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Britain's Meggitt eyes potential U.S. defence boost as CEO retires
November 14, 2017 / 11:15 AM / 4 days ago

Britain's Meggitt eyes potential U.S. defence boost as CEO retires

* Appoints aerospace veteran to succeed CEO Stephen Young

* Meggitt performance under CEO Young: bit.ly/2jr9O9D

* Q3 revenue held back by declines in military and energy units

* U.S. President Trump has promised $700 bln in defence spending

By Noor Zainab Hussain

Nov 14 (Reuters) - Meggitt CEO Stephen Young will retire at the end of April, the company said on Tuesday, as the automotive and aircraft parts maker looks to U.S. defence spending plans to offset the impact of defence budget pressure in Britain.

Young’s five-year tenure has been marked by growth in Meggitt’s civil aerospace business but with an accompanying drop at its military and energy operations, and the challenge now facing the the supplier of high-performance sensing, monitoring, power and motion systems was highlighted by Tuesday’s third-quarter results on Tuesday.

Organic revenue in the three months to Sept. 30 was flat year on year, with the company citing a slower ramp up of new civil programmes and reduced military demand.

“Trading in 3Q17 appears a little slower than we would have liked, but FY17 guidance is unchanged,” Jefferies analysts wrote.

But there is hope for improvement heading into 2018 after U.S. President Donald Trump pledged an "historic" increase in defence spending (reut.rs/2jdP5py).

Meggitt’s chase for Trump’s promised $700 billion in defence spending will be led by aerospace specialist Tony Wood, who the company said would step up from chief operating officer to succeed Young from Jan. 1.

Wood has more than 30 years’ experience in the aerospace sector, including lengthy spells at engine maker Rolls-Royce and at Messier-Dowty, which became Safran Landing Systems, part of Safran SA.

Meggitt reported civil aerospace organic revenue up 4 percent in the third quarter, while organic military revenue fell 5 percent and energy slid by 8 percent.

“If the latter declines (in military and energy) ended, we believed the Meggitt equity story would start to work. We are optimistic 2H17 is indeed a turning point,” the Jefferies analysts said.

Jefferies, which has a “buy” rating on the stock, added that the sale of Meggitt Target Systems in December has probably reduced the group’s exposure to British defence spending to a modest level.

“The big question now is whether Congress can pass the U.S. FY18 Defense Budget. The FY18 Budget Request looked most encouraging for Meggitt. The FY18 Defense Appropriations proposed by the Senate Committee on Armed Services looks more positive still,” the analysts said.

The U.S. accounts for 54 percent of Meggitt revenue.

When Young took over as Meggit’s finance director in 2004, the company’s revenue was 479 million pounds ($628 million), growing to 1.99 billion pounds in 2016.

“Since FY04, Meggitt has taken some steps that we did not always immediately endorse, such as the acquisitions of Dunlop Standard and K&F Industries. Hindsight suggests they were really the stepping stones to ensuring Meggitt could position itself to secure growth on the forthcoming new aircraft and engine programmes,” Jefferies analysts said.

“Perhaps 4Q17 will be the first time what has been built shines through.”

Shares in Meggitt were up 1.4 percent at 479 pence by 1058 GMT. ($1 = 0.7627 pounds)

Reporting by Noor Zainab Hussain in Bengaluru; Editing by David Goodman

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