MTU Aero Engines Raises Earnings and Cash Flow Forecast at Half-Year

July 25, 2019
At half-year, MTU Aero Engines AG has raised its forecast for 2019.

At half-year, MTU Aero Engines AG has raised its forecast for 2019. The company is now projecting an adjusted EBIT margin in the region of 16 percent. The original forecast had been 15.5 percent (2018: 14.7 percent). “The increase in the earnings outlook mainly reflects two factors: One is that our MTU Maintenance Zhuhai site in China developed somewhat more positively than anticipated. In addition, changes in the product mix also had a positive effect,” said Reiner Winkler, CEO of MTU Aero Engines AG. Net income adjusted is expected to increase in line with EBIT adjusted (EBIT adjusted, 2018: € 671.4 million, net income adjusted, 2018: € 479.1 million). The cash conversion rate – that is, the ratio of free cash flow to net income adjusted – is expected to lie between 65 and 70 percent in 2019. MTU’s previous forecast specified a target range between 55 and 65 percent (2018: 42 percent).

In the first six months of 2019, MTU generated revenues of € 2,243.0 million, which is 4 %percent higher than in the first six months of 2018 (1-6/2018: € 2,148.6 million). Adjusted for one-time effects arising from internal changes in contracting and invoicing processes, the growth in revenues expressed in euros would have amounted to around 12 percent. The group’s operating profitincreased by 9 percent from € 334.6 million to €365.2 million. The EBIT margin rose from 15.6 percent to 16.3 percent. Net income increased by 10 percent to € 261.0 million (1-6/2018: € 237.0 million). Winkler: “Thus MTU is on track for new records.”

MTU has maintained its forecast for an increase in revenues to around € 4.7 billion (2018: € 4.6 billion), based on the expectation that the commercial series production business will grow organically by a percentage in the low teens, and that spare parts sales will increase by a percentage in the mid-to-high single digits. Revenues in the military engine business are expected to increase by around 10 percent. A high single-digit percentage organic growth rate is expected in the commercial maintenance business.

The area in which MTU recorded the highest revenue growth in the first six months of 2019 was the commercial engine business, where revenues increased by 13 percent from € 687.0 million to € 773.0 million. The major part of these revenues was attributable to the V2500 engine for the classic A320 family and the PW1100G-JM for the A320neo.

Revenues in the military engine business increased by 9 percent to € 216.0 million (1-6/2018: € 198.8 million). The main source of these revenues was the EJ200 Eurofighter engine.

In the commercial maintenance business, revenues remained stable at € 1,287.3 million (1-6/2018: € 1,288.5 million). “In terms of organic growth, revenue in the commercial MRO segment has increased by around 7 percent,” added CFO Peter Kameritsch. “This reflects the steady growth of this segment, from which we also benefit through the further expansion of our portfolio and our locations.” The main revenue driver in the commercial MRO segment was the V2500.

At € 18.5 billion, the order backlog again reached record levels at the end of June 2019 (December 31, 2018: € 17.6 billion). “The OEM and the MRO operating segments both contributed to this sustained strong result. This is also reflected in the composition of the order backlog, in which the V2500 and the Pratt & Whitney Geared Turbofan (GTF) engines play the key role,” said Winkler. With the GTF programs in particular, MTU also scored points at the recent Paris Air Show where it generated trade fair orders worth around U.S. $ 1.3 billion. These orders are not yet included in the current order backlog figure.

MTU’s earnings growth in the first half-year 2019 was particularly high in the commercial maintenance business, where EBIT adjusted increased by 16 percent from € 105.5 million to € 122.3 million. The EBIT margin rose by 1.3 percentage points from 8.2 percent to 9.5 percent. “MTU Maintenance Zhuhai contributed in particular to this positive margin development,” Kameritsch added. In the OEM segment, MTU increased its half-year earnings by 6 percent to € 242.5 million (1-6/2018: € 228.9 million). The EBIT margin stood at 24.5 percent compared with 25.8 percent at the end of June 2018. Kameritsch continued: “Despite the strong increase in series production business, the margin remained at a high level.”

At € 112.0 million, MTU’s R&D expenditure was 13 percent higher than the previous year’s level (1-6/2018: € 99.2 million). With its research and development activities, MTU is proactively preparing for the future. R&D activities mainly focused on the Geared Turbofan programs and future enhancements and looked intensively at various technology studies and R&D projects relating to next-generation engine design. “The most recent example from our technology road map is our involvement in the new hybrid electric Silent Air Taxi light aircraft,” Winkler added.

MTU’s free cash flow amounted to € 235.4 million, which represents an increase of 77 percent compared with June 30, 2018 (€ 132.7 million).

MTU increased its net capital expenditure on property, plant and equipment by 12 percent from € 88.8 million to € 99.0 million.

MTU's workforce increased by 5 percent to 10,206 employees compared with the end of 2018 (December 31, 2018: 9,731 employees). “In the context of our global site expansion, we have increased the number of employees across the entire MTU group. New hires were taken on above all at the company’s locations in Munich, Hannover and Poland,” Winkler said.