UK aerospace and defence supplier, Meggitt, reported a 1% drop in revenue in 2009 and a 3% cut in operating profit for the year, as increased military sales and better currency exchange effects offset the downturn in the company’s civil aerospace markets.
Civil aerospace revenues declined 11%, "upturn" expected this year
While markets developed “very much as expected” during the year, the impact of destocking and cancellations in the civil aerospace sector was “severe”. Civil aerospace revenues declined 11%, although without positive currency effects, this reduction would of ballooned to 21%.
Cost reduction exceeded expectations, with the company reducing its operating costs by GBP34 million, well ahead of its GBP20 million target. It expects to meet or exceed its GBP50 million cost saving target by the end of 2010. The company has reduced its headcount by 14% since Jul-2008
Meggitt is now “very well placed to take advantage of an upturn in civil aerospace markets”, which it expects to occur this year. 41% of the company’s revenue comes from civilian aerospace. The company signed agreements to supply braking systems for Bombardier’s CRJ1000 and CSeries, which are currently in their test flight and development phases, respectively.
The company will undergo a restructuring in 2010, creating five new division to offer better alignment with its core capabilities and enhance management focus.
Meggitt expects large aircraft deliveries to be close to 2009 levels, with Airbus and Boeing cutting their output only slightly after last year’s record deliveries. The company foresees regional and business jet manufacturers, such as Embraer and Bombardier, which have already implemented production cuts of up to 30% in 2009, reducing deliveries by a further 10% in 2010.
Meggitt’s overall outlook for the civil aerospace market is mixed, with aircraft production expected to decline (albeit modestly for large aircraft), but airline traffic to turn positive. A continued upturn in business aircraft utilisation is also anticipated. If the civilian recovery does eventuate in 2010, Meggitt expects its civil aftermarket business will return to growth in 2010, although, due to continuing destocking, any pick up will be weighted towards the second half of the year.
Overall, the company forecasts a relatively flat 1H2010 and to return to growth in the second half of the year. Meggitt shares were up 2.0% yesterday, following a 4.5% gain on Monday.
Selected Aviation suppliers’ daily share price movements (% change): 02-Mar-2010