Menzies profit to be £2m less than expected

Edinburgh-based airport cargo handling and news distribution company John Menzies has warned shareholders it now expects full year earnings to be £2 million below previous expectations due partly to issues with a handling contract at London Gatwick.

“I am disappointed that contractual issues at London Gatwick have led us to revise our aviation outlook for this year, albeit largely offset with strong progress in our distribution business,” said Jeremy Stafford, chief executive of John Menzies, in a trading update for the 10 months to October 30.

Menzies said “service levels at London Gatwick have been restored” but “the actions we have put in place to mitigate the operational issues and deliver the customer’s operational requirements will cost £6 million of additional investment, mainly in manpower, in the second half of the year, and will impact this year’s earnings.”

Menzies shares closed down about 2%. The company has been under pressure to split in two from some shareholders who believe its aviation services and distribution businesses would be worth more as separate businesses.

Menzies’ stock market value currently stands at roughly £230 million — less than half of its market capitalization two years ago.

Intriguingly, Menzies added: “Looking more broadly at the group’s geographical investment and service offerings, the board will seek to accelerate a review of the strategic options available, as we continue to build operational excellence throughout the network and re-shape into areas where higher shareholder returns can be sustained.”

Menzies said it has seen strong earnings growth from its US hubs and that outside of the UK, “all regions continue to perform well.”

Its distribution business is ahead of forecast, “with the impact of print media declines expected to be fully mitigated in this financial year.”

Menzies said the new National Living Wage legislation from April next year will mostly affect its distribution business. “The cost in 2016 is £2.5 million, and we expect to mitigate this increase with a number of improvement initiatives.”