Always aiming to be at the top of its game, aerospace, defence and energy engineering company Meggitt is one that has innovation at its very heart along with being one that prides itself on the ability to deliver solutions for the most challenging environments. This morning Meggitt has announced its full year results for 2018.
Meggitt is a company that also believes in investing for its own future and to that end, CEO Tony Wood is leading it through a major phase of investment at Ansty near Coventry that is designed to not only further improve efficiency of operation through in this case, investment in new facilities and consolidation of various activities currently spread over the country but also at the same time to lay down strong foundations in which to produce sustainable growth, strong cash flow and importantly, maintaining of the already excellent record of cash conversion.
On the subject of investing in its future it is worth noting as well that Meggitt spent £138.3 million on research and development last year, a figure that accounts for 6% of its total revenue.
2018 was a year of solid performance and transformation for the company and from my perspective, 2019 looks likely to continue that same trend. Whilst uncertainty over Brexit and other factors will remain an area of concern for engineering and manufacturing companies through this year it is pleasing to see that the outlook statement from Meggitt that accompanied these results remains full of confidence.
Last year witnessed orders in civil original equipment and civil aftermarket equipment growing by a heady 16% each whilst those in defence and energy grew by 6% respectively. While civil aerospace at Meggitt accounts for the largest share of group revenue defence remains extremely important accounting for 35% of revenue last year. Energy
2018 was a year of good progress being made by Meggitt and the highlights are that it was a year in which the company achieved strong orders and revenue growth, one that margins were held at 17.7%, underlying earnings per share rose 7%, dividend rose 5% and that the outlook statement remained full of confidence.
Underpinning order and revenue progress in 2018 was the increased content on a range of new aircraft programmes and growing end-market positions. With an installed base that has now reached 71,000 aircraft combined with strong and still growing order books, investment being plowed in for the future and that is aimed at further improving efficiency and competitiveness, Meggitt looks to me to be very well placed to provide a sustainable period of growth in the years ahead.
Having increased 42% in the previous year free cash flow decreased by £30m to £167m in 2018. Cash conversion was impacted through a one-off £30m payment to reduce the Group’s US pension scheme deficit together with a £38m increase in inventory buffers to support growth, site consolidation and Brexit contingency. However, Return on Capital Employed increased by 9.9%.
Pointing to strategic highlights achieved in 2018 the company has confirmed that progress was made on a number of important strategic initiatives including completion of three further non-core disposals and that allow increasing focus on attractive core markets where the company has already achieved strong positions. A very important order win was that of supplying engine composites for Pratt & Whitney F-135 and F-119 engines and also brakes for the Airbus A321neo. Importantly, Meggitt has accelerated progress on its planned site consolidation and purchasing initiatives all of which are aimed at producing further margin improvements in 2021. This includes a planned 20% reduction in footprint target together with a 2% annual reduction in purchased costs.
CHW (London – 26th February 2019)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785