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Last updated: November 2, 2012 2:59 pm
Meggitt has warned of a slowdown in revenue growth next year, as demand for the British group’s defence products dwindles.
The FTSE 100 engineer has increasingly sought to diversify into areas such as energy, following the scaling down of western involvement in Iraq and Afghanistan.
As a result, Meggitt on Friday cautioned that it expected to report “mid-single digit” percentage growth in 2013, down from 10 per cent this year.
The revenue growth expectations are a marked slowdown from 2010, when Meggitt reported a 25 per cent increase in sales, or 12 per cent on an organic basis.
Meggitt, whose core business remains the manufacture of brakes and wheels for aircraft, said that stronger orders at its energy business had “more than offset the continued softness in civil aerospace after-market revenues”.
But in its trading update for the four months to November 1, Meggitt added: “We are also now starting to see the anticipated effects of the drawdown from Iraq and Afghanistan impacting our military revenues.”
Meggitt said that 2012 margins were expected to be “broadly in line” with last year’s 24.7 per cent, in spite of softening demand for its post-sales services and poor foreign exchange rates due to the strong Swiss franc.
“Meggitt's slightly more cautionary stance is not entirely unexpected given continued softness in civil aftermarket and slower military revenues,” said Andrew Gollan at Investec, who pared back his 2013 underlying profit forecasts 4 per cent to £400m.
As part of the group’s attempts to boost its presence in the energy sector it signed in August a $100m deal with Brazilian oil group Petrobras to provide machines for conducting heat away from equipment on oil platforms.
Meggitt’s energy division, which specialises in circuit heat exchangers, accounts for 9 per cent of the group’s total revenues – a figure that the group hopes to push to about 15 per cent by 2015.
At the same time, Meggitt is decreasing its reliance on its core aircraft braking systems, which earn about 30 per cent of group operating profits, down from 40 per cent in 2010.
Sandy Morris, analyst at Jefferies, said: “Today’s statement appears to inject a little more caution relative to the outlook provided at the first half. That is not surprising given the softness evident in the civil aerospace after-market.
“Meggitt is performing well, but we believe that some expectations may require to be tempered a little.”
Meggitt is the second British defence engineer to caution over slowing military spending, after Chemring Group this week issued its second profit warning in three months.
Chemring, which makes ammunition and specialist devices to shield aircraft from radar detection, warned that delays to key contracts would drag down full-year earnings.
Meggitt shares were flat at 383.6p on Friday.
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