JOHN Menzies boss Giles Wilson has insisted the company’s strategy will deliver long term growth to the benefit of investors in spite of the plunge in its share price in recent months.
The Edinburgh-based stalwart severed its historic links with the newspaper business last year by selling its distribution business for £74.5 million to focus on the aviation support market, in which directors saw better prospects.
However, shares in the firm have fallen by around 40 per cent in the 13 months since the deal was announced, during which Menzies has suffered setbacks in its preferred market.
The firm parted company with former chief executive Forsyth Black in March, when it highlighted “soft cargo volumes” and continuing labour challenges in North America.
Menzies issued a profit warning in July noting trading had been disappointing before revealing earlier this month that it had fallen £4.4 million into the red in the first half.
Read more: Shares in Menzies dive as boss Black departs
Having served as chief financial officer before succeeding Mr Black, Mr Wilson played a key part in the decision to focus on aviation. He said he remained absolutely convlnced that directors made the right call.
“It was becoming obvious that we would need to prioritise capital in the aviation side which meant that the distribution side wouldn’t have got the capital it might have needed,” said Mr Wilson, adding: “It’s challenging markets in aviation at the moment but that doesn’t take away from any long term growth dynamics.”
He noted John Menzies is the second biggest player in the global market to provide services such as ground-handling, behind Swissport.
“Under any study passenger growth is around 4.5 per cent a year on a long term basis … long term fleet growth is around 3.7%,” said Mr Wilson.
He added: “On any 30-year metric cargo grows over that period. You always have slight peaks and troughs and they’re usually driven by macro-economics but long term growth of cargo is about 4.5%.”
Regarding current market conditions, Mr Wilson said: “Our customers are having difficult times.”
Read more: Scottish airline warns weather-related compensation costs could make routes unviable
In its interim results announcement, Menzies noted that first half cargo volumes and yields had been weak while a number of airlines failed to fly their stated schedules. The grounding of Boeing 737 Max aircraft created further complications. Mr Wilson is confident these are short term issues rather than systemic market challenges.
Asked about the share price performance over the past year, he said: “The whole sector we are in has performed disappointingly, if you look at any of our airline stocks … it’s generally a type of logistics thing and I’m not sure that whether with or without distribution that still would have been the case.”
Mr Wilson thinks “more traditional” fund managers may be slightly wary of Menzies’ debt levels although it is on course to meet targets to cut net borrowings.
But he conceded: “To fix these things we need to get back on to organic growth.”
The firm spent two and a half years absorbing the ASIG refuelling business it bought for $200m in 2016, going through a restructuring and selling the distribution arm. “I think we’ve lost a little bit of touch with customers, so I’ve put a huge amount of effort into that since I’ve come on board and that’s just starting to turn now,” said Mr Wilson.
Read more: Swiss investor to help Menzies assess options after soft start to year
The share price may also have been affected by factors related to the history of the firm, founded as a book shop in 1833.
“Our share isn’t hugely liquid which doesn’t help,” said Mr Wilson. “We’ve obviously got quite a lot of larger shareholders.”
Members of the founding Menzies family own around 10% of the firm’s shares in total. Kabouter Management and Lakestreet Capital Partners, who pressed for a break-up of Menzies before the distribution arm sale, have 12% and 6.5% respectively.
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