Engine specialist grows below plan – dividend increases

Munich Munich-based engine specialist MTU Aero Engines slightly missed its own forecasts for 2022. Sales increased by 27 percent to 5.3 billion euros. At the end of October last year, the MTU management had raised the expectations to between 5.4 and 5.5 billion euros.

On the other hand, the company exceeded its own plans for adjusted earnings before interest and taxes (EBIT), rising by 40 percent to 655 million euros. An increase in the “low thirty percentage range” had been expected.

The good news for the shareholders: the dividend should increase from EUR 2.10 to EUR 3.20. Otherwise, however, investors will need a little more patience. Because the MTU management also adjusted the forecasts for the current year downwards. Sales should now be between 6.1 and 6.3 billion euros, the previous forecast was 6.4 billion euros. The EBIT margin should remain stable, last year it was 12.3 percent. So far, the MTU top management had assumed an increase in the adjusted operating result in the “low twenties percent range”.

According to the announcement, Lars Wagner, CEO of the company since the beginning of the year, justifies the poorer figures with “volatilities in the supply chain”. Regarding the lowered expectations for the current year, the CEO said: “The adjustment is essentially based on an adjusted US dollar exchange rate assumption.”

The current development does not change anything in the ambitious long-term plans. Just recently, at an investor event, MTU management announced that it intended to increase sales to EUR 8 billion by the middle of the decade, with adjusted operating profit of around EUR 1 billion. Wagner reiterated this promise on Tuesday morning.

MTU is benefiting from the significant recovery in aviation. After almost three years of the pandemic, passengers are returning to the planes en masse. The rush is so strong that the industry is struggling to provide sufficient capacity due to a lack of staff. Maintenance specialists like MTU notice this too. The capacities in the workshops are limited, especially in the numerous highly specialized partner companies. The result, according to Wagner: The maintenance of the engines takes longer.

MTU share: Significant increase in price over the past six months

The business, which is doing well again, is reflected in the MTU share price. Since the low at the end of October 2022, the paper has gained around 50 percent in value. MTU does not only service aircraft engines. The company also designs and builds components for aircraft engines. Among other things, the Munich-based company is heavily involved in the engines for the very successful A320 family from Airbus – a short and medium-haul jet. In the case of wide-bodied aircraft, the company supplies Boeing jets.

A third mainstay is the military business. It currently accounts for only around ten percent of sales. But in view of the current situation with a war in Europe and the plans of the European states to increase military spending, this business is expected to grow by around ten percent in the current year. Among other things, MTU is involved in the development of the engine for the planned European air combat system FCAS.

The economic success enables the management to invest heavily in new drive technologies. Expenditure on research and development increased by 15 percent to 265 million euros in 2022.

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For example, MTU has been working on the fuel cell, i.e. the possibility of flying with hydrogen, for five years. At the same time, the company, together with the Pratt & Whitney engine group, is in the process of further optimizing the existing GFT combustion engine unit, which is used in the A320, for example. The idea: Steam is injected into the drive, and wet combustion is said to increase efficiency by 10 to 15 percent.

A320 neo takes off from Stuttgart Airport

The Airbus short and medium-haul jet is very popular. MTU is involved in building the aircraft’s engines

(Photo: dpa)

The technology can also be used if the turbine is directly fed with hydrogen in the distant future. The engine can also process synthetic fuel (SAF).

They are investments with a certain risk. Because currently nobody in the industry knows which technology will ultimately prevail and how much market potential it will have. But the investors support the course of the MTU management so far.

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