ALEXANDER CAMPBELL / LONDON
UK manufacturer warns that delayed effects of economic crisis will be felt next year
After spending £85 million ($136 million) on acquisitions in the past 12 months, UK aerospace manufacturer Meggitt is expecting slower growth in the near term. Chief executive Terry Twigger admits his February prediction of only 500 commercial airliner deliveries in 2003 could prove "a bit pessimistic", but warns that the company will see the delayed effects of the economic crisis "coming through in 2004".
Twigger says the second half of 2003 should see a "slow recovery in the civil aftermarket, depending on how long it takes to get SARS under control in China" and Meggitt is aiming for 10% average annual sales growth over the next few years. The company achieved this level of average annual growth over the past five years, although sales dropped 7% in 2002.
Analysts forecast that Meggitt's sales will rise 4% to £420 million this year. Half of its expected growth over the next business cycle will come from takeovers, says Twigger, adding: "We have the ability to spend £100-150 million on the right acquisition."
Meggitt already draws 63% of its sales from North America, where Twigger says it has the advantage of being able to manufacture locally. "Most of our facilities have sister facilities in the USA. If [foreign manufacturing] was an issue, we would source in the USA. It's never been an explicit issue. If we thought it was, we would agree to US sourcing in advance."
Industry observers believe that Meggitt and other UK aerospace companies are more likely to look across the Atlantic than to Europe for their next purchases. "I suspect that further consolidation will be global rather than European," says Andrew Cunningham of investment bank Close Brothers. "There is a feeling that the French [armed forces] will always buy French, and if a company has a non-French parent, it may lose that."
However, Cunningham adds that aerospace manufacturers will continue to find it difficult to predict their own future sales, and should be wary of acquisitions in the near term. "Even if things are picking up from the nadir of October and November 2002, it is still difficult to judge aerospace orderbooks," he says.
Source: Flight International
