LONDON (Alliance News) - John Menzies PLC saw its shares fall sharply early Wednesday after it warned that significant changes at Heathrow Airport had "substantially" reduced margins in that operation, and it had changed the UK leadership team to address a situation which is set to continue into next year.
It warned that the issues at Heathrow meant it expects full-year results in its aviation division to be "materially" below its expectations, and the issue will also impact 2015.
"It has been decided that Craig Smyth, Managing Director of Menzies Aviation will leave the board with immediate effect," it said in a statement.
John Menzies had warned back in 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.
"The significant changes at London Heathrow have substantially reduced margins which will continue into next year and to address this situation the UK leadership team has been changed," it said Wednesday.
The aviation services and print media distributor said its distribution business continued to deliver results in line with its expectations, with overall sales values of both newspapers and magazines better than expected and cost cutting initiatives on track.
Its revenue was actually up 8% on a constant currency basis in the aviation division in the four months to end-October.
John Menzies said absolute ground handling turns were up 15%, although this includes the Delta Airlines contract in Detroit where turns are high but revenue low due to the mix of aircraft type. cargo handling tonnes were up 8%, it added.
"We have secured new ground handling business in North America with a contract in Toronto for WestJet and also with United Airlines in Denver. These contract wins, together with the Delta Airlines business secured in the first half, represents out-sourcing traction in North America by major US and Canadian airlines. This positive momentum has been partly offset by contract losses in Colombia," it said in its statement.
The company also said the North American contract wins would raise its short-term debt levels.
It said it had also secured new business in cargo handling and opened four new cargo facilities across Canada to handle a five year contract for Air France-KLM. In Australia, cargo returns have been behind expectations due to the cargo mix being weighted towards lower yielding shipments, it cautioned.
"In summary, Distribution continues to deliver to plan. 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," it said.
John Menzies shares were down 20.5% at 387.00 pence early Wednesday, one of the worst-performing stocks on the London market.
Liberum cut its earnings estimates and price target for John Menzies after the company's profit warning, but is keeping a Buy recommendation on the stock and doesn't expect the company to cut its dividend.
"Issues at Heathrow (GBP3 million incremental hit) are worse than previously anticipated and are now expected to continue into 2015. In addition Cargo has been impacted by less favourable mix in Australia (GBP1 million incremental hit)," Liberum wrote in a note to clients.
It is now forecasting that the company's aviation unit will report earnings before interest and tax of GBP29.1 million in 2014, down from its previous estimate of GBP33.1 million. It cut its forecast for the unit by 19.7% to GBP29.9 million for 2015, and is forecasting GBP32.7 million for 2016.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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