Meggitt PLC Strong organic revenue growth in all end markets

Meggitt PLC (LON:MGGT), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and energy markets, today announced audited results for the year ended 31 December 2018.

Group Headlines

Financial highlights

· Organic order growth of 12% underpins expectations for long term revenue growth; book to bill5 of 1.08x included strong performance in civil aerospace (1.10x book to bill)

· Organic revenue growth of 9% reflects strong performance in growing end-markets; with 7% growth in civil aerospace, 10% in defence and 19% in energy

· Underlying operating margin maintained at 17.7%, with efficiencies from strategic initiatives and lower new product introduction costs, offset by growing free of charge (‘FoC’) content and extended learning curve costs at composites sites

· Statutory operating profit reflects strong underlying performance and lower exceptional costs, offset by the year on year, non-cash impact of marking to market certain financial instruments

· Free cash flow decreased by £30m to £167m, with 63% cash conversion as a result of a one-off £30m payment to reduce the Group’s US pension scheme deficit and a £38m increase in inventory buffers to support growth, site consolidation and Brexit contingency

· ROCE increased to 9.9% (2017: 9.3%)

· Recommended final dividend of 11.35p giving a full year dividend of 16.65p, an increase of 5%

Strategic highlights

Strong progress on strategic initiatives, further enhancing our foundation for revenue growth, margin expansion and cash conversion:

· Completion of three further non-core disposals to increase our focus on attractive markets where we have strong positions

· Transformational wins secured to provide engine composites on the Pratt & Whitney F-135 and F-119 engines and brakes on the Airbus A321neo

· Accelerated progress on site consolidation and purchasing initiatives is contributing to the Group’s 2021 margin improvement target with a 20% reduction in footprint and 2% p.a. reduction in purchased costs and further opportunities emerging

· Continued deployment of the Meggitt Production System (‘MPS’) enabling increased inventory turns of 2.7x (2017: 2.5x) which reduced the investment required to deliver growth by £43m

· New customer aligned organisation implemented in January 2019, with experienced and capable teams in place to accelerate long term growth

1 Restated for the effects of IFRS 15, IFRS 16 and IFRS 9 as set out in note 29.

2 Organic numbers exclude the impact of acquisitions, disposals and foreign exchange.

3 Underlying profit and EPS are used by the Board to measure the trading performance of the Group as set out in notes 5 and 11.

4 Free cash flow as set out in note 25.

5 The ratio of orders received to revenue recognised in a period.

Tony Wood, Chief Executive, commented:

“2018 was a landmark year for Meggitt, with strong performance underpinned by our increased content on new aircraft programmes and growing end-markets, enabling the Group to increase organic revenue growth to 9%, ahead of our raised guidance. Our team delivered good progress on our strategic initiatives offsetting extended learning curve costs that we incurred at our fast growing composites sites, enabling an increase in underlying operating profit to £367m.

We have a clear growth strategy and remain focused on driving further improvements in customer and operating performance through our new customer-aligned organisation and the sustained deployment of the Meggitt Production System. Together with our growing installed base of 71,000 aircraft, we are well positioned to sustain growth over the medium term and to deliver our 2021 targets for underlying operating margin and cash.

Reflecting this continuing confidence in the prospects for the Group, the proposed final dividend is 11.35p giving a full year dividend of 16.65p, an increase of 5%. We expect 2019 to be a year of further good progress.”