News Column

Meggitt Profit Down On Weak Military Markets, Sterling Hit

August 5, 2014

Steve McGrath

LONDON (Alliance News) - Meggitt PLC Tuesday reported lower profit and revenue for the first half of the year as it was hit by weaker demand for its military goods, but the company said it was confident of strong organic revenue growth in the second half and a recovery in its margins as orders rose.

It became the latest in a long list of British companies reporting a significant hit from the recent strength of sterling, warning that exchange rates would likely continue to be a drag in the second half of the year.

The aerospace, defence and energy sector engineer reported a pretax profit of GBP98.2 million for the six months to end-June, down from GBP122.4 million a year earlier, as revenue declined to GBP718.9 million, from GBP810.1 million and its operating margin was hit as it sold more less-profitable goods and said revenue would be weighted to the second half of the year.

"Performance in the first half was mixed, with very strong orders but weaker than expected military revenue. group revenue was lower due to the well-trailed impacts of currency, disposals and an unusually high second-half weighting this year, which also impacted our margin," Chief Executive Stephen Young said in the company's statement.

Meggit said continued growth in its civil aerospace markets was offset by a GBP53 million currency hit, by GBP15 million due to disposals and a 22% decline in military revenue to GBP237.4 million, from GBP305.4 million.

Meggitt, like defence sector peers, has been hit by uncertainty over defence budgets in the US, where the government is under pressure to bring down a huge budget deficit built up in the wake of the financial crisis. The company said it expects the pressures on US defence trading to ease in the second half of the year. It has largely been offsetting the weakness in military markets through strong growth in work for the likes of Boeing and Airbus in the commercial airliner markets.

Despite the weak trading in the first half, Meggitt said its order book grew to GBP782.2 million, from GBP778.7 million a year earlier. Excluding the impact of acquisitions, disposals and currency movements, that reflects growth of 9% on the year.

"Orders growth of 9%, including 17% growth in civil aftermarket orders, gives us confidence in a good second half organic revenue and margin recovery, although currency will remain a drag," Young said.

The company raised its interim dividend to 4.25 pence, from 3.95 pence, a move it said reflects its confidence in its prospects.

Separately, the company said Tuesday that its safety systems business has won a contract from Boeing to design and manufacture and fire protection system for the US aircraft maker's 737 MAX engine and processing unit. It didn't give any financial details.

Still, Meggitt shares were down 7.7% at 464.94 pence early Tuesday, the biggest decline on the FTSE 100.

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Source: Alliance News

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