Early Learning Centres boost John Menzies: Two-thirds improvement despite poor performance from newsagent chain

STRONG sales growth from the Early Learning Centre chain of children's shops combined with gains in weekly and monthly magazine distribution to push profits at John Menzies up by two-thirds to pounds 6.3m in the six months to October.

The advance was despite a pedestrian performance from the core chain of newsagents, where sales - excluding inflation and new space - were about 3 per cent ahead.

Ranald Noel-Paton, group managing director, said the chain's sales were heavily weighted to the Christmas period and it was 'barely profitable' in the first half.

The 276-strong chain is being redesigned and the selling space re- organised, based on information from its recently installed electronic scanning equipment.

Mr Noel-Paton said the restructuring, which will cost about pounds 20m over the next two years, was aimed at helping the group compete with specialist retailers. It will mean changes to the way merchandise is displayed as well as to the layouts of the stores.

The new format has been tested in four shops. All were producing good results, said Mr Noel-Paton. Sales in Chesterfield, the first to be redesigned, are increasing by 25 per cent. A further four stores are being redesigned.

Group sales in the six months were 8.4 per cent ahead at pounds 573.1m. Over Christmas the John Menzies chain increased sales by about 5 per cent, excluding new space. The Early Learning Centres, however, continued the double-digit growth of the first half and total group sales were 6.5 per cent higher, again excluding new space.

That was in line with expectations and John Menzies, chairman, said he was confident growth would continue. But the percentage increase in profits in the second half would be lower than in the first.

The group has opened a second Early Learning Centre superstore, which offers clothes and nursery equipment as well as books and toys, in Glasgow. Turnover in these was 'greatly ahead of our expectations', said Mr Noel-Paton.

In distribution, circulation of daily newspapers continued to decline but the impact was offset by increases in monthly and weekly magazines and periodicals.

Last month the Department of Trade and Industry rejected a Monopolies and Mergers Commission report on distribution and is asking Menzies and W H Smith, its main rival, for proposals to allow new retailers to supply papers, the key issue for the MMC.

The group said it was 'disappointed' by the rejection but was confident it would continue to trade effectively.

The results were helped by a halving of the interest bill to pounds 800,000 and the absence of the pounds 500,000 loss on discontinued operations suffered last time. At the operating level profits were 20 per cent ahead at pounds 7.1m.

The group has no borrowings at present, although at the end of the six-month period they stood at about 10 per cent of net assets.

The results were better than the City had expected and the shares rose 30p to 654p. The dividend is increased by 7.9 per cent to 4.1p while earnings almost doubled from 3p to 5.9p a share.