JOHN Menzies has hailed the progress of its recovery from the profound challenges imposed on the aviation sector by the pandemic as it returned to profit in the first half, flagging strong growth in cargo volumes in the Americas region.
But the Edinburgh-based company warned it will before 2023 before the global aviation industry returns to pre-pandemic levels of activity.
Menzies made an operating profit of £15.4m for the six months to June 30, having lost £70.3m at the same stage last year. It put its turnaround down to restructuring, action to manage costs and new business wins, alongside the financial support provided by government schemes. The global headcount of the business has been trimmed to around 25,000 from 30,000 since the pandemic broke out.
Analysts are now forecasting full-year underlying profits of around £50m, driven by the expectation that the momentum and new business wins will continue in the second half.
Chief executive Philipp Joeinig said activity levels had recovered strongly in the Americas in the first half. Europe is also beginning rebound, albeit growth is “still slow”. Mr Joeinig said Europe would benefit if greater clarity was provided on the rules around testing and quarantine.
He told The Herald: “We have seen volumes recover and expect to continue. We will not return to pre-pandemic levels [this year] but activity levels will reach a bit higher compared to last year.”
Mr Joeinig added: “We reacted to the crisis. We adjusted our cost base and structure so we are on the front foot when it comes to commercial efforts to continue to grow. And we expect more growth in the second half to deliver on the commercial side, and also entering new markets and bolting on some businesses.”
The first half saw Menzies make a series of acquisitions, in Pakistan and Guam, and announce new operations in Iraq. Since the period end on June 30, it has gained a foothold in Central America with the acquisition of Interexpresso, an aviation services provider in Costa Rica, and renewed and added new business with Virgin Australia.
The company expects deal activity to continue in the second half, with Mr Joeinig declaring: “We are not a UK-centric organisation any longer.”
He added: “We are a very decentralised organisation and we have support centres across the globe, therefore we are able to go into these markets and meet people.”
Asked if he expects Menzies to move into new territories in the second half, Mr Joeinig said: “It will be, yes. It will be new business, new markets which obviously comes with new territory.
“We are focusing on having a bit of a better balance, with more revenue coming from emerging markets than in the past.”
Menzies reported first-half revenue of £415.8m, compared with £431.5m in the first half of last year.
Mr Joeinig said the global aviation industry was roughly “halfway” through recovering from the pandemic. He noted Menzies does not expect the market to recover until 2023/24, though indicated the company was winning market share and would recover to its pre-pandemic levels sooner.
Although Menzies has reduced its headcount, Mr Joeinig held out the prospect of growing employee numbers again should volume recovery continues “the way we think it will”.
He signalled a wish to see “more aligned travel policies” across Europe and the UK, but expressed hope that the vaccination programme would hasten the return of travel levels.
He said: “We are not frustrated. For our passengers and their passengers, the ever-changing policies is sometimes a bit confusing.
“I think there will also be a new norm, and new policies [so] that people have more clarity in how and if they can travel to certain countries, and come back without having to self-quarantine.”
John Geddes, the company’s corporate affairs director, said it was encouraging analysts are forecasting full profits in the “early 50s” of millions of pounds. This would bring it close to the £52m in made in 2019, although this year the accounts have been boosted by government support.
Mr Geddes noted that Menzies was making progress ahead of expectations in terms of reducing debt and improving liquidity. Net debt stood at £183.1m at the half year, compared with £214.7m at the end of 2020.
Robin Speakman, research analyst at Shore Capital, said Menzies “continues to demonstrate resilience in the face of continuing pandemic challenges, aligning its operations to areas seeing recovery and growth – such as in cargo.”
Mr Speakman added: “The group has restructured its cost base and continued its development strategy, seeking profitable new business with airline partners and judiciously acquiring to expand its service and geographic footprint. Menzies appears to us to be firmly ‘on the front foot’.”
Mr Joeinig said: “I am pleased that we have delivered a strong first half despite the continuing impact of Covid-19 on travel. This outturn is testament to the actions that were taken last year and our continuing tight focus on all aspects of our operations.
“We are committed to delivering against our strategic priorities and are making good progress.
“We continue to win contracts, enter new markets and optimise the mix of our business portfolio. Furthermore, we are confident that our resilient business model leaves us well placed to prosper as flight volumes continue to recover.”
Shares in Menzies closed down 5.55p, or 1.71%, at 318.45p.