SHARES in John Menzies plunged nearly six per cent as the aviation services company warned over “soft cargo volumes” and continuing labour challenges in the North American market.
And it revealed it was on the hunt for a new chief executive, after announcing that Forsyth Black had left the business with immediate effect. His departure follows a “momentous” year for Menzies, which exited the newspaper and magazine distribution business in September.
Edinburgh-based Menzies saw £25.2m wiped off its stock market worth after reporting that labour shortages had pushed up costs and affected its performance in the US last year.
The company’s results for 2018, restated to exclude the distribution business, revealed a rise in pre-tax profits to £21.6 million from £9.9m.
READ MORE: Menzies clear to acquire aircraft de-icing firm
Operating profits in the Americas dipped to £19.2m from £23m the year before, which came as high levels of employment in the US forced it to up wages to recruit and retain staff. And Menzies warned in its outlook: “Overall trading in the first two months has been tempered by soft cargo volumes and continuing difficult labour markets in North America.
“Despite this, and given the opportunities ahead of us, we still remain positive about the remainder of 2019.”
The company’s challenges in the US were underlined by Giles Wilson, the firm’s chief financial officer who has replaced Mr Black on an interim basis.
Mr Wilson, who revealed he would be applying for the job on a permanent basis, said: “The guys, particularly in America, worked really hard getting price increases for customers to pass through to increased labour rates, which steadied that significantly at the back end of 2018. But we had to manage that.
“If you look into the detail of the results you will see the Americas business’ profitability actually went slightly backwards year on year. But we look into ’19 with confidence, because we have now embedded those prices increases and labour rate increases in our 2018 exit rate.”
READ MORE: John Menzies severs historic links with newspaper trade
Menzies said Mr Black had ended his 19-year association with the company to “pursue the next stage of his career”. It praised the contribution he had made to the company, which included the revival and subsequent disposal of its newspaper and magazine distribution for £74.5 million last year.
And it hailed the “transformation” of the company’s aviation services division, now its principal focus, under his tenure in the last three years. Mr Black oversaw deals to acquire US-based Aviation Services Group (ASIG) in 2016, and Manchester-based Airline Services, an aircraft de-icing and ground handling specialist. Menzies received the all-clear from the Competition and Markets Authority to complete the Airline deal after year-end.
READ MORE: Watchdog notes potential impact of deal on services at Glasgow and Edinburgh airports
Menzies said 2018 had been a “momentous” year for a company which started out as a bookseller in Edinburgh’s Princes Street in 1833 and completed its transition into a pure play aviation services company. Its results revealed an increase in underlying pre-tax profit to £44.1m from £42.3m, with revenue climbing to £1.29 billion from £1.27bn.
Asked whether the company was being affected by airlines grounding fleets of the Boeing 737 Max following the fatal crash of an Ethiopian passenger jet on Sunday, Mr Wilson replied that his regional teams had informed him that it was not going to have a significant impact. He added: “They are not a hugely prevalent plane yet. It is specific to that particular aircraft, and it is a relatively new aircraft.”
Alasdair Ronald at Brewin Dolphin Scotland said: “Despite headwinds, John Menzies’ performance is in line with expectations.
He added: “It was a transformative year for the business... and, even though a further change in leadership is in the offing, the company looks well placed to be a leading player.”
Shares closed down 30p at 510p.
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