Meggitt reiterates guidance, wins two contracts

Aerospace components engineer Meggitt said it entered the second half of the year with good momentum and an improved order book, although the civil aerospace after-market is a bit soft.

Revenue in the first half of 2012 was up 19% at £776.0m from £649.8m in the corresponding period of 2011, while the order book finished the period up 8% year-on-year.

The top line growth is flattered by a full six-month contribution this time round from Pacific Scientific (PacSci), which it acquired for $685m in April 2011. On a "pro-forma" basis (assuming PacSci had been acquired on January 1st 2011) group revenue increased by 8%, with growth in all major markets.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Civil revenues were a little softer than anticipated but this was compensated by stronger military and energy revenues; as well as serving the civil and military aerospace markets, Meggitt also has customers in the energy sector.

Underlying profit before tax climbed 15% to £168.5m from £146.2m the year before, while statutory profit before tax improved to £127.2m from £112.2m the year before.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) was up 13% to £221.3m from last year's £196.7m, while underlying earnings per share rose to 16.4p from 14.4p the year before.

Underlying profit and EPS figures exclude the amortisation of acquired intangibles, exceptional operating items and the marking to market of financial instruments.

Net debt at the end of the reporting period had improved to £792.9m from £847.8m a year earlier, or 1.6 times EBITDA (end-June 2011: 1.9 x EBITDA). The group's cash flow is significantly weighted to the second half of the calendar year. The group has £450m of undrawn headroom, net of cash, against committed bank facilities.

PacSci has continued to trade in line with expectations. Incremental cost synergies of $4.6m were achieved in the first half, in line with the increased target run rate of $22.5m by the end of 2014, Meggitt said.

The group continues to expect organic revenue growth of 6-7% over the medium term in line with its five-year guidance, with double-digit revenue growth in 2012 including the full-year impact of PacSci. Organic growth excludes foreign exchange movements and any mergers or acquisitions.

Terry Twigger, Chief Executive of Meggitt, commented: "The business delivered good top line growth in the first half, with particularly strong performances in the military and energy end markets."

Revenue from the civil aerospace business was up 4% to £349.7m, while the military business saw revenue jump 10% to £309.9m. The Energy business's revenues surged 30% to £68.6m.

"The outlook for our civil markets remains encouraging, despite the slower than expected start to the year in the after-market," Meggitt's statement said.

In the military market, uncertainties around US Department of Defense spending, in particular around the possibility of sequestration, are likely to affect new programme awards. "However, assuming sequestration does not occur, we continue to expect 2% compound annual revenue growth in line with our five year guidance underpinned by strong positions on work-horse platforms and continued retro-fit programme success."

The interim dividend has been increased by one-eighth to 3.6p from 3.2p.

In announcements separate to the release of its interim results, the group revealed two recent contract wins.

The first is a heat exchanger contract worth more than $100m from Brazilian energy firm Petrobras. The second is a $129m contract with helicopter firm Sikorsky Aircraft to supply rotorcraft components.

JH