Talks continuing with airport
Menzies warns on profits over Gatwick contract
John Menzies has issued a profits warning as a result of contractual issues at Gatwick Airport.
Chief executive Jeremy Stafford said that full year earnings are now likely to come in £2 million below the board’s previous expectations.
In a trading update for the 10 months from 1 January to 30 October, he said service levels at London Gatwick have now been restored.
However, the actions put in place to mitigate the operational issues and deliver the customer’s operational requirements will cost £6m of additional investment, mainly in manpower, in the second half of the year, and will impact this year’s earnings.
Contract negotiations are continuing in the hope of achieving a solution by the end of the year.
During the period the company saw strong earnings growth from its US hubs. Outside the UK, all regions continue to perform well.
Ground handling turns and cargo tonnes were up 9% and 4% respectively, with revenue in the period up 6% on last year. Contract renewals remain strong, and the company will continue to target new business that will deliver sustainable earnings.
The distribution business is delivering ahead of forecast, with the impact of print media declines expected to be fully mitigated in this financial year. Cost management actions, including the rationalisation of the network, will deliver more than £5m of cost savings in the full year, and sales volume reduction of 3.5% has been slightly better than expected.
The company has seen continued progress against our strategic goals with new contract wins, including cross border e-commerce parcel deliveries, as it builds on the recent AJG Parcels acquisition which has been successfully integrated.
It says the new National Living Wage legislation will add £2.5m in cot and its expects to mitigate this increase with a number of “improvement initiatives”. Overall, the balance sheet remains strong.
Mr Stafford said: “During a busy period of transition, we continue to progress with the group’s strategic objectives.
Our Distribution business is quickly gaining traction in the UK e-logistics market, whilst continuing to deliver cost and cash improvement initiatives.
“Aviation continues to benefit from growth in the Americas, whilst we continue to work through UK operational matters.
“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. The group remains well placed to drive earnings.”