Scottish aviation and distribution services group John Menzies cut its projection for full-year earnings by £2million yesterday, blaming “operational issues” at London Gatwick Airport.
The firm said action to address the problems it had faced at Gatwick and to deliver what the client required would cost it £6million in additional investment – mostly on staffing – during the second half of its trading year.
Menzies did not spell out exactly what the Gatwick issues were but at the time of half-year results in August the company said a renewed contract with easyJet had become “operationally challenging” because of a skills shortfall.
The problem was “exacerbated by the entry of new handlers into the London Gatwick market, which caused a high degree of staff turnover,” it added.
Menzies, whose distribution arm operates one of the largest overnight logistics networks in the UK from nearly 40 locations, set out the financial impact in yesterday’s trading update for the 10 months to October 30.
The Edinburgh-based firm said: “The outlook for Group full year earnings is now expected to be some £2million below the board’s previous expectations.
“Service levels at London Gatwick have been restored, however, the actions we have put in place to mitigate the operational issues … will impact this year’s earnings.
“Contract negotiations with this customer continue, and we are working towards a resolution before the year end.”
Menzies said revenue from airport ground handling and cargo operations was up by 6%, compared with a year ago.
It added: “Contract renewals remain strong and we will continue to target new business that will deliver sustainable earnings.
“Our 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 our network, will deliver over £5million of cost savings in the full year. Overall, our balance sheet remains strong – supported by a relentless focus on cash management actions.”
Chief executive Jeremy Stafford said: “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.”
Menzies, whose aviation arm operates at 147 airports in 30 countries, made pre-tax profits of £25.7million last year on turnover of nearly £2billion.