Aerospace: Outlook for civil markets remains good says Meggitt

GLOBAL aerospace group Meggitt has said the outlook for its civil markets remains encouraging, despite an 11% decline in its first half revenues.

The group, which has operations in Coventry and Birmingham, said in its half-year statement that production of large jets was expected to continue to grow in the medium term.

“The relatively high shipset values we enjoy on the latest generation of widebody aircraft, together with our positions on the re-engined narrowbodies, should underpin organic civil OE (original equipment) revenue growth over the medium term in line with an average of 7 to 8% per year,” it said.

“Available seat kilometres, the key driver of our large and regional jet aftermarket, are growing at above the long-term trend, and aftermarket order intake grew 17% in the first half.  We continue to expect that aftermarket growth, even allowing for short term variability, will return to more normal levels during the second half of 2014.”

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While the civil aerospace sector remains healthy, Meggitt said the military market was challenging, largely due to uncertainties around government spending commitments, especially in the United States.

The impact of the withdrawal of forces from Afghanistan is also named as a factor determining the direction of the sector.

The company said it was having to revise its full-year military guidance from a low single digit decline to a mid single digit decline, driven largely by a reduction in the relatively higher margin aftermarket businesses.  

However, it said it continued to anticipate a return to slow growth in the medium term, underpinned by strong sole source positions on a broad range of workhorse platforms and a growing installed base.

The group has also been boosted by the award of a new contract from Boeing to design, develop, manufacture and support the fire protection system for the 737 MAX engine and APU.

Over the first half, orders grew organically by 9%, with the principal contributors being civil aftermarket at 17% and civil OE at 11%.  All end markets saw positive order momentum, and book to bill at a group level was 1.1x.  While not all these orders will generate revenue this year, Meggitt said they gave it confidence of delivering anticipated good growth in the second half.   
 
Group revenue in the first half of £718.9m (2013: £810.1m) representing an 11% decline on the equivalent period in 2013.

Currency and disposals had a significant impact on first half revenue.  Currency headwinds, reflecting the strengthening of Sterling against the group’s major reporting currencies of the US Dollar, Swiss Franc and Euro, contributed over 6% to the decline, of which £42.9m (5%) is attributable to Sterling/US Dollar.

Disposals represented an additional net headwind of £14.8m, primarily reflecting the 2013 disposals of the Addison and Sunbank businesses.  

Underlying operating profit for the first six months was £151.4m (2013: £193.3m), representing a margin of 21.1% (2013: 23.9%).  Underlying pre-tax profit was £143.8m (2013: £182.4m).