John Menzies has disappointed investors with a warning that operational issues at Gatwick Airport will chop £2million off this year’s expected profits.

The shares fell more than two per cent, down 8p to 374.5p, having begun the year at 355p and climbed to 520p in August on hopes of the group’s plans for a ‘second growth business’ in parcel distribution.

In a trading update covering the first 10 months of the year, the Edinburgh-based logistics group said that within the aviation division, its ground-handling service levels at Gatwick had been restored. “However, the actions we have put in place to mitigate the operational issues and deliver the customer's operational requirements will cost £6m of additional investment, mainly in manpower, in the second half of the year, and will impact this year's earnings. Contract negotiations with this customer continue, and we are working towards a resolution before the year end.”

Menzies’ aviation arm has run into a string of setbacks since its growth helped drive the group’s share price above 800p two years ago. The division’s chief Craig Smyth left the company suddenly a year ago as Menzies said problems at Heathrow would dent its profits, sending the shares crashing by 30 per cent.

The division was further hit by the loss of its Spanish airport ground-handling contracts en bloc, after the government unusually relicensed the entire operation. In August it announced a £4.7m asset impairment writedown, which along with the fall-out from restructuring at Heathrow helped depress half-year pre-tax profits to £5.8m from £14.2m the previous year.

The group said the UK was the only blackspot. “During the period we have seen strong earnings growth from our US hubs. Outside the UK, all regions continue to perform well. Ground handling turns and cargo tonnes were up 9per cent and 4per cent respectively, with revenue in the period up 6per cent on last year. Contract renewals remain strong, and we will continue to target new business that will deliver sustainable earnings.”

Menzies said its distribution business was delivering ahead of forecast. It expected to “fully mitigate” the impact of the ongoing declines in print media traffic during this financial year. “Cost management actions, including the rationalisation of our network, will deliver over £5m of cost savings in the full year, and sales volume reduction of 3.5per cent has been slightly better than expected.”

The introduction of the National Living Wage next April would cost the business £2.6m in 2016, Menzies said, largely in distribution. “We expect to mitigate this increase with a number of improvement initiatives,” it said.

In August chief executive Jeremy Stafford said Menzies’ move into parcels delivery would create a second growth business alongside aviation. He said the

plan to revitalise its under-used newspaper vans and warehouses would “return the distribution division to sustainable growth”.

Menzies Distribution, which traditionally delivers overnight on behalf of print media publishers, had paid £7.5m in June for Inverness-based AJG Parcels, which acts as a partner for the national parcel carriers in hard-to-reach areas of Scotland. Mr Stafford said remoter areas were showing high rates of growth in parcels with the spread of online shopping, and consolidating delivery operations could cut costs and improve service quality. Mr Stafford said Menzies was eyeing “other opportunities to buy similar companies” in a niche market growing by 8.2per cent a year.

In March two activist funds holding 12per cent of the group's shares began agitating for a review of its dual business structure, claiming a break-up would unlock value. But at May's annual meeting chairman Ian Napier said the board had decisively rejected the option. Menzies shares were 362p when the activists broke cover, 12.5p below yesterday’s close.

Mr Stafford said yesterday: “We have seen continued progress against our strategic goals with new contract wins, including cross border e-commerce parcel deliveries, as we build on the recent AJG Parcels acquisition which has been successfully integrated.”

He added: “Looking more broadly at the group's geographical investment and service offerings, the board will seek to accelerate a review of the strategic options available, as we continue to build operational excellence throughout the network and re-shape into areas where higher shareholder returns can be sustained.

“Overall, our balance sheet remains strong, supported by a relentless focus on cash management actions.”