Aviation profit alert weighs on John Menzies

SHARES in John Menzies crashed by nearly a third today as investors recoiled against the news that problems in its troubled aviation business run deeper than previously thought.

The business provides passenger, ramp and cargo handling services in 31 countries

The boss of the group’s aviation arm, Craig Smyth, has left with immediate effect following a warning that profits will be “materially” below expectations. Smyth tendered his resignation back in August – when Menzies first warned of difficulties – but at that time it was said he would “continue in his current role and fulfil all of his contractual obligations”.

The business provides passenger, ramp and cargo handling services to more than 500 customers in 31 countries around the world. It has grown rapidly since it was set up in 1995 to counterbalance declines in Menzies’ traditional business of print distribution.

But in its interim results in August, the Edinburgh-based company said aviation was facing challenges from the redevelopment of Heathrow. A move to Terminal 5 by British Airways has allowed the airline to manage more of its own ground handling, while the opening of Terminal 2 caused 15 carriers to change ground handling contracts.

“As previously communicated, in the UK we are managing a number of challenges,” Menzies said today. “The significant changes at Heathrow have substantially reduced margins which will continue into next year and to address this situation the UK leadership team has been changed.”

There is also trouble further afield, with the loss of work in Colombia and shortfalls in Australia, where the mix of cargo being handled has resulted in lower yields. A new contract with Delta Airlines in Detroit is generating plenty of work, but again, the type of aircraft being handled is squeezing returns.

While acknowledging that pricing at Heathrow has hit the business, analysts at Liberum said Smyth’s immediate departure suggested the division’s problems could also be “execution-related”.

Handling more than one million flights and 1.5 million tonnes of cargo annually, Menzies’ aviation business is now bigger than its print distribution operation. That side is performing in line with expectations, with sales values better than anticipated and cost-cutting plans on track.

The group said the “mixed” performance in aviation would impact full-year results, which last time around saw a 50 per cent rise in profits to £42.1 million on flat sales of £1.9 billion.

“Over the coming months the new group executive team will be addressing the current areas of under-performance in aviation and will be reviewing strategic, operational and investment plans to better leverage from the strong market growth dynamics and opportunities,” the firm said.

Shares closed down 28.1 per cent at 350p, having hit a session low of 338p.

Analysts at N+1 Singer cut their full-year profit forecast by 10 per cent to £43.1m, but said this could be revised as new chief executive Jeremy Stafford “hones the future strategy”.

Last month, Stafford became the group’s first chief executive in more than seven years. It had previously been run by two managing directors, a finance director and a company secretary.

Stafford is the former UK boss of outsourcing group Serco. He resigned in November of last year after the prisoner tagging scandal, in which Serco allegedly charged taxpayers for electronically monitoring prisoners who were either back in prison, overseas or even dead.

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