John Menzies plc recently announced its half-year results for the six month period, ending June 30, 2020.
Results Overview
COVID-19
- Results reflect the severe impact of the COVID-19 pandemic, particularly on the ground handling and into-plane fueling services, with the European business most significantly affected
- Menzies has acted decisively in facing the challenges caused to the aviation industry by the COVID-19 pandemic through:
- Reducing costs and preservation of cash – disciplined approach to capital expenditure and discretionary spend stopped
- Moving to right size operations to match volume – including a significant reduction in headcount
- Working with our customers - focusing on cash management and tight credit control
- Focusing on the recovery and emerging stronger – becoming a leaner, more agile and more profitable business
- Post period end, agreeing a revised banking covenant structure with our lenders
Financial
- Revenue down 33% as a result of a 43% year on year decrease in passenger flight volumes
- Revenue reduction partly offset by very significant cost management, together with the benefit from governmental support schemes to limit the underlying operating loss to £39.0m
- Resilient cargo handling services and cargo forwarding business performance with stronger yields
- Commercial progress and significant new business wins resulting in a net £27m annualized revenue added
- Exceptional costs of £27.6m incurred to resize the cost base and deal with redundant assets
- Underlying operating cash flow ahead of expectations with good debtor collections and upfront support from governmental agencies
- Available cash resources of over £175m at Aug. 31, 2020
Philipp Joeinig, Executive Chairman of John Menzies plc said:
“The first six months of the year have seen us operate in unprecedented times due to the COVID-19 pandemic. The impact on our global operations has been material, but I am very pleased with how we have reacted. We acted decisively to reduce costs and moved to right-size our operations. As a result, our liquidity position is good, and we are well placed to navigate through the winter season and beyond.
Due to the actions taken in 2019 to re-shape the business commercially, we are making real progress, winning new contracts, particularly in cargo, and I expect this to continue in the second half. Expansion opportunities are emerging, and we will selectively look to take advantage of the current situation.
Like others in aviation, we know we are not out of the woods yet. We continue to keep a strong grip on our costs, whilst encouraging governments across the world to react to the exceptional impact COVID-19 continues to have on the industry and extend their support schemes, as recovery will be gradual.
Menzies has faced exceptional challenges as a result of the pandemic, however it remains a strong business with committed leaders and dedicated employees. We will emerge from this pandemic as a smaller but stronger team with a clear plan to recover and grow again.”
Outlook
On the basis of current visibility and assumptions for ground handling and cargo volumes second half revenue is expected to be at a similar level to the first half with profitability benefiting from a more significant contribution from various government support programs and continuing tight cost management. We continue to review the marketplace and work with our customers to gauge flying volumes. We are expecting a reduced winter season with flight schedules substantially lower than the previous year and have planned accordingly.
We have made significant strides expanding our cargo handling portfolio in the first half. Given the current market outlook, we will look at further opportunities to rebalance our portfolio with further expansion in the cargo market and a greater focus on into-plane fueling where we believe there are opportunities to increase our market share.
Commercially we continue to have success. Since the period end we have won further cargo business with Qatar Airways in Los Angeles, USA, our fifth contract award with Qatar this year, and won the ground handling and cabin cleaning business of Air France/KLM in Toronto, Canada.
The ability of the Group to maintain significant liquidity headroom through this period reflects the strong fundamental cash generation capability of the business. We expect that continued strong cash generation, as activity levels recover, will give us the capability to invest in support of our commercial objectives whilst also enabling the Group to reduce net indebtedness.
We currently anticipate market conditions will remain challenging through the winter and the early part of next year, but expect a sustainable recovery in activity levels thereafter, contributing to modest revenue growth in 2021 over 2020. Whilst cautious on the pace of activity level recovery over the next 18 months, our restructured cost base and the rationalization of the global portfolio should enable the Group to generate higher returns as volumes improve.
We are a leader within our markets and our restructured model will enable the Group to emerge strongly from the COVID-19 crisis. Alongside a continuation of the commercial momentum we are generating, we will continue to assess opportunities to accelerate business development targets where we can identify a clear strategic fit and create value enhancement.
Overall, the Board believe the Group is on a solid footing and is planning prudently for the future. As markets recover, we believe Menzies is well placed to prosper and return the Group to a growth trajectory.
