Meggitt sees growth ahead but interims struggle

AEROSPACE group Meggitt has announced a small rise in underlying interim pre-tax profits despite a 6% fall in revenue as the firm battled against the downturn in the civil aviation and defence sectors.

The group, which includes Coventry-based Meggitt Aircraft Braking Systems (MABS), announced that in the six months to June 30, 2010, revenue totalled £549.7m, which compares with £586.4m in the same period last year.

Underlying pre-tax profit reached £116.2m, which compares with £112.3m last year – a rise of 3%, while underlying earnings per share rose 2% from 12.1p to 12.3p.

Operating profits during the six month period struggled, showing an overall decline of 29% from £128.6m last year to £91.4m.

Terry Twigger, group chief executive, said the results reflected the challenging trading environments the company was operating in. However, he said the outlook was brighter with order books recovering

MABS provides wheels, brakes and brake control systems for over 30,000 in-service aircraft, and develops innovative technology for new programmes such as the all-electric braking system on Bombardier’s CSeries aircraft.  The division targets sole source programmes, and is particularly strong in regional aircraft, business jets and military platforms. 

The division represents 27% of total group revenue, generating 87% of its revenues from the aftermarket and 13% from the OE (Original Equipment) market.  

The profitable civil aftermarket accounts for around 70% of its revenues and the group said the division had been impacted by the decline in air traffic, cancellations and destocking, as well as the reduced use of some older aircraft such as the DC10 and MD80.  

Civil order intake increased in all segments, with the strongest recovery coming through the increased use of business jets.  Military revenues were also down, largely due to the completion of a substantial resupply campaign on the B1 bomber which generated strong revenues last year. 

Despite the 11% drop in overall revenues, the group said operating margins had improved, reflecting cost reduction measures and integration savings.  

Across the group, indicators are that the civil aerospace business continues to improve and order intake from the beginning of Q2 has shown a steady increase.  Civil revenues are expected to return to growth later in the second half on the back of the improving order intake.

Military revenues, slightly down as a result of delays in placing orders, are expected to recover in the second half and the group said it was on track to exceed its cost savings target of £50m.

Investment in R&D has been maintained to help fund a pipeline of new programmes and technologies.

Mr Twigger said:  “Trading conditions in the first half have remained challenging but, as expected, we have seen early signs of recovery in our civil markets.  The leading indicators for our civil aftermarket (air traffic and business jet utilisation) continue their strong recovery and have started to show up in increased order intake.  

“Our cost reduction programme has continued to make excellent progress, demonstrated by the improvement in our operating margins and we are on track to exceed our cost reduction targets by 10%.”

He said the group continued to focus on strong cash generation, and the $600m US Private Placement completed in the first half had significantly reduced refinancing requirements in 2012 and 2013.

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