Menzies optimistic despite profits fall and DX deal failing

● Earnings knocked by costs linked to ASIG acquisition and aborted merger

Logistics group John Menzies has revealed a sharp drop in half-year profits after being hit with costs linked to its aborted £40 million tie-up with parcels business DX.

The Edinburgh-based baggage handler and newspaper distributor, one of Scotland’s largest companies, said pre-tax profits for the six months to the end of June fell to £500,000, from £3m a year earlier.

Earnings also took a knock from costs associated with its recent purchase of US aviation services group ASIG.

Overall, Menzies racked up £17.6m of one-off costs in the first half but said underlying pre-tax profits were up 36 per cent at £24.7m.

Revenues grew to £1.2 billion, from £1bn a year ago, and the interim dividend was lifted by 11 per cent to 6p a share.

Corporate affairs director John Geddes told The Scotssticker man: “I think the group’s had a very positive first half.”

He said the aviation arm is “really building some momentum”, with turnover exceeding its distribution counterpart for the first time. “That’s quite a landmark for our business,” he said.

Aviation profits more than doubled to £21.7m, boosted by a £6.4m contribution from Florida’s ASIG.

That acquisition “was a stepchange for our business and brought with it a massive integration challenge,” Geddes said, adding that this had progressed well.

“Synergies are being delivered – customer reaction’s been positive and I think it brings some really exciting opportunities for us in how to expand our business.”

Turning to its distribution operations, Geddes highlighted a “relatively robust performance” as it continues to battle issues such as falling print sales.

Underlying operating profits at this arm fell to £10.8m from £12m, with the decline blamed on a lack of football-related sales, but the group said its parcels operation “finished the period strongly”.

The results came the day after Menzies, which dates back to 1833, revealed it was ditching a £40m merger of its distribution arm and DX Group. That followed a profits warning by DX this year in which it cautioned over “challenging” trading conditions, and a management overhaul at the parcel delivery and logistics firm last month.

Menzies said its “board does not believe it is currently possible to agree a revised set of terms with DX for the combination which would be in the interests of John Menzies shareholders. John Menzies has therefore terminated discussions with DX.”

Geddes said the outcome is “disappointing but we move on and we look at other options”. Menzies said it still believed there was merit in separating its aviation and distribution divisions at the “appropriate time”, with investor pressure to consider such a move.

Analyst Martin Brown of Shore Capital said Menzies “remains in very good shape”.