Continuing the season of first-half 2018 results this morning Meggitt, a global engineering company that specialises in high-performance components and sub-systems for aerospace, defence and selected energy markets, has produced sufficient confirmation that its strategy for improved performance and future growth is working.
While results comparison is complicated due to disposals in the previous year and other factors including currencies, the bottom line is that Meggitt is making good progress in achieving all its objectives.
Stripping out exceptional and other one-off items from its first half-year results shows that Meggitt produced adjusted first half year pre-tax profit £136.1 million for the period – down from £143.1 million a year earlier. Nevertheless, the company has reiterated its upgraded full year guidance of a 4% to 6% increase in organic revenue growth and said that it remains well placed to deliver its 2021 targets to achieve an underlying operating margin of at least 19.9% and to deliver £200million of cash from increasing inventory turns from 2.3x to 4x.
A slower than anticipated recovery at Meggitt Polymers & Composites during the first half period means that for the full year Meggitt is now targeting margins at the lower end of the a 17.7% to 18% guidance range. However, Meggitt says in its statement that good progress has been made in the ongoing execution of strategy including a sharpening up of strategic portfolio focus and in the further step taken toward delivery of operational transformation. Importantly Meggitt says that relationships with key customers are expanding and has confirmed an intention to move to a customer-aligned organisation structure from 2019. Such steps the company says “will further accelerate transition to an integrated aerospace, defence and selected energy Group.
Backing confidence up is confirmation that the order book stood at £1.09 billion at the end of June compared to a figure of £968 million last year. Net borrowings fell 7% to £1.03bn and free cash flow rose by 19% to £27.1m. Based on confidence for future prospects, the interim dividend has also been raised to 5.30p per share from a previous 5.05p in the period to June 2017.
Meggitt is a broad-based engineering company and one that now has a well-balanced portfolio. Importantly. The company has equipment on approximately 70,000 aircraft worldwide plus a great many ground vehicles and global energy applications. The significance of an ever expanding installed base for a company like Meggitt is that year by year this provides an increasing aftermarket revenue stream.
Meggitt which operates in North America, Europe and Asia and employs over 11,000 people in over 40 different manufacturing facilities and regional offices worldwide, is best described as a company that specialises in extreme environment engineering.
Meggitt is investing in its future as well and one notes that apart from self-driven research and development benefits that have led to an approximate 250% increase in content on new aircraft programmes the company has recently announced the start on the £130 million 440,000 sq. ft development of a super-site at Ansty Park near Coventry which, when the completed, will see various Meggitt UK based operations including parts of the Aircraft Braking Systems, Control Systems, Customer Services & Support and Corporate Shared Services combined on one site.
Meggitt plans for the 200 acre site include having facilities for an engineering and manufacturing Centre of Excellence for future aerospace thermal management technology (this is being supported by the UK Aerospace Technology Institute (ATI) together with a research and development award made available from the Department for Business, Energy and Industrial Strategy of £3.7m)
All the above investment is intended to underpin Meggitt’s ability to further secure strong market positions on future new aircraft programmes. Importantly, with the development being adjacent to both the Manufacturing Technology Centre and Advanced Manufacturing Training Centre, the positioning would appear to be very appropriate.
CHW (London – 7th August 2018)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785