MTU seeks cost cuts as annual targets are downgraded

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MTU has downgraded its earnings forecast for 2013 after cash flow halved during the year's first half.

The German engine specialist had planned to increase both its 2012 adjusted operating income of €374 million ($495 million) and net profit of €233 million by between 10% and 12% this year. But both are now expected to remain flat.

Revenues increased nearly 19% to €1.85 billion, and MTU still hopes to meet a full-year target of €3.7 billion. But chief executive Egon Behle says that earnings from the subassembly production for new engine programmes - such as the General Electric GEnx, Engine Alliance GP7000 and Pratt & Whitney PW1000G geared turbofan family - were "initially cushioned" while spare-parts production for "certain" established engine programmes performed poorer than expected. These include the legacy PW2000 engine for the Boeing 757 and C-17 military transport. Slower-than-predicted sales in the industrial gas turbine segment were an additional factor in the revision of targets.

MTU's free cash flow more than halved to €24 million. Cutting costs and improving earnings are key priorities, says Reiner Winkler, chief financial officer. Munich-based MTU aims to save "several tens of million euros" a year and increase the group's free cash flow to "a figure in the mid-double-million euro range", he says.

Revenues from commercial engine manufacturing grew nearly 36% to €954 million, while the division's adjusted earnings before interest and tax fell 5% to €116 million.

MTU's military turnover fell 3.2% to €223 million, while the MRO division achieved nearly 8% growth in revenue, to €691 million. Earnings before interest and tax in the maintenance segment grew 3.2% to €55 million.

Total net income fell more than a third to below €73 million.

Investments in research and development shrunk almost a fifth to €96 million as engine programmes such as the PW1000G series are reaching maturity, says Behle.

MTU's workforce, largely unchanged in size since January, comprises 8,570 employees.