AVIATION baggage handling and newspaper distribution group John Menzies saw profits tumble in a “challenging” first half, but the firm maintained it was “building momentum”.
It came as the chief executive also made the case for keeping both divisions together for maximum effectiveness rather than heeding an investor’s call to break up the business.
Aviation business has opportunity around the worldJeremy Stafford
Aviation profits were down £3.9 million at £9.4m, hit by factors including missing out on key contracts, including one in Spain, and reduced volumes at Heathrow airport due to terminal changes.
However, turnover at the division was ahead 8 per cent at £381.8m, boosted by strong cargo volumes and last year’s hub wins performing well.
The aviation arm operates at 147 airports in 30 countries, and its customers include Air France/KLM, Cathay Pacific, EasyJet, Emirates and Lufthansa.
Meanwhile, profits at the group’s distribution operation edged up to £12.2m from £12m, with the division boosted in June from the £7.5m acquisition of Inverness-based AJG Parcels, the biggest e-commerce parcels delivery firm in the Highlands that handles more than three million packages a year.
Jeremy Stafford, Menzies’s chief executive, said the AJG acquisition was bedding in well, and was in line with the company’s policy of becoming a “neutral consolidator” working in partnership with national parcel carriers in delivering to hard-to-reach areas like northern Scotland, Wales and parts of Ireland.
He said the business was now well-balanced in its activities. “The North American aviation outsourcing market remains very busy and a pipeline of opportunities continues to build,” Stafford said.
“At distribution, the core business is performing well and the anticipated volume decline has been fully mitigated.”
Including aviation restructuring costs and the contract losses, group pre-tax profits came in at £5.8m compared with £14.2m in the same period of 2014.
The Menzies dividend is cut to 5p from 8.1p. Stafford particularly praised the distribution arm, saying the business “has made great strides. After years of earnings decline we have arrested it”.
He said the overall business was “building momentum after a difficult 2014”, adding that, with aviation, it was often a case of “getting the right people with the right skills in the right place. That takes time.”
Stafford said that distribution had outperformed management expectations after rationalisation of the network, and would now focus on earnings growth.
He also said the more cash-generative distribution arm could provide firepower needed to expand aviation. “The aviation business has a great deal of opportunity around the world and as we take full advantage of that opportunity it requires a substantial amount of cash to sustain our leading position in that market,” Stafford added. “Having a very strong cash-generative business working alongside it gives us a winning formula.”
Analysts, however, said that the pressure on Menzies to consider breaking itself up might intensify because of the latest profits fall.
Swiss activist investor Lakestreet Capital Partners suggested in April that the company should consider splitting up, believing that both divisions would be worth more separately.
While Kabouter Management, Menzies’ largest independent investor, with a stake of about 10 per cent, echoed the sentiment, it was unclear whether Lakeside was able to garner the support of the Menzies family, which speaks for about 20 per cent of the shares.
Stafford told the market yesterday that profits will have a great second-half weighting as the business continues to be reshaped. “There is great potential across the business and we remain on track,” he said.