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RNS Number : 7465E
Meggitt PLC
10 November 2020
10 November 2020
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
Meggitt PLC - Third quarter trading statement and guidance for
full year 2020
Meggitt PLC ("Meggitt" or "the Group"), a leading international
company specialising in high performance components and sub-systems
for the aerospace, defence and energy markets, today issues a
trading update for the third quarter ended 30 September 2020 and
guidance for the year to 31 December 2020.
CEO, Tony Wood commented:
"Our number one priority remains ensuring the safety of our
employees and continuity of our operations in what continues to be
a challenging and unprecedented external environment. I, along with
the Board, would like to thank our teams for their continuing hard
work and dedication, which have been outstanding."
"While conditions in the global civil aerospace sector remained
weak during the third quarter, our top line performance slightly
improved, with revenue down 25% in the period, compared with down
30% in the second quarter, reflecting the breadth of our end
markets and the continued strong performance of our defence
business and growth in energy. Although expectations of the extent
of the recovery in civil aerospace in the important final quarter
have softened in recent weeks, our global teams continue to focus
on actions within our control, including our cost and cash actions
where we have made strong progress."
"For the full year, we expect to deliver underlying operating
profit between GBP180m and GBP200m, to be free cash flow positive
in the second half, and cash flow neutral for the full year at the
top end of the operating profit guidance range.
"While we remain alive to the challenges which COVID-19
continues to pose, we are encouraged by recent news on vaccine
development and the positive implications for air travel. With
diverse end market exposure, strong market positions, and having
taken a range of decisive actions, we remain well placed for the
recovery."
Highlights
-- Group revenue in the third quarter of GBP384m, down 25% on an organic basis
-- Group revenue for the first nine months of GBP1,301m, down 18% organically
-- Continued strong performance from defence, with organic
growth of 9% in the third quarter and 8% organic growth in the
first nine months of 2020
-- Strong execution on cash actions; on track to deliver GBP400m to GBP450m for full year
-- Headroom on committed facilities of GBP 814m at 30 September
-- Guidance reinstated for the full year, with positive free cash flow in the second half
Market update
Defence
In defence, conditions in our core US market remained positive,
with 4% growth in overall US DoD outlays during the quarter ended
30 September. Improving fleet readiness and modernisation remain
core priorities within the US defence budget for 2021, and
consequently, the external environment is expected to remain
supportive in the near-term.
Civil Aerospace
In civil aerospace, activity levels improved during the period,
with global ASKs and RPKs recovering from -80% and -86% in June, to
-63% and -73% respectively in September compared with 2019
levels.
With international flight activity remaining at very low levels,
and a large proportion of regional jet flights in the US serving
the major international hubs, regional jet activity levels remained
subdued during the period at -55% versus 2019 levels at the end of
September.
In business jets, activity levels have continued to recover with
global flight activity increasing from -26% in June to -17% at the
end of the third quarter, compared with 2019 levels.
In terms of fleet dynamics, deliveries of new commercial
aircraft (a driver of our civil OE revenue) were 36% lower in the
third quarter compared with 2019 levels and 51% down for the nine
months to the end of September.
Energy and other
In Energy and other markets, conditions in our main end markets
remained stable throughout the third quarter, underpinning our
order book.
Third quarter Group trading performance
The performance of the Group in the third quarter broadly
reflected the trends seen across our end markets, with a robust
performance from our defence and energy businesses more than offset
by soft market conditions in civil aerospace:
-- Group revenue down 25% on an organic basis
-- Defence revenue grew 9% organically, driven by another strong
performance in OE which was up 18%. We continue to see good order
flow and expect demand in this part of the business to perform well
throughout the remainder of 2020
-- Civil aerospace revenue was 49% lower than the comparative
period on an organic basis, within which OE and aftermarket revenue
decreased by 48% (Q2: -53%) and 50% (Q2:
-47%) respectively
-- Energy revenue grew by 4% organically driven by a number of
orders in our Heatric business and our order book is
encouraging
While our top line performance was broadly in line with our
expectations in the third quarter, margins were lower, particularly
at the end of the period. This was driven by adverse mix within
civil aftermarket, as airlines deferred spares purchases through
pro-active management of their fleets ('green time') to preserve
cash, and the consequent lower volumes across our manufacturing
sites.
The trends across our end markets have continued in October,
with Group performance slightly lower than our base case, which
assumed a progressive improvement in the fourth quarter.
During the period, we secured a number of contract awards
comprising: several orders across our defence business, including
the supply of innovative nose radome technology, defence composites
and follow on orders for fuel bladders across multiple platforms;
in Energy, we secured two contracts for the supply of Printed
Circuit Heat Exchangers in Heatric; and in the aftermarket, new
long-term contracts with two airlines in Asia.
Actions to reduce cash expenditure and our cost base
As reported in our half year results on 8 September, we have
completed the majority of our actions to reduce cash expenditure
and resize the business and we remain on track to deliver our
target of GBP400m to GBP450m of cash savings for the full year.
Financial and liquidity position
At the end of September, we had GBP 1,660m of committed
facilities in place providing headroom of GBP814m. We also have
additional liquidity available under the CCFF.
On 5 October, we repaid $150m on the maturity of a tranche of US
PP notes. On 29 October we priced a new private placement of debt
and agreed, subject to standard closing conditions, to issue $300m
in aggregate of three and five year senior notes to international
investors. The issuance of the notes, which was significantly
oversubscribed, is expected to take place on 19 November and will
provide us with additional liquidity and financial flexibility as
we look ahead to 2021 and beyond.
Outlook for the full year 2020
As set out in September, we have been managing the Group to a
plan that: (1) assumed delivery of our cash savings target for the
full year; and (2) that our trading performance in the second half
would reflect a progressive recovery in air traffic in the latter
part of the year.
As reported above, we have delivered the first of these
objectives and continue to execute actions within our control.
Notwithstanding this, in recent weeks, as a result of the onset of
a second wave of COVID-19 across many countries, the environment in
civil aerospace has softened, with airlines reducing short-term
planned capacity, moderating our expectations of the extent of a
progressive recovery in activity levels in the final quarter.
Consistent with a broad trend across the civil aerospace
industry, the fourth quarter has historically represented our most
important trading period. This year, with customer behaviour and
our win and ship volumes in the final two months of the year being
harder to predict, our guidance ranges for the Group for 2020 are
as follows:
-- Group underlying operating profit to be between GBP 180 m and GBP 200 m
-- We continue to expect to deliver positive free cash in the
second half and to be free cash flow neutral for the full year at
the top end of our underlying operating profit guidance range
A further update on our performance for the year ending 31
December 2020 will be provided in January 2021.
While we remain alive to the challenges which COVID-19 continues
to pose, we are encouraged by recent news on vaccine development
and the positive implications for air travel. With diverse end
market exposure, strong market positions and having taken a range
of decisive actions, we remain well placed for the recovery.
A conference call for analysts and investors will be held at
8.30am this morning. The dial in details are as follows:
Dial-in number(s):
UK Toll-Free: 0800 358 9473
UK Toll: +44 333 300 0804
Access code: 89900785#
International dial-in:
https://event.sharefile.com/d-s7bae1d9235d495a8
Enquiries:
Tony Wood, CEO
Louisa Burdett, CFO
Mathew Wootton, Vice President, Investor Relations
Meggitt PLC
Nick Hasell, Managing Director
Alex Le May, Managing Director
Dwight Burden, Managing Director
FTI Consulting
Tel: +44 203 727 1340
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