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Edited Transcript of MNZS.L earnings conference call or presentation 10-Mar-15 9:30am GMT

Full Year 2014 John Menzies PLC Earnings Presentation

London Oct 4, 2019 (Thomson StreetEvents) -- Edited Transcript of John Menzies PLC earnings conference call or presentation Tuesday, March 10, 2015 at 9:30:00am GMT

TEXT version of Transcript


Corporate Participants


* Jeremy Stafford

John Menzies plc - CEO

* Paula Bell

John Menzies plc - CFO




Jeremy Stafford, John Menzies plc - CEO [1]


Okay, good morning and a very warm welcome. Good to see you all here and nice to see a few familiar faces. What we will be doing this morning as I will start with the headlines. I'll then hand over to Paula who will do the financial and business overview. Then I'll come back and I'll share with you what we found in our strategic refresh.

Now in terms of my time at the business, I have been here five months as I joined in October. I've had a good look around the business and a lot of what I see I like. What I will do is I will share some of that with you and what our priorities are, but we've also got quite a lot to do. And I will also share with you some of what we found from a good hard look that we've had at Heathrow and what the learning is from that and how we are applying that across the whole business going forward.

Okay, so in terms of the headlines, the Group turnover is up on a constant currency basis by 3%. However, the Group profitability is down by 9%. Now if I focus on the two businesses, Distribution has had a really good year. It has performed to our expectations and it's been highly cash generative.

In terms of Aviation, we've had the operational challenges; we've also had some integration challenges with our Colombia acquisition and that's held the profitability back. We've also had higher than normal startup costs. Now that is extra costs for 2014, it was good news for us for 2015. And you can see that in terms of Aviation we've got a growth of 9% on the Aviation division.

So, we are in a strong financial position. We have got cash flows of GBP74 million, we've got net debt of GBP110 million. And as a Board we've decided that with the scale of the opportunities that we can see ahead, and after 30 years working in service businesses, I've seldom if ever seen a business with such good opportunities. As a Board we have decided to rebase the dividend to make a contribution to harvesting that further growth. And Paula will tell you more about that very shortly.

So, what you can expect from us is continued growth from Aviation, sustained cash generation from Distribution. And you'll see us do this with a greater degree of focus, you'll see us do this with a greater degree of discipline, and you will see us do this with a greater degree of precision. And that's going to make it a more scalable and more robust business. Okay, so with that I will hand over to Paula.


Paula Bell, John Menzies plc - CFO [2]


Thanks, Jeremy. Good morning all. I think you can just about see me. All right, so let me take you to the results for 2014 and our contract status. As a global business the results have been adversely affected by the volatility of foreign exchange rates which look set to continue. So as last time we showed the figures here as reported and in constant currency.

So, in constant currency Group turnover just over GBP2 billion was up 3%, as Jeremy said. And underlying profit before tax at GBP48.1 million was down GBP5 million from 2013. We are pleased to deliver a favorable working capital result which has led to improved operating cash flow.

Net debt closed at GBP110.9 million, up GBP7 million from 2013 in the main reflecting reduced profit levels, higher [capital] investment in our contract wins. And as previously indicated, our underlying tax rate of 32% reflects the global mix of our business where increasingly profits are made in higher tax jurisdictions and we maintain our forecast of 32% looking forward.

Underlying earnings per share were 49.2 P for 2014 and 55.1 P once stated in constant currency. As Jeremy mentioned, as part of the strategic operational review the Board has considered very carefully our dividend policy. They've decided to replace the dividend and there are a number of factors that have together led to this decision.

After a disappointing trading result in 2014, the timing coincides with the number of upcoming demands in our cash, including the final payment of GBP10.5 million for the Orbital acquisition, working capital and ongoing investment in our business for both equipment and restructure. At the same time we are seeing evidence of an accelerated and much increased level of market opportunities in Aviation as outsourcing momentum in the US picks up pace.

So, whilst maintaining flexibility we want to continue to operate with a conservative balance sheet, which is important to our customers, the Company and shareholders. Therefore the recommended final dividend, 8.1 P, brings the full-year payment to 16.2 P per share and from its we base our dividend policy will be progressive.

So, let's turn to the divisional performance. Aviation revenue at 9% in constant currency with all three service lines in growth mode. And we can see here underlying operating profit in constant currency fell GBP4 million in the year. We'll walk through the details of that in a moment, but here we can see a particular strong result from cargo handling following key wins in Australia and Canada.

Cargo handling delivers a 9% margin now and, despite some mix changes affecting yield in Oceana at the back end of 2014. And to address that we have a new pricing regime commencing from May 15 with our airlines differentiated for palleted and loose cargo which was causing some of the yield mix issues last year.

Cargo forwarding, as you can see here, continues to progress. It's a lower margin business at 3.7% and uses little capital. As Jeremy mentioned, Distribution delivered a robust result. Our flat earnings year-on-year and corporate cost increased following Board changes and some property onerous lease provisions.

So if we delve into Distribution a little further, with the management team in place and the business has been reshaped to provide a platform for considering growth markets now. Newspaper like-for-like sales were down 1%. As we thought, magazines fared much better than 2013, a 6% decline, with monthly magazines and Sunday newspapers declining the fastest and Monday to Friday volumes actually holding flat.

The benefit of a sticker mart frenzy can be seen here in strong performance of collectibles. But without a world [cook] we expect collectibles to revert to 2013 profit levels with demand for [Matchitax] and Disney-related products continuing into 2015.

As I mentioned, Orbital Marketing Services, our acquisition made in 2012, performed strongly. It outperformed plan leading to an imminent final earnout payment. And increased profit is included in a new business benefit shown on the chart here. We are pleased to announce GBP3.4 million of cost savings in the year driven from many initiatives -- strong procurement, process efficiency and the benefits from some of our network rationalization program where 10 hubs have reduced to eight.

The magazine super hub has been (inaudible) Maidstone. And this two-year program which commenced during 2014 is on track to deliver around GBP2.5 million of annualized cost savings by the end of 2015. Therefore, as I said, operating profits remain GBP24 million year-on-year and looking ahead we look to mitigate the decline with further cost savings, although there will remain an overall slight reduction as the reduced sticker sales will take effect.

So, let's move on to Aviation, a challenging year indeed. The division enjoyed sustained period of strong profit growth up until 2014 when operational matters quite frankly held profit back. Considering the top line first, handling turns were up 15% in the year, now over GBP1 million a year and cargo turns handled were up 10%.

Turnover was 9% in constant currency, reflecting the prevailing strong market growth dynamics. And in particular our operations in the US delivered good growth as did Oceana where we benefited from the Skystar acquisition which has delivered to plan and further enhanced our platform in its region. We have in 2014 formed a new venture with an existing handler in New Zealand, again building on our platform out there and this was a small cash cost to set it up.

So, turning to the profit bridge set out here, you can see the impact of the new wins including North American successes as well as gains across Australasia. Losses in yield impacts were GBP3.8 million in the year in the main relating to the 2013 EasyJet renewals and some lost stations, Belfast and Bristol. This is now behind us.

We recently renewed a five-year contract we've got with EasyJet at sensible margin. We have seen little yield erosion across all stations in the last six months and we are focusing on contracts to add to our airport density that will build operating margin.

Latin America has been particularly difficult for us, as you know, and you can see here on the chart the improvement from both cargo handling and forwarding, as I mentioned. We incurred GBP1.9 million more startup costs in the year. These are trailing setup costs for new contracts which we expensed and commensurate with a busy year of wins. And as you remember, the impact [reduced deicing] stemming from the warmer weather in Q1 and 2014 and the Heathrow operation issues totaled GBP5 million in the year.

So, moving on to little bit more information on Heathrow, so what have we been doing since our update in November? Well, we have a new management team in place. Performance levels have been restored. The [BA] volumes continue to decline as they consolidate the operations into T5, but we are in much better shape than in November time. New contract wins American Airlines and Royal Jordanian have also been secured at the beginning of the year.

During the first half of 2015 we will reshape our operations, managing by term rather than by whole airport. This creates density and synergies to drive second-half improved earnings and deliver a positive exit rate for 2016. Margins will be restored nearer to those before the impact of last summer.

We've had a difficult year also in Colombia. Colombia service levels did not improve fast enough under our management due to integration issues and some key customer contracts were lost. So, as a result we've impaired our intangible asset whilst we consider our options to improve performance.

So, if we just have a little look at the contract status and we'll start with the wins, it's been a busy year. A higher number of contract wins and losses than usual reflecting a larger presence in both our ground and cargo handling markets. And the usual information on contract wins and losses in the appendix if you need it.

So, we secured the five-year renewal with [easyJet at Gatwick], I mentioned that as a key station for both of us and our customer and it's on sensible terms. Noteworthy wins include Delta Air Lines in Detroit.

United have publicly expressed their interest to outsource their ground handling activities and a key win with them in Denver was secured in quarter four. We are handling more than 100,000 turns a year there, that's regional aircraft, and service levels are improving constantly having just recently set up. We recruited on short notice 500 staff to be ready for the Christmas travel rush.

WestJet in Toronto was also secured later in the year. So, the capital expenditure for these three large North American wins totaled GBP8 million, and this is for ground handling equipment. We target robust margins. The payback on these typical larger contracts ranges between three to four years and the internal rate of return is 15%. And focusing on hopes and larger contracts allows us to build the density and drive the margin.

Again another recent key win in January this year and 2015 was with Norwegian Air Shuttle. This is again another example of building scale where we can expand to Oslo activities having secured these seven-year contracts in Scandinavia -- worth over GBP40 million in revenue, around 55,000 turns and the equipment for this one is leased in the name.

Volume wise I've mentioned the reduction of volumes at British Airways moving to T5. But (inaudible) intend to reduce their cargo freighter fleet operating in Amsterdam from 10 to three over the next two years. So, as a result we see cargo handling operating profit being around the same level for 2015 and 2016.

Losses include South African Express. It was a key customer in this region. It was very disappointing news and following very difficult price discussions. Our future tenders we remain very excited about what's going on with the Spanish tender process, but we've been informed of a three- to four-month delay presumably resulting from the airport's recent IPO, which means the anticipated contribution at the back end of 2015 now slips into 2016.

So, taking this update into account, profits will be much more weighted to the second half of 2015 than usual. We'll get the seasonality, but with timing of the contract wins and losses it means the first half will be more affected than normal.

Nonrecurring items in 2014, to summarize we have the planned rationalization cost for distribution of GBP3.7 million. The outperformance of (inaudible), as I mentioned, meant an increase in (inaudible) deferred payment. And the non-cash impairment of Colombia at GBP3.2 million.

For 2015 we will incur the remaining cost of around GBP3 million for the distributional network rationalization. Within Aviation, as I mentioned, we will reshape some of our operations as we look to drive density in improve margin in low performing areas such as London Heathrow. So we'll therefore invest GBP3 million to GBP4 million including the cost of evolving a support structure to better match our new focused agenda.

So turning to cash flow, as you can see from the table, we've had a good working capital management during the year against a backdrop of increasing revenue. I do expect working capital to resume its normal shape, of course, going forward of increasing by around GBP10 million per annum as we grow the Aviation business.

Operating cash flow closed at GBP74 million, up GBP6 million on last year despite the reduced profit levels. And this breaks down into GBP30 million from Distribution and GBP44 million from Aviation. Both businesses are very focused in on driving cash.

You can see here the GBP30 million of capital expenditure, GBP10 million more than last year, is a direct result of the North American wins. So overall free cash flow was a similar level to last year.

As you can see from the waterfall graph, net debt closed at GBP111 million, up GBP7 million from the opening position. Into 2015, we expect capital expenditure to be around GBP25 million, half is replacement CapEx.

We continue to have options as to whether we buy or lease equipment. We decide on location, availability of leasing partners, our ability to maintain the assets if we buy them, price and of course our funding plans and headroom. We have choices.

As I mentioned, we make the deferred payment for Orbital Marketing Services around GBP10 million. We estimate pension payments remain flat during 2015. We are agreeing on new triangle assumptions this year on our new funding plan which should in effect start from 2016.

So, just looking at headroom, we've got GBP240 million of bank facilities in place with most being due for renewal in 2017. We closed the year with GBP106 million of headroom. Our covenant test is total debt to EBITDA and closed at 1.96 against a ceiling of 3 times.

Interest cover was 10.5 times. And included in our total debt calculation is GBP25 million of guarantees, which includes things like performance and tender bonds and our US worker's compensation assurity. So, we plan to operate within a total debt to EBITDA band of 2 to 2.5 for the next few years.

So to summarize, a mixed year in 2014, top-line growth reflecting the strong Aviation market dynamics in play as we see them. Cash flows are being very carefully managed. We want a flexible, resilient balance sheet. This needs to be in place for a strategic growth agenda which Jeremy will now talk you through.


Jeremy Stafford, John Menzies plc - CEO [3]


Paula, thank you. Okay, so I said to you I have had good at the chance to look around the business. Well, I've been out to see five of our distribution depots. I've been to see 15 of the airports. I've been to see more than 30 of our customers and more than 15 of our investors. So, I have got a pretty good feel for what's going on. And some of what I will share with you you will have heard before. And some of what I'll share with you will be brand-new.

So, let's start by looking at the Distribution business. And in terms of the Distribution business, we've chosen to define our scope in the market quite narrowly. We've chosen to focus on newspapers, magazines and marketing services. And what you'll see us begin to do is look at the more broadly defined Distribution market, which is growing very rapidly as a result of e-commerce. And I will give you an idea of where we are looking as I talk you through this today.

Now in terms of the reshaping of the distribution business, we've put it into five business areas and the first of the business areas is trucking. So that's the spine of the operation and that's now being operated with more precision so that we can get better utilization from the vehicles that we have running over the long distances.

We've got the final mile, that's the largest part of the business. That goes out to the independent retailers, it goes out to the multiples and it has a wealth of customer information as part of that service. We've got hand to hand and that's where we are delivering particularly newspapers in urban areas to commuters and other travelers on a day-to-day basis. So when you leave here today, if you pick up a copy of the Evening Standard, that may be one of our people who hands it to you.

You've then have Menzies Response. Now Menzies Response is where we are delivering fulfillment for existing, for example, catalog operators. It's an important part of understanding how we can participate in e-commerce and it's an area would like to scale.

And then the fifth area is our independent consultancy. So four, work with retailers to help them understand how they can benefit from taking newspapers and magazines and particular bundles of newspapers and magazines. And they had a great success this year in persuading Aldi to stop newspapers and magazines and that's been a very significant step for Aldi and a great success for (inaudible).

Now let's have a look at the characteristics of Distribution. It's very big. It's a big operation, it's 110 million delivery units per year. It's got some core competences. So it has got the core competency of time critical logistics and it's developed a core competency of relentless cost management. So, as the volumes have decreased the team has become very good at driving the cost base down to make sure it's as efficient as possible so we continue to deliver good cash.

There are three areas we are going to be focusing on to broaden the scope of this business. The first one is key account management. Second is we are going to be looking to get better utilization of our assets. We use the assets intensively through the night, but through the daytime many of them are much less well used. And we're also going to be exploiting our geographic footprint.

We have a bias towards the rural areas. And whilst in its early stages e-commerce was very high-growth within urban areas with early adopters, we are now think accelerating growth in rural areas and clearly we have presence there and we could be playing a more active part.

So, it's a highly cash generative business. I wanted to share with you how cash generative. You will see that the cash conversion over the last five years at the top of the charts have been very sustained. And you can see that we had a particularly good performance in 2014. At the bottom of the chart you can see that in total terms we've generated GBP121 million of cash and of course that's what we've been using to build the Aviation business.

What I wanted to do before I move off Distribution was just talk to you a little about the Orbital acquisition which was made in November 2012 and has been a great success. It has been operating as a largely standalone part of the business. And Paula was saying we are just due to make a substantial earnout payment because it's delivered very well for us.

What we are now doing is integrating Orbital Response into Menzies Response. We are integrating BP, which is the travel brochure business of Orbital, into the backend of the final mile business and Take One, which is a leaflet distribution for local attractions. So when you are in a hotel or a train station or an airport and you see those racks of brochures, that's probably Take One and that's being integrated into hand-to-hand. So we are now going to see efficiencies from that and, as Paula said, the division's performing well and this has been a good acquisition for us.

Okay, let me move on to Aviation. In terms of Aviation, we have a very attractive set of growth dynamics. Now, if I start with the industry as a whole, you've got an industry which is growling ahead of world gross domestic product. If you then look at the area which we work in, which is the ground handling area, you can see just how fragmented it is. So if you take the top nine global ground handlers from the total market, we the top nine only deliver 17% of the services.

If you then look at the proportion which has been outsourced, the top 9 still only deliver 38% of the ground handling services. So it really is very fragmented. And if you then take the recent analysis that was done at the likely growth rates over the next five to six years, it is expected to grow at something like 50%. So, we have a wealth of organic opportunities and many density and capability acquisition opportunities in the market we serve.

Now let me tell you a bit more about what's been achieved so far. I was very impressed when I joined. The business has managed to roll out to 31 countries and 149 airports. And that's important because as the market matures the world's top airlines want to do business with fewer ground handlers. And having that footprint gives us a place at the table for those negotiations.

Now another thing I really like about what's been achieved in the last period is that it's a very balanced business. If you look at it from a service mix point of view we've got a good balance between our passenger handling and cargo handling. If you look at it from a geographical basis, we've got a good balance across the geographies that we serve. And if you look at the top 10 customers, which make up 36% of our business today, we've got a good spread across the top 10 customers. So, no particular dependencies and that for me gives us a great platform for growth.

And what we've done with the strategic refresh is focus on five priorities. First of those is we are going to be focusing on our key customers. We've settled on three customer groupings which I'll tell you a little more about the moment. But they are low-cost carriers, they are traditional carriers and they are the Middle Eastern and Asian carriers. And what we are going to be doing with them is putting in place key account management so we get really close to what matters to them and we can gradually get an increased share of wallet.

In terms of the second priority, it's about pursuing the hubs and bases. You will hear me talk about how we are now seeing regional hubs come to market. We've been very successful, as Paula said, in Toronto, Denver and Detroit in the last year. And we can see a lot more of those coming to market in 2015 and beyond.

The third priority is accelerating the rate at which we sell complementary services into the airports where we operate. So, when we've done benchmarking of ourselves versus our comparators we've realized that we can make a better rate of return if we have more services per airport.

Fourth is refocusing our geographical investment, so making sure that in the most attractive markets we've put our best energies in our investment. And fifth is laying the foundations for the emerging markets so that as they mature our relationships are in place and, again, we get a place at that table.

So, in terms of the customer groupings, low-cost carriers are key. We are the number one ground handler for low-cost carriers in the world. Why are we? Because we do very high speed turnarounds, we're very able to stand up stations quickly. We are able to source ground service equipment and we established a very good way of mobilizing the team to focus on what really matters to our customers.

Second, we've got the traditional carriers. They are driven by ongoing cost-saving programs and we can work with them to optimize their services around their large networks and also optimize their costs. And then you've got the Asian and Middle Eastern carriers who are high-growth. And because of the experience we have with low-cost carriers, we can help them get into stations quickly and help them accelerate their growth.

Now if I go on to talk about the hub outsourcing, this is particularly exciting. If you take the waves of outsourcing, the first one that we saw with the outstations or the spokes, that's pretty mature these days. Second were the low-cost carrier bases, that is well established. There's still plenty of fuel in the tank on that one, but it's well-established.

The one that we are really seeing now, and it's being led in North America, are the regional hubs. And we can see just over the horizon there are some interesting conversations about some of the mainline hubs. That's not happening today but we can see that people are starting to think about it. So let's have a look at North America and let's see where that sits in terms of the global market for regional hub outsourcing.

Over on the left of the chart you can see that in North America, 68% of the traffic is regional hub. In Europe and Asia-Pacific you can see that it is still substantial, around 50%. But I'd draw your attention to the right and to particularly Latin America and Africa where it's a much smaller proportion because that's how the networks work. So our attention is going to be over to the right and to the center of this chart.

Now let's have a look at North America itself. If you look at the two middle columns you can see that regional hub outsourcing, less than a third has been outsourced today. If you look at the right hand of the two central columns you can see that for low-cost carriers less than a quarter has been outsourced today. So, as I say, plenty to go after.

Now what I'll do is share with you what we've been up to since April of last year with Delta Airlines in Detroit. Now in the Americas we have a brand which we use because most of this is domestic activity, and that brand is Simplicity. It works extremely well for us. We have it now in 13 of the airports that we serve and it's the brand that we use in Detroit.

It's first generation outsourcing, so there's plenty of opportunity to improve the service, there's plenty of opportunity to reduce the cost for the airline, and there's plenty of opportunity for us to make a good sustainable margin. So first generation is important.

It is substantial; so Detroit is 58,000 turns for their regional operation there. It is low capital investment. Because it is first generation we are using the equipment they already have and we are able to deliver a great on-time performance. So currently in 2015 we're delivering 99.25% on-time performance. So, a good case study of what we're capable of.

Now moving on to the third of our priority areas, this is the selling of complementary services. And historically as a business we've tended to go after a lot of opportunities spread around the world and that means we are spread quite thin.

What you'll see us do is sell more services per airport, which the airlines prefer because they like to contract with fewer players. It gives us the opportunity to act as a service is in a greater, which means we can turn the aircraft around quicker, we can turn it around more consistently because we are marshaling all the services under our wing.

It means that for us, this gives us higher-margin opportunity because a lot of the complementary services carry a higher margin than the plain-vanilla ground handling. And it helps us when it comes to renewal to retain that customer. So, an attractive thing for us to do.

And if you look on this chart you can see on the right our current position in Continental Europe and on the left you can see our position in the Americas. So, we know how to do this, we've got it established in Continental Europe. And what I will be driving the team to do is get that sort of increase in services around the other regions of the world.

Now let me talk to you a little about the refocusing geographically. You've heard from Paula that we've had some challenges in South Africa. You heard from me that we've had some integration issues in Colombia. So you will see us stabilizing those operations.

We want to keep a footprint of this scale because, as I said earlier, that gives us competitive advantage to get a place at the table with the world's top carriers. So if we run into issues we will stabilize. What you will then see is where there are large opportunities, and I've just laid out what we can see in North America, we'll be putting our best energy in investment.

And then third you will see that we are laying down the foundations in the emerging markets so that as those markets open up we are in a good position to take full advantage of them and that is the fifth of our priorities.

So, there they are. What I'm now going to do is pause for breath, because what I've been doing in the time that I've been in the business is having a good hard look at what lessons we learned from Heathrow, a good hard look at how that causal analysis can help us develop our operation globally and make us more robust and scalable.

So, in terms of what I've seen, if I start with safety and security, and you'll find that I always do that and it will always be our number one priority, we have a real advantage in this area. We have a well-designed [Morse] system, which is how we manage safety in the business, and we will continue to strive to improve that.

So, we've currently got a consultancy team in looking at that, helping us understand how we can improve it, helping us understand how we can make sure on every occasion we do it the right way every day.

Now if I go on to standard operating procedures, if I give you an example of when I was out in Melbourne, we have a great example there of the team who are absolutely relentless with their attention to complying with the standard operating procedures. What we need to do and what we needed to do last summer in Heathrow was be relentless there.

Now we have a really good system, a smart system, which allows us to do real-time assessments of our compliance on the ramp. We do 192,000 of these checks per year. We do -- that's roughly one every three minutes. And that means that we have a great data feed of how accurately we are performing. What's good is we've got the tools to do it. What we've learned from Heathrow is we need to do that relentlessly wherever we operate. And we've got great examples, as I say, with Melbourne leading the way.

Key operational metrics are going to be increasingly important. We need more lead indicators so that we can understand where we've got challenges around the corner, and that would have helped us to predict what we were going to see at Heathrow if we'd had those in place last spring or even the autumn of the previous year.

Fundamental to us in terms of the operation is integrated IT. When I was out in Toronto I was delighted to find that where we have all of the systems in place, all integrated together, it allows us to operate from the get-go a really effective and accurate and consistent operation. What we need to do is make sure that in all of our larger airports we have all of those systems deployed.

In terms of training, it's essential for me that we have everybody who's taking part in the operation fully trained with the content they need to be aware of and refreshed on a regular cycle. We've got the e-learning platform to do that. We've got it running really well in part of the operation. But we don't have it around the whole of the operation. So, it's another example of something that's built, ready to go, and can really help us with that operational excellence.

And once all of that's in place, once those five pieces are fully functioning as we'd want them to we've then got the people. And the people will make the biggest difference. They will make the competitive advantage, they will be the people who are able to lead the business forward. They are the people who are able to delight with the service.

And in terms of that we're going to be bringing in some people from other industries to complement the very considerable skills we have in aviation services and we're going to make sure that we have a pipeline of talent to support the growth which I've just been describing to you.

So, going back to a Group level, you're going to see increases in revenue from the hub and base activity, from the complementary services, from the refocusing of our geographical investment, and also from our foundations that we lay in the Middle East and Asia.

We are going to see improved returns, so we will have the scale benefits from the hubs, we'll have the density of operation from complementary services. And something I haven't touched on yet but I'll spend a moment on now are longer-term contracts. You heard Paula mention that the Norwegian air shuttle contract is for seven years.

Our recent renewal at Gatwick is for five years. Our [standalone contract] is three years and that's a bit short for a large operation, because by the time you've won it, by the time you've stabilized it you're beginning to think about your next renewal. So for us, we'd like to write more longer-term contracts.

We are going to be standardizing our best practice both in Aviation and in Distribution, because Distribution constantly strive for greater efficiency and that comes in part from standardization. And we are going to be optimizing our assets, both in Distribution and in Aviation. In Aviation we have a large fleet of ground services equipment around the world and we are now starting to view that as a single fleet so we can drive more performance from it.

And funding our growth, we've got a strong financial position. We are going to be targeting a total debt EBITDA ratio between 2 and 2.5 times. We've got a highly cash generative business, but we have big demands on CapEx and OpEx to handle the growth that you can see is ahead of us.

So we are going to take a pragmatic approach to funding -- to funding our equipment. Sometimes will have the good fortune to be able to use the airlines equipment as we do in Detroit. Sometimes we will lease and sometimes we will buy it if there isn't a leasing firm available.

We are going to target returns on investment to 15% and we are going to aim to build headroom from our EBITDA growth. And as I said at the beginning and as Paula has explained, as a Board we've decided to rebase the dividend to make a contribution to the funding of this growth.

So to sum up, we are very focused on doing things the right way every day. We've got a distribution business which is performing well, and we are pleased with the start it has made to 2015. We've got really exciting growth potential in Aviation and particularly in North America and very favorable market dynamics. And we are going to be delivering targeted growth. Okay, thank you very much. We're very happy to take some questions.