TIDMMGGT
RNS Number : 7832R
Meggitt PLC
02 July 2020
2 July 2020
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) No 596/2014.
Meggitt PLC - Update on trading
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 second quarter, ahead of publication of
first half results on 8 September 2020.
All organic revenue growth numbers within this statement are
estimates with confirmation of adjustments relating to foreign
exchange and M&A to be finalised as part of the half year
results process.
Operational update
Against a backdrop of the significant slowdown across the global
civil aerospace sector as a result of COVID-19, we remained focused
on three core priorities during the second quarter alongside the
continued execution of our strategy.
Our first priority has been to ensure the continued wellbeing of
our employees, ensuring business continuity and safe operations
across our global manufacturing sites. Second, we have continued to
meet our commitments to customers as we adjust to changing market
conditions and supported our suppliers to mitigate any disruption
across the supply chain. Finally, we have made good progress
executing our actions to reduce costs and cash expenditure to
underpin our liquidity position and to resize the Group, as set out
in our April statement.
During the second quarter, the majority of our manufacturing
facilities remained open with around two-thirds of our global
employees working at our sites and the remainder either working
from home or on furlough. With lockdowns starting to ease across a
number of the countries in which we operate, where possible, and in
line with local government guidelines, we are putting plans in
place for all employees including those that are office-based to
progressively return safely to the workplace.
Trading update for the second quarter
Throughout the second quarter, widespread lockdowns had a
material impact on civil aerospace, with up to 60% of the global
fleet grounded and a substantial reduction in both passenger demand
and air traffic.
As a result, and in line with our internal scenario plan, we saw
a significant decline in our civil aerospace activity in the second
quarter. Overall, we expect civil revenue in the period to be c.50%
lower on an organic basis, with a similar reduction across both
civil OE and AM.
Our Defence business, which represented 36% of Group revenue in
2019, continued to perform solidly during the second quarter after
a very strong Q1 and against a tough comparative (Q2 2019 growth of
10%). Energy revenue is expected to be somewhat softer, with
strength in LNG markets more than offset by declines in the power
generation and oil sectors.
Overall, we expect Group organic revenue to be c.30% lower in
the second quarter.
During the second quarter, and despite the marked slowdown in
the external environment, we continued to execute our strategy
including the consolidation of two sites (one US and one UK) into
other sites as part of our ongoing footprint reduction initiative.
In addition, within our Engine Composites business, we continued
the transfer of products from Erlanger, US to our expanded facility
in Mexico. And, at the end of the quarter and as announced on 1
July 2020, we completed the sale of Meggitt Training Systems for a
cash consideration of $146m, continuing our strategy to focus our
portfolio on businesses in growing markets where we have a leading
market position.
Actions to reduce cash expenditure and our cost base
We have made good progress executing the actions announced in
April to reduce our cost base, preserve cash, and resize the
business to position us for H2 and 2021.
The reduction in our global workforce is proceeding as planned
and, as a result of the early actions taken in the first quarter,
we anticipate being able to derive higher savings than originally
planned from reducing our discretionary operating costs. However,
as we realign our global supply chain to reflect reduced customer
demand alongside tightening supply parameters, it has taken
slightly longer to gain momentum on reducing inventory levels.
Inventory reduction remains a key objective for the Group and we
continue to anticipate delivering good levels of cash saving from
this initiative in the second half.
Overall, we remain on track to reduce cash outflows by around
GBP400m to GBP450m in 2020.
Financial and liquidity position
At 31 May 2020, we had GBP1,630m of committed facilities in
place providing headroom of GBP662m. We also have access to
additional liquidity as an eligible issuer under the Bank of
England's Covid Corporate Financing Facility. On 11 May, we secured
a forward start on our revolving credit facility, with the signing
of a new one year $575m multi-currency facility maturing in
September 2022. On 15 June 2020, we paid $125m on the maturity of a
tranche of 2010 US Private Placement Notes, covered by bilateral
loans put in place at the end of December 2019.
H1 expectations and outlook
Group revenue in the first half is expected to be c.15% lower
than in H1 2019 on an organic basis, with growth in Defence more
than offset by lower revenues in both civil aerospace and
Energy.
Civil aerospace revenue is expected to be c.30% lower on an
organic basis, with a similar performance across both civil OE and
AM, with the extent of declines in business jets expected to be
less than in large and regional jets.
Against a tough comparative (13% organic growth in H1 2019),
Defence is expected to deliver organic revenue growth of mid-single
digits %, driven by good growth in OE. We continue to see good
order flow and expect demand in this part of the business to remain
robust throughout 2020.
Energy revenue is expected to be c.10% lower than the
comparative period reflecting weaker market conditions in oil and
gas and power generation sectors.
In light of the marked reduction in activity across the civil
aerospace sector and the expected timing and duration of the
recovery, we anticipate recognising a significant non-cash
reduction in the carrying value of certain intangible assets under
International Accounting Standard (IAS) 36 as part of our half year
process.
We anticipate a significant free cash outflow (after interest
and tax) in the first half driven by: lower levels of
profitability; cost reduction actions being second half-weighted;
being at a peak in the investment cycle for capital expenditure;
higher working capital requirements; and higher cash tax payments.
The first half outflow will be substantially offset by the disposal
proceeds from the sale of Meggitt Training Systems announced on 1
July 2020. At the current time, and based on our modelling
assumptions, we expect the first half free cash outflow to be
reversed during the second half and to be free cash flow positive
for the full year before disposal proceeds.
In recent weeks, initial signs of a recovery in commercial
aerospace have emerged, with commercial airlines bringing more of
the fleet back into service and business jet activity increasing in
the US. Notwithstanding these early positive signals, and as we
look ahead to the performance of the sector and our civil aerospace
business in the second half, uncertainty and risk remain about the
duration of the pandemic and its impact on the pace and shape of
any recovery, including the potential for a second wave.
Against this market backdrop, in the second half we will
continue to execute against our strategy and internal scenario plan
and will provide further updates in our first half results on 8
September 2020.
END
Enquiries:
Tony Wood, Chief Executive
Louisa Burdett, Chief Financial Officer
Mathew Wootton, Vice President, Head of 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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END
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July 02, 2020 02:00 ET (06:00 GMT)
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