John Menzies takes off on profit forecast

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Shares in John Menzies surged 8 per cent yesterday after the newspaper distribution-to-aviation services group revealed its profits would top City expectations.

Patrick Macdonald, the chief executive, said both the company's divisions had traded well, benefiting from its decision to sharpen its focus on customer service.

A strong demand for Euro 2004 stickers, magazine collectables and weekend newspapers boosted the contribution from its distribution arm, the company said. Meanwhile, its aviation division benefited from the uptick in international air travel.

Menzies' house broker, Dresdner Kleinwort Benson, raised its pre-tax profit forecasts for 2004 by £4m to £29m. For 2005, it is predicting profits of £32.4m, up £4.6m. The group's shares, which have risen sharply this year, soared 35p to 450p. "In trading terms, the first half has been much stronger. We have invested strongly in customer services in our distribution arm and we are starting to see the benefits come through. On the aviation side, we are winning contracts and benefiting from more passengers and more cargo flying as the economy picks up," Mr Macdonald said.

Menzies, which has upgraded its distribution branch infrastructure over the past three years, has added new outlets at Chelmsford, Essex and Bow, east London, so far this year. Mr Macdonald, who took over as chief executive 13 months ago, said the "near ending of the tabloid price war" and innovations such as The Independent's compact edition were helping to boost newspaper sales, particularly at weekends. Price rises at most of the Sunday papers also helped, he added.

Mr Macdonald scotched suggestions that Menzies could suffer from the current turmoil in the low-cost airlines market, which has forced easyJet and Ryanair to issue profit warnings. "The low-cost carriers are still flying more passengers to more places," he said. Menzies recently struck a joint-venture agreement with easyJet to check in passengers at Luton and handle their baggage.

The group saw its profits collapse last year, hit by the cost of funding its pension scheme and its decision to write down some of its aviation assets by £17m. Its pre-tax profits were £3.1m against £17.1m the previous year. Mr Macdonald said the group was working with other industry players to help the competition authorities investigate the sector. A European law comes into force next May that could stop newspaper and magazine publishers from choosing which wholesaler distributes their products. But the industry is keen to prevent this from happening.