Meggitt profits down 7% but ahead of expectations

UK aerospace components maker Meggitt said it expected another year of increasing underlying revenues after it beat analyst earnings forecasts in 2016.

The FTSE 250 group, which supplies wheels and brakes for aircraft, posted a 7 per cent fall in statutory annual pre-tax profit to £195.5m, after taking a £66.4m non-cash writedown on the value of financial instruments – mainly currency hedges. These protect companies’ revenues against fluctuations in exchange rates.

Sterling’s depreciation boosted Meggitt’s reported results, with annual revenue up more than one-fifth to £2bn and the company’s preferred measure of underlying pre-tax profit increasing by 13 per cent to £352.1m.

However, underlying pre-tax profit fell 3 per cent on an organic basis, which excludes the impact of acquisitions and foreign exchange movements, while revenue rose by a more modest 1 per cent. Even so, both were above what analysts had expected on average.

With a strong outlook on the market for large civil jets and military markets outweighing continuing difficulties in oil and gas, the other area Meggitt supplies, the company said it expects organic revenue growth of 2 to 4 per cent in 2017.

It added:

“In terms of margin, we believe the momentum we have in our strategic initiatives is now sufficient to offset remaining headwinds. As a result, the Group is targeting operating margin to be flat to up 30 basis points in 2017.”

Meggitt employs almost 12,000 people in facilities across Asia, Europe and the Americas. It is in the middle of a sweeping restructuring plan and a year ago said it would revamp its supply chain and close factories as part of the strategic overhaul.

The company’s profits have suffered from a decline in US defence spending and the collapse in offshore oil and gas exploration, as well as a slowdown in spending by aircraft carriers in the civil aviation sector.