Given that last year John Menzies finally completed the long-mooted sale of its media distribution division, this year was meant to be one in which its chosen business line — aviation services — truly took off (Greig Cameron writes). In the event, there has been rather more turbulence than it expected.
The shares are about 30 per cent below a peak reached in February, while the company has said that annual profit is likely to be less than that of 2018, albeit partly as a result of factors outside its control, such as disruption to schedules caused by the grounding of the Boeing 737 Max aircraft over safety concerns.
There have been some notable boardroom changes, too. First Forsyth Black, 50, resigned as chief executive in March, only six months after being confirmed in the job. Giles Wilson, 45, made the step up from finance director on an interim basis before being named as chief executive in June.
Then, in July, Dermot Smurfit, 75, the Irish packaging tycoon brought in to ensure the separation of the media distribution and aviation divisions, gave up the chairman’s role. Philipp Joeinig, 43, moved from his position as a non-executive director to head the board. The reshaped top team was completed this month with Alvaro Gomez-Reino, 46, agreeing to join from Swissport, one of Menzies’ main rivals, to be chief financial officer.
Menzies can trace its roots back to an Edinburgh bookshop and stationer in 1833. It has been through several reinventions in its history, with earlier interests including wholesale, transport, logistics and retail. Today it operates aviation services such as refuelling, maintenance, cleaning, ground handling and aircraft movement at 219 airports in 37 countries. Its customers include Easyjet, IAG, Norwegian, Delta, Air Canada, United Airlines and Cathay Pacific.
Mr Wilson’s strategy was presented in August alongside results for the first six months of the year. Those showed a pre-tax loss of £4.4 million, turnover that had risen by 3.6 per cent to £649.9 million and a 6p interim dividend. He promised to trim costs, with £10 million to be taken out and several commercial operations restructured.
Dealing with underperforming operations, such as Britain, sites in Europe and the United States, is part of his focus. Indeed, the new UK management team appears to be off to a credible start, with news of a five-year extension to a large contract at Luton with Easyjet this summer. Yesterday a large deal with Lufthansa at Heathrow, thought to be Menzies’s largest customer at the long-haul airport, was announced. And Mr Wilson believes that there is “more to come” from the UK and other parts of the company over the coming months and says that Britain will perform better by 2020.
The chief executive also wants to improve retention rates among the company’s staff, as well as looking at adding new markets and services. He reaffirmed that Menzies hoped to operate a progressive dividend policy while boosting profit and reducing net debt, which stood at £421.8 million at the end of June.
With air travel passenger numbers and cargo both predicted to grow steadily in future, there is plenty of opportunity here.
The shares stood at 575p in February, but in recent days have been changing hands for about 390p (they were up ½p, or 0.1 per cent, at 391p yesterday), a level they were last at in 2015.
Advice Buy
Why Weakness in share price looks to be an attractive entry point. The long-term market fundamentals are encouraging. Dividend should rise steadily
Spotify
If there are two things that Apple and Amazon are known for, it is disruption (Tom Knowles writes). Both like to upend an established market or sector, using their deep pockets to cut away at a company’s dominance, offering equal if not better services to users for a cheaper price. Unfortunately for Spotify, both of them are after its crown.
The Swedish business has long been the dominant force in music streaming since it was launched in 2008, holding more than a third of the market. It reached 248 million monthly active users in its third-quarter results this week, of which 113 million are paying subscribers, who make up the bulk of its revenue. The remaining 135 million rely on a non-paying service that forces them to listen to adverts and does not allow them to download music to their devices.
Spotify’s stock has slipped by 30 per cent since it went public in New York last year, against a 15 per cent gain on the Nasdaq index. While that changed on Monday, when the company delivered a surprise third-quarter profit, sending its shares up by 20 per cent, there is still concern from investors. Subscriber growth in western nations is believed to be reaching a plateau, while the average revenue per user in the developing nations is lower. At the same time, Apple Music and Amazon’s Music Unlimited are snapping at Spotify’s heels. Apple knocked Spotify off its perch last year when it became the most popular paid music streaming service in the United States.
Record labels are in the next two-year round of contracts with Spotify and analysts are concerned that they will smell blood. The labels will know that with such intense competition, Spotify’s margins are at their mercy.
Yet there remains huge potential in geographies such as the Middle East, Africa and Latin America. Spotify has already enjoyed rapid growth in Mexico and Chile is one of its fastest-growing markets. Podcasts offer another opportunity. The company bought Gimlet Media, known for its podcast series Reply All and Crimetown, for $230 million in February. This allows Spotify to own the content in its catalog rather than license it. At a time when podcasts are exploding in popularity but remain a somewhat fragmented business, Spotify is hoping to build and unify the industry.
Advice Hold
Why Risks to growth abound from rivals but podcasts offer signs of promise