TIDMMGGT
RNS Number : 9754H
Meggitt PLC
06 August 2019
6 August 2019
Meggitt PLC
2019 Interim results
Organic revenue growth outlook upgraded; on track to deliver
margin improvement of 0 to 50 basis points in 2019
Meggitt PLC ("Meggitt" or "the Group"), a leading international
engineering company specialising in high performance components and
sub-systems for the aerospace, defence and selected energy markets,
today announces unaudited interim results for the six months ended
30 June 2019.
Group headlines
Change
GBPm H1 2019 H1 2018 Reported Organic1
Orders 1,193 1,087 10% 7%
Revenue 1,071 952 12% 9%
Underlying2
EBITDA3 212 197 8% 2%
Operating profit 161 151 7% 2%
Profit before tax 145 136 7% 2%
Earnings per share
(p) 14.7 13.9 6%
Statutory
Operating profit 91 124 (26%)
Profit before tax 73 105 (31%)
Earnings per share
(p) 7.3 11.7 (38%)
Free cash
flow 49 27 80%
Net borrowings 1,018 1,032 (1%)
Dividend (p) 5.55 5.30 5%
-- Organic revenue growth of 9% reflects strong trading
performance in civil OE and defence. Reported revenues increased by
12% due to organic growth and currency, partly offset by non-core
divestments.
-- Full year organic revenue growth guidance increased to 4 to
6% following better than anticipated trading in H1 and strong order
intake with organic book to bill of 1.13x.
-- Underlying operating profit increased by 7% to GBP161m.
Underlying operating margin reduced to 15.0% reflecting additional
investment in Engine Composites and the growth in our installed
base which was partly offset by the growing financial contribution
from strategic initiatives.
-- Statutory operating profit decreased by 26% to GBP91m,
principally as a result of lower gains from disposal of businesses
compared to the prior period.
-- Free cash flow increased by 80% to GBP49m inclusive of the
sale of land and buildings associated with our move to the Ansty
Park site.
-- Strong progress on key strategic initiatives:
o Continued investment in differentiated technologies with good
progress made in priority areas such as thermal systems, optical
sensing, fire protection and braking systems;
o Factory consolidation and expansion activity ahead of plan;
three sites exited since the beginning of the year with footprint
reduced by 25% compared to the 2016 baseline;
o Good momentum in reducing purchased costs sustained, with 2%
purchased cost decrease achieved in the first half; and
o Completed two further non-core divestments to focus the
portfolio, with 75% of revenue now in attractive growth markets
where Meggitt has a strong competitive position.
-- Interim dividend up 5% to 5.55p reflecting our continued
confidence in the prospects for the Group.
1 Organic numbers exclude the impact of acquisitions, disposals
and foreign exchange.
2 Underlying profit and EPS are used by the Board to measure the
trading performance of the Group as set out in notes 4 and 9.
3 Underlying EBITDA represents underlying operating profit
adjusted to add back depreciation, amortisation and impairment
losses
Tony Wood, Chief Executive, commented:
"Trading in the first half was strong, with robust growth in
both civil original equipment and defence and good performance in
our civil aftermarket business, despite an easing in air traffic
growth and lower demand for initial provisioning spares following
the grounding of the 737 MAX. As a result, we have increased our
full year organic revenue growth guidance to 4 to 6% and remain on
track to deliver a margin improvement of between 0 and 50 basis
points in 2019.
"We continue to make good progress in the operational
transformation of the Group, including our centre-led approach to
purchasing, footprint rationalisation programme and driving
improved operational performance at our Engine Composites product
group. We have strengthened and focused our portfolio, with further
investment in priority technology areas such as thermal systems,
optical sensing, fire protection and braking systems and the
completion of two non-core divestments.
"The acceleration in growth and our continuing confidence in the
prospects for the Group underpins our interim dividend increase of
5% to 5.55p."
Enquiries:
Tony Wood, Chief Executive
Louisa Burdett, Chief Financial Officer
Adrian Bunn, Vice President, Strategy & Investor
Relations
Meggitt PLC
Tel: +44 1202 597597
Nick Hasell, Managing Director
Dwight Burden, Managing Director
Alex Le May, Managing Director
FTI Consulting
Tel: +44 203 727 1340
Analyst presentation
There will be a presentation for analysts today at 11.00am BST
in London. There will be a live webcast on the Meggitt website,
http://www.meggittinvestors.com, where copies of the presentation
will be available afterwards.
Cautionary Statement
This Results Announcement contains forward looking statements
with respect to the financial condition, results of operations and
businesses of Meggitt PLC and its strategy, plans and objectives.
These statements are made in good faith based on the information
available at the time this announcement was approved. It is
believed that the expectations reflected in these statements are
reasonable but they may be affected by a number of risks and
uncertainties that are inherent in any forward-looking statement
and which could cause actual results to differ materially from
those currently anticipated. Meggitt does not intend to update
these forward-looking statements. Nothing in this document should
be regarded as a profit forecast. This report is intended solely to
provide information to shareholders and neither Meggitt PLC nor its
directors accept liability to any other person, save as would arise
under English law.
GROUP OVERVIEW
Meggitt is a global engineering company specialising in
high-performance components and sub-systems for aerospace, defence
and selected energy markets. We have a broad-based and
well-balanced portfolio, with equipment on approximately 71,000
aircraft and many ground vehicles and energy applications
worldwide. This significant and expanding installed base provides
us with an aftermarket revenue stream stretching out for decades.
Good customer relationships and high levels of embedded
intellectual property span a broad range of products and
capabilities. This has enabled us to increase our content by up to
250% on the new civil aerospace programmes which have entered
service in the last five years.
Significant increases in our content on new aircraft drove our
research and development ('R&D') and new product introduction
('NPI') costs to record levels in recent years but we are now
beyond the peak of spend in both areas. We have completed a major
refresh of our in-service portfolio and this investment provides a
strong platform for future revenue growth. Having passed the
development peak we are now focused on operational execution and
have outlined four strategic priorities to accelerate growth and
improve return on capital employed. These priorities are: Strategic
Portfolio, Customers, Competitiveness and Culture.
Strategic Portfolio
We will focus investment in attractive markets where we have, or
can develop, a leading position. This encompasses organic
investment in differentiated products and manufacturing
technologies; targeted, value enhancing acquisitions; and selective
non-core disposals.
More than 70% of revenue is generated from sole-source, life of
programme positions underpinned by Meggitt-owned intellectual
property. As such the continued strengthening of our technology
portfolio remains a critical priority of the Group. In the first
half, we have made excellent progress on building upon our
differentiated portfolio of products and technologies in focus
areas such as thermal systems, optical sensing, fire protection and
braking systems. For example, we have secured an exclusive
licensing agreement with Luna Innovations for the supply of
fibre-optic components to our next-generation Bleed Air Leak
Detection systems which will deploy optical sensors in order to
provide a far quicker, more accurate and versatile detection of
fires or overheat.
As the industry continues to focus on achieving a step-change
reduction in fuel consumption and greenhouse gas emissions, there
is an increasing trend towards the development of hybrid
propulsion. We are well placed to provide some of the critical
technologies and components needed to enable future sustainable
aviation, such as radically improved thermal systems including
advanced manufacturing technologies, such as diffusion bonding and
additive manufacturing.
We have also further strengthened our portfolio with the sale of
two non-core businesses. In April 2019, we completed the sale of
the trade and assets of Meggitt France SAS, a provider of ignition
systems and in August 2019, we completed the sale of our
non-aerospace test and measurement sensing business.
Customers
Organic book to bill of 1.13x reflects good progress in growing
our relationships with key customers, including new contract awards
announced today for the Embraer Praetor 500/600 braking system
valued at $500m over the life of the aircraft. We have also
finalised terms to provide the Dassault Falcon 6X braking and tyre
pressure monitoring system worth $1.2bn over the life of
programme.
In civil aerospace, our continued success in moving from a
transactional approach to building long term relationships with our
customers in the aftermarket, extends our visibility of near term
customer requirements and enables us to better support the demand
for spare parts and maintenance, repair and overhaul ('MRO').
During the first six months, we have secured seven new contracts
based on our Smart Support(TM) proposition which enables customers
to tailor the service we provide to them across the breadth of
Meggitt capabilities, with fixed prices, parts availability and
exchange pools as required. These new contracts in aggregate,
secure GBP23m per annum in revenue, and include customers such as
Pratt & Whitney, Air China, Delta, Lufthansa Technic and
Collins Aerospace.
Order growth in defence has been particularly strong, with
organic book to bill of 1.33x in the first half. This included the
previously announced ten year long term agreement with Pratt &
Whitney to provide a range of high temperature engine composites on
the F-135 engine, together with more recent awards with Lockheed
Martin, Boeing and the Defense Logistics Agency.
Competitiveness
We remain focused on making our operational performance a key
competitive strength.
Our increasingly centre-led approach to procurement continues to
enable the Group to reduce net purchased costs by 2% p.a. We
continue to work closely with a smaller number of preferred
suppliers in areas including electronics, fasteners, castings,
machining and factory consumables, where we have been able to
simplify our supply chain whilst better leveraging our scale to
reduce cost.
We have also made further progress in our programme to
consolidate our footprint. We have exited three sites in Angouleme,
France; Miami, Florida; and in Sunnyvale, California; reducing our
overall footprint to 42 sites. This represents an overall reduction
of 25%, ahead of our original target to reduce our estate by 20% by
2021 compared to the 2016 baseline. We continue to target further
rationalisation, with seven site consolidations currently in
progress and due to complete over the next three years. The key
footprint project is the construction of a state of the art
manufacturing campus at Ansty Park, which will become home to our
braking systems and thermal systems product groups; and
headquarters for the Group and both Airframe Systems and Services
& Support divisions. The Ansty Park project has made excellent
progress, with the exterior of the building largely complete. It
remains on track for initial occupation in 2020.
Inventory turns during the first half are flat at 2.7x (December
2018: 2.7x) after the continued investment in buffer stocks to
support our ongoing site consolidation plans and as part of our
contingency planning for a no-deal Brexit, together with investment
in spare parts to serve our growing number of Smart Support(TM)
contracts in the aftermarket. We are making good progress at many
of our sites and we continue to target inventory turns of 4.0x by
2021.
Our efforts to increase competitiveness and reduce cost continue
to be underpinned by the Meggitt Production System ('MPS'), our
global approach to continuous improvement. The financial and
operational performance improvements at our most advanced
facilities continue to demonstrate the potential we can achieve
when we move a critical mass of sites to the latter phases of the
programme. We now have 13 sites in the bronze phase or later
equivalent to over 30% of the Group and have made good progress in
our efforts to drive sustainable operational improvements at eight
large but early stage sites that constrained overall performance in
2018.
Two of these eight sites are in the Engine Composites product
group where we have made good progress in improving operational
performance, with yield now over 90% across the majority of key
parts, despite continued rapid growth in demand given our strong
positions on growth platforms including the F-135, GTF and Leap
engines. As anticipated we incurred additional costs in the first
half, particularly at our recently expanded factory in Mexico. The
replication of capability in Mexico has enabled us to secure the
approval we need from our customers to progressively move volume
production to the site. This is a critical step and underpins our
confidence in improving financial performance in Engine Composites
in the second half and beyond.
Culture
We are focused on building and nurturing a high performance
culture where our ambitious and diverse teams act with integrity
and help us to accelerate the execution of our strategy. In support
of this we adopted a new organisational structure on 1 January
2019, built upon four customer-aligned divisions: Airframe Systems;
Engine Systems; Energy & Equipment; and Services &
Support.
Initial customer feedback on the changes we have made has been
very positive, most notably at the successful Paris Air Show where
we announced six new orders. Our new customer aligned-structure is
making us easier to do business with and enabling us to engage in
much more effective technology discussions now that our divisions
have responsibility for the full suite of capabilities our airframe
or engine customers may require.
The successful transition to this new structure has been
underpinned by our high performance culture ('HPC') programme which
we launched in 2017. We have now rolled out HPC training to over
4,500 employees and it has proven highly effective in helping our
teams work productively together to deliver common goals as a more
integrated Group.
This morning we are also announcing that after a 25 year career
at Meggitt, Philip Green will retire from his position as Executive
Director, Commercial & Corporate Affairs and will step down
from the Board at the end of December 2019.
HEADLINE FINANCIALS
Orders grew by 10% on a reported basis (and by 7% on an organic
basis) to GBP1,193.2m.
Reported Group revenue of GBP1,070.9m (2018: GBP952.2m)
increased by 12% as analysed in the table below:
GBPm % impact
----------------------------- ------- --------
H1 2018 revenue 952.2
Acquisitions and disposals (14.2) (2%)
Currency movements 51.0 5%
Organic growth 81.9 9%
----------------------------- ------- --------
H1 2019 revenue 1,070.9 12%
----------------------------- ------- --------
Currency movements in the first six months reflect the weakness
of Sterling against our trading currencies, principally the US
dollar. The more recent weakness in sterling, if sustained at
similar levels to the past six months, would result in the Group
being broadly currency neutral in the second half. Acquisitions and
disposals include the sale of Thomson (completed in March 2018),
Precision Micro (completed in April 2018) and Meggitt France SAS
(completed in April 2019). Strong organic revenue growth reflects
particularly good performance in civil OE (up 11%) and defence (up
13%) end-markets.
The Board's preferred measure of the Group's trading performance
is underlying profit. Underlying operating profit increased 7% to
GBP161.1m (2018: GBP150.8m), representing a margin of 15.0% (2018:
15.8%). The margin decline reflects continued investment in our
Engine Composites product group during the first half, to support
continued high growth and double running costs incurred at our
recently expanded facility in Mexico. Investments in the growth of
our installed base also diluted margin during the first half with
an increase of free of charge components and an unfavourable
revenue mix, resulting from particularly strong growth in Civil OE.
These headwinds were partially offset by the continued financial
benefits from our strategic initiatives, including reductions in
purchased costs, efficiencies from the Meggitt Production
System.
Underlying net finance costs increased to GBP15.7m (2018:
GBP14.7m) due principally to higher US interest rates and exchange
rate movements increasing the sterling value of our largely US
dollar denominated finance costs.
In April, the European Commission ruled that certain aspects of
the UK Group Financing Exemption under the Controlled Foreign
Corporation (CFC) regime constitute unlawful state aid. The UK
Government has applied to the EU courts for annulment of this
decision as has the Group. As previously reported, the Group has
taken advantage of this regime, generating tax benefits of
approximately $22m. The Group has now received a letter from HMRC
setting out how it intends to identify the amount of any such aid
received. It is currently unclear what proportion of the $22m will
be so determined. Any assessed aid is expected to be payable by the
Group in H2 2019.
Underlying profit before tax was GBP145.4m (2018: GBP136.1m). As
previously guided, the underlying tax rate increased to 22% (2018:
21%) reflecting increases in non-US tax exposure related to the
Base Erosion and Profit Shifting project in the UK and related
initiatives across OECD countries. Underlying earnings per share
increased by 6% to 14.7p (2018: 13.9p).
On a statutory basis, operating profit for the period decreased
by 26% to GBP91.4m (2018: GBP123.8m) and profit before tax
decreased by 31% to GBP72.6m (2018: GBP105.2m). Statutory profit
includes a GBP1.5m gain (2018: gain of GBP22.0m) from the disposal
of businesses and a GBP15.3m loss (2018: gain of GBP2.7m) on the
non-cash marking to market of financial instruments. Earnings per
share decreased by 38% to 7.3p (2018: 11.7p), driven by the
reduction in profit before tax. The adjustments between underlying
and statutory profit are consistent with prior periods and are
described in notes 4 and 9.
The interim dividend is increased by 5% to 5.55p (2018: 5.30p)
reflecting our ongoing confidence in the outlook for the Group and
our commitment to a progressive dividend. This will be paid on 4
October 2019 to shareholders on the register on 6 September
2019.
Free cash flow increased 80% to GBP48.8m (2018: GBP27.1m), as a
result of further reductions in capitalised development costs,
lower cash tax and the GBP21.0m proceeds from the sale of land and
buildings relating to our transfer to the Ansty Park site in 2020.
This was partly offset by an increase in working capital as we
continue to build buffer stocks to support work in progress
footprint consolidations, manage any Brexit related disruption and
mitigate supply chain risks in areas including forgings and
castings. We have also increased inventory in our Services &
Support division as we look to accelerate growth through increased
availability of stock.
The seasonal net cash outflow of GBP36.9m (2018: outflow of
GBP35.8m) includes the GBP6.3m net proceeds from the sale of
non-core businesses together with the payment of the 2018 final
dividend.
There are two main financial covenants in our financing
agreements. The net borrowings:underlying EBITDA ratio, which must
not exceed 3.5x, was at 1.8x at 30 June 2019 (June 2018: 1.9x) and
interest cover, which must be not less than 3.0x, was 15.0x (June
2018: 14.7x). The Group has, therefore, significant headroom
against both key covenant ratios, and net borrowings:underlying
EBITDA is well within our target range of 1.5x to 2.5x.
The Group has GBP358.8m of undrawn headroom against committed
credit facilities, after taking account of surplus cash.
TRADING SUMMARY
Revenue (GBPm) Growth (%)
H1 2019 H1 2018 Reported Organic
Civil OE 259.6 217.7 19% 11%
Civil AM 329.3 300.9 9% 7%
------------- -------- -------- --------- --------
Total Civil 588.9 518.6 14% 9%
Defence 376.7 321.2 17% 13%
Energy 63.1 61.8 2% (1%)
Other 42.2 50.6 (17%) (14%)
------------- -------- -------- --------- --------
TOTAL 1,070.9 952.2 12% 9%
------------- -------- -------- --------- --------
Civil aerospace
Meggitt operates in three main segments of the civil aerospace
market: large jets, regional aircraft and business jets. The large
jet fleet includes over 23,000 aircraft, the regional aircraft
fleet over 6,000 and business jets around 19,000. The Group has
products on virtually all these platforms and hence a very large,
and growing, installed base. The split of civil revenue, which
accounts for 55% of the Group total, is 56% aftermarket and 44%
original equipment (OE).
Civil OE revenue grew 11% on an organic basis. Large jet OE, the
most significant driver of our OE revenue, grew by 8% with
particularly good growth on Boeing 787 and new narrowbody aircraft
including Airbus A220 and A320neo family and Boeing 737 MAX. Demand
for new parts was also strong in both business jets and regional
jets. In business jets, OE revenue grew by 20% with growth across
the majority of programmes. In regional jets, OE revenue grew by
37% reflecting good demand on Dash-8, ATR-72 and ARJ21 partly
offset by lower demand for E-Jets.
Civil aftermarket revenue grew organically by 7% driven by
strong underlying growth in large jet aftermarket where our growing
content on new generation aircraft and the improved capabilities
within our Services & Support division, have been further
enhanced by positive demand drivers. Despite an easing in air
traffic growth, the grounding of the 737 MAX aircraft has
constrained capacity and increased passenger load factors which has
limited aircraft retirements and driven the continued scarcity of
Meggitt used surplus material ('USM'). Good underlying growth in
civil aftermarket revenue was more than enough to offset the impact
of a prior year comparator which had seen one-off demand associated
with distributor agreements signed in late 2017.
Large jet aftermarket revenue increased by 13% organically,
reflecting good demand across a broad range of capabilities on the
Airbus A330, A320ceo and Boeing 787 aircraft; and brakes on the
A220 and DC10, the latter of which was partly offset by lower
demand across a broad range of other mature programmes. Initial
provisioning grew strongly in the period on both A320neo and 737
MAX aircraft. However, we had anticipated much greater levels of
initial provisioning on the 737 MAX at the beginning of the year,
prior to its grounding.
Regional jet aftermarket revenue declined by 1% organically,
reflecting growth on ATR-72, Dash-8 and E 170/175 aircraft which
was offset by declining revenue on Dornier 228/328, BAE 146 and
CRJ1000. Business jet aftermarket revenue grew by 3% on an organic
basis. Key growth platforms were the Falcon 7X, G-350/450 and G-V
which offset declining demand on Hawker 750-900, Falcon 50 and
smaller Gulfstream platforms (most notably G-I/II/III and
G-IV).
Overall civil aerospace revenues increased by 9% on an organic
basis.
Deliveries of large jets by Airbus and Boeing are underpinned by
a firm order backlog extending over a number of years, which
together with our increased shipset content on these platforms,
gives us further confidence in the growth outlook for OE revenues
up to the early 2020s when we expect growth of new large jets to
plateau. Deliveries of regional aircraft are expected to remain at
current rates over that period. Deliveries of business jets are set
to grow modestly in the near term.
Air traffic, measured in available seat kilometres (ASKs), is a
key driver of demand for spares and repairs on large and regional
aircraft. ASKs grew 4.6% globally in the five months to May 2019,
reflecting an easing of growth compared to 2018 when traffic grew
strongly. Industry forecasts are for air traffic to continue to
grow between 4% and 5% over the medium term. Regional jet
utilisation (measured in terms of take offs and landings) grew by
3% in the six months to June 2019. With strong positions as the
provider of braking systems on the two key current generation
regional aircraft (the Embraer E-Jet and Bombardier CRJ families),
we would expect to outperform the market over the near term.
Business jet utilisation in the US and Europe was flat during the
six months to June 2019 and with our higher value content and
growing market share in brakes for large cabin business jets, we
should continue to drive above market revenue growth over the
medium term.
Defence
Defence business accounted for 35% of Group revenues in H1 2019.
We have equipment on an installed base of around 22,000 fixed wing
and rotary aircraft and a significant number of ground vehicles and
training applications. Direct sales to US customers accounted for
72% of defence revenue (June 2018: 72%), with 18% to European
customers (June 2018: 19%) and 10% to the rest of the world (June
2018: 9%).
Defence revenue grew 13% on an organic basis, reflecting our
strong positions on the fastest growing and hardest worked
platforms. Fighter jet revenue increased by 14%, with particularly
strong demand on the F--35, Typhoon, F-15 and F-16 platforms.
Helicopters and transport aircraft growth was also strong. Revenue
grew across the majority of Meggitt capabilities, most notably in
Engine Composites, Defence Systems, Braking Systems, Power &
Motion and Fuel Systems. Demand for spares was also enhanced by
one-off stocking associated with a new distributor agreement which
was signed in December 2018.
Revenue growth was particularly strong in the first quarter,
when defence revenue increased by 18%, reflecting the weaker prior
year comparator in 2018, when defence grew by 2% in the first three
months before accelerating thereafter to double digit growth for
the last nine months of the year.
The long term outlook for defence expenditure in the US, our
single most important market, continues to look positive over the
medium term. The US Department of Defense FY20 budget request of
$738bn implies growth of 3% per annum from a higher base and there
remains significant opportunity for retrofit and reset
activity.
Energy and other
Energy and other revenues (10% of Group total) come from a
variety of end markets of which the single most significant is
energy (6% of Group total). Our energy capabilities centre on
providing valves and condition-monitoring equipment for power
generation installations, including ground-based gas and wind
turbines, and printed circuit heat exchangers used primarily in the
oil and gas market. Other markets (4% of Group total) include the
automotive, industrial, test, consumer goods and medical
sectors.
As anticipated, energy revenue declined by 1% on an organic
basis compared to the prior year, when a recovery in the Heatric
business contributed to growth of 31% in energy as a whole. We
continue to see good underlying demand for our heat exchangers,
valves and sensors in energy markets, with the return of spending
in liquid natural gas ('LNG') and the growth in renewables
increasing volumes of small frame gas turbines. We have also
generated good growth in services revenue in the first half,
offsetting lower demand for large frame gas turbine OE parts.
The long-term growth expectations for our energy businesses
remain good. We have differentiated technology which plays a
critical role in the extraction and transport of deep-water
offshore gas reserves and good opportunities for use in adjacent
markets. The balance of our energy businesses will continue to
benefit from synergistic relationships across business divisions
and the long-term demand for energy, particularly in emerging
markets.
OPERATIONAL PERFORMANCE
The financial performance of the individual divisions is
summarised in the table below:
Revenue (GBPm) Division Underlying Operating Profit
(GBPm)
H1 2019 H1 2018 % Growth H1 2019 H1 2018 % Growth
------- ----------------- ------- ------- -----------------
Reported Organic Reported Organic
------- -------- ------- ------- ------- -------- -------
498.3 449.6 11% 6% Airframe Systems 103.0 96.6 7% 2%
------- -------- ------- ------------------- ------- ------- -------- -------
159.2 125.3 27% 21% Engine Systems 4.7 10.4 (55%) (57%)
------- -------- ------- ------------------- ------- ------- -------- -------
191.5 167.3 15% 9% Energy & Equipment 21.5 11.7 84% 69%
------- -------- ------- ------------------- ------- ------- -------- -------
218.8 190.8 15% 9% Services & Support 31.7 31.5 1% (5%)
------- -------- ------- ------------------- ------- ------- -------- -------
3.1 19.2 (84%) - Other4 0.2 0.6 (67%) -
------- -------- ------- ------------------- ------- ------- -------- -------
1,070.9 952.2 12% 9% Total Group 161.1 150.8 7% 2%
------- -------- ------- ------------------- ------- ------- -------- -------
Airframe Systems provides Braking Systems, Fire Protection &
Safety Systems, Power & Motion, Fuel Systems, Avionics &
Sensors and Polymer Seals for around 35,000 in-service civil and
22,000 defence aircraft. Having increased our content on the new
generation aircraft by as much as 250%, Airframe Systems is well
positioned to grow as the OEMs increase production rates. We also
have a strong presence on all of the fastest growing and hardest
worked defence platforms. As such, we have strong relationships
with all of the major OEMs, whether commercial, defence or business
jet; fixed wing or rotorcraft; US, European or Rest of World. The
division represents 47% of Group revenue, generating 53% of its
revenue from OE sales and 47% from the aftermarket.
Revenue was up by 6% organically. Civil aerospace grew
organically by 5%, driven principally by 8% growth in civil OE,
with good growth on Boeing 787, 737 and 777 platforms and the
Airbus A220. OE revenue growth also benefited from strong demand in
business (Cessna Citation and multiple Gulfstream platforms) and
regional jets (Q400 and ARJ-21) which in aggregate account for 27%
of divisional civil OE revenue.
Civil aftermarket revenue increased by 2% on an organic basis,
with good underlying demand in large jets partly offset by
declining revenue in regional jets which account for 44% of civil
aftermarket revenue; and flat revenue in business jets which
account for 35% of civil aftermarket revenue.
Defence revenue grew by 9%, with strong demand for OE parts on
fighter jet (F/A-18) and rotorcraft (Apache, Chinook and NH-90)
platforms which offset declining demand on special mission and
trainer aircraft. In the aftermarket, which represents 49% of
Airframe Systems defence revenue, strong growth on Typhoon and F-35
platforms offset declining demand on other fighter jets, notably
the F/A-18 which had been strong during 2018.
Underlying operating margin declined by 80 basis points to
20.7%, reflecting accelerated growth of free of charge brakes and a
small number of high growth at sites in the lower stages of the
Meggitt Production System which offset the growing efficiencies
from strategic initiatives including centralised procurement, the
transfer of production to low cost countries and production
efficiencies from more mature MPS sites.
Engine Systems has a leading position in aero sensing with a
broad range of technologies and sensor applications including
vibration monitoring and engine health management systems. This
division also provides aero-engine heat exchangers, flow control
and advanced engine composites. Strong positions on high volume
platforms mean we are well positioned for growth in Engine Systems.
The division represents 15% of Group revenue, generating 92% of its
revenue from OE and 8% from the aftermarket as a result of its
principal route to the aftermarket being through the Services &
Support division, in the new reporting structure.
Revenue increased by 21% on an organic basis with particularly
strong growth in civil OE and defence segments.
Civil OE revenue increased organically by 18%, driven by strong
demand for parts on large jet engine programmes, principally the
Leap and GENx engines. Demand for regional and business jet
programmes was also strong during the first half. In defence,
revenue grew by 26% on an organic basis with particularly strong
growth on the F-135 programme.
4 Those businesses which were disposed of prior to the effective
date of the new divisional structure or were classified as held for
sale at that date are presented separately as 'Other'.
Underlying operating margin decreased to 3% (2018: 8%),
reflecting the anticipated increase in costs at our Engine
Composites product group, where we continue to increase production
rates and have invested to build duplicate capabilities at our
recently expanded site in Mexico. We have made encouraging progress
in improving operational performance and have secured the customer
support required to begin the progressive transfer of volume
production to Mexico during the second half. This progress will
underpin an improvement in Engine Systems margin during the second
half.
Energy & Equipment consists of our energy product groups and
businesses that provide products directly to defence customers.
Energy Sensors & Controls provides a range of valves,
actuators, sensor and condition monitoring systems for oil and gas
applications and Heatric provide innovative printed circuit heat
exchanger technology for offshore gas applications. Training
Systems is a market leader in providing small arm virtual training
systems with major contracts for the US Army and Marine Corps, and
Defense Systems provides a series of complex engineered products to
defence agencies in electronic cooling, ammunition handling and
scoring systems. Energy & Equipment represents 18% of Group
revenue and generates 83% of its revenue from OE and 17% from the
aftermarket.
Revenue grew by 9% on an organic basis, with strong growth in
defence offsetting slower growth in energy and declining revenue in
other markets. Defence revenue grew by 17% on an organic basis with
strong demand for both Defense Systems and Training Systems
equipment. Key platforms include the M1A Abrams and F-16 which
offset declining demand on the P-8. In energy, good performance at
Heatric together with growth in services revenue offset lower
demand for large frame gas turbine OE parts.
Underlying operating margin increased by 420 basis points to
11.2%, reflecting strong operational leverage from increased volume
across the division.
Services & Support provides a full service aftermarket
offering including spares distribution and MRO to our commercial,
business jet and defence customer base, throughout the lifecycle of
our products. With an extensive installed base of over 71,000
aircraft equipped by Meggitt technology this provides a significant
opportunity for profitable growth over decades to come. The
division represents 20% of Group revenue and generates 100% of its
revenue from the aftermarket.
Revenue grew by 9% on an organic basis, with good growth in both
civil and defence aftermarkets.
In the civil aftermarket, revenue grew organically by 7% driven
by strong underlying demand in large jets which accounts for 87% of
revenue. Key platforms were the Airbus A330ceo, A320ceo and
A350XWB; and the Boeing 787, 737 original class and 747. Revenue
grew strongly in the first quarter on 737 MAX as airlines took
delivery of initial provisioning spares as the aircraft entered
service. Following the grounding of the 737 MAX in March 2019,
initial provisioning spares have been deferred, limiting growth on
this platform during the second quarter.
In defence, revenue grew by 16% on an organic basis with
particularly strong demand on fighter jets (principally the F-15,
F-16 and F/A-18), special mission (B-2) and transport (KC-135 and
C-130J) aircraft; offsetting lower demand on rotorcraft platforms.
Defence revenue also benefited from one-off stocking associated
with a new distributor agreement signed in December 2018, which
contributed circa 10% growth in the first half of 2019.
Underlying operating margin decreased by 200 basis points to
14.5%, reflecting an unfavourable revenue mix, driven by the growth
of our defence aftermarket.
INVESTING FOR THE FUTURE
H1 2018 % Change
---------------------------------- --------
GBPm H1 2019 Reported Organic
---------------------------------- -------- -------- --------- --------
Total research and development
(R&D) 64.9 65.7 (1) (5)
Less: Charged to cost of
sales / WIP (14.4) (13.0) 11 6
Less: Capitalised (25.1) (27.2) (8) (12)
Add: Amortisation / Impairment 13.4 10.9 23 18
---------------------------------- -------- -------- --------- --------
Charge to net operating
costs 38.8 36.4 7 4
Capital expenditure 37.1 38.6 (4) (7)
---------------------------------- -------- -------- --------- --------
Total R&D expenditure in the first half reduced to GBP64.9m
and was 6.1% of revenue (2018: GBP65.7m, 6.9%). The charge to net
operating costs, including amortisation and impairment, increased
by 7% (4% on an organic basis) to GBP38.8m (2018: GBP36.4m).
Reduced spend on R&D reflects the progress made on
development programmes for major new aircraft platforms including
the Bombardier Global 7500/8000 and the Gulfstream G500/600 which
have now entered service and Boeing 777X which is due to enter
service in 2020. As more programmes pass key milestones over the
next few years, we expect R&D to reduce further as a percentage
of revenue.
Targeted investment in technology development remains critical
to our long-term organic growth and we continue to expect growth in
expensed R&D relating to our successful applied research and
technology (AR&T) programmes, which will develop the next
generation products and manufacturing technologies required to
enable future aircraft programmes. Investment in retrofit,
modification and upgrades will also continue to grow as we target
more growth from mid-life upgrades, capitalising on the increased
market and product performance knowledge garnered through our
Services & Support division.
Capital expenditure on property, plant and equipment and
intangible assets was GBP37.1m (2018: GBP38.6m) a 7% decrease on an
organic basis. Expenditure is principally driven by continued
investment to build capacity to support growth and our site
consolidation programme. Capital expenditure is expected to
increase significantly during the second half in line with our
guidance of between GBP95m and GBP120m for the full year. We expect
growth in the second half in investment related to the fit out of
our state-of-the-art manufacturing campus at Ansty Park and an
expansion of our carbon brakes capacity, in order to support the
anticipated growth in large jets such as the Airbus A220 and new
business jet programmes.
FOREIGN EXCHANGE
The weakening of Sterling against the US dollar positively
affected our reported results for the period.
Translation of results from overseas businesses increased Group
revenue by GBP40.8m and underlying profit before tax (PBT) by
GBP5.9m in the first six months. The sensitivity of full-year
revenue and underlying PBT to future exchange rate translation
movements, when compared to the 2019 H1 average rates, is shown in
the table below:
Underlying
2019 H1 Revenue PBT
average rate GBP'm GBP'm
---------------------------- -------------- -------- -----------
Impact of 10 cent movement
US Dollar 1.28 120 20
Swiss Franc 1.30 8 3
Euro 1.15 11 2
---------------------------- -------------- -------- -----------
Transaction exposure, where revenues and/or costs of our
businesses are denominated in a currency other than their own,
increased revenue by GBP10.2m and increased underlying PBT by
GBP1.3m in the period. We typically hedge transaction exposure and
the following table details hedging currently in place:
Hedging in place5 Average transaction
% rates6
----------------------- ------------------ --------------------
2019
US Dollar/Sterling 100 1.43
US Dollar/Swiss Franc 88 1.06
US Dollar/Euro 93 1.19
2020 - 2022 inclusive
US Dollar/Sterling 64 1.35
US Dollar/Swiss Franc 24 1.12
US Dollar/Euro 18 1.22
----------------------- ------------------ --------------------
Taking translation and transaction benefit into account, 2019
reported revenue increased by GBP51.0m and underlying PBT increased
by GBP7.2m.
RETIREMENT BENEFIT SCHEMES
Scheme deficits in the period increased from GBP209.1m (at 31
December 2018) to GBP260.7m. The financial assumptions used to
discount scheme liabilities moved adversely with a significant
reduction in the rates used to discount scheme liabilities in both
the UK and US. These more than offset benefits from deficit
reduction payments and strong asset performance.
The Group made deficit reduction payments in the first half of
GBP17.2m (2018: GBP16.4m). In the UK, the 2018 triennial valuation
has been completed. Under the new recovery plan agreed with the
trustees, deficit payments will continue at the same levels as
under the previous valuation but, following a modest improvement in
the funding position, will now end in H2 2023 (H1 2024 under the
previous valuation).
GROUP OUTLOOK
The outlook for our civil markets is good. Growth in deliveries
of large jets is expected to continue, and the increased shipset
values we enjoy on the latest generation of large jets support
organic civil OE revenue growth over the medium term ahead of
overall market growth. Civil OE revenue grew organically by 11% in
the first half with strong demand on large jet platforms where we
have secured increases in market share and tailwinds from a
recovery in business and regional jets. Looking forward, we expect
large jet demand to remain strong but we anticipate slower growth
in business and regional jets. As a result, the Group now expects
civil OE organic revenue of between 5 and 7% for the full year (up
from previous guidance of between 4 and 6%).
Civil aftermarket revenue grew organically by 7% in the first
half, with strong underlying growth in large jets offset by lower
demand for initial provisioning spares as a result of the grounding
of the 737 MAX, modest growth in business jet and declining demand
in regional jets. Growth in air traffic, an important driver of our
large jet aftermarket, slowed during the first five months of 2019,
with revenue passenger kilometre growth of 4.6% (compared to 6.0%
in the first half of 2018). This, together with modest growth
anticipated in business and regional jets, where utilisation growth
is weak, means the Group continues to expect organic civil
aftermarket revenue growth of between 3% and 5% for the full
year.
In defence markets the potential for growth over the medium term
is good, with the US Department of Defense spend set to grow at
around 3% over the next few years. Our compelling technology
offering and broad platform exposure has enabled us to grow
strongly in the first half, with organic revenue growth of 13%. For
the full year, we expect organic defence revenue growth of between
6 and 8% (up from previous guidance of between 4 and 6%), with
lower growth in the second half due to slowing benefit from our new
distributor agreement and tougher prior year comparators when
spares demand exceeded 30% in the fourth quarter of 2018. We also
anticipate risk to spending in the fourth quarter should there be a
Continuing Resolution in the US.
5 Based on forecast transaction exposures.
6 Hedging in place with unhedged exposures based on exchange
rates at 30 June 2019.
In energy, the Group has strong positions in selected markets
based on aero-derivative technologies (valves, actuators and
sensing systems for industrial gas turbines) and other applications
linked to our core aerospace competencies (thermal management).
Growth in global economic activity will increase demand for Meggitt
products and services over the long term. In the near term, the
return of investment in oil and gas infrastructure and potential
for growth in demand for liquid natural gas will provide good
growth opportunities for Heatric, whilst growth in demand for
renewables will offset falling demand for large frame gas turbines.
The Group continues to expect energy organic revenue growth of
between 0 and 5% for the full year.
On the basis of the above, we expect 4 to 6% Group organic
revenue growth in 2019 (up from previous guidance of between 3 and
5%).
An improving financial performance at Engine Composites in the
second half of 2019, together with the growing financial benefits
from our strategic initiatives underpin our confidence in
delivering the full year margin guidance which remains unchanged at
between 17.7 and 18.2% (an improvement of 0 to 50 basis
points).
CONDENSED CONSOLIDATED UNAUDITED INCOME STATEMENT
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
Notes GBPm GBPm
Revenue 3 1,070.9 952.2
Cost of sales (697.0) (607.8)
----------- -----------
Gross profit 373.9 344.4
Net operating costs (282.5) (220.6)
----------- -----------
Operating profit (1) 91.4 123.8
Finance income 0.6 0.5
Finance costs (19.4) (19.1)
----------- -----------
Net finance costs 7 (18.8) (18.6)
Profit before tax (2) 72.6 105.2
Tax 8 (16.0) (14.8)
Profit for the period attributable to
equity owners of the Company 56.6 90.4
=========== ===========
Earnings per share:
Basic (3) 9 7.3p 11.7p
Diluted (4) 9 7.2p 11.5p
Non-GAAP Measures
3 &
(1) Underlying operating profit 4 161.1 150.8
(2) Underlying profit before tax 4 145.4 136.1
(3) Underlying basic earnings per share 9 14.7p 13.9p
(4) Underlying diluted earnings per
share 9 14.5p 13.7p
----------------------------------------- ------ ----------- -----------
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE
INCOME
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
Notes GBPm GBPm
Profit for the period attributable to equity
owners of the Company 56.6 90.4
Items that may be reclassified to the income
statement in subsequent periods:
Currency translation movements 24 16.4 22.6
Movements in fair value of financial liabilities
arising from changes in credit risk 16 (0.6) 0.5
Cash flow hedge movements 24 - (0.3)
Tax effect 0.1 -
----------- -----------
15.9 22.8
Items that will not be reclassified to the income
statement in subsequent periods:
Remeasurement of retirement benefit obligations (63.2) 55.1
Tax effect 11.1 (10.7)
----------- -----------
(52.1) 44.4
Other comprehensive (expense)/income for
the period (36.2) 67.2
Total comprehensive income for the period attributable
to equity owners of the Company 20.4 157.6
=========== ===========
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEET
At 30 June 2019
30 June 31 December
2019 2018
Notes GBPm GBPm
Non-current assets
Goodwill 12 2,033.6 2,035.3
Development costs 12 572.2 557.1
Programme participation costs 12 18.7 18.2
Other intangible assets 12 560.4 610.4
Property, plant and equipment 13 409.0 404.0
Investments 13.0 12.9
Trade and other receivables 20.4 21.5
Contract assets 61.7 61.1
Derivative financial instruments 16 8.2 10.0
Deferred tax assets 22.7 16.3
---------- ------------
3,719.9 3,746.8
Current assets
Inventories 492.2 441.2
Trade and other receivables 401.0 413.6
Contract assets 55.1 47.9
Derivative financial instruments 16 2.8 9.3
Current tax recoverable 3.3 6.4
Cash and cash equivalents 116.4 181.9
Assets classified as held for sale 14 17.7 10.3
---------- ------------
1,088.5 1,110.6
Total assets 3 4,808.4 4,857.4
Current liabilities
Trade and other payables (421.8) (452.5)
Contract liabilities (34.8) (47.9)
Derivative financial instruments 16 (24.1) (18.8)
Current tax liabilities (54.3) (39.5)
Lease liabilities (17.2) (16.1)
15
Bank and other borrowings & 16 (110.5) (10.2)
Provisions 17 (32.2) (33.0)
(694.9) (618.0)
Net current assets 393.6 492.6
Non-current liabilities
Trade and other payables (1.6) (1.3)
Contract liabilities (63.3) (43.9)
Derivative financial instruments 16 (16.2) (17.4)
Deferred tax liabilities (149.6) (161.9)
Lease liabilities (89.0) (81.4)
15
Bank and other borrowings & 16 (1,023.9) (1,148.3)
Provisions 17 (74.1) (83.7)
Retirement benefit obligations 18 (260.7) (209.1)
---------- ------------
(1,678.4) (1,747.0)
Total liabilities (2,373.3) (2,365.0)
Net assets 2,435.1 2,492.4
========== ============
Equity
Share capital 19 38.8 38.8
Share premium 1,224.3 1,223.9
Other reserves 15.7 15.7
Hedging and translation reserves 509.7 493.8
Retained earnings 646.6 720.2
---------- ------------
Total equity attributable to owners of the
Company 2,435.1 2,492.4
========== ============
CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2019
Equity attributable to owners of the Company
-------------------------------------------------------------------------
Hedging
Share Share Other and translation Retained Total
capital premium reserves reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2018 38.8 1,222.2 15.7 400.1 634.7 2,311.5
Profit for the period - - - - 90.4 90.4
Other comprehensive
income - - - 22.8 44.4 67.2
Total comprehensive
income for the period - - - 22.8 134.8 157.6
Employee share schemes:
Value of services provided - - - - 6.8 6.8
Issue of equity share
capital - 0.3 - - (0.3) -
Purchase of own shares
for employee
share schemes - - - - (12.5) (12.5)
Dividends (note 10) - - - - (83.3) (83.3)
At 30 June 2018 38.8 1,222.5 15.7 422.9 680.2 2,380.1
========= ========= ========== ================= ========== ========
At 1 January 2019 38.8 1,223.9 15.7 493.8 720.2 2,492.4
Profit for the period - - - - 56.6 56.6
Other comprehensive
income/(expense) - - - 15.9 (52.1) (36.2)
Total comprehensive
income for the period - - - 15.9 4.5 20.4
Employee share schemes:
Value of services provided - - - - 9.8 9.8
Issue of equity share
capital - 0.4 - - (0.4) -
Dividends (note 10) - - - - (87.5) (87.5)
At 30 June 2019 38.8 1,224.3 15.7 509.7 646.6 2,435.1
========= ========= ========== ================= ========== ========
CONDENSED CONSOLIDATED UNAUDITED CASH FLOW STATEMENT
For the six months ended 30 June 2019
Six months Six months
ended ended
30 June 30 June
2019 2018
Notes GBPm GBPm
Non-GAAP Measures
Cash inflow from operations before business
disposal expenses and exceptional operating
items 118.3 123.9
Cash outflow from business disposal expenses 25 (0.9) (3.6)
Cash outflow from exceptional operating
items 6 (11.9) (5.3)
---------------------------------------------- ------ ----------- -----------
Cash inflow from operations 22 105.5 115.0
Interest received 0.3 0.1
Interest paid (16.2) (15.5)
Tax paid (4.4) (11.4)
-----------
Cash inflow from operating activities 85.2 88.2
----------- -----------
Businesses disposed 25 7.2 36.5
Capitalised development costs 12 (25.1) (27.1)
Capitalised programme participation costs (1.2) (0.8)
Purchase of intangible assets (3.7) (9.2)
Purchase of property, plant and equipment (33.4) (29.4)
Proceeds from disposal of property, plant
and equipment 21.6 1.8
-----------
Cash outflow from investing activities (34.6) (28.2)
----------- -----------
Dividends paid to Company's shareholders 10 (87.5) (83.3)
Purchase of own shares for employee share
schemes - (12.5)
Proceeds from bank and other borrowings 15 17.8 122.6
Repayments of bank and other borrowings 15 (37.0) (93.9)
Repayments of lease liabilities (7.5) (6.8)
----------- -----------
Cash outflow from financing activities (114.2) (73.9)
=========== ===========
Net decrease in cash and cash equivalents (63.6) (13.9)
Cash and cash equivalents at start of the
period 181.9 118.5
Exchange losses on cash and cash equivalents (1.9) (0.9)
----------- -----------
Cash and cash equivalents at end of the
period 116.4 103.7
=========== ===========
NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL
STATEMENTS
For the six months ended 30 June 2019
1. General information
Meggitt PLC is a public limited company listed on the London
Stock Exchange, domiciled in the United Kingdom and incorporated in
England and Wales with the registered number 432989. It is the
parent company of a Group whose principal activities during the
period were the design and manufacture of high performance
components and sub--systems for aerospace, defence and other
specialist markets, including energy, medical, industrial and
test.
The condensed consolidated financial statements presented in
this document have not been audited or reviewed and do not
constitute Group statutory accounts as defined in section 434 of
the Companies Act 2006. Group statutory accounts for the year ended
31 December 2018 were approved by the Board of Directors on 25
February 2019 and delivered to the Registrar of Companies. The
auditors' report on those accounts was unqualified, did not draw
attention to any matters by way of emphasis and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
The condensed consolidated financial statements for the six
months ended 30 June 2019 have been prepared in accordance with the
Disclosure Guidance and Transparency Rules of the Financial Conduct
Authority and International Accounting Standard 34, 'Interim
Financial Reporting' as adopted by the European Union. They should
be read in conjunction with the Group's financial statements for
the year ended 31 December 2018 which have been prepared in
accordance with IFRSs as adopted by the European Union. The
directors have formed a judgement, at the time of approving the
condensed consolidated financial statements, that there is a
reasonable expectation that the Group has adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval of this interim management report.
For this reason, the directors continue to adopt the going concern
basis in preparing these condensed consolidated financial
statements.
2. Accounting policies
The condensed consolidated financial statements have been
prepared using the same accounting policies adopted in the Group's
financial statements for the year ended 31 December 2018 except as
described below.
A number of amendments to, and the interpretation of, existing
accounting standards became effective during the period, none of
which have had a significant impact on the condensed consolidated
financial statements.
In applying the Group's accounting policies, the Group is
required to make certain estimates and judgements concerning the
future. These estimates and judgements are regularly reviewed and
revised as necessary. The estimates and judgements that have the
most significant effect on amounts included in the condensed
consolidated financial statements are the same as those that
applied to the consolidated financial statements for the year ended
31 December 2018, as disclosed on pages 142 to 144 of the Group's
2018 Annual Report except as described below.
-- In 2018, the Group concluded that following its selection in
the year to supply the wheel and braking system for the Dassault
Aviation Falcon 6X programme there were no indicators that any
element of the previously recorded impairment of development costs
related to the Dassault 5X programme should be reversed. This is no
longer a critical estimate for 2019.
-- In 2018, the Group made a judgement regarding the level at
which level impairment testing of goodwill was performed. The
changes to the organisational structure on 1 January 2019, result
in changes to the level at which this testing is performed and
estimates of the allocation of goodwill to the new CGUs/groups of
CGUs. The annual impairment exercise is performed in the second
half of the year but the Group has confirmed that there was no
impairment immediately prior to introducing the new organisational
structure and that there have been no events or changes in
circumstances that indicate the carrying value attributable to the
new CGUs/groups of CGUs may not be recoverable.
The tax charge for the period has been calculated using the
expected effective tax rates for each tax jurisdiction for the year
ended 31 December 2019. These rates have been applied to the
pre--tax profits made in each jurisdiction for the six months ended
30 June 2019.
3. Segmental analysis
The Group adopted a new organisation structure on 1 January 2019
and now manages its businesses under four customer-aligned
divisions: Airframe Systems, Engine Systems, Energy & Equipment
and Services & Support. Prior period comparatives have been
restated to reflect this change.
The key performance measure reviewed by the Chief Operating
Decision Maker ('CODM') is underlying operating profit. The CODM
has been identified as the Board.
Six months ended 30 June 2019:
Services Other
Airframe Engine Energy & * Total
Systems Systems & Equipment Support
GBPm GBPm GBPm GBPm GBPm GBPm
Gross segmental revenue 699.2 164.4 211.1 228.0 3.1 1,305.8
Inter-segment revenue (200.9) (5.2) (19.6) (9.2) - (234.9)
Revenue from external
customers 498.3 159.2 191.5 218.8 3.1 1,070.9
========= ========= ============= ========= ====== ========
At a point in time 475.7 156.1 118.4 218.8 3.1 972.1
Over time: Power by the
hour/Cost per brake landing 18.4 3.1 - - - 21.5
Over time: Other 4.2 - 73.1 - - 77.3
Revenue by basis of recognition 498.3 159.2 191.5 218.8 3.1 1,070.9
========= ========= ============= ========= ====== ========
Underlying operating
profit ** 103.0 4.7 21.5 31.7 0.2 161.1
========= ========= ============= ========= ====== ========
Six months ended 30 June 2018 (Restated):
Other
Airframe Engine Energy Services * Total
Systems Systems & Equipment & Support
GBPm GBPm GBPm GBPm GBPm GBPm
Gross segmental revenue 609.3 130.4 184.4 200.9 19.2 1,144.2
Inter-segment revenue (159.7) (5.1) (17.1) (10.1) - (192.0)
Revenue from external
customers 449.6 125.3 167.3 190.8 19.2 952.2
========= ========= ============= =========== ====== ========
At a point in time 431.4 122.8 129.7 190.8 19.2 893.9
Over time: Power by the
hour/Cost per brake landing 16.2 2.5 - - - 18.7
Other time: Other 2.0 - 37.6 - - 39.6
Revenue by basis of recognition 449.6 125.3 167.3 190.8 19.2 952.2
========= ========= ============= =========== ====== ========
Underlying operating
profit ** 96.6 10.4 11.7 31.5 0.6 150.8
========= ========= ============= =========== ====== ========
* Those businesses which were disposed of prior to the effective
date of the new divisional structure or were classified as held for
sale at that date are presented separately as 'Other'.
** A detailed reconciliation of underlying operating profit to
operating profit is shown in note 4.
Analysis of segmental trading assets
30 June
2019 31 December
2018
Restated
GBPm GBPm
Airframe Systems 1,148.1 1,107.6
Engine Systems 435.9 402.2
Energy & Equipment 323.3 344.1
Services & Support 79.0 69.9
Total segmental trading assets 1,986.3 1,923.8
Centrally managed trading assets * 120.4 123.4
Goodwill (note 12) 2,033.6 2,035.3
Other intangible assets 484.0 527.8
Investments 13.0 12.9
Derivative financial instruments - non-current
(note 16) 8.2 10.0
Deferred tax assets 22.7 16.3
Derivative financial instruments - current
(note 16) 2.8 9.3
Current tax recoverable 3.3 6.4
Cash and cash equivalents 116.4 181.9
Assets classified as held for sale (note 14) 17.7 10.3
-------- ------------
Total assets 4,808.4 4,857.4
======== ============
* Centrally managed trading assets principally include amounts
recoverable from insurers and other third parties in respect of
environmental matters relating to former sites, other receivables
and property, plant and equipment of central companies.
4. Reconciliations between profit and underlying profit
Underlying profit is used by the Board to monitor and measure
the underlying trading performance of the Group. It excludes
certain items as described below:
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Operating profit 91.4 123.8
Amounts arising on the acquisition, disposal
and closure of businesses (note 25) (1.5) (22.0)
Amortisation of intangible assets acquired
in business combinations (note 12) 44.9 43.6
Financial instruments (note 5) 15.3 (2.7)
Exceptional operating items (note 6) 11.0 8.1
-----------
Adjustments to operating profit * 69.7 27.0
Underlying operating profit 161.1 150.8
=========== ===========
Profit before tax 72.6 105.2
Adjustments to operating profit per above 69.7 27.0
Net interest expense on retirement benefit
obligations (note 7) 3.1 3.9
Adjustments to profit before tax 72.8 30.9
Underlying profit before tax 145.4 136.1
=========== ===========
Profit for the period 56.6 90.4
Adjustments to profit before tax per above 72.8 30.9
Tax effect of adjustments to profit before
tax (16.0) (13.8)
----------- -----------
Adjustments to profit for the period 56.8 17.1
Underlying profit for the period 113.4 107.5
=========== ===========
* Of the adjustments to operating profit, GBP4.3m (2018:
GBP4.0m) relating to exceptional operating items has been charged
to cost of sales with the balance of GBP65.4m (2018: GBP23.0m)
included within net operating costs.
5. Financial instruments
To ensure appropriate and timely commercial decisions are made
as to when and how to mitigate the Group's foreign currency and
interest rate exposures, gains and losses arising from the mark to
market of financial instruments that are not hedge accounted are
excluded from underlying profit measures.
Although the Group uses foreign currency forward contracts to
hedge against foreign currency exposures, it has decided that the
costs of meeting the extensive documentation requirements to be
able to apply hedge accounting under IFRS 9 'Financial Instruments'
are not merited. The Group's underlying profit figures exclude
amounts which would not have been recorded if hedge accounting had
been applied.
Where interest rate derivatives qualify to be hedge accounted,
any difference recognised in the income statement between the
movements in fair value of the derivatives and in the fair value of
fixed rate borrowings is excluded from underlying profit. Where
cross currency derivatives and treasury lock derivatives do not
qualify to be hedge accounted, movements in fair value of the
derivatives are excluded from underlying profit (note 4).
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Movements in fair value of foreign currency
forward contracts 3.0 13.0
Impact of retranslating net foreign currency
assets and liabilities at spot rate 1.4 -
Movements in fair value of interest rate derivatives (2.2) 5.6
Movements in fair value of fixed rate borrowings
due to interest rate risk (note 16) 1.8 (4.5)
Movements in fair value of cross currency derivatives 11.6 (16.5)
Movements in fair value of treasury lock derivative (0.3) (0.3)
Financial instruments - Loss/(Gain) 15.3 (2.7)
=========== ===========
6. Exceptional operating items
Delivery of the Group's strategy includes the restructuring of
its cost base to deliver operational improvements. The exclusion
from underlying profit measures (see note 4) of significant items
arising from site consolidations and business restructuring is
designed by the Board to align short-term operational decisions
with this longer-term strategy.
Income statement Cash expenditure
------------------------ ------------------------
Six months Six months Six months Six months
ended ended ended ended
30 June 30 June 30 June 30 June
2019 2018 2019 2018
Note GBPm GBPm GBPm GBPm
Site consolidations a 8.9 5.7 9.6 3.1
Business restructuring costs 2.1 1.8 2.3 1.6
Integration of acquired
businesses - 0.6 - 0.6
Exceptional operating items 11.0 8.1 11.9 5.3
=========== =========== =========== ===========
a. This relates to costs incurred in respect of the Group's
previously announced plans to reduce its footprint by 20% by the
end of 2021. Cumulative costs since the announcement are GBP52.5m.
In 2019, costs are principally in respect of the move to a new
facility being constructed at Ansty Park in the West Midlands which
will enable the Group to consolidate a range of manufacturing,
engineering and support operations into a single centre of
excellence.
7. Net finance costs
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Interest on bank deposits 0.1 -
Unwinding of interest on other receivables 0.3 0.4
Other finance income 0.2 0.1
Finance income 0.6 0.5
Interest on bank borrowings 1.0 0.6
Interest on senior notes 13.5 13.3
Interest on lease liabilities 2.1 2.1
Unwinding of discount on provisions 0.8 0.8
Net interest expense on retirement benefit
obligations (note 4) 3.1 3.9
Amortisation of debt issue costs 0.4 0.4
Less: amounts capitalised in the cost of
qualifying assets (note 12) (1.5) (2.0)
------ ------
Finance costs 19.4 19.1
Net finance costs 18.8 18.6
====== ======
8. Tax
The Finance (No 2) Act 2015 and Finance Act 2016, included
legislation to reduce the main rate of corporation tax in the UK
from 19% to 17% with effect from 1 April 2020. As these changes
were substantively enacted in prior years, they have had no
significant impact on the tax charge for the current period.
9. Earnings per ordinary share
Earnings per ordinary share ('EPS') is calculated by dividing
the profit attributable to equity owners of the Company of GBP56.6m
(2018: GBP90.4m) by the weighted average number of shares in issue
during the period of 772.9m (2018: 772.7m). The weighted average
number of shares used excludes shares bought by the Group and held
during the period by an independently managed Employee Share
Ownership Plan Trust. The weighted average number of own shares
excluded is 4.0m shares (2018: 3.7m).
Underlying EPS is based on underlying profit for the period
(note 4) and is reconciled to basic EPS below:
Six months Six months
ended ended
30 June 30 June
2019 2018
Pence Pence
Basic EPS 7.3 11.7
Adjust for the effects of:
Amounts arising on the acquisition, disposal
and closure of businesses (0.1) (3.0)
Amortisation of intangible assets acquired
in business combinations 4.5 4.3
Financial instruments 1.6 (0.3)
Exceptional operating items 1.1 0.8
Net interest expense on retirement benefit
obligations 0.3 0.4
----------- -----------
Underlying basic EPS 14.7 13.9
=========== ===========
Diluted EPS for the period is 7.2p (2018: 11.5p). The
calculation of diluted EPS adjusts the weighted average number of
shares to reflect the assumption that all potentially dilutive
ordinary shares convert. For the Group, this means assuming all
share awards in issue are exercised. The weighted average number of
shares used in the calculation of diluted EPS is 784.7m (2018:
785.3m). Underlying diluted EPS for the period is 14.5p
(2018: 13.7p). The calculation of underlying diluted EPS is
based on underlying profit (note 4) and the same weighted average
number of shares used in the calculation of diluted EPS.
10. Dividends
The directors have declared an interim dividend of 5.55p per
ordinary share (2018: 5.30p) which will be paid on 4 October 2019
to shareholders on the register on 6 September 2019. At 30 June
2019, as there is no legal obligation to make the dividend payment,
the dividend cost of GBP42.9m (2018: GBP40.9m) is not recorded as a
liability. A dividend reinvestment plan will be available for
shareholders who wish to take the dividend in the form of shares
rather than cash and the last date for receipt of forms of election
for the dividend reinvestment plan is 20 September 2019.
During the period, the final dividend of 11.35p per ordinary
share in respect of the year ended 31 December 2018 was paid (2018:
10.80p final dividend in respect of the year ended 31 December
2017). The total cost of the final dividend was GBP87.5m (2018:
GBP83.3m) and was paid in cash.
11. Related party transactions
The remuneration of key management personnel of the Group, which
is defined for 2019 as members of the Board and the Group Executive
Committee, is set out below.
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Salaries and other short-term employee benefits 3.2 3.5
Retirement benefit expense - 0.1
Share-based payment expense 1.9 1.3
-----------
Total 5.1 4.9
=========== ===========
12. Intangible assets
Goodwill Development Programme Other intangible
costs participation assets
costs
GBPm GBPm GBPm GBPm
At 1 January 2019 2,035.3 557.1 18.2 610.4
Exchange rate adjustments 5.5 1.9 - 1.2
Additions - 25.1 1.0 3.7
Transfer to assets classified
as held for sale (5.4) - - -
Businesses disposed (note
25) (1.8) - - -
Interest capitalised (note
7) - 1.5 - -
Amortisation and impairment
loss * - (13.4) (0.5) (54.9)
--------- ------------ --------------- -----------------
At 30 June 2019 2,033.6 572.2 18.7 560.4
========= ============ =============== =================
* Amortisation of other intangible assets includes GBP44.9m
(2018: GBP43.6m) in respect of intangible assets acquired in
business combinations and which has been excluded from underlying
operating profit (note 4).
Goodwill is tested for impairment annually or more frequently if
there is any indication of impairment (note 2). There have been no
indications of impairment in the period. A full impairment review
was conducted for the year ended 31 December 2018 and no impairment
charge was required. The cumulative impairment charge recognised to
date is GBPNil (2018: GBPNil).
13. Property, plant and equipment
Land and Plant, equipment Right-of-use
buildings and vehicles assets(*) Total
GBPm GBPm GBPm GBPm
At 1 January 2019 128.7 196.2 79.1 404.0
Exchange rate adjustments 0.4 0.4 0.3 1.1
Additions 2.8 25.1 19.6 47.5
Transfer to assets classified
as held for sale - (0.6) - (0.6)
Disposals (15.3) (0.2) - (15.5)
Transfers 3.2 (3.2) - -
Depreciation ** (4.6) (15.6) (7.3) (27.5)
----------- ----------------- ------------- -------
At 30 June 2019 115.2 202.1 91.7 409.0
=========== ================= ============= =======
* The net book amount comprises property of GBP89.4m (2018:
GBP76.7m) and of other assets GBP2.3m (2018: GBP2.4m).
** Depreciation includes GBP0.1m (2018: GBP1.6m) in respect of
amounts charged to exceptional operating items and which has been
excluded from underlying operating profit (note 4).
14. Assets classified as held for sale
On 16 January 2019, the Group completed the sale and leaseback
of land and buildings relating to its manufacturing facilities in
Coventry, West Midlands, UK, including properties which were
classified as held for sale at 31 December 2018. Following
completion of the sale and leaseback transaction, right-of-use
assets have been recognised.
On 1 April 2019, the Group completed the disposal of the trade
and assets of Meggitt (France) SAS previously classified as held
for sale (note 25).
During the period, the Group decided to dispose of its
non-aerospace test and measurement sensing business (reported
within Energy & Equipment) and determined at 30 June 2019 that
a sale was highly probable. In August 2019, the disposal was
completed.
Total
GBP'm
At 1 January 2019 10.3
Change in carrying value of assets held for sale to date
of disposal 0.6
Business disposed (note 25) (1.5)
Disposals (9.4)
Additions 17.7
At 30 June 2019 17.7
=======
15. Bank and other borrowings
Current Non-current Total
GBPm GBPm GBPm
At 1 January 2019 10.2 1,148.3 1,158.5
Exchange rate adjustments - (7.9) (7.9)
Transfers 98.3 (98.3) -
Proceeds - 17.8 17.8
Repayments - (37.0) (37.0)
Other non-cash movements 2.0 1.0 3.0
-------- ------------ --------
At 30 June 2019 110.5 1,023.9 1,134.4
======== ============ ========
Analysed as:
30 June 31 December
2019 2018
GBPm GBPm
Bank loans 0.5 0.4
Other loans* 110.0 9.8
---------- --------------
Total current 110.5 10.2
========== ==============
Bank loans 329.1 358.5
Other loans 694.8 789.8
---------- --------------
Total non-current 1,023.9 1,148.3
========== ==============
* Includes at 30 June 2019, USD125.0m senior notes which fall due for repayment in June 2020.
16. Financial Instruments - fair value measurement
For trade and other receivables, contract assets, cash and cash
equivalents, trade and other payables and contract liabilities,
fair values approximate to book values due to the short maturity
periods of these financial instruments. For trade and other
receivables, allowances are made within their book value for credit
risk. The fair values of lease liabilities approximate to their
book values due to the measurement of lease liabilities at the
Group's incremental borrowing rate, which has not changed
significantly since the inception of the lease liabilities. Leases
are also negotiated at market rates with independent, unrelated
third parties and are subject to periodic rental reviews. For other
financial instruments, a comparison of book values and fair values
is provided below:
Book value Fair value
30 June 31 December 30 June 31 December
2019 2018 2019 2018
GBPm GBPm GBPm GBPm
Derivative financial instruments
- non-current 8.2 10.0 8.2 10.0
Derivative financial instruments
- current 2.8 9.3 2.8 9.3
Financial assets 11.0 19.3 11.0 19.3
Derivative financial instruments
- current (24.1) (18.8) (24.1) (18.8)
Bank and other borrowings
- current (110.5) (10.2) (110.5) (10.2)
Derivative financial instruments
- non-current (16.2) (17.4) (16.2) (17.4)
Bank and other borrowings
- non-current (1,023.9) (1,148.3) (1,035.9) (1,136.5)
---------- ------------ ---------- ------------
Financial liabilities (1,174.7) (1,194.7) (1,186.7) (1,182.9)
---------- ------------ ---------- ------------
Total (1,163.7) (1,175.4) (1,175.7) (1,163.6)
========== ============ ========== ============
Derivative financial instruments measured at fair value, are
classified as level 2 in the fair value measurement hierarchy, as
they have been determined using significant inputs based on
observable market data. The fair values of interest rate
derivatives have been derived from forward interest rates based on
yield curves observable at the balance sheet date and contractual
interest rates. The fair values of foreign currency forward
contracts have been derived from forward exchange rates observable
at the balance sheet date and contractual forward rates. The fair
values of cross currency derivatives have been derived from forward
interest rates based on yield curves observable at the balance
sheet date, forward exchange rates observable at the balance sheet
date and contractual interest and forward rates.
Fixed rate bank and other borrowings measured at fair value, are
classified as level 3 in the fair value measurement hierarchy, as
they have been determined using significant inputs which are a
mixture of those based on observable market data (interest rate
risk) and those not based on observable market data (credit risk).
The fair values attributable to interest rate risk have been
derived from forward interest rates based on yield curves
observable at the balance sheet date and contractual interest
rates, with the credit risk margin kept constant. The fair values
attributable to credit risk have been derived from quotes from
lenders for borrowings of similar amounts and maturity periods. The
same methods of valuation have been used to derive the fair value
of the fixed rate bank and other borrowings which are held at
amortised cost, but for which fair values are provided in the table
above
There were no transfers of assets or liabilities between levels
of the fair value hierarchy during the period.
Cumulative unrealised changes in the fair value of bank and
other borrowings, designated as fair value through profit and loss,
arising from changes in credit risk are as follows:
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Fair value at 1 January 0.3 1.1
Loss/(Gain) recognised in other comprehensive
income 0.6 (0.5)
----------- -----------
Fair value at 30 June 0.9 0.6
=========== ===========
The difference between fair value and contractual amount at
maturity of bank and other borrowings, designated as fair value
through profit and loss, is as follows:
30 June 31 December
2019 2018
GBPm GBPm
Fair value 245.9 242.7
Difference between fair value and contractual
amount at maturity (9.9) (7.5)
-------- ------------
Contractual amount payable at maturity 236.0 235.2
======== ============
Changes in fair value of bank and other borrowings classified as
level 3 in the hierarchy are as follows:
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
At 1 January 242.7 235.2
Exchange rate adjustments 0.7 5.1
Loss/(Gain) recognised in net operating costs
(note 5) 1.8 (4.5)
Loss recognised in net finance costs 0.1 0.1
Loss/(Gain) due to changes in credit risk recognised
in other comprehensive income 0.6 (0.5)
----------- -----------
At 30 June 245.9 235.4
=========== ===========
The largest movement in credit spread seen in a six month period
since inception of the borrowings is 70 basis points. A 70 basis
point movement in the credit spread used as an input in determining
fair value at 30 June 2019, would impact other comprehensive income
by approximately GBP3.0m.
17. Provisions
30 June
2019 31 December
2018
GBPm GBPm
Environmental * 68.9 80.6
Onerous contracts 14.1 13.7
Warranty costs 15.1 15.7
Other 8.2 6.7
Total 106.3 116.7
======== ============
Analysed as:
Current 32.2 33.0
Non-current 74.1 83.7
-------- ------------
Total 106.3 116.7
======== ============
* Included within trade and other receivables is GBP27.0m
(December 2018: GBP34.1m) in respect of amounts recoverable from
insurers and other third parties. During the period, GBP7.4m (June
2018: GBP15.0m) was received.
During the period, expenditure of GBP19.5m (June 2018: GBP22.5m)
was incurred, of which GBP12.7m (June 2018: GBP12.4m) related to
environmental provisions. The charge to the income statement in the
period in respect of additional provisions created was GBP9.5m
(June 2018: GBP8.6m) and the credit to the income statement in
respect of the reversal of unused amounts was GBP1.0m (June 2018:
GBP2.2m).
18. Retirement benefit obligations
30 June 31 December
2019 2018
GBPm GBPm
Amounts recognised in the balance sheet:
Present value of scheme liabilities 1,359.3 1,224.7
Fair value of scheme assets (1,098.6) (1,015.6)
Total 260.7 209.1
========== ============
Analysis of retirement benefit obligations:
Pension schemes 208.5 161.5
Healthcare schemes 52.2 47.6
---------- ------------
Total 260.7 209.1
========== ============
Key financial assumptions:
UK Scheme:
Discount rate 2.25% 2.90%
Inflation rate 3.20% 3.20%
Salary increases 2.95% 2.95%
21.7 to 21.7 to
Current life expectancy - Male aged 65 (years) 23.6 23.5
Overseas Schemes*:
Discount rate 3.35% 4.15%
20.0 to 20.2 to
Current life expectancy - Male aged 65 (years) 20.6 20.8
* Provided in respect of the most significant overseas schemes.
Cash contributions paid during the period were GBP23.6m (June
2018: GBP24.5m) including deficit reduction payments of GBP17.2m
(June 2018: GBP16.4m).
19. Issued share capital
30 June 31 December
2019 2018
No. m No. m
Allotted and fully paid 777.0 776.9
======== ============
The increase in the number of shares during the period relates
to shares issued on the exercise of Sharesave awards.
20. Contingent liabilities
The Company has given guarantees in respect of credit facilities
for certain of its subsidiaries, some property and other leases and
the performance by some current and former subsidiaries of certain
contracts. Also, there are similar guarantees given by certain
other Group companies. The directors do not believe that the effect
of giving these guarantees will have a material adverse effect upon
the Group's financial position.
The Company and various of its subsidiaries are, from time to
time, parties to legal proceedings and claims which arise in the
ordinary course of business. The directors do not anticipate that
the outcome of these proceedings, actions and claims, either
individually or in aggregate, will have a material adverse effect
upon the Group's financial position.
21. Capital commitments
30 June
2019 31 December
2018
GBPm GBPm
Contracted for but not incurred:
Intangible assets 2.3 0.6
Property, plant and equipment 16.2 14.3
-------- ------------
Total 18.5 14.9
======== ============
At 30 June 2019, the Group additionally has a significant lease
commitment relating to its new facility being constructed at Ansty
Park, West Midlands, UK. The Group expects to recognise this lease
in the second-half of 2019, when it obtains control of the
right-of-use asset and to recognise a lease liability and
right-of-use asset of approximately GBP60.0m at that date. The
lease term is 30 years. At the date the lease is recognised, the
Group expects undiscounted cash flows to be: GBP9.0m inflow in one
year or less; GBP11.0m outflow in more than one year but not more
than five years; and GBP99.0m outflow in more than five years.
22. Cash inflow from operations
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Profit for the period 56.6 90.4
Adjustments for:
Finance income (note 7) (0.6) (0.5)
Finance costs (note 7) 19.4 19.1
Tax 16.0 14.8
Depreciation (note 13) 27.5 28.3
Amortisation and impairment losses (note 12) 68.8 63.4
(Gain)/Loss on disposal of property, plant
and equipment (0.4) 0.7
Gain on disposal of businesses before disposal
expenses (note 25) (3.0) (26.6)
Financial instruments - Loss/(Gain) (note
5) 15.3 (2.7)
Impact of retranslating net foreign currency
cash at spot rate (4.5) -
Share of (profit)/loss after tax of joint
venture (0.1) 0.1
Change in carrying value of assets held for
sale to date of disposal (note 14) 0.6 -
Retirement benefit obligation deficit payments
(note 18) (17.2) (16.4)
Share-based payment expense 6.4 4.9
Changes in working capital (79.3) (60.5)
-----------
Cash inflow from operations 105.5 115.0
=========== ===========
The Board uses free cash flow to monitor and measure the
underlying trading cash performance of the Group. It is reconciled
to cash from operating activities below:
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Cash inflow from operating activities 85.2 88.2
Add back cash outflow from business disposal
expenses 0.9 3.6
Add back impact of retranslating net foreign
currency cash at spot rate 4.5 -
Capitalised development costs (25.1) (27.1)
Capitalised programme participation costs (1.2) (0.8)
Purchase of intangible assets (3.7) (9.2)
Purchase of property, plant and equipment (33.4) (29.4)
Proceeds from disposal of property, plant and
equipment 21.6 1.8
----------- -----------
Free cash inflow 48.8 27.1
=========== ===========
23. Movements in net debt
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
At 1 January 1,074.1 1,052.8
Cash inflow from operating activities (85.2) (88.2)
Cash outflow from investing activities 34.6 28.2
Dividends paid to Company's shareholders (note
10) 87.5 83.3
Purchase of own shares for employee share
schemes - 12.5
----------- -----------
Net cash generated - outflow 36.9 35.8
Lease liabilities entered 15.9 1.4
Exchange rate adjustments (5.7) 34.8
Other non-cash movements 3.0 (2.1)
-----------
At 30 June 1,124.2 1,122.7
=========== ===========
Analysed as:
Bank and other borrowings - current 110.5 63.1
Bank and other borrowings - non-current 1,023.9 1,072.9
Cash and cash equivalents (116.4) (103.7)
----------- -----------
Net borrowings 1,018.0 1,032.3
Lease liabilities - current 17.2 14.2
Lease liabilities - non-current 89.0 76.2
At 30 June 1,124.2 1,122.7
=========== ===========
24. Components of other comprehensive income
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Arising in the period 16.4 25.6
Transferred to the income statement - (3.0)
----------- -----------
Currency translation movements - Gain 16.4 22.6
=========== ===========
Movements in fair value - 0.1
Transferred to the income statement - (0.4)
----------- -----------
Cash flow hedge movements - Loss - (0.3)
=========== ===========
25. Business disposals
During 2018, the Group decided to dispose of the trade and
assets of Meggitt (France) SAS, a producer of engine ignition
technology, and at 31 December 2018 determined that a sale was
highly probable. The related assets were classified as a disposal
group held for sale and were presented separately together with
directly associated liabilities. The disposal subsequently
completed on 1 April 2019 for a consideration of EUR1.0m.
Additionally, on 26 June 2019, the Group disposed of a small number
of product lines from within one of its Energy and Equipment
businesses for a consideration of USD8.0m.
The businesses disposed were not a major line of business or
geographical area of operation of the Group. The net assets of the
businesses at the date of disposal were as follows:
Total
GBPm
Goodwill (note 12) 1.8
Inventory 0.9
Assets classified as held
for sale (note 14) 1.5
Net assets 4.2
Business disposal expenses 1.5
Gain on disposal of businesses
(note 4) 1.5
------
Total consideration received
in cash 7.2
======
Cash inflow arising on disposal:
Total consideration received
in cash 7.2
Less: business disposal expenses
paid (0.9)
------
Total cash inflow 6.3
======
Delivery of the Group's strategy includes investment in
acquisitions that enhance its technology portfolio. The exclusion
of significant items arising from M&A activity is designed by
the Board to align short-term operational decisions with this
longer term strategy. Accordingly amounts arising on the
acquisition, disposal and closure of businesses are excluded from
underlying profit measures. These include gains or losses made on
the disposal or closure of a business, adjustments to the fair
value of contingent consideration payable in respect of an acquired
business or receivable in respect of a disposed business and costs
directly attributable to the acquisition and disposal of
businesses.
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
Gain on disposal of businesses before disposal
expenses (note 22) 3.0 26.6
Costs related to the disposal of businesses
in the current period (1.2) (4.2)
----------- -----------
Gain on disposal of businesses 1.8 22.4
Costs related to the disposal of businesses
in prior periods (0.3) (0.4)
Amounts arising on the acquisition,
disposal and closure of businesses (note
4) 1.5 22.0
=========== ===========
26. Approval of interim management report
The interim management report was approved by the Board of
Directors on 5 August 2019.
27. Availability of interim management report
The interim management report will be available on the Group's
website www.meggitt.com from 6 August 2019. Paper copies of the
report will be available to the public from the Company's
registered office at Atlantic House, Aviation Park West,
Bournemouth International Airport, Christchurch, Dorset, BH23
6EW.
RISKS AND UNCERTAINTIES
The Group disclosed in its 2018 Annual Report the principal
risks and uncertainties which the Group is exposed to. These risks
have not changed significantly over the period and are expected to
continue to be relevant for the remaining six months of the
year.
The risks relate to those arising from fundamental changes in
the Group's business model, reduced demand for the Group's
products, not aligning technology strategies with customer
requirements, quality escape/equipment fault, business
interruption, failure to meet new product development and programme
milestones and certification requirements, failure to meet
customers' cost, quality and delivery standards, failure to
integrate effectively acquisitions, IT/systems failure, supply
chain management, failure to successfully and simultaneously
deliver significant change programmes, failure to attract and
retain people, legal and regulatory matters and changes in tax
legislation. Further details can be found in the 'Risk management'
section of the 2018 Annual Report on pages 46 to 53, together with
details of strategies adopted to mitigate these exposures.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm that to the best of their knowledge:
-- This condensed set of consolidated interim financial
statements has been prepared in accordance with IAS 34 'Interim
Financial Reporting' as adopted by the European Union; and
-- The interim management report (including the interim
financial statements, management report and responsibility
statements) includes a fair review of the information required by
DTR 4.2.7R and DTR 4.2.8R, namely:
o An indication of important events that have occurred during
the six months ended 30 June 2019 and their impact on the condensed
set of financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
o Material related party transactions in the six months ended 30
June 2019 and any material changes to the related party
transactions described in the last annual report.
By order of the Board:
A Wood L Burdett
Director Director
5 August 2019 5 August 2019
- E N D S -
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UVSRRKUAWRUR
(END) Dow Jones Newswires
August 06, 2019 02:01 ET (06:01 GMT)
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