John Menzies warns on profits amid Gatwick setback

Logistics group John Menzies today warned that its profits will be about £2 million lower than previously hoped.

Menzies said it was 'disappointed' by contractual problems at Gatwick airport

The Edinburgh-based baggage handler and newspaper distributor said actions taken to address “operational issues” at Gatwick airport and meet its customer’s needs there would cost an extra £6m of investment, mainly in manpower, in the second half of the year.

“Contract negotiations with this customer continue, and we are working towards a resolution before the year end,” the firm said in a trading update.

The group’s distribution business was said to be delivering “ahead of forecast”, with more than £5m of full-year cost savings expected through a shake-up of its network.

Menzies also told investors that the introduction of the national living wage, which is due to be introduced in April, will cost it £2.5m next year, “and we expect to mitigate this increase with a number of improvement initiatives”.

Earlier this month, Menzies said it was making further inroads into the online parcels arena through a tie-up with e-commerce delivery specialist B2C Europe. Under the deal, the firm’s drivers will collect packaged orders destined for export from B2C Europe’s retail customers and deliver them to processing centres in the UK. The move follows the announcement in September of a similar tie-up with fellow delivery outfit wnDirect.

In June, Menzies bought Inverness-based AJG Parcels – the biggest parcels delivery firm in the Highlands – for £7.5 million. The group said its 1,900-vehicle distribution arm traditionally delivers newspapers and magazines overnight on behalf of print media publishers, and the deal would enable it to “unlock the potential of the business in daylight hours”.

Chief executive Jeremy Stafford said today: “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.”