John Menzies, the Edinburgh-headquartered global aviation services operator, has issued a shock profit warning, saying its performance in the first half has fallen short of the mark.
Issuing a trading update ahead of next month’s interim results, the group – one of Scotland’s oldest companies dating back to 1833 – pointed to the headwinds affecting the wider aviation market, including weak cargo volumes and flight schedule reductions.
Against this backdrop, performance in the first half of the year has been below expectations, Menzies warned, while earnings for the full year are not expected to exceed last year’s haul.
The group stressed that it was implementing a range of actions including a previously flagged cost cutting programme that will deliver “at least” £10 million of savings, the majority of which will materialise in 2020. It is also undertaking a “revitalisation of our commercial offering and a greater focus on returns from the deployment of our systems”.
Menzies said its board still believes that the medium and long-term prospects for the business are “sound” with the actions being taken in the current year underpinning its expectations for 2020.
Giles Wilson, who was recently appointed chief executive, told investors: “The overall aviation market is having a difficult year. This inevitably is having an impact on our full year outturn.
“However, I firmly believe in the structural growth dynamics within our industry and all historical data points to recovery.
“Accordingly, I believe we remain well placed to prosper. Since my appointment I have taken a number of actions to right size the business, we have also restructured our commercial teams to ensure we are ready to seize opportunities as they present themselves.”
Menzies became a pure aviation business after selling its news print distribution division to a private equity firm. The company began life as a book store business selling copies of The Scotsman over the counter.
Shares were down sharply in early trading on Friday.
Shore Capital analyst Robin Speakman said: “The challenges being faced by the air services industry at present extend from technical and environmental factors, to loads and to cargo traffic impacted by global trade concerns.
“However, challenges also provide opportunities and we note that Menzies has been successful through the first half in contract renewals and awards.
“We expect this to continue despite short-term ‘volume’ disappointment. Aviation at a fundamental level remains a structural growth industry and we believe that Menzies remains well placed to capitalise on this.”
Menzies recently announced the renewal of a contract with Thai Cargo to provide cargo services to the Asian country’s flag carrier at five sites across Australia and New Zealand.