remain prevalent.

Our drive to be the market leader in our industry continues. We aim to be an airline's logistics partner of choice who innovates and at all times delivers on the metrics an airline requires. To support this aim we launched our 'Excellence Manifesto' in May which sets out clear standards and goals for the business and seeks to set us apart from our competitors. We believe that as a professional Aviation Services business with global operations our customers can benefit from our research and development activities. We are continuing with our investment into infrastructure and innovation across the whole of our business. Central dedicated teams are in place to appraise all industry developments and then where appropriate to roll them out across our network. We have a relentless drive for standardisation that undoubtedly helps to win business, as our airline customers see the level of automation and innovation we are bringing to their operations, and this also drives cost out of their business as they no longer have to invest in new technologies. Our industry is professionalising and is no longer in its infancy.

Business development is key to our future success. We are a major player in the Aviation Services marketplace but we have a small share of the available market. The Aviation Services marketplace is full of opportunity and we remain committed to growing organically and through acquisition in a structural growth market. Our growth will be disciplined as risk must match reward and we will not enter markets or contracts where our minimum rate of return cannot be achieved.

Menzies Distribution - Business Review

Distribution had a strong second half and the division delivered underlying operating profit at £24.8m, £0.1m ahead of the previous year. This represents a solid result in the light of continuing volume decline and increased wage costs. The result is particularly pleasing given that 2017 did not benefit from an uplift in sales relating to a major football tournament. The result was boosted by the closure of the final salary pension scheme which will produce a full year ongoing benefit of £1.0m.

Overall sales of newspapers and magazines continued to decline in line with our expectations. Like for like magazine volumes reduced by 9.5% with newspaper volumes declining by 9.9%. The Division continued to demonstrate its ability to drive out cost in the light of reducing volume with around £7m cost savings delivered.

During the year we completed the buy-out of Eason & Son Ltd from our joint venture operations in Northern Ireland and the Republic of Ireland. This acquisition now gives the division all-Ireland coverage and puts us in a strong position to offer a compelling proposition to publishers while also offering joined-up logistics services to new clients, as we continue to seek new volume to put through our network. The acquisition is integrated and the projected synergies have been realised.

Plans are in place for the forthcoming round of publisher renewals. Initial negotiations have started and we are confident that our service levels and ability to offer more services within the supply chain will help us obtain a favourable outcome.

Our retail logistics business continues to develop capabilities to serve the UK high street. Our contract with WHSmith continues to deliver an excellent operational service and we are working hard to improve financial returns. There are many opportunities within this sector and our commercial teams have been enhanced to ensure we are best placed to participate in this important marketplace.

Menzies Parcels continued to build momentum through the year. Returns improved year on year through new business and organic growth although this was partially offset by higher vehicle costs. We also completed the acquisition of Gnewt Cargo, a logistics business in Central London. This business is unique in that it offers an all-electric fleet of vehicles. The business has great potential and we have completed its integration and re-located its base into our existing London branch network. We will now seek to add new customers and expand the business.

Menzies Response encountered a difficult year trading marginally behind expectations. Prior year contract losses were not fully replaced and underlying volume declined. Cost savings partly offset the decline and we are reviewing the optimal structure for the business as we move into 2018.

Menzies Media & Retail Services performed well during the year adding customers and broadening its product range, particularly in the Fore Retail Consultancy and Hand2Hand distribution businesses.

Overall, the business is in good health and we look forward to the publisher renewals with confidence. Our diversification moves are building momentum and are positioned in growing markets.

Financial Overview

Exceptional and Other Items in Operating Profit

Included in the Group's exceptional items in operating profit were transaction related costs of £21.7m, primarily relating to the acquisition and integration of ASIG and the work to demerge and sell the Menzies Distribution business, and £5.4m of costs and charges relating to de-risking the defined benefit pension scheme. This primarily closed the pension scheme to future accrual and subsequently sectionalised it ahead of any transaction relating to the disposal of the Distribution business.

Finance Costs

The Group's underlying net finance charge in the period was £10.8m (2016: £5.5m). The increase reflects higher levels of debt to fund the acquisition of ASIG, higher interest rates on US dollar borrowings and fixing of the interest rates payable on 50% of the US$250m term loan.

Taxation

As a multinational business the Group is liable for taxation in multiple jurisdictions around the world. The Group's underlying tax charge for the period was £20.0m (2016: £15.9m), representing an effective underlying tax rate of 30% (2016: 32%). As already announced, the recent US tax changes has meant a one off non-cash impact to our 2017 effective tax rate of approximately 3%, which relates to the revaluation of the deferred tax assets relating to US tax losses bought forward. We are still analysing the final legislation and impact to the Group with particular reference to the overseas subsidiaries toll charges, we do not expect these to have a material cash impact to the Group.

Earnings Per Share

The Group's underlying earnings per share was 57.2p (2016: 47.8p) as a result of the increase in profits. The corresponding basic earnings per share was 15.1p (2016: 11.8p).

Defined Benefit Pension Scheme

As at 31 December 2017, the Group's defined benefit pension scheme showed a deficit of £49.5m (2016: £71.0m) with the effect of the impacts of favourable demographic assumptions, higher returns on invested assets and continuing additional cash contributions, partly offset by a decrease in the discount rate applied to the scheme liabilities. As previously reported, the Trustee and the Company have agreed a long-term funding plan that resulted in additional annual contributions of £10.7m in the 2016/2017 pension year rising with the higher of inflation and the percentage change in annual shareholder dividends up to 2025, the latter only when exceeding 2013's level. The next triennial valuation is set for 31 March 2018 and new deficit contributions will be set to reflect the sectioned pension scheme's different funding profiles.

The Group and the Trustee are continually looking to de-risk the scheme. On 31 March 2017 the Company and Trustee agreed to close the defined benefit pension scheme to future accrual and on 31 May 2017 to sectionalise the scheme. On 31 May 2017 the Company and Trustee further agreed to split the defined benefit pension scheme into two sections, one supported by the covenant of the Menzies Distribution division and the remainder by the Company. The Group will continue to guarantee the funding of the Menzies Distribution section for as long as the business remains part of the Group. On 30 June 2017, 17.2% of the scheme's assets and liabilities were transferred to the new Menzies Distribution section, and this section has been structured in a way that the funding is set up to achieve a buy in funding level within five to six years. The related exceptional charge of £5.4m comprises the accounting impact of revaluing of past benefits for those impacted and the costs and fees expensed to de-risk the scheme.

Cash Flow and Investments

Investments by the Group in the period were £158.4m, primarily for the acquisition of ASIG. Also included were the investments to acquire Gold Coast Air Terminal Services and Farnair Handling in Menzies Aviation and Gnewt Cargo and the partner's share of the Irish joint ventures in Menzies Distribution.

Operating cash flow was £109.9m (2016: £75.0m). Working capital management remains a key focus for the business. Free cash flow was £49.2m (2016: £31.1m). Net capital expenditure totalled £31.8m (2016: £24.7m).

Debt and Facilities

The Group continues to operate on a strong financial footing with a robust balance sheet built from strong operating cash flows across both Divisions. At the year end, net debt was £214.4m (2016: £70.5m) with the increase mostly reflecting the impact of the acquisition of ASIG.

The Group's covenanted debt to EBITDA ratio was 1.9 times at 31 December 2017 (31 December 2016: 0.8 times) and interest cover was 8.3 times (2016: 13.0 times), which were both well within covenanted levels and ahead of the targeted below 2 times debt to EBITDA by end of 2018. The Group had £341.9m of committed facilities at the year end of which £56.5m were undrawn.

As previously reported, the Group entered into a syndicated debt facility, comprising a US$250m term loan and a £150m revolving credit facility in September 2016, which expires in June 2021. The new facility was drawn down to fund the acquisition of ASIG on 1 February 2017 and repay existing facilities with the exception of £10.0m remaining on a term loan with RBS. In February 2017 the Company entered into interest rate swaps to fix 50% of the US$250m term loan facility for the duration of the loan.

Impact of Foreign Currency Movements

The majority of Menzies Aviation's stations are located outside the UK and operate in currencies other than Sterling. The Group hedges the exposure of foreign currency denominated assets to manage the impact of currency movements in the Group's net assets using forward contracts. The translation of profits from overseas trading entities is not hedged and as a result the movement of exchange rates directly affects the Group's reported results. In 2017 the Group benefitted from favourable movements against the prior year, particularly with respect to Sterling against the US and Australian dollars. The year on year exchange benefit was £4.1m.

Dividend

In line with the Group's plan to follow a progressive policy to increase dividends over time, the Board has proposed a final dividend of 14.5p per share which is payable on 2 July 2018 to all shareholders on the register at 25 May 2018. The total paid and proposed dividend for the year is 20.5p per ordinary share (2016: 18.5p per share), up 11% from last year.

GROUP INCOME STATEMENT

for the year ended 31 December 2017 (year ended 31 December 2016)

Note:

(i) Underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, contract amortisation and the Group's share of interest and tax on joint ventures and associates to provide an appreciation of the impact of those items on operating profit.

Note:

(i) Underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, contract amortisation and the Group's share of interest and tax on joint ventures and associates to provide an appreciation of the impact of those items on operating profit.

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2017 (year ended 31 December 2016)

GROUP AND COMPANY BALANCE SHEETS

as at 31 December 2017 (31 December 2016)

Note:

(i) The Company's loss after tax for the year was £0.1m (2016: profit £46.5m).

The accounts were approved by the Board of Directors on 12 March 2018 and signed on its behalf by:

GROUP AND COMPANY STATEMENTS OF CHANGES IN EQUITY

as at 31 December 2017 (31 December 2016)

GROUP AND COMPANY STATEMENTS OF CASH FLOWS

for the year ended 31 December 2017 (year ended 31 December 2016)

Note:

(i) Net cash and cash equivalents include cash at bank and in hand and bank overdrafts.

Notes to the Accounts

The consolidated accounts of the Group for the year ended 31 December 2017 were approved and authorised for issue in accordance with a resolution of the Directors on 12 March 2018. John Menzies plc, a public company with registered number SC34970 and registered address of 2 Lochside Avenue, Edinburgh Park, Edinburgh EH12 9DJ, is a limited company incorporated in Scotland and is listed on the London Stock Exchange.

1. Accounting policies

A summary of the more significant accounting policies, which have been consistently applied, is set out below.

Basis of preparation

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

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

New accounting standards and amendments

Three new accounting standards and amendments are applicable for the Group for the first time in 2017. However, they do not impact the annual consolidated financial statements of the Group. These are:

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

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

Annual improvements to IFRS 2014-2016 cycle - effective date 1 January 2017

Standards and amendments to standards that have been issued that are applicable for the Group but are not effective for 2017 and have not been early adopted in these financial statements are:

IFRS 9 Financial Instruments - effective date 1 January 2018

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

IFRS 16 Leases - effective date 1 January 2019

IFRS 2 Classification and Measurement of Share Based Payment Transactions(i) - effective date 1 January 2018

IFRIC 22 Foreign Currency Transactions and Advance Consideration(i) - effective date 1 January 2018

IFRIC 23 Uncertainty over Income Tax Treatments(i) - effective date 1 January 2019

Annual improvements to IFRS 2015-2017 cycle(i) - effective date 1 January 2019

Amendment to IAS 19(i) - effective date 1 January 2019

Note:

(i) IFRS 2 amendment, IFRIC 22 and 23, annual improvements 2015-2017 and IAS 19 amendment are not yet adopted for use in the European Union.

The above standards and amendments will be adopted in accordance with their effective dates and for standards with a future effective date, the Directors are in the process of assessing the likely impact and look to finalisation of the standards before formalising their view.

Ahead of the adoption of IFRS 15 Revenue from Contracts with Customers on 1 January 2018, management's review of a representative sample of material contracts to ensure compliance with the new standard is at an advanced stage and has indicated that there is expected to be no material adjustment on adoption of IFRS 15. Substantially all revenue earned by the Group is recognised at the point of service or on delivery of goods, and revenue recognised does not vary materially from the consideration to which the Group is entitled. Were any adjustment to be required, the modified retrospective approach would be adopted with the cumulative impact of any adjustment recognised in retained earnings on transition date.

As part of the IFRS 15 review exercise, reconsideration has been made of the previous view that the historic approach to accounting for sales returns in the Distribution Division in the period in which they occurred was not materially misstated and concluded that, with the imminent application of the new standard, it is qualitatively material and have adjusted retrospectively. A restatement has been made to the Balance Sheet to recognise an adjustment to receivables and corresponding payables to reflect contractual obligations in relation to returns. The Income Statement also has been restated to reflect the change in sales and net operating costs as a result of the movements in these amounts. See Note 16 for detail. For clarity, there is no impact from these adjustments on prior year reported profit before taxation or earnings per share. Following the restatement, management does not expect there to be an impact from the accounting for sales returns assets and liabilities on implementation of IFRS 15 on 1 January 2018.

Ahead of the adoption of IFRS 16 Leases on 1 January 2019, management is in the process of collating information to ensure compliance with the new standard. The new standard removes the distinction between operating leases and finance leases and brings most of the assets subject to lease on to the Balance Sheet as fixed assets with the corresponding liability shown as debt. This will materially gross up the Balance Sheet with the recognition of a new right of use asset which will be depreciated through the Income Statement and a lease liability on which interest will be charged through the Income Statement.

Ahead of the application of IFRS 9 Financial Instruments on 1 January 2018, management has reviewed the impact of the new standard. Management expects the impact on the accounting for hedging arrangements to be minimal and the expected credit loss model for impairment reviews will not have an overall impact on the Group. The expected credit loss approach may impact the individual retained earnings of individual entities within the Group due to the potential additional impairment provision for long term intercompany receivables. These potential impairments would not impact on the Group as they would be intragroup items.

Basis of consolidation

The consolidated accounts of the Group include the assets, liabilities and results of the Company and subsidiary undertakings in which John Menzies plc has a controlling interest, using accounts drawn up to 31 December except where entities do not have coterminous year ends. In such cases, the information is based on the accounting period of these entities and is adjusted for material changes up to 31 December. Accordingly, the information consolidated is deemed to cover the same period for all entities throughout the Group.

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

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

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

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

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

Joint ventures and associates

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

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

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

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

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

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

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

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

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

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

Revenue

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

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

Property, plant and equipment

Property, plant and equipment is stated at cost, including costs to acquire, less accumulated depreciation. Depreciation is provided on a straight-line basis at the following rates:

Freehold and long leasehold properties - over the shorter of the remaining lease term and 50 years

Short leasehold properties - over the remaining lease term

Plant and equipment - over the estimated life of the asset between three and 20 years.

Inventories

Inventories are goods for resale and consumables and are stated at the lower of purchase cost and net realisable value.

Retirement benefit obligation

For the defined benefit pension scheme, the operating and financing costs of pensions are charged to the Income Statement in the period in which they arise and are recognised separately. The costs of past service benefit enhancements, settlements and curtailments are also recognised in the period in which they arise. The difference between actual and expected returns on assets during the year, including changes in actuarial assumptions, is recognised in the Statement of Comprehensive Income. Pension charges are assessed in accordance with the advice of qualified actuaries.

For the defined contribution pension schemes, the Income Statement charge represents contributions made.

Taxation

Current tax is the amount of tax payable or recoverable in respect of the taxable profit or loss for the period.

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

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

Current and deferred tax is recognised in the Income Statement except if it relates to an item recognised directly in equity or in other comprehensive income, in which case it is recognised directly in the Statement of Changes in Equity or in the Statement of Comprehensive Income as appropriate.

Intangible assets

Goodwill

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

Goodwill arising on acquisitions before the date of transition to IFRS on 26 December 2004 has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date.

Goodwill acquired is recognised as an asset and reviewed for impairment at least annually by assessing the recoverable amount of each cash generating unit to which the goodwill relates. When the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. Any impairment is recognised in the Income Statement.

Goodwill arising on the acquisition of joint ventures and associates is included within the carrying value of the investment.

Contracts

The fair value of intangible assets attributed to contracts at the point of acquisition is determined by discounting the expected future cash flows to be generated from that asset at the relevant risk-adjusted weighted average cost of capital for the Group. Values are not attributed to internally generated customer relationships.

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

Computer software

Costs associated with developing or maintaining computer software programs are recognised as an expense as incurred. Costs that are directly attributable to the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. These direct costs include the cost of software development employees. Computer software assets are amortised over their estimated useful lives, usually three to seven years.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets acquired under finance leases are capitalised in the Balance Sheet at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is recorded in the Balance Sheet as a finance lease obligation. The lease payments are apportioned between finance charges to the Income Statement and a reduction of the lease obligations.

Rental payments under operating leases are charged to the Income Statement on a straight-line basis over the applicable lease periods.

Trade receivables

If there is objective evidence that the Group is not able to collect amounts due under the original terms of a sales invoice, a provision against the respective trade receivable is recognised. In such an instance the carrying value of the receivable is reduced with the amount of the loss recognised in the Income Statement.

Cash and cash equivalents

Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the Balance Sheet.

Foreign currencies

Foreign currency assets and liabilities of the Group are translated at the rates of exchange ruling at the balance sheet date. The trading results of overseas subsidiaries, joint ventures and associates are translated at the average exchange rate ruling during the year, with the exchange difference between average rates and the rates ruling at the balance sheet date being taken to reserves.

Any differences arising on the translation of the opening net investment, including goodwill, in overseas subsidiaries, joint ventures and associates, and of applicable foreign currency loans, are dealt with as adjustments to reserves. All other exchange differences are dealt with in the Income Statement.

Derivative financial instruments and hedging activities

The Group uses interest rate swaps and forward contracts as derivatives to hedge the risks arising from interest rates and the retranslation of foreign currency denominated items.

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

Derivative contracts entered into by the Group are expected to continue to be highly effective until they expire. The effectiveness of these contracts is monitored during the year. As a result, derivatives have been recorded using hedge accounting. Derivatives are measured at fair value, which is calculated as the present value of future cash flows from the derivative discounted at prevailing market rates.

Changes in the fair value of the effective portion of net investment hedges are recorded in equity and are only recycled to the Income Statement on disposal of the overseas net investment.

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

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

Provisions

Provisions are liabilities of uncertain timing and amount. Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Share capital

Ordinary shares are classed as equity. Where the Company purchases its own shares the consideration paid, including any directly attributable incremental costs, is deducted from the equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed.

Share-based payments

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

Estimates and judgements

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

Estimates

Management has made a number of accounting assumptions and estimates which, if they transpire to be materially incorrect, have a risk of resulting in a material adjustment to the carrying amount of assets and liabilities in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The most important assumptions and estimates are set out below.

Intangible assets

On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired, provided they meet the criteria to be recognised. The fair values of these intangible assets are dependent on estimates of attributable future revenues, margins and cash flows, as well as appropriate discount rates. In addition, the allocation of useful lives to acquired intangible assets requires the application of judgement based on available information and management expectations at the time of recognition. See Note 8 for further details.

Impairment

In accordance with IAS 36, management performs an impairment review on any assets that show indications of impairment and annually on goodwill and intangibles that are deemed to have indefinite lives. During the current year, no impairment indicators were noted over individual assets. Management's impairment review of goodwill and indefinite life intangibles involves exercising judgement about future cash flows and other events that are by their nature uncertain. Management has disclosed the pre-tax discount rates used when performing this review in Note 8. From management's review, no impairment was identified (2016: £9.6m).

Retirement benefit obligation

In accordance with IAS 19, management is responsible for making a number of financial and demographic assumptions in relation to the defined benefit pension scheme that has a direct impact on the pension deficit recognised within the financial statements. The assumptions underlying the calculation of the retirement benefit obligation are important and management has determined the appropriate estimates based on independent actuarial advice. Changes in these assumptions could have a material impact on the measurement of the Group's retirement benefit obligation. See Note 12 for further details.

Judgements

The following are key judgements, apart from those involving estimations which are dealt with separately above, that management has made in the process of applying the Group's accounting policies and that have a significant effect on the amounts recognised within the financial statements.

Provisions

In accordance with IAS 37, the Group exercises judgement in determining whether provisions are required in relation to onerous property leases. Judgement is necessary in assessing the likelihood of whether or not an alternative use can be found for these properties or a suitable tenant can be found in order to cover the cost of the lease. This likelihood will vary depending on the size, location and type of property. Management has performed a review of all leases at year end and concluded that a small minority are deemed to be onerous and such leases have been fully provided for.

In accordance with IAS 37, the Group also exercises judgement in determining whether provisions are required in relation to workers' compensation claims, warranty claims and legal claims. Judgement is necessary in assessing the veracity, measurement and probability of the claims. Management has reviewed available external and internal information relating to these claims and has made appropriate provisions accordingly.

Income taxes

The Group is subject to income tax in a number of jurisdictions and judgement is required in determining the provision for tax. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises provisions for tax by estimating the taxes that are likely to become due, based on management's interpretation of country specific tax law and the likelihood of settlement. Management uses the services of a professional firm together with the expertise and historic experience of the Group's in-house tax team when assessing tax risks. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the current income tax and deferred tax provisions in the period in which such determination is made. See Note 5 for further details.

The main provision held by the Group is against a claim for a reduced rate of tax in an overseas territory based on the nature of its activities in that territory, which is subject to enquiry by the relevant tax authority. The Group does not recognise the potential benefit to its effective tax rate from that claim until the agreement of the relevant tax authority is obtained and therefore an appropriate provision is held until that point. Other uncertain tax provisions are held for potential tax authority challenge of transfer pricing arrangements, deemed distributions of profits, the tax treatment of interest and foreign exchange differences on certain intercompany loans and for tax authority challenge against the interpretation of local tax legislation where the application of that legislation is unclear. During the year the tax treatment of the pension funding arrangement which the Group has in place was agreed with the relevant tax authority resulting in a £1.0m credit to prior year current tax. Whilst there is a range of potential outcomes for these uncertain tax positions, management's best estimate of how these provisions may move and impact the Group's Income Statement over the next 12 months is an increase in the tax liability of £2.0m to a decrease in the tax liability of £0.2m.

The Group has made an assessment of the use of tax losses in calculating its deferred tax asset and liability including losses in the United States of America that may be subject to section 382 restrictions should the ownership of the Company change significantly in the future.

Exceptional items

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

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

Dividend distributions

Final ordinary dividends are recognised as liabilities in the period in which the dividends are approved by the Company's shareholders.

Financial risk factors

The Group is exposed to financial risks: liquidity risk, interest rate fluctuations, foreign exchange exposures and credit risk. See Note 11 for further details.

Non-GAAP measures

The Group's reported results are prepared in accordance with IFRSs as adopted by the European Union and applied in accordance with the provisions of the Companies Act 2006. In measuring our performance, the financial measures that are used include those which have been derived from the reported results in order to eliminate factors which distort period-on-period comparisons. These are considered non-GAAP financial measures. This information, along with comparable GAAP measurements, is useful to investors in providing a basis for measuring our operational performance. Management uses these financial measures, along with the most directly comparable GAAP financial measures, in evaluating performance and value creation. Non-GAAP measures should not be considered in isolation from, or as a substitute for, financial information in compliance with GAAP. Non-GAAP financial measures as reported by the Group may not be comparable with similarly titled amounts reported by other companies.

Contract amortisation relates to intangible assets recognised on historic acquisitions and therefore since it is transaction related it is presented separately in order to provide stakeholders and management with an appreciation for underlying business performance.

The Group's share of post-tax profit relating to joint ventures and associates is included within operating profit. IAS 1 Presentation of Financial Statements does not prescribe where the investors' share of post-tax profit is presented in the Income Statement but management presents the results within operating profit after joint ventures and associates given the similarity of those operations to other wholly owned businesses.

The Group's definitions of non-GAAP measures are set out below and provide reconciliations to relevant GAAP measures.

Turnover

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

Note:

(i) As set out in Note 16 revenue for the year ending 31 December 2016 has been restated.

Underlying operating profit

As disclosed on the face of the Income Statement, underlying operating profit adjusts for non-recurring exceptional items, impairment charges associated with goodwill, joint venture assets and other intangibles, contract amortisation and the Group's share of joint ventures and associates interest and tax to provide an appreciation of the impact of those items on operating profit.

Underlying operating profit and the reconciliation to operating profit are set out on the face of the Income Statement.

Underlying profit before taxation

As disclosed on the face of the Income Statement, underlying profit before taxation is defined as underlying operating profit, less net finance charges and before exceptional and other items.

Underlying earnings per share

As disclosed on the face of the Income Statement, underlying earnings per share is defined as profit after taxation and non-controlling interest before intangible amortisation and impairment and exceptional items, divided by the weighted average number of ordinary shares in issue.

The calculation of underlying earnings per share is set out in Note 7.

Free cash flow

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

Underlying operating cash flow

Underlying operating cash flow is free cash flow before net capital expenditure, net interest paid and taxation.

2. SEGMENT INFORMATION

For management purposes the Group is organised into two Operating Divisions, Aviation and Distribution, and a central Corporate function. The two Operating Divisions are organised and managed separately based upon their key markets. The Aviation Division provides ground handling and cargo services as well as into-plane fuelling and fuel farm management services across the world. The Distribution Division provides newspaper and magazine distribution services along with marketing and logistics services across the United Kingdom and the Republic of Ireland.

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

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

Business segment information

The reconciliation of segmental underlying operating profit/(loss) to profit before tax is:

Notes:

(i) As set out in Note 16 revenue for the year ending 31 December 2016 has been restated.

(ii) Underlying operating profit/(loss) is defined as operating profit/(loss) excluding intangible amortisation as shown in Note 3 and exceptional items but including the pre-tax share of results from joint ventures and associates.

Note:

(i) As set out in Note 16 current receivables and payables at 31 December 2016 have been restated.

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

Geographic information

Notes:

(i) Non-current assets exclude deferred tax assets.

(ii) As set out in Note 16 revenue for the year ending 31 December 2016 has been restated.

3. EXCEPTIONAL AND OTHER ITEMS

Exceptional items included in operating profit