UK Edition
Meggitt recovery helped by plunging pound
A long-awaited turnaround appears to have finally taken hold at Meggitt, the technology group that has been the subject of break-up speculation.
The aerospace, defence and energy business reported a surge in annual revenue and profits as a whole series of factors aligned to lift the FTSE 250 group.
Sterling’s plunge was among the biggest drivers of the recovery, followed by rising sales from acquisitions.
Revenue for the year to December soared 21pc to £1.99bn, while underlying pre-tax profit rose 13pc to £352m. On a statutory basis, profit fell 7pc as a result of a write down on currency investments.
Stephen Young said an efficiency drive launched several years ago designed to boost productivity was now spreading through the business. Once this system is in place across Meggitt, he forecast margins would grow by between 2pc and 2.5pc a year from 2018, boosting it from the current level of 19.1pc.
Higher defence spending is also expected to help the business, along with growth in demand for new airliners.
“We were forecasting a 4pc rise in US defence spending, but the increase announced by Donald Trump last night is closer to 10pc,” Mr young said. “That can only be good news for us.”
Meggitt is also increasing the value of equipment it supplies to new civil aircraft. The company is expecting this figure to rise by between 20pc and 250pc over the next few years, with one example being Airbus’s new A350 airliner, which is starting to enter airline fleets in large numbers. Meggitt supplies parts worth $385,000 to each A350, of which more than 820 have been ordered so far. Total civil aerospace sales rose 25pc to £1.1bn.
The company is in a similar position with military aircraft, supplying high value systems to programmes that are expanding. Defence sales rose 22pc to £697m.
Meggitt has a long “tail” of work providing replacement equipment to 60,000 aircraft already in service.
The company was further helped by R&D spending having now gone past its peak, easing the strain on the company's finances.
One concern is Meggitt’s energy business, where sales fell 17pc to £137.9m, as oil and gas companies slash spending in the face of the oil price collapse.
Mr Young said Meggitt had scaled back the energy unit but had “not cut as far as we can go. When this sector comes back it will do so very quickly and we need to have the people in place ready for that”.
However, a recovery in its energy business is unlikely to come before 2018, the chief executive said. He refuted any suggestion the division could be sold off, but said all parts on the “fringes of the business” were regularly reviewed.
Meggitt was the subject of intense speculation about a break-up last summer when activist investor Elliott raised its holding to 5.2pc. In January Elliott quietly reduced its holding, having failed to find a bidder for Meggitt.
Mr Young said: “Elliott, like other shareholders, was highly interested in the improvements in productivity our strategy will bring. I am sure we will talk to them again.”
He refused to be drawn on whether a break-up or sale of the business had been discussed.
The company raised its final dividend by 5pc tp 10.3p, taking the total payout to 15.1p, an overall increase of 5pc.
The results sent Meggitt to the top of the FTSE 250 leaderboard, with the shares leaping more than 11pc to 463p.