John Menzies profits climb on sterling decline

Distribution and aviation company John Menzies reported a rise in half-year profits due to falling sterling, while new chairman Dermot Smurfit, who was appointed in July, said he would assess whether the aviation and distribution divisions needed to be split in two, if they are “best placed to prosper while they are part of one group”.

For the six months ended 30 June, pre-tax profit rose 6.5% to £18.1m compared to the same period last year, or up 2% on a constant currency basis, thanks to solid trading, the acquisition of Renaissance Aviation in Bermuda and stable operations at Gatwick airport.

After exceptional costs, profit before tax fell about 48% to £3m, on a constant currency basis it was down to £2.3m, though free cash flow was £16.4m, an increase of £4.8m.

Of the group's two operating divisions, the aviation business has benefited more from the fall in the price of sterling after the UK’s decision to the leave the EU, as about 80% of revenues are generated outside the UK.

Although the company said it was too early to know the full implications of the decision to leave the EU apart from a likely period of uncertainty, the large exposure to foreign currency revenues means aviation sales and financial performance are expected to benefit should sterling remain at current levels or depreciate further.

Underlying earnings per share was 20.4p, up from 18.8p in 2015. The interim dividend increased by 8% to 5.4p.

The distribution division saw underlying operating profit fall slightly to £12m from £12.2m last year, despite a boost from the Euro 2016 football tournament.

Newspaper sales were down 3.7% on a like-for-like basis, reflecting an ongoing trend in the industry, but Menzies said it benefitted from cover price increases and the EU referendum and Euro 2016. Magazine sales were also down 4.7% on a like-for-like basis.

Looking to the second half, the aviation arm is performing well with opportunities in the pipeline, including the formation of a joint venture in Oman that is expected to start operations later this year and a new contract with Frontier Airlines in Denver, USA.

Distribution continues to work hard to mitigate volume declines and increased costs relating to the National Living Wage, with the parcels and trucking operations gaining traction and potential new business opportunities for using the network in daylight hours.

The company reported a widening of its pensions deficit of £52.7m up from £40.1m in 2015, driven by lower corporate bond yields.

Shares in John Menzies were up 0.83% to 604.50p at 0929 BST on Tuesday.