Menzies confident aviation arm set for takeoff despite profits slump

Published on Thursday 21 August 2008 21:41

PROFITS at John Menzies plummeted by more than a fifth this year as the slowing world economy took its toll on the company's core business.

Falling cargo and passenger volumes in the US and Europe led to a drop in half-year profits from 15.3 million to 11.4m, a fall of nearly 22 per cent.

But yesterday the group's management was bullish about the second half of the year, promising it would meet expected profits by the end of 2008. Analysts are predicting profits of more than 36m.

Yesterday's fall, which included a one-off 3.5m cost of starting up new businesses, came as the company estimated cargo shipment will fall 3 per cent in the second half of 2008.

The company is hopeful that a cost-cutting programme – particularly in the loss-making US business – and new operations in rising markets, such as India, will offset this.

Finance director Paul Dollman said: "We think we can drive the business forward, despite the fact volumes are going backwards. We are not going forward as fast as we thought we were going to go, but we are going forwards."

Menzies Aviation, one of two divisions of the venerable Edinburgh company, now handles air cargo and ground services at over 100 airports worldwide. Revenues generated by aviation grew 30 per cent as the group won several ground-handling contracts and set up new cargo operations at airports in South Africa, India and Scandinavia.

Profits fell more than 2m to 4.1m, although the underlying profits were 7.6m, up from 7.3m in the previous first half.

The group's distribution division, which handles newspapers and magazines, recorded flat profits of 10.9m. Although the distribution business has been affected by falling newspaper circulation, turnover was up 3.5 per cent to 587.2m due to "aggressive" growth in newspaper cover prices.

New ventures such as the "embryonic" digital distribution platform and the magazine marketing operation, D-Cipher, traded well, bringing in income of less than 1m.

Although the distribution business is steady, and more cash generative, the company sees potential to grow profits in the aviation arm.

Dollman said it was "no surprise" that aviation was suffering, but that the second half would benefit from expansion across the world.

"The US market is off, the UK and Europe is definitely down, but India is still growing.

"One of the strengths of our geographic footprint is we have got some growth markets as well as ones going off.

"In the second half, there will be less start-up costs and the US is actually getting slightly better in the second half.

"We have taken cost out around the world in anticipation of orders coming off. We are determined to outrun the impact of lower volume."