LONDON (Alliance News) - John Menzies PLC shares were down Tuesday morning as it reported a sharp drop in pretax profit as its aviation unit was hit by the previously-flagged issues at Heathrow airports as well as the start-up costs related to new contract wins.
It also said its issues at Heathrow have now largely been resolved, but warned that they would still impact its results in the first half of 2015, while it cut its dividend saying it wants to keep more cash for potential investments.
The company, which has an aviation services business that its trying to grow while maintaining profitability in its newsprint and magazines distribution business, had warned back in November that full-year results in its aviation division would be "materially" below its expectations because significant changes at Heathrow Airport had "substantially" reduced margins in that operation.
It had previously warned last August that its ground handling business at Heathrow was being hit by the changes linked to British Airways' accelerated move to Terminal Five and the opening of the new Terminal Two. The airline moves and contract rotation had resulted in 15 airlines changing their handling agent, while the British Airways acceleration resulted in some 10,000 turns moving to the airline's self-handled operation, it said at that time.
On Tuesday, it said its pretax profit dropped to GBP25.7 million in 2014, from GBP42.1 million in 2013, while the figure dropped to GBP44.6 million from GBP53.1 million excluding finance charges. The profit decline came even though revenue was almost flat at GBP2.00 billion, hit by the strength of sterling on translated overseas revenue.
"Top line growth in Aviation has been strong, however earnings have been impacted by increased start-up costs and previously announced operational difficulties at London Heathrow. Although these issues are now largely resolved, this will impact the first half of 2015," Chief Executive Jeremy Stafford said in a statement.
Revenue in the aviation unit was up 2%, and would have been up 9% if currency exchange rates had remained flat over the course of the year, but start-up costs for new contracts were GBP1.9 million higher than in 2013. Combined with the issues at Heathrow, that meant underlying operating profit in the unit dropped to GBP33.7 million, from GBP37.8 million.
"Important large ground handling contract wins have been secured with key clients as a new wave of outsourcing gathers momentum particularly in the US. Cargo handling again performed strongly following increased tonnage through existing locations and new contract wins in Australia and Canada," it said.
John Menzies continued cutting costs in its newsprint and magazine distribution arm, making a further GBP3.4 million of cost savings in 2014. That helped offset the further decline in the newspaper and magazine distribution business and kept operating profit at GBP24.0 million, down just slightly from GBP24.3 million in 2013.
The company also said it had decided to rebase its dividend, meaning it will retain more cash to enable it to invest in growth opportunities.
It will pay a final dividend for 2014 of 8.1 pence, meaning the total for the year will be 16.2p, down from 26.5p in 2013.
The company was cautious about the first half of 2015, but said it was more confident about longer-term prospects.
"Due to the contract churn and operational issues in 2014 the 2015 results will be more than usually weighted to the second half," it said.
"As we move into 2015, we have excellent prospects in growing markets. Some foreign exchange volatility persists and the outcome of the Spanish ground handling tenders has been delayed but as we move forward there is much to do as we prepare for the next phase of the group's development, and we do so with confidence," it added.
John Menzies shares were down 4.9% at 387.50p Tuesday morning.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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