Menzies unveils cost-cutting plan as profits dip

Logistics group John Menzies unveiled plans to cut back its wilting distribution business today after “disappointing” magazine sales offset gains at its aviation services arm.

John Menzies: Sinking magazine sales. Picture: Sean Bell

The Edinburgh-based baggage handler and newspaper distributor reported a 2.6 per cent dip in profits for last year as it announced plans to close a number of sites in an effort to cut costs. Underlying pre-tax profits were £53.1 million for 2013, against £54.5m the previous year, on revenues that were broadly flat at £2 billion.

Finance director Paula Bell said the firm would concentrate on growing its aviation business and said it has a £240m war chest to invest.

She told The Scotsman: “We will put more money into acquisitions and capital investments to help us pick up more lucrative ground handling contracts.”

The company has been expanding into new markets and entered Latin America last year with three “key acquisitions” of around £10m each.

Bell said the firm regarded medium-sized “bolt-ons” as an ideal way to speed its growth, but would consider a larger buyout as well. However, Menzies warned the move into new jurisdictions would lead to higher tax bills in the years ahead.

The aviation business now accounts for 63 per cent of group profits, up from 57 per cent in 2012.

Menzies said its distribution division “had a challenging year as the volume of newspapers, magazines and collectibles continue to decline, with magazine sales a particular disappointment”.

Having already implemented £5m of efficiency measures last year, the group will trim a similar figure from its cost base in both 2014 and 2015, and expects to incur one-off costs of about £5m in doing so.

Bell said it was too early to say what effect that would have on jobs as the firm’s network of warehouses is rationalised.

She added: “When volumes become lower you can concentrate the activity into a smaller number of places, particularly with magazines, which don’t have to be delivered at a certain time like newspapers do.”

Menzies’ board recommended a final dividend of 18.8p per share, to be paid on 20 June. That would lift the total payout for the year by 5 per cent to 26.5p.

Analyst Jon Lienard at N+1 Singer said: “Management has responded quickly to the changing landscape in distribution by re-basing expectations and by announcing an acceleration of rationalisation plans.”

He added: “We feel that the long-term prospects for aviation should not be overlooked.”