Regulatory Announcements
09 March 2010
REG-Menzies(John) PLC: Final Results
Back to top
REG-Menzies(John) PLC: Final Results - Part 3
- Part 3: For the preceeding part double click ID
3.2 4.8
Adjustments to prior years' liabilities (0.5) -
Total current tax 2.7 5.6
Deferred tax
Origination and reversal of temporary 3.8 4.5
differences
Adjustments to prior years' liabilities (0.1) -
3.7 4.5
Retirement benefit obligations 0.3 1.0
Total deferred tax 4.0 5.5
Tax on profit on ordinary activities 6.7 11.1
(b) Current and deferred tax related items credited directly to equity
Deferred tax on actuarial loss on retirement (14.1) (13.6)
benefit obligations
Deferred tax on fair value movement on (0.3) -
interest rate hedges
Current tax on net exchange adjustments 0.2 (0.7)
Tax credit reported in equity (14.2) (14.3)
c) Reconciliation between tax charge and the product of accounting profit
multiplied by the Group's domestic tax rate for the years ended 31 December
2009 and 31December 2008 is as follows:
Profit before tax 22.0 9.9
Profit before tax multiplied by standard 6.2 2.8
rate of corporation tax in the UK 28% (2008:
28.5%)
Non-deductible expenses (principally 2.2 2.8
goodwill impairment and intangible
amortisation)
Depreciation on non-qualifying assets 0.1 0.4
Unrelieved overseas losses 2.1 3.8
Profits covered by losses forward (0.7) (0.6)
Higher tax rates on overseas earnings 0.2 0.8
Deferred tax on undistributed reserves of (0.6) 0.1
associate
Joint venture and associate post-tax result (1.7) (1.0)
(included in profit before tax)
Adjustments to prior years' liabilities (0.6) -
Overseas deferred tax assets (recognised)/ (i) (0.5) 3.9
written-off
Increase in deferred tax liability due to (ii) - 5.4
the abolition of industrial buildings
allowances
Non-taxable exchange gain - (5.5)
Tax-exempt gain on disposal of interest in - (1.8)
joint venture
At the effective corporation tax rate of 6.7 11.1
30.5% (2008: 112.1%)
(i) In 2009 the Group recognised deferred tax assets in relation to losses
carried forward by a subsidiary operating in South Africa. In prior years the
Group recognised deferred tax assets in relation to losses carried forward by,
and other temporary differences available to, subsidiaries operating mainly in
the Netherlands and the USA. Trading conditions in these territories were such
that it was no longer possible to say with a degree of certainty that, in the
short-term, future taxable profits would be available against which the carry
forward tax losses, and other temporary differences, could be utilised. As a
consequence, the Group wrote-off £3.9m of deferred tax assets in 2008.
(ii) The phased abolition of industrial buildings allowances by the end of
March 2011 was enacted in the Finance Act 2008. As a consequence, there was a
one-off increase in the Group's deferred tax liability of £5.4m in 2008.
(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 where it is not probable that future taxable profits will be
available against which such assets could be utilised.
Losses Expiry
£m
USA 31.4 Carry forward indefinitely
Netherlands 24.0 Not earlier than 1 January
2012
Germany 26.1 Carry forward indefinitely
Hungary 1.3 Carry forward indefinitely
Norway 2.4 Carry forward indefinitely
Sweden 1.4 Carry forward indefinitely
The Group has capital losses in the UK of approximately £12.8m 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.
7. DIVIDENDS
2009 2008
£m £m
Dividends on equity shares:
Ordinary - Final paid in respect of 2008, nil - 11.0
(2007 :18.4p) per share
- Interim paid in respect of 2009, nil - 4.5
(2008: 7.56p) per share
- 15.5
Dividends of £0.1m were waived by employee share trusts during 2008.
Investment in own shares
The Company's ordinary shares are held in trust for an employee share scheme.
At 31 December 2009 the trusts held 1,020,387 (2008: 1,031,387) ordinary 25p
shares with a market value of £3,038,202 (2008: £1,101,006).
8. EARNINGS PER SHARE
Basic Underlying*
2009 2008 2009 2008
£m £m £m £m
Operating profit 24.3 19.4 24.3 19.4
Share of post-tax results of joint 5.9 3.6 5.9 3.6
ventures and associates
Add back:
Exceptional items (Note 4(a)) - - 6.0 7.3
Intangible amortisation (Note 4 - - 5.1 4.3
(b))
Share of tax on joint ventures and - - 2.1 1.5
associates
Net finance costs (8.2) (13.1) (8.2) (5.4)
Profit before taxation 22.0 9.9 35.2 30.7
Taxation (6.7) (11.1) (6.7) (11.1)
Exceptional tax - - (2.6) (1.0)
Earnings for the year 15.3 (1.2) 25.9 18.6
Basic
Earnings per ordinary share 25.8 (2.0)
(pence)
Diluted earnings per ordinary 25.8 (2.0)
share (pence)
Underlying*
Earnings per ordinary share 43.8 31.3
(pence)
Diluted earnings per ordinary 43.8 31.3
share (pence)
Number of ordinary shares in issue(millions)
Weighted average 59.188 59.445
Diluted weighted average 59.188 59.499
The weighted average number of fully paid shares in issue during the
year excludes those held by the employee share trusts. 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 exceptional items, intangible
amortisation and share of tax on joint ventures and associates.
9. INTANGIBLE ASSETS
Computer
Goodwill Contracts Software Total
£m £m £m £m
Cost
At 31 December 2008 60.0 51.9 6.2 118.1
Additions 0.1 0.2 3.8 4.1
Transferred from fixed assets - - 2.6 2.6
Currency translation (1.8) (2.1) - (3.9)
At 31 December 2009 58.3 50.0 12.6 120.9
Amortisation and impairment
At 31 December 2008 8.1 4.4 3.5 16.0
Amortisation charge - 3.3 1.4 4.7
Currency translation - (0.3) - (0.3)
At 31 December 2009 8.1 7.4 4.9 20.4
Net book value
At 31 December 2009 50.2 42.6 7.7 100.5
At 31 December 2008 51.9 47.5 2.7 102.1
£m £m £m £m
Cost
At 29 December 2007 44.1 34.2 4.8 83.1
Acquisitions 2.3 9.6 - 11.9
Additions - 1.0 1.4 2.4
Currency translation 13.6 7.1 - 20.7
At 31 December 2008 60.0 51.9 6.2 118.1
Amortisation and impairment
At 29 December 2007 0.1 1.4 3.0 4.5
Amortisation charge - 2.5 0.5 3.0
Impairment provision (Note 4 3.0 - - 3.0
(a))
Currency translation 5.0 0.5 - 5.5
At 31 December 2008 8.1 4.4 3.5 16.0
Net book value
At 29 December 2008 51.9 47.5 2.7 102.1
At 30 December 2007 44.0 32.8 1.8 78.6
Goodwill acquired through business combinations and intangible assets with
indefinite lives have been allocated at acquisition to cash generating units
(CGU's) that are expected to benefit from the business combination. The
carrying amount of the goodwill and intangible assets with indefinite lives
have been allocated to the operating units as per the table below.
2009 2008
Goodwill Contracts Goodwill Contracts
£m £m £m £m
Aviation
Netherland Cargo 8.3 - 9.0 -
North American Cargo 7.8 - 8.7 -
Australia Cargo 6.0 - 5.3 -
UK Cargo 2.6 - 2.6 -
South Africa 2.9 - 2.5 -
Scandinavia 2.9 - 2.9 -
Ogden worldwide 9.2 - 10.3 -
Other 4.3 - 4.3 -
44.0 - 45.6 -
Distribution
Turners News 4.8 - 4.8 -
EM News Distribution (NI) Ltd - 3.1 - 3.1
Chester Independent Wholesale - 7.1 - 7.1
News Ltd
North West Wholesale News Ltd - 2.7 - 2.7
The Network - field marketing - 1.4 - 1.4
Other 1.4 4.2 1.5 4.3
6.2 18.5 6.3 18.6
Total 50.2 18.5 51.9 18.6
The Group tests goodwill and intangible assets with indefinite lives annually
for impairment, or more frequently if there are indications that these might be
impaired. The basis of these impairment tests including key assumptions are set
out below.
The recoverable amounts of the cash-generating units (CGUs) are determined from
value in use calculations. These calculations use future cash flow projections
based on financial forecasts approved by management. The key assumptions for
these forecasts are those regarding revenue growth, net margin and the level of
working capital required to support trading, which management estimates based
on past experience and expectations of future changes in the market.
The discount rate assumptions use an estimate of the Group's weighted average
post-tax cost of capital calculated at 5.3% plus an adjustment for the
uncertainty risk attributable to individual CGU's. The pre-tax discount rate
used is 11.1% (2008: 11.1%).
Aviation
Value in use calculations are based on Board approved plans for 2010 and 2011
extrapolated to a 10-year period as this timeframe is more representative of
the industry's normal investment period. Short-term revenue growth rates over
the period to 2014 range from -8.9% to +10% and reflect management's specific
location expectations and the expected recovery in cargo volumes over the
period that are now being reported by IATA. Thereafter, revenue growth rates
range from 0.5% to 3.5% and are derived using the best available market
information (such as Boeing's 2009 Aviation Industry Review) adjusted for the
specific risks and challenges relating to Menzies Aviation. Net margin
assumptions are based on historic experience.
Base case forecasts show significant headroom above carrying value for each CGU
with the exception of the UK and North American cargo operations. Sensitivity
analysis has been undertaken for each CGU to assess the impact of any
reasonably possible change in key assumptions. With the exception of the UK and
North American cargo operations there is no reasonably possible change that
would cause the carrying values to exceed recoverable amounts.
In respect of the UK and North American cargo operations, management has
concluded that a reasonably possible change in a key assumption could cause the
carrying values to exceed recoverable amounts. Under the current assumptions,
the recoverable amount exceeds carrying amount by £0.1m for UK cargo and £0.6m
for North American cargo. Any decrease in the expected growth rate for UK cargo
(4% average over the period to 2014 thereafter 3%) and a decrease of 0.1% for
North American cargo (3.6% average over the period to 2014 thereafter 1.2%)
will result in the respective carrying values being equal to recoverable
amounts.
Distribution
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.
Value in use calculations are based on Board approved plans for 2010
extrapolated to a 10-year period using a long-term growth rate of 0%. Net
margin assumptions are based on historic experience.
Base case forecasts show significant headroom above carrying value for each
CGU. Sensitivity analysis has been undertaken for each CGU to assess the impact
of any reasonably possible change in key assumptions. There is no reasonably
possible change that would cause the carrying values to exceed recoverable
amounts.
10. ANALYSIS OF CHANGES IN NET BORROWINGS
2008 Cash Currency 2009
flows translation
£m £m £m £m
Cash at bank and in hand 19.6 12.1 (0.2) 31.5
Bank overdrafts (2.4) (8.6) - (11.0)
Net cash and cash equivalents 17.2 3.5 (0.2) 20.5
Bank loans due within one year (56.0) 54.3 0.1 (1.6)
Loan stock due within one year (0.1) - - (0.1)
Preference shares (1.4) - - (1.4)
Finance leases (0.3) - - (0.3)
Debt due after one year (124.4) (26.5) 2.4 (148.5)
Net derivative liabilities (17.6) 12.2 4.5 (0.9)
(182.6) 43.5 6.8 (132.3)
The currency translation movement results from the Group's policy of hedging
its overseas net assets, which are denominated mainly in US$ and Euro. The
translation effect on net debt is offset by the translation effect on net
assets resulting in an overall net exchange loss of £1.7m (2008: gain of £
4.7m). This net loss/gain is recognised directly in equity.
11. CASH GENERATED FROM OPERATIONS
Group Company
2009 £m 2008 £m 2009 £m 2008 £m
Operating profit/(loss) 24.3 19.4 - (5.4)
Depreciation 24.9 23.6 0.9 1.0
Amortisation of intangible 4.7 3.0 - -
assets
Impairment provisions (Note 4 1.0 3.8 - -
(a))
Share-based payments 0.4 0.4 - 0.1
Cash spend on dilapidations on - (3.0) - (3.0)
onerous lease
Onerous lease provisions 1.7 5.0 1.7 1.2
Cash spend on onerous leases (2.0) (1.0) (0.6) -
(Gain)/loss on sale of property, (1.7) 0.1 (1.7) -
plant and equipment
Gain on disposal of investment (0.2) (8.2) - -
in joint venture
Pension charge 1.6 2.3 0.2 0.2
Pension contributions in cash (4.5) (3.6) (4.5) (3.6)
Rationalisation costs 4.7 6.7 - 0.8
Cash spend on rationalisation (6.1) (5.3) (0.3) -
costs
(Increase)/decrease in (2.7) 3.1 - -
inventories
(Increase)/decrease in trade and (2.2) (9.3) (0.6) 0.2
other receivables
Increase/(decrease) in trade and 8.1 2.2 (2.8) (1.4)
other payables and provisions
52.0 39.2 (7.7) (9.9)
12. FINANCIAL INSTRUMENTS
Group Company
2009 2008 2009 2008
£m £m £m £m
Derivative financial
instruments
Cash Flow Hedges
Foreign exchange forward - (2.2) - (2.2)
contracts
Interest rate swaps (1.2) - (1.2) -
Foreign Currency Net Investment
Hedge
Foreign exchange forward 0.3 (15.4) 0.3 (15.4)
contracts
Total derivative financial (0.9) (17.6) (0.9) (17.6)
instruments
Current 0.3 (16.7) 0.3 (16.7)
Non-current (1.2) (0.9) (1.2) (0.9)
(0.9) (17.6) (0.9) (17.6)
The Group only enters into derivative financial instruments that are
designated as hedging instruments.
The fair values of the derivative financial instruments are included at
the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced or liquidation
sale. The derivative financial instruments are classified as
non-current based on the remaining maturity of the related hedged item.
Fair Value Hierarchy
As at 31 December 2009, the Group held the following financial
instruments measured at fair value. The Group uses the following
hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1 quoted (unadjusted) prices in active markets for identical
: assets or liabilities
Level 2 other techniques for which all inputs which have a significant
: effect on the recorded fair value are observable, either
directly or indirectly
Level 3 techniques which use inputs which have a significant effect on
: the recorded fair value that are not based on observable
market data
Assets measured at fair value
Financial assets at fair value Total Level 1 Level 2 Level 3
through the income statement
£m £m £m £m
Foreign exchange contracts - 2.6 - 2.6 -
hedged
Liabilities measured at fair value
Financial liabilities at fair Total Level 1 Level 2 Level 3
value through the income
statement £m £m £m £m
Foreign exchange contracts - 2.3 - 2.3 -
hedged
Interest rate swaps 1.2 - 1.2 -
During the year ended 31 December 2009, there were no transfers between Level 1
and Level 2 fair value measurements, and no transfers into and out of Level 3
fair value measurements
Group Company
2009 2008 2009 2008
£m £m £m £m
Interest-bearing loans and
borrowings
Obligations under finance 0.3 0.3 - -
leases
Bank overdrafts 11.0 2.4 10.8 1.7
Non-amortising bank loans 122.8 151.7 122.8 151.7
Amortising term loan 27.2 28.7 27.2 28.7
Preference shares 1.4 1.4 1.4 1.4
Unsecured loan stock 0.1 0.1 - -
Total interest-bearing loans & 162.9 184.6 162.3 183.5
borrowings
Current 12.8 58.6 12.2 57.7
Non-current 150.1 126.0 150.1 125.8
162.9 184.6 162.3 183.5
Interest-bearing loans and Maturity
borrowings
Obligations under finance leases January 2011 - July 2013
Bank overdrafts n/a
Non-amortising bank loans June 2010 - January 2013
Amortising term loan March 2020
Preference shares Non-redeemable
Unsecured loan stock On demand (by July 2012)
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.
The amortising term loan is repayable between 2010 and 2020 with
interest payable at a fixed rate of 6.23%.
The loan has a weighted average maturity of 5 years (2008: 6 years).
Non-amortising bank loans are drawn against unsecured, committed
revolving bank credit facilities maturing between June 2010 and January
2013.
Group Company
2009 2008 2009 2008
£m £m £m £m
Net Debt
Derivative financial 0.9 17.6 0.9 17.6
instruments
Interest-bearing loans and 162.9 184.7 162.3 183.5
borrowings
Total borrowings 163.8 202.2 163.2 201.1
Less: cash at bank, cash in 31.5 19.6 10.5 2.6
hand and short-term deposits
132.3 182.6 152.7 198.5
2009 2008
Book Fair Book Fair
value value value value
£m £m £m £m
Financial assets and financial
liabilities
Short-term borrowings 1.8 1.9 56.1 56.3
Medium-term borrowings 131.5 132.4 104.9 105.9
Long-term borrowings 18.4 20.2 20.8 23.4
Derivative financial 0.9 0.9 17.6 17.6
instruments
Finance leases 0.2 0.2 0.3 0.3
Bank overdrafts 11.0 11.0 2.4 2.4
Total financial assets and 163.8 166.7 202.2 206.0
financial liabilities
Less: cash at bank, cash in 31.5 31.5 19.6 19.6
hand and short-term deposits
Net Debt 132.3 135.2 182.6 186.4
The fair value of the fixed term, amortising borrowing is calculated as the
present value of all future cash flows discounted at prevailing market rates.
Trade and other receivables and trade and other payables carrying values are
assumed to approximate their fair values due to their short-term nature.
A separate table has not been prepared analysing the Company's book values and
fair values. The £0.6m difference in book values relates to interest bearing
loans and borrowings and is deemed to be short-term in nature.
Floating Fixed rate 2009 Total Floating Fixed rate 2008 total
rate financial financial rate financial financial
financial liabilities liabilities financial liabilities liabilities
liabilities liabilities
Currency £m £m £m £m £m £m
Sterling 59.2 103.7 162.9 131.4 30.2 161.6
Euro - - - 4.4 - 4.4
US dollar - - - 18.6 - 18.6
Net 0.9 - 0.9 17.6 - 17.6
derivative
liabilities
60.1 103.7 163.8 172.0 30.2 202.2
Group Company
As 31 December 2009, the 2009 2008 2009 2008
expiry profile of undrawn
committed facilities was as
follows: £m £m £m £m
Less than one year 20.0 19.8 20.0 19.8
Between one and two years 33.9 - 33.9 -
Between two and five years - 2.8 - 2.8
53.9 22.6 53.9 22.6
Cash Flow Hedges
Foreign exchange forward contracts
At 31 December 2009 the Group held foreign currency forward contracts designed
as hedges of transaction exposures arising from non-local currency revenue.
These contracts were in line with the Group's policy to hedge significant
forecast transaction exposures for a maximum 18 months forward.
The cash flow hedges of non-local revenue were assessed to be highly effective.
Interest rates swaps
The Group's policy is to minimise exposures to interest rate risk by ensuring
an appropriate balance of long-term and short-term floating rates.
During 2009 the Group hedged the exposure to interest rate rises by entering
into £75m of interest rate swap agreements, whereby the Group pays a fixed rate
of interest and receives a variable rate of LIBOR+margin on the notional
amount.
£50m of these interest rate swaps mature in July 2011 with the remaining £25m
maturing in June 2012.
At 31 December 2009, 68.1% (2008: 22.0%) of the Group's borrowings were fixed.
2009 2008
Assets Liabilities Assets Liabilities
£m £m £m £m
Fair value of Cash Flow 0.4 (0.4) - (2.3)
Hedges - currency forward
contracts
Fair value of Cash Flow - (1.2) - -
Hedges - interest rate swaps
0.4 (1.6) - (2.3)
Current 0.4 (0.4) - (1.9)
Non current - (1.2) - (0.4)
0.4 (1.6) - (2.3)
For 2009, if interest rates on UK pound-denominated borrowings had been 0.5%
higher/lower with all other variables held constant, post-tax profit for the
year would have been £0.3m (2008:£0.6m) lower/higher, mainly as a result of
higher/lower interest expense on floating rate borrowings.
Foreign currency net investment hedges
The Group's treasury policy is to hedge the exposure of currency denominated
assets to foreign exchange risk. This is primarily achieved using forward
contracts denominated in the relevant foreign currencies.
Gains or losses on the retranslation of these hedges are transferred to
reserves to offset any gains or losses on translation of the net investments in
the subsidiary undertakings.
The notional principal amounts of the outstanding forward foreign exchange
contracts are:
Group Company
2009 2008 2009 2008
million million million million
Euro EUR 19.4 24.5 19.4 24.5
US dollar USD 34.0 56.0 34.0 56.0
Czech koruna CZK 99.0 319.2 99.0 319.2
Australian AUD 11.9 24.5 11.9 24.5
dollar
New Zealand NZD 5.3 8.1 5.3 8.1
dollar
Swedish krona SEK 12.0 49.1 12.0 49.1
Norwegian krone NOK 5.0 17.5 5.0 17.5
Hungarian forint HUF - 325.0 - 325.0
Indian rupee INR 668.6 1,289.7 668.6 1,289.7
Sterling Equivalent
2009 2008
£m £m
Euro EUR 17.2 23.7
US dollar USD 21.1 38.9
Czech koruna CZK 3.3 11.5
Australian AUD 6.6 11.9
dollar
New Zealand NZD 2.4 3.3
dollar
Swedish krona SEK 1.0 4.3
Norwegian krone NOK 0.5 1.7
Hungarian forint HUF - 1.2
Indian rupee INR 8.9 18.4
2009 2008
Assets Liabilities Assets Liabilities
£m £m £m £m
Fair value of foreign 2.2 (1.9) 0.4 (15.8)
currency net
investment hedges
Current 2.1 (1.8) 0.4 (15.3)
Non-Current 0.1 (0.1) - (0.5)
Foreign currency sensitivity
For 2009, if the UK pound had weakened/strengthened by 10% against the US
dollar or the Euro, with all other variables held constant the effect would
have been:
2009 2008
Change in Change in Effect on Effect on Effect on Effect
GBP/USD GBP/EUR Profit Equity Profit on
Rate Rate Before BeforeTax Equity
Tax
£m £m £m £m
10% 0.5 0.7 0.2 5.1
(10%) (0.5) (0.6) (0.2) (4.2)
10% 0.5 (1.7) 0.5 2.6
(10%) (0.5) 1.4 (0.5) (2.1)
The Group's exposure to foreign currency changes for all other currencies is
not material.
Capital Risk Management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
Credit Risk
The Group considers its exposure to credit risk at 31 December to be as
follows:
2009 2008
£m £m
Bank deposits 31.5 19.6
Trade receivables 117.8 109.9
149.3 129.5
For banks and financial institutions, the Group's policy is to transact with
independently rated parties with a minimum rating of 'A'. If there is no
independent rating, the Group assesses the credit quality of the counterparty
taking into account its financial position, past experience and other factors.
Liquidity Risk
The Group manages liquidity risk by maintaining adequate reserves and banking
facilities by continuously monitoring forecast and actual cash flows.
The following is an analysis of the Group's financial liabilities and
derivative date financial liabilities into relevant maturity based on the
remaining period at the balance sheet date to the contractual maturity date.
The amounts disclosed in the table are the contractual undiscounted cash flows.
Floating rate interest is estimated using the prevailing rate at the balance
sheet date.
Net values of transaction hedging are disclosed in accordance with the
contractual terms of these derivative instruments.
2009
Due Due Due Due over
within 1 between between 5 years
year
1-2 years 2-4 years
- More to follow, for following part double click ID
Back to top