ANNUAL REPORT
AND ACCOUNTS
2011
Contents
01-02
At a glance
01
02
Group overview
Financial highlights
03-36
Business review
Reports on key strategic, operational and financial
developments during the year
03
04-05
06-09
10-16
17-26
27-32
33-36
Chairman’s statement
Group strategy
Meggitt divisions
Market review
Performance review
Corporate responsibility
Principal risks and uncertainties
55-105 Financial statements
Statutory financial statements including the independent
auditors’ report
55
56
57
58
59
60
Group financial statements
Independent auditors’ report to the members of Meggitt PLC
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
61-97
Notes to the financial statements
98
99
Company financial statements
Independent auditors’ report to the members of Meggitt PLC
Company balance sheet
100-105
Notes to the financial statements of the Company
38-54 Governance
38
39-42
43-46
47-54
Board of directors
Directors’ report
Corporate governance report
Remuneration report
106–108 Supplementary information
106
Five-year record
107-108
Investor information
The Meggitt PLC annual report and
accounts 2011 can be downloaded
from www.meggitt.com
Group overview
1
Meggitt PLC, headquartered in the United Kingdom, is an international group with 10,500
employees worldwide. We specialise in high performance components and sub-systems
for primarily aerospace, defence and energy markets.
Our consistent record of strong financial performance comes from businesses balanced
across markets. We offset variation in demand, balancing exposure to civil with military
and energy markets; and sales to original equipment manufacturers with sales of
aftermarket products and services. Our revenues are spread across North America,
Europe and Asia. We have an installed base in excess of 57,000 aircraft which will
generate aftermarket revenues over many years to come, and an increasing presence
in military ground vehicles and energy installations.
Employees by region
Revenue by destination
Number of employees
10,538
Total revenue
(£ millions)
1,455.3
North America
UK
Mainland Europe
Rest of World
6,105
2,283
1,484
666
58%
22%
14%
6%
North America
UK
Mainland Europe
Rest of World
805.2
134.0
324.7
191.4
56%
9%
22%
13%
Revenue by market
R&D as a % of revenue
Total revenue
(£ millions)
1,455.3
Civil aerospace
Military
Energy and other
665.6
585.3
204.4
46%
40%
14%
11
10
09
08
07
7.6%
7.2%
7.4%
6.8%
8.0%
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
2
Financial highlights
Our business grew strongly in 2011 across all market
segments, driven by the ongoing recovery in the civil
aerospace and energy markets, our enhanced product
offerings and high-value contract wins on new
programmes. The acquisition of Pacific Scientific
Aerospace has proven to be more complementary to
our existing business than expected, enhancing our
prospects for further growth in 2012 and beyond.
Revenue
(£ millions)
1,455.3
11
10
09
08
07
Underlying profit before tax
(£ millions)1
323.0
Cash inflow from operations before
exceptional operating items
(£ millions)
395.8
1,455.3
1,162.0
1,150.5
1,162.6
878.2
11
10
09
08
07
323.0
256.1
234.2
243.3
179.0
11
10
09
08
07
Dividends per share
(pence)
Underlying earnings per share
(pence)1
Order intake
(£ millions)
10.50
31.9
1,524.8
11
10
09
08
07
10.50
9.20
8.45
8.45
8.20
11
10
09
08
07
31.9
27.8
25.3
26.5
22.1
11
10
09
08
07
1 The definition of “underlying” is provided in
notes 10 and 16 to the financial statements
on pages 73 and 75 respectively.
MEGGITT PLC REPORT AND ACCOUNTS 2011
395.8
331.3
341.7
295.4
214.3
1,524.8
1,212.4
1,096.2
1,152.9
912.1
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
Chairman’s statement
3
While we extend market positions, acquire
capabilities and accelerate routes to market
through acquisition, we continually seek to
grow our existing business by investing in
people, technologies and facilities.
During 2011, Meggitt enjoyed exceptional growth. Total orders
rose by 26% and total revenues by 25% compared to 2010.
Organic1 revenue grew by a healthy 12% before the effect of the
Pacific Scientific Aerospace (PacSci) acquisition, which completed
in April 2011. Underlying earnings per share were up 15% to
31.9 pence. Net cash generation excluding the cost of acquisitions
was £141.5 million (2010: £137.1 million). Net debt increased
modestly to £788.4 million (2010: £721.4 million) following the
acquisition of PacSci but net debt to EBITDA reduced to 1.7 times
(2010: 1.9 times). In consequence, the Board is proposing an
increase to the full-year dividend of 14% to 10.50 pence.
Investing for growth
While we extend market positions, acquire capabilities and
accelerate routes to market through acquisition, we continually
seek to grow our existing business by investing in people,
technologies and facilities.
We are investing in long-term aircraft programmes; and we are
extending existing technology into new products such as tyre
pressure monitoring. We spent 7.6% of revenues, or £110.5
million (2010: £84.2 million) on R&D in the year. We also invested
£33.2 million (2010: £28.4 million) on supplying equipment free of
charge to new aircraft and programme participation contributions.
This grows our base of installed equipment and secures future
aftermarket revenues.
Capital expenditure on property, plant and equipment and other
intangible assets increased to £52.1 million (2010: £27.7 million).
We have invested in new capital equipment in our aircraft braking
systems and polymers and composites facilities in the USA; we
are doubling the capacity of our innovative heat exchanger
business in Poole, UK; we are co-locating our North American
sensing businesses onto one campus in California; we continue to
implement common ERP systems. These combined investments
have yielded notable programme successes, including thermal
management products for Hamilton Sundstrand on Pratt &
Whitney’s geared turbofan™ engines; cooling systems for the
Boeing 787; sensor packages for CFM International and General
Electric’s Leap-X® engine; braking systems for Bombardier’s
Global 7000 and 8000 business aircraft; and contracts from oil
and gas customers for printed circuit heat exchangers for floating
liquefied natural gas installations.
PacSci
The PacSci acquisition brought a team of 2,400 employees
with extensive capabilities in aircraft electrical power, fire
suppression and low cost manufacturing, with centres in Mexico
and Vietnam. Integration is progressing very well and will be
largely complete in 2013. We have raised our synergy target by
25% to a $22.5 million run-rate by the end of 2014, reflecting a
better-than-anticipated fit with existing Meggitt businesses.
Board of directors
In June, Brenda Reichelderfer joined the Board as a non-
executive director bringing experience in engineering and
manufacturing across different commercial markets. Until her
retirement from ITT Industries in 2008, Brenda was Senior Vice
President, Director of Engineering and Chief Technology Officer.
Our people
May I take this opportunity to thank all Meggitt employees for their
tenacious efforts as they continue to transform our group, integrate
businesses and seize growth opportunities at the same time.
Group outlook
We will continue to focus on organic growth. Our energy markets
are buoyant, with sensing and monitoring, fluid control and heat
exchangers seeing increasing demand. Sales of new civil aircraft
remain strong. Air traffic growth continues to rise as the economic
recovery continues, boosting demand for aftermarket products and
services. R&D is meeting the requirements of new aircraft
programmes and replenishing aftermarket revenue streams.
Defence budget deliberations continue to cause uncertainty,
particularly in the USA. However, given the depth and breadth of
our military offering, we expect to achieve modest growth in this
market. Our balanced portfolio, with its lack of dependence on
any one sector, platform or customer, continues to show its worth.
We look forward to further good progress in 2012.
1 Organic growth numbers exclude foreign exchange movements and M&A.
Sir Colin Terry Chairman
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
4
Group strategy
We strive for excellence across all functions,
at all levels. We maintain a high-performance
culture based on meeting customer needs,
financial rigour and ethical practice.
Delivering superior shareholder returns through smart
engineering for extreme environments remains at the heart
of everything we do. By continuing to focus on innovative,
high performance and highly reliable products that meet the
demands of critical applications in aerospace, defence and
energy, we delivered another strong set of results in 2011. The
robustness of our business model has been validated further
as we took advantage of the recovery in our aerospace and
energy markets.
Strategy
We create intellectual property in applications where our
products must perform in extreme environments and where
certification requirements are demanding. Our ability to deliver
according to these criteria enables us to continue to win orders
for original equipment on new platforms, preferably on a
sole-source basis, across our core market segments. This
generates follow-on aftermarket revenues for the life of
these platforms, which can be up to 40 years in many cases.
We have a well-balanced portfolio. With revenues coming from
original equipment and the aftermarket across our core civil,
military and energy markets, we continue to deliver financial
strength and stability through the cycle.
We align our investment decisions with the requirements of our
customers by investing in research and development, additional
manufacturing capacity and new regions to better serve original
equipment manufacturers and operators across our markets.
Where appropriate, we seek to acquire companies that enhance
our capabilities and fast-track product and market development.
Our strategy
Focus on components and
sub-systems operating in
harsh environments
Invest in products with high
technology content and
aftermarket value
Deliver growth through
organic investment
and acquisition
MEGGITT PLC REPORT AND ACCOUNTS 2011
5
We strive for excellence across all functions, at all levels.
We maintain a high-performance culture based on meeting
customer needs, financial rigour and ethical practice.
Driving further growth
We seek to grow organically as well as through acquisition.
Meggitt saw very strong organic growth in 2011 and recent
success winning content on new programmes gives us
confidence this trend will continue. The Transformation initiative,
launched in 2009, has delivered substantial improvements
across the group including a leaner, more flexible manufacturing
footprint. During 2012 we will drive further improvements in
operational excellence, developing a common Meggitt approach
to lean tools and quality management. Our centralised
customer relationship teams and strengthened technology
and engineering organisation are enabling us to engage with
customers earlier in the technology development process,
at a higher level, making us more responsive to changing
customer demands.
Our ability to transfer technologies into adjacent markets
remains a key area of focus. Our interests in the energy sector,
for example, have been boosted by applying an enhanced
condition monitoring capability to industrial gas turbines and
developing our compact, diffusion-bonded heat exchanger
technology beyond its established oil and gas markets to floating
liquefied natural gas technology platforms and waste heat
recovery. We are also concentrating on the military retrofit
market. An excellent example of this is our blastproof fuel
tank technology for military ground vehicles.
Pacific Scientific Aerospace
The acquisition of Pacific Scientific Aerospace (PacSci) has
left us even better placed to serve the trend for more electric
capability on aircraft. Hydraulic systems are inherently heavy
and as operators demand greater fuel efficiency from their
equipment, manufacturers are looking to replace hydraulic
systems with lighter, high-integrity electrical alternatives.
The addition of PacSci to Meggitt’s established capabilities
now leaves us very well placed to address opportunities in
many areas including electrical anti-ice, power conversion
and power storage.
PacSci also makes us one of only two companies worldwide
offering an integrated fire protection system for aircraft and
has enhanced our low-cost manufacturing base with facilities
in Mexico and Vietnam.
Well positioned for the future
As reported last year, Transformation has left us stronger,
leaner and fitter than ever. This, with our focused investments
in technologies and capacity, the additional capabilities acquired
with PacSci, and our ongoing focus on customers, leaves us in
an excellent position to continue to drive growth and deliver
value for shareholders.
Terry Twigger Chief Executive
How we achieve our strategy
1 Deliver smart engineering
for extreme environments
2 Continue to strengthen our
technology roadmaps and our
partnerships with customers
3 Achieve operational excellence
by continually improving our
cost, quality and delivery
4 Expand our global reach to
meet the requirements of our
global customer base
5 Maintain a culture of strong
ethical and financial rigour
To see how Meggitt’s strategy
fundamentals are reflected at
divisional level, see over.
The results of strategy
implementation are outlined
in our performance review on
pages 17 to 26.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
6
Meggitt divisions
Revenue
Percentage of group revenue
Underlying operating profit
Meggitt Aircraft
Braking Systems
£320.5M
22.0%
£119.9M
Meggitt Control
Systems
£201.6M
13.8%
£47.9M
Meggitt Polymers
& Composites
£171.2M
11.8%
£31.7M
Meggitt Sensing
Systems
£233.9M
16.1%
£43.2M
Meggitt Equipment
Group (including PacSci) £528.1M
36.3%
£116.8M
MEGGITT PLC REPORT AND ACCOUNTS 2011
7
Meggitt Aircraft Braking Systems
Meggitt Control Systems
A leading supplier of aircraft wheels, brakes
and brake control systems.
A leading supplier of pneumatic, fluid control,
thermal management and electro-mechanical
equipment and sub-systems.
Markets
Markets
• Commercial transport
• Business jets
• Fixed and rotary wing military aircraft
• Commercial, military, regional, business
and general aviation
• Military ground vehicles
• Marine and industrial energy
• Ground fuelling
Capabilities
Capabilities
• Wheels and brakes
• Control—brake, nose wheel steering and landing gear
• Monitoring
• Heat management
• Control valves and sub-systems
• Electro-mechanical controls
• Environmental control
• Fuel handling
›› Growth strategy
›› Growth strategy
• Secure positions, sole source where possible, on new
aircraft programmes
• Develop market-leading technologies—electric braking
and innovative, long-life carbon heat sink materials
• Expand our landing gear sub-systems control and
• Deliver weight-saving aerospace products with more
accurate control that can withstand higher engine
temperatures
• Develop products that enable customers to meet low
emission regulations
monitoring capability
• Create products that optimise industrial power
• Leverage low-cost manufacturing capability
generation plant efficiency
• Support developing global infrastructures—e.g. airport
construction and expansion and pipeline construction
• Advance weight-saving, high-reliability electro-mechanical
devices to replace hydraulics in military ground vehicles
• Leverage low-cost manufacturing capability
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
8
Meggitt divisions
Meggitt Polymers & Composites
Meggitt Sensing Systems
A leading specialist in fuel containment, engineered
aircraft sealing solutions and technical polymers,
electro-thermal ice protection and complex
composite structures and assemblies.
A leading provider of high performance sensing
and condition-monitoring solutions for high-value
rotating machinery and other assets.
Markets
Markets
• Civil and military, fixed and rotary wing aircraft
• Military fighting vehicles
• Nuclear, marine, heavy transportation and oil and
gas sectors
• Civil aerospace: large, regional and business jets,
general aviation and space
• Military: fixed wing and rotary aircraft, ships, missiles
• Energy
• Test and measurement
Capabilities
Capabilities
• Flexible, ballistically-resistant and crashworthy fuel cells
• Wet wing fuel storage
• Engineered lightweight, high performance seals and
specialist technical polymers
• Smart electro-thermal ice protection with energy-saving
proportional control
• Complex composite structures
• High-performance sensing in extreme environments
• Condition-monitoring for air and land-based machinery
›› Growth strategy
›› Growth strategy
• Retain number one position in military aircraft fuel cells
• Attract more civil and ground vehicle fuel cell contracts
• Become a leading supplier of wet wing fuel storage
• Become the supplier of choice for engineered aircraft sealing
solutions, increasing our military share in particular
• Exploit the combined division’s capability in specialist
technical polymers
• Continue to invest in high-performance sensing and
advanced condition-monitoring systems that reduce aircraft
operating costs, optimise maintenance and reduce pollution
• Apply our expertise beyond aero-engines across the
airframe such as tyre pressure and landing gear monitoring
to support integrated vehicle health management solutions
• Focus on energy markets through targeted solution-selling
• Become a leading supplier of energy-conscious
and an expanding regional presence
electro-thermal ice protection for fixed wing aircraft
• Leverage our test and measurement technology advantages
• Grow our composites and assemblies business targeting
small aircraft structures, often highly complex ones
in combination with premium service levels
• Leverage low-cost manufacturing capability
• Leverage low-cost manufacturing capability
MEGGITT PLC REPORT AND ACCOUNTS 2011
9
Meggitt Equipment Group
Created to enable a set of strong, technologically-
distinct businesses to market their offerings to
specialist customers, while benefiting from the wider
Meggitt group’s investment in shared services and
common processes. In April 2011, Pacific Scientific
Aerospace joined the Meggitt Equipment Group,
bringing capabilities in power generation, linear
motion control, fire suppression, safety and security
and associated repair and overhaul services.
Markets
• Military and civil aerospace
• Defence and security
• Energy
• Automotive and industrial
Capabilities
• Aircraft fire protection and control systems
• Avionics
• Combat systems (ammunition-handling, military electronics
cooling and countermeasure launch and recovery systems)
• Live-fire and simulation training
• Heat transfer equipment for off-shore oil and gas
• Power generation
• Linear motion control
• Aircraft safety and security
• Automotive and industrial control electronics
›› Growth strategy
Fire protection
• Integrate fire detection with fire suppression to
deliver a complete fire protection capability
Power
• Leveraging our assets in power generation, conversion and
storage to add value to the more electric aircraft
Heat transfer
• Continue to drive the market to use our compact, high-
pressure, high-duty heat exchangers and to maintain our
market lead in this unique technology
• Explore options in chemical reformer, waste heat
management and nuclear markets
Live-fire and simulation training
• Become a preferred supplier for integrated and networked
live and virtual training packages for the armed services and
security and law enforcement organisations worldwide
Combat systems
• Provide smart thermal management solutions to
military electronics cooling problems
• Extend our automatic handling capability into larger
calibre weapons
• Continue to develop countermeasure launch and
recovery systems to address emerging threats
• Advance Doppler radar sensing for combat and
situational awareness
Avionics
• Continue to build our position in state-of-the-art
secondary flight displays
Automotive and industrial control
• Grow our bespoke position sensing capability and
extend into adjacent markets with our contact-less
sensor technology
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
10
Market review
Meggitt’s broad range of smart engineering capabilities and products for extreme
environments was expanded further in 2011 with the acquisition of Pacific Scientific
Aerospace. Our three core international markets – civil aerospace (46%), military (40%)
and energy and other markets (14%) – give our business the broad base and diversity
required to mitigate negative conditions in individual sectors and geographic regions.
This business model held good through the recent economic downturn and, as the
2011 results demonstrate, Meggitt performed well as markets recovered.
Summary
Based on current market indicators and at constant exchange rates, the group expects
to deliver strong organic revenue growth averaging 6 to 7% over the medium-term.
40% Military
Meggitt delivered its first contract for
flexible blast-resistant fuel bladders in
a ground vehicle – BAE Systems’ Bradley
Fighting Vehicle. The technology is
effective against metal fragments
resulting from the detonation of
improvised explosive devices. Holes are
sealed with a proprietary sealant, which
suppresses the ignition source and stops
fuel leakage.
14%
Energy and other markets
Heatric, our innovative
diffusion-bonded heat exchanger
specialist, received its largest
order ever last year from Shell
for high duty, high pressure
systems for Prelude—the world’s
largest floating liquefied natural
gas facility designed to provide
access to gas fields that would
otherwise be too costly or
difficult to develop.
11
46% Civil aerospace
Meggitt Control Systems won multiple
components for seven Hamilton Sundstrand
thermal management packages on Pratt &
Whitney PurePower® geared turbofan™ (GTF)
engines in 2011. The contract is estimated to
be worth around $1 billion over the lifetime of
the engine and aircraft programmes. Meggitt
Sensing Systems is already a primary sensor
supplier for this innovative platform.
Total revenue by market
Revenue by destination
Civil aerospace
Military
Energy and other
46%
40%
14%
North America
UK
Mainland Europe
Rest of World
56%
9%
22%
13%
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
12
Market review – Civil aerospace
Our civil aerospace revenues stem from almost every modern
jet airliner, regional aircraft and business jet in the world.
Meggitt expects aircraft deliveries and its own installed base,
currently estimated to be around 39,000 civil aircraft, to grow
strongly between 2011 and 2016, particularly in the large jet and
business jet sectors.
Established aircraft such as the Boeing 737/777, Airbus A320/A330,
Embraer E170/190 and a number of business jet programmes
continue to see strong build rates, with excellent additional growth
on new aircraft such as the Boeing 787, Gulfstream G650 and
Embraer Phenom. These promising markets should help Meggitt
achieve an estimated original equipment (OE) revenue growth of
7 to 8% per annum over the next five years.
Typically, Meggitt’s products are located in the more demanding
areas of an aircraft such as the engine, undercarriage and
external structures, which experience extremes of temperature
and vibration. We have significant sole-source positions on
aircraft that can be in service for many decades. This leads
to dependable, ongoing demand for aftermarket spares and
repairs. Roughly two thirds of Meggitt’s civil aerospace revenues
come from this market.
Passenger air travel is a key driver of the large jet and regional
aircraft aftermarket and continues to recover following the
downturn in 2008/9. In 2011 demand, expressed in Revenue
Passenger Kilometres, increased by nearly 6%, with capacity
growth, expressed in Available Seat Kilometres, also growing
at approximately 6%. Capacity is expected to grow by about 5%
on average over the course of the next five years. Business jet
utilisation will also continue to increase. With our growing
installed base, this should drive aftermarket revenue growth of
8 to 9% per annum. We could also benefit from restocking as
airlines rebuild maintenance stocks cut back in the recession.
55%
Large jet
22%
Regional aircraft
16%
Business jet
Civil aerospace revenue by sector
Civil aerospace revenue by OE and aftermarket
Large jet
Regional aircraft
Business jet
Other
55%
22%
16%
7%
Aftermarket
OE
63%
37%
MEGGITT PLC REPORT AND ACCOUNTS 2011
Large jet delivery forecast
Regional aircraft delivery forecast
Business jet delivery forecast
13
1,478
1,360
1,230
972
1,011
1,617
1,552
400
358
330
300
251
265
268
303
280
200
100
1,800
1,500
1,200
900
600
300
1,082
1,021
944
856
726
664
734
1,200
1,000
800
600
400
200
2010
2011
2012
2013
2014
2015
2016
2010
2011
2012
2013
2014
2015
2016
2010
2011
2012
2013
2014
2015
2016
Source: Meggitt management estimates
Source: Meggitt management estimates
Source: Meggitt management estimates
Large jets
Regional aircraft
Business jets
Regional aircraft deliveries of 265 in
2011 represented a 6% increase on 2010,
principally due to the CRJ1000 ramp-up
and increased delivery rates of Embraer
190/195 aircraft, partially offset by the
previously announced production rate
reduction in CRJ700/900. We expect
to see continued gradual production
recovery, led by aircraft such as the ATR
72 and Embraer 170/175, coupled with
the entry into service of the Sukhoi SJ100.
Utilisation has remained strong and
the global operations of our 70-to-90
passenger regional jet customers
(CRJ700/900/1000, E170/190) grew by
6% in 2011. Meggitt is exceptionally
well-positioned to take advantage of this
positive trend in the aftermarket, where
our carbon brakes are common on these
larger, high-cycle aircraft.
Airbus and Boeing have maintained high
delivery rates throughout the economic
downturn, aided by extensive order
backlogs totalling over 8,200 as at the end
of December 2011 and proactive customer
management. As confidence returned to
the industry during the course of 2011
and new models were announced, order
rates started to increase. Backlogs now
stand at almost eight years’ production
at current rates. Boeing and Airbus have
both responded to this by announcing
build rate increases on a number of
platforms.
Some 1,011 large jets were delivered in
2011, a 4% increase on 2010, with orders
received of over 2,200 aircraft giving a
book-to-bill ratio of greater than two. This
encouraging order trend should be
sustained by growth in emerging markets
and the need to replace ageing fleets with
more fuel efficient aircraft. Delivery rates
are forecast to increase by double digit
percentage points in 2012 and continue
to trend upwards over the medium-term,
underpinned by the Boeing and Airbus
delivery rate increases and production
ramp-ups for new programmes such as
the Boeing 737MAX/787 and Airbus
A320neo/A380/A350XWB.
The large jet duopoly between Airbus
and Boeing is being challenged as
new entrants invest in development
programmes, notably single aisle jets
from Bombardier, COMAC and UAC.
These, with the programmes mentioned
above, represent a good opportunity for
Meggitt and a solid indicator of the
positive outlook for the sector.
Deliveries of new business aircraft in
2011 totalled 664, down roughly 50%
from the peak in 2008 and down 8% on
2010. However, inventories of used
aircraft are now returning to more
normal levels and demand is showing
signs of recovery, particularly in
emerging international regions.
Customers outside the US now account
for over 40% of the total business jet
order backlog. Based on manufacturer
data and incorporating our view of the
macro drivers of the business jet market,
we expect deliveries to recover to above
2010 levels during the course of 2012. In
the medium-term, we expect business jet
deliveries to continue to recover, driven
by a host of new jets with high Meggitt
content, such as Gulfstream G250 and
G650, Bombardier 7000 and 8000,
Learjet 85 and Cessna CJ4.
Meggitt sales to business jets are biased
towards larger aircraft, where demand
was more resilient through the downturn
than from smaller aircraft. Larger aircraft
will become even more important to us
over the course of the next few years as
key Gulfstream and Bombardier
programmes enter service.
Business jet utilisation in the US
continued on an upward trend following
the 12% increase in 2010, although at
more muted levels, reflecting ongoing
macro-economic concerns. European
business jet utilisation also showed
further growth over 2010. Increasing
market share and higher content,
principally the increasing penetration
of carbon brakes, should drive our
aftermarket ahead of utilisation.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
14
Market review – Military aerospace and defence
Meggitt’s military revenues account for 40% of our business,
comprising fixed wing aircraft at 41%, rotary wing at 25%, land
vehicles at 6% and other sectors including training at 28%. While
our installed base incorporates some 18,000 aircraft, it is spread
across a wide variety of platforms including ground vehicles and
training facilities. Our mix of OE (61%) and aftermarket (39%) is
expected to give a resilient revenue source in a challenging
defence budget environment.
Defence budgets around the world are under pressure as
governments rebalance spending to compensate for increased
national debt. However, as active operational commitments in
Iraq and Afghanistan wind down, there is likely to be a significant
appetite for re-set and retrofit of existing equipment to ensure
continued force readiness. Meggitt estimates this market will
continue to yield organic revenue growth of around 2% over the
medium-term due to our positions on key platforms in service
(e.g. Black Hawk, Apache, Rafale), incoming platforms (e.g.
F-35 JSF) and potential retrofits. This growth rate assumes
that proposed sequestration (additional budget cuts from 2013)
does not have a material impact on programmes with high
Meggitt content.
41%
25%
6%
28%
Fixed wing
Rotary wing
Land vehicles
Training and other
Military revenue by sector
Military revenue by OE and aftermarket
Fixed wing
Rotary wing
Land vehicles
Training and other
41%
25%
6%
28%
Aftermarket
OE
39%
61%
MEGGITT PLC REPORT AND ACCOUNTS 2011
15
Military revenue by destination
North America
UK
Rest of Europe
Rest of World
67%
7%
14%
12%
Military fixed wing
Military rotary wing, land and sea
Military training
Meggitt has a significant installed base of
fixed wing aircraft and we are the number
one provider of wheels and brakes in this
market. With good positions on current
platforms, such as the F-15 Eagle, F-16
Falcon, F-18 E/F Hornet, Rafale, Hawk
and Eurofighter Typhoon and good content
on new programmes such as the F-35
JSF, our fleet and revenues are set to
continue to grow.
As new programme development and
acquisition funds are cut back and
delivery schedules pushed out, funding
has been diverted to production of current
platforms until alternative solutions are
available. Programmes that were to be
replaced by the F-35 JSF are now in
favour as deliveries of this new platform
are deferred. This includes production-
run extensions and upgrades to platforms
such as the F-15, F-16 and F-18 E/F, which
are regarded as cost-effective solutions
to governments’ force and capability
maintenance and expansion plans.
Military helicopters have proven an
invaluable operational asset in Iraq and
Afghanistan, demonstrated by the DoD’s
ongoing commitment to multi-year
Black Hawk, Chinook, Osprey and Apache
procurements. As key contributors to
operational effectiveness, their systems
continue to require significant
maintenance, retrofit and upgrade to
maintain combat operation readiness.
Similarly, the UK MoD will continue to
increase its Chinook fleet and move
ahead with the purchase of Lynx Wildcat.
Meggitt has large shipsets on these
helicopters, providing us with a robust
revenue outlook. The smaller part of our
rotary wing revenues come from the
aftermarket, where a reduction in
operational hours may soften demand.
Meggitt produces next-generation
environmental control systems for
electronic equipment and personnel
cabins. Ground-based systems are
retrofitted to front line fighting vehicles
including the Bradley Fighting Vehicle and
M1A2 Abrams. These mission-critical
capabilities and our position as the
leading supplier of 30mm linkless
ammunition-handling systems, mean
we will continue to prosper in the land
vehicle market, which also offers
significant potential for Meggitt’s
blast-resistant fuel tanks.
Meggitt’s live-fire and virtual simulation
training products are market leaders, with
over 10,000 Meggitt-supplied live-fire
ranges and 5,200 virtual systems providing
training to the armed forces, law
enforcement and security organisations.
This installed base provides regular
replacement revenues.
Meggitt Training Systems was selected
in October 2011 as one of five suppliers
to provide equipment for live-fire training
ranges at US Army installations worldwide
in a fixed price contract worth up to
$475 million over the next five years.
Meggitt will manufacture and install
stationary and moving infantry and
armour target mechanisms and control
systems and provide product support.
We also secured a £13 million order for
modification of UK MoD small arms
simulators. The Dismounted Close
Combat Trainer (DCCT) upgrade adds
features that will support Future
Integrated Soldier Technology (FIST)
enhancements. Similar systems are in
service with forces in the US, Canada,
Australia, New Zealand and many
countries in the Far and Middle East.
We continue to develop our training
businesses internationally and are
positioned well for post-conflict revival
in training budgets.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
16
Market review – Energy and other markets
Energy and other markets comprise 14% of group revenues,
of which 56% comes from energy markets (analysed below)
and the remainder from products supplied to the automotive,
test, space, consumer goods and medical sectors.
Demand for our ground-based condition monitoring equipment
was very healthy and, following investment in product upgrades
and new sales and technical support offices in a number of
regions, we continue to expect good growth in this area.
Within the energy market, demand for our unique printed
circuit heat exchanger technology increased significantly on
the back of production of new Floating Liquefied Natural Gas
(FLNG) facilities. We won a significant contract to equip Shell’s
first FLNG installation with our equipment.
We believe energy revenues will continue to grow at double-digit
percentages over the medium-term, with ongoing modest growth
in the other markets.
Energy breakdown by key market
58%
Power generation
42%
Oil and gas
Revenue by market
Energy revenues £m
11
10
09
08
07
113.1
84.4
82.7
85.4
70.3
Power generation
Oil and gas
58%
42%
MEGGITT PLC REPORT AND ACCOUNTS 2011
Performance review
17
Our business grew strongly in 2011 across all market segments,
with revenues up 25% and underlying profit before tax up 26%.
Good organic1 growth was augmented by the acquisition of Pacific
Scientific Aerospace (PacSci) which is very complementary to our
existing business and trading in line with our expectations.
With targeted investments in technologies and capacity expansion,
the new capabilities acquired with PacSci and an ongoing focus on
customer satisfaction, we are confident in achieving good growth
in 2012 and beyond.
Financial highlights (Table 1)
Revenue
Underlying2:
EBITDA3
Operating profit
Profit before tax
Earnings per share (‘EPS’)
Statutory
Operating profit
Profit before tax
Earnings per share (‘EPS’)
2011
£’m
2010
£’m
1,455.3
1,162.0
%
change
+25
428.5
359.5
323.0
31.9p
262.5
226.0
24.0p
364.4
303.7
256.1
27.8p
220.1
172.5
20.1p
+18
+18
+26
+15
+19
+31
+19
+19
Cash inflow from operations before exceptional items
395.8
331.3
Cash conversion4
110%
109%
1 Organic growth numbers exclude foreign exchange movements and M&A.
2 Underlying profit and EPS are defined and reconciled to statutory measures in notes 10 and 16 respectively of
the group financial statements.
3 Underlying EBITDA represents underlying operating profit adjusted to add back amortisation and depreciation.
4 Cash conversion is the ratio of cash inflow from operations to underlying operating profit. Cash inflow from
operations excludes exceptional items, interest, tax and investing activities.
Key Performance Indicators (KPIs)
Revenue growth
Percentage change in group revenue from
previous financial year. Target compound
organic growth: 6-7% across the cycle
Achieved: 12% in 2011 due to the recovery
in our civil and energy markets. We
continue to expect to achieve target over
the cycle
Underlying EPS growth
Percentage change in group underlying
earnings per share from previous
financial year. Target compound organic
growth: 8% across the cycle
R&D as percentage of revenue
Target gross spend: 6-8% across
the cycle
Achieved: 7.6% in 2011
Achieved: 15% in 2011
Underlying PBT growth
Percentage change in group underlying
profit before tax from previous financial
year. Target compound organic growth:
8-9% across the cycle
Return on sales
Underlying operating profit as a
percentage of revenue. Target growth in
line with revenue and PBT growth across
the cycle
Cash conversion
Cash inflow from operations before
exceptional operating items as a
percentage of underlying operating profit.
Target conversion: 100%
Achieved: 14% in 2011
Achieved: 25.4% organic, 24.7% total
Achieved: 110% in 2011
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
18
Performance review
Revenue growth (Table 2)
Civil OE
Civil AM
Total civil aerospace
Military
Energy
Other
Total
2011 revenue
2011 growth
PacSci Organic growth
£’m
245.2
420.4
665.6
585.3
113.1
91.3
1,455.3
%
+63
+22
+35
+15
+34
+21
+25
£’m
58.3
46.3
104.6
68.2
3.8
13.0
189.6
%
+26
+12
+16
+5
+28
+5
+12
Overall performance
The continued recovery in civil aerospace
and energy markets, combined with a
robust performance from our military
businesses, enabled us to deliver very
strong growth in 2011. Organic revenue
growth of 12% was broadly evenly split
between the first and second halves,
and organic underlying profit before tax
growth of 14% drove a 15% increase in
underlying EPS to 31.9 pence. With an
order book of approximately
£950 million and a 32% jump in orders
for 2012 delivery compared to the
previous year (of which 13% was organic),
we have good momentum going into 2012.
Revenues and orders
The recovery reported in the second
half of 2010 continued into 2011,
resulting in total revenues increasing
to £1,455.3 million. As Table 2
demonstrates, civil OE and energy
markets were particularly strong during
the year, while all end markets
contributed positively to our growth.
Total civil aerospace revenues grew 16%
organically. Growth in civil OE across all
sub-segments remained very strong in
the second half, with the civil aftermarket
continuing to grow strongly despite
tougher prior year comparatives.
Military revenues grew by 5% organically.
As predicted, we saw particular strength
in the training businesses and growing
content on ground vehicle retrofits.
Energy revenues increased by a very
impressive 34%, with a 28% growth in
organic revenues. The buoyant oil and gas
market saw good demand for our unique
printed circuit heat exchanger products,
and our condition monitoring businesses
performed well following our investment
in product upgrades and enhanced routes
to market.
Meggitt’s other specialist markets saw
organic growth of 5% with laboratory test
equipment and products for the space
market performing particularly well.
Profit and dividends
The Board’s preferred measure of the
group’s trading performance is
underlying profit. Underlying operating
profit for the year grew 18% to
£359.5 million, with an underlying
operating margin of 24.7%. Excluding
PacSci, underlying operating margin
was 25.4%.
Net finance costs decreased to
£36.5 million as a result of our strong
cash generation and lower interest
rates and despite additional debt
financing for the PacSci acquisition.
Within this, post-retirement net
finance costs decreased to £4.5 million
(2010: £9.8 million). Underlying profit
before tax increased by 26% to £323.0
million.
With an underlying tax rate of 24% and,
after taking account of the increased
share count following an equity placing to
part fund the acquisition of PacSci,
underlying earnings per share increased
by 15% to 31.9 pence.
On a statutory basis, profit before tax
increased by 31% to £226.0 million and
earnings per share increased by 19% to
24.0 pence. A reconciliation between
underlying profit and statutory profit is
provided in note 10 of the financial
statements.
The recommended final dividend is
increased by 15% to 7.30 pence and
represents a total dividend for the year
of 10.50 pence, up 14%.
MEGGITT PLC REPORT AND ACCOUNTS 2011
The Pacific Scientific Aerospace acquisition has
positioned us for power—the lighter weight
more electric power systems that allow propulsion
engines to perform optimally and consume less fuel.
We manage electric power, delivering it to networks
at the right voltage, current and frequency. We make
the motor controllers, motors and associated
electro-mechanical actuators that consume it in
safety-critical systems and utilitarian functions.
When not consumed, we store power.
Our permanent magnet alternators provide hyper-reliable
and redundant power for some of the world’s most
advanced digital engine controls. Likewise, we power
safety critical fly-by-wire systems. Our generators are
trusted to feed aircraft propulsion, auxiliary power unit,
MEGGITT PLC REPORT AND ACCOUNTS 2011
anti-icing and emergency systems without fail. The
lightweight main rotor blade-folding actuators on
the NH90 naval helicopter exemplify our capability in
extreme environment power applications. Meggitt’s
pioneering high power-density lithium batteries will
reduce aircraft weight by the equivalent of one
passenger on the Gulfstream G650.
The demand for electric power has tripled in the last
20 years. Our enhanced capability provides the perfect
counterpoint to our expertise in the pneumatic and
hydraulic controls installed on thousands of aircraft
in service—positioning us strongly to deploy hybrid
solutions on the industry’s journey towards the
all-electric vehicle.
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
20
Performance review
Operational highlights £’m (Table 3)
Revenue
2011
2010
320.5
201.6
171.2
233.9
528.1
309.7
182.8
156.0
208.4
305.1
1,455.3
1,162.0
189.6
n/a
Organic
growth1
%
+7%
+14%
+14%
+14%
+14%
+12%
Aircraft Braking Systems
Control Systems
Polymers & Composites
Sensing Systems
Equipment Group
Total Group
PacSci2
Underlying operating profit
Return on sales %
Organic
growth1
%
+3%
+11%
+15%
+9%
+14%
+8%
2011
119.9
47.9
31.7
43.2
116.8
359.5
38.2
2010
120.7
44.7
28.4
39.5
70.4
303.7
n/a
2011
37.4
23.8
18.5
18.5
22.1
24.7
20.1
2010
39.0
24.5
18.2
19.0
23.1
26.1
n/a
1 Organic growth numbers, which exclude foreign exchange movements and M&A, are provided to give a better like-for-like comparison.
2 Included in Equipment Group.
Operational highlights (Table 3)
Meggitt Aircraft Braking Systems (MABS)
The division represents 22% of total
group revenue, generating 87% of sales
from the aftermarket and 13% from OE.
MABS’ civil aftermarket revenues (circa
68% of divisional total) grew 9% in 2011,
with very strong growth in business jets
and regional aircraft more than offsetting
the expected decline in large jets as DC9/
MD80 fleets reduce. Civil OE grew 34%,
with growth in all sub-segments. Military
revenues were down 1%, in part due to
the completion of a large B-1B order in
2010. Operating margins moved from
39.0% to 37.4%, reflecting the strong
growth in the less profitable OE business
and the temporary parking of a large
number of MD90s, which are being
refurbished before returning to service
with Delta Airlines.
Meggitt Control Systems (MCS)
The division represents 14% of total group
revenue and generated 53% of sales from
OE and 47% from the aftermarket. Its civil
aerospace business grew 23% and
military grew by 6%, partially offset by a
slight decline in other markets, including
lower demand for ground refuelling
equipment. Operating margins moved
from 24.5% to 23.8% driven by the strong
relative OE growth and increasing spend
on R&D.
Meggitt Polymers & Composites (MPC)
MPC represents 12% of total group
revenue and generated 60% of sales from
OE and 40% from the aftermarket.
Organic growth in revenues in MPC of
14% in the year was driven by strong large
jet and regional aircraft demand resulting
in civil growth of 25%. Military sales grew
10% across a range of platforms,
including increasing content on ground
vehicle retrofits. Operating margins
improved from 18.2% to 18.5% despite
MEGGITT PLC REPORT AND ACCOUNTS 2011
production ramp-up difficulties
experienced in its Loughborough, UK site
in the first half of 2011 as referenced at
the interim results in August.
Meggitt Sensing Systems (MSS)
MSS represents 16% of total group
revenue, generating 79% of sales from OE
and 21% from the aftermarket. MSS
organic revenues were up 14%, with the
strongest growth in civil OE (31%). Growth
in civil markets included production rate
increases in Airbus A380 and Boeing 787,
both of which are equipped with MSS
engine condition monitoring units. The
modest reduction in operating margins is
attributable to the relative strength of OE
and an adverse exchange rate effect,
offset by further cost reduction measures.
Meggitt Equipment Group (MEG)
The division represents 36% of total group
revenue and generates approximately
two thirds of sales from OE and one third
from the aftermarket. Revenues in MEG
were up 73% on last year including eight
months of PacSci contribution, or up
14% on an organic basis. On an organic
basis, civil revenues grew by 9%, mainly
driven by OE, and military revenues grew
by 7%. Our energy businesses grew very
strongly, largely due to an excellent
performance from Heatric, our printed
circuit heat exchanger business. Heatric’s
core offshore oil and gas market was
very strong in 2011 and it has also been
successful in securing contracts in
adjacent markets including on floating
liquefied natural gas (FLNG) facilities.
Order intake in 2011 was boosted by a
significant order from Shell for the supply
of heat exchangers to its Prelude FLNG
facility. Operating margins on an organic
basis were 23.1% (2010: 23.1%).
Cash flow and borrowings
Cash inflow from operations before
exceptional operating items was a very
healthy £395.8 million, (110% of
underlying operating profit). As these
numbers demonstrate, our strong focus
on cash generation continued to deliver
excellent results in 2011.
Net cash generated of £141.5 million
excluding M&A (Table 5) was impressive
given a lower take-up of the scrip
dividend and continued investment in
development programmes and IT
infrastructure. After taking account
of the acquisition of PacSci, net debt
increased to £788.4 million. No further
refinancing is required before 2013.
Investing for the future
Developing and owning intellectual
property is a core part of Meggitt’s
successful strategy. Total product
development expenditure in 2011 was 7.6%
of revenues, or £110.5 million (2010: 7.2%,
£84.2 million), of which 25% was funded
by customers (Table 4). The largest
relative investment was in Sensing
Systems at around 15% of segment
revenues.
Targeted organic investment in
technology development remains a
critical part of our long-term growth
strategy, with new capabilities being
added to our portfolio in response to the
requirements of our customers. We
typically aim to spend between 6-8% of
revenue on R&D, most of which is spent
on development activity after a position
on a programme has been won.
Highlights from 2011 include further
development of electro-thermal anti-ice
systems and tyre pressure monitoring
systems for aircraft, enhancement of our
energy condition monitoring products
and the development of new lightweight
lithium-ion batteries for aircraft.
F
I
R
E
D
E
T
E
C
T
I
O
N A
N
D FIRE SUPPRES S I O N N O W U
D E R O N E ROOF
N
Giving customers
something to smile about
With the Pacific Scientific Aerospace acquisition,
we’ve turned the page on a new chapter in the history
of fire protection at Meggitt.
By adding PacSci’s fire suppression equipment to
Meggitt’s established fire detection and control
capability, we can now offer the fully integrated fire
protection and systems customers want.
We are simplifying procurement for them, minimising
risk and cutting cost—and expanding the competitive
landscape with a brand-new aerospace business.
Small wonder we are giving customers something
to smile about.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Exchange rates going up
As a leading supplier of highly compact and efficient
diffusion-bonded heat exchangers, Meggitt’s Heatric
business landed substantial contracts in 2011 in
expanding markets where innovative suppliers only
need apply.
The high pressure capability and high efficiency of
Heatric technology also attracted business in waste
recovery. Echogen Power Systems’ power generation
system converts industrial waste into electricity using
supercritical C02 as the working fluid.
Shell’s floating liquefied natural gas (FLNG) platform—
Prelude—is a revolutionary project, allowing access
to offshore gas fields that would otherwise be too costly
or difficult to develop. Prelude is the world’s first
FLNG platform.
Heatric’s advanced heat exchange technology has been
selected for Prelude’s gas dehydration, cold recovery,
gas and refrigerant compression coolers and natural
gas liquids extraction.
Heatric’s heat exchangers are integral to a highly
efficient process which transfers more of the waste
heat into electricity than would be possible with
non-supercritical fluids.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Performance review
23
Investing for the future
(continued)
Meggitt also invested £33.2 million in
supplying equipment free of charge to
new aircraft coming into the fleet and in
making programme participation
contributions, mostly in the braking
systems business.
Capital expenditure on property, plant
and equipment and other intangible
assets increased to £52.1 million,
including investment in the deployment
of a common ERP system across the
group. We have now successfully rolled
the system out to 15 sites, with a similar
level of deployment anticipated in the
next two years. There has also been
substantial investment in a number of our
manufacturing facilities in order to match
capacity to our recent win rate on new
programmes. These investments include
doubling the capacity of our innovative
heat exchanger business in Poole, UK,
and co-locating our North American
sensing businesses onto one campus
in California.
As part of the group’s low cost
manufacturing strategy, Meggitt
continued to develop the range of
capabilities at its manufacturing plants
in Xiamen, China and Querétaro, Mexico.
The acquisition of PacSci brought
additional low cost manufacturing centres
of excellence in Mexico and Vietnam.
These facilities are part of the long-term
strategy to further enhance our cost
competitiveness and develop a
best-in-class operational footprint.
Analysis of R&D costs (Table 4)
Total R&D expenditure
% of revenue
Customer-funded R&D
Capitalised
Amortisation
Charge to income
statement
2011
£’m
110.5
7.6%
(27.3)
(41.5)
11.3
2010
£’m
84.2
7.2%
(16.7)
(33.5)
8.2
53.0
42.2
Movement in net debt (£’m) (Table 5)
Cash flow from operations before exceptional operating costs
Exceptional operating costs paid
Net interest/tax paid
Capitalised development costs/programme participation costs
Net capital expenditure
Net cash generated from operations
Net amounts payable to shareholders
Add back scrip dividend
Net amounts paid to shareholders
Net cash generated
Acquisition of businesses
Add back effect of equity placing
Net cash cost of acquisition of businesses
Increase in net debt
Currency translation differences
Other non-cash movements
Opening net debt
Closing net debt
(70.1)
25.2
(417.6)
246.0
395.8
(17.1)
(73.3)
(74.4)
(44.6)
186.4
(44.9)
141.5
(171.6)
(30.1)
(13.9)
(23.0)
(721.4)
(788.4)
Analysis of total committed credit facilities (Table 6)
Syndicated credit facility
Private placement notes
Syndicated credit facility
Private placement notes
US$m
500 Maturing in 2013
250 Maturing in 2013 and 2015
700 Maturing in 2016
600 Maturing in 2017, 2020 and 2022
2,050
Capital structure
Covenants
Meggitt’s committed credit facilities
contain two financial ratio covenants –
interest cover and net debt to EBITDA.
As can be seen from Table 7 there is
considerable headroom on both measures.
Covenant ratios (Table 7)
Net debt/EBITDA
Interest cover
Covenant
Actual*
≤3.5x
≥3.0x
1.7x
12.4x
* As calculated in accordance with banking
agreements
Meggitt’s operations are financed by a
combination of equity and debt. We seek
to minimise the cost of capital while
recognising the constraints of the debt
and equity markets and the risks
associated with high levels of gearing.
Our current post-tax average cost of
capital is approximately 8.0%.
On 21 January 2011 the group
successfully completed the raising of
£246.0 million through an equity placing
to part finance the acquisition of PacSci.
Debt structure
During the year Meggitt refinanced its
2007 banking facility with a new five
year revolving credit facility. The new
facility, which is $220 million less than
its predecessor as a result of our strong
cash generation, was over-subscribed.
As at 31 December 2011, we had undrawn,
committed credit facilities of £531 million
after taking account of surplus cash. No
further refinancing is required before 2013.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
24
24
Performance review
Minimising debt financing risks
Interest charge
Meggitt seeks to reduce the volatility
caused by interest rate fluctuations. Our
US private placements are subject to fixed
interest rates whereas borrowings under
our syndicated bank credit facilities are at
floating rates. To manage interest rate
volatility, we use interest rate derivatives
to either convert floating rate interest into
fixed rate or vice versa. Our policy is to
maintain at least 25% of net debt at fixed
rates with a weighted average maturity
Facility headroom (£’m) (Table 8)
£530.7 million headroom
Net debt £788.4 million
1500
1200
900
600
300
00
2011
Fixed rate
2012
2014
2013
Floating rate
2015
2016
of two years or more. At 31 December
2011, the percentage of net debt at
fixed rates was 61% and the weighted
average period to maturity of the first
25% was 5.7 years. Our interest charge,
excluding post-retirement net finance
costs, reduced to £32.0 million (2010:
£37.8 million) with strong cash generation
and less debt at higher fixed rates more
than offsetting the impact of the PacSci
acquisition. Post-retirement net finance
costs reduced to £4.5 million (2010: £9.8
million) caused mainly by the strong asset
performance in 2010.
Exchange rates (Table 10)
The net assets of overseas subsidiaries
are translated into sterling at year end
exchange rates. To mitigate the exchange
rate exposure this causes we hold our net
debt, where cost effective and practical,
in the currencies of those subsidiaries.
Net debt (£’m) (Table 9)
Sterling
US dollar
Euro
Swiss franc
Other
2011
2010
(30.0)
747.5
(5.3)
79.6
(3.4)
0.3
634.2
(5.2)
92.0
0.1
Total net debt
788.4
721.4
The group seeks to minimise debt
financing risk as follows:
a. Concentration of risk
We raise funds through private placement
issuances and bank loans to reduce
reliance on any one market. Bank
financing is sourced from around 15
international institutions spread across
North America, Europe and Asia. No
single bank accounts for more than 12%
of the group’s total credit facilities and the
credit rating of lenders is monitored by
our treasury department. Our largest four
lenders are Bank of America, Barclays,
BNP Paribas and HSBC. We also seek to
maintain a reasonable level of undrawn
committed facilities as a buffer.
b. Set-off arrangements
The group utilises set-off and netting
arrangements where possible to reduce
the potential effect of counterparty
defaults. All treasury transactions are
settled on a net basis where possible and
surplus cash is generally deposited with
our lenders up to the level of their current
exposure to us.
c. Refinancing risk
We ensure the maturity of our facilities is
staggered and refinancings are concluded
in good time.
d. Headroom risk
To ensure we mitigate headroom erosion
due to currency movements our credit
facilities are denominated in US dollars,
the currency in which most of our
borrowings are held.
e. Covenant risk
The covenant calculations are drafted
to protect the group from the potential
volatility caused by accounting standard
changes, sudden movements in exchange
rates and exceptional items. This is
achieved by measuring EBITDA on a
frozen UK GAAP basis, retranslating
net debt and EBITDA at similar average
exchange rates and excluding exceptional
items from the definition of EBITDA. The
ratio is relatively insensitive to currency
movements and there is considerable
headroom on EBITDA. We continue to
have considerable headroom on both key
financial covenant measures (Table 7).
MEGGITT PLC REPORT AND ACCOUNTS 2011
The results of overseas subsidiaries are
translated into sterling at weighted
average exchange rates (Table 10).
Compared to 2010, the group’s underlying
profit before tax for the year was
adversely affected by £3.9 million as a
result of currency translation. Each five
cent movement of the US dollar versus
the 2011 rate used of £1 = $1.60 impacts
underlying profit before tax by
approximately £7.0 million.
Exchange rates (Table 10)
Average translation rates
US dollar
Euro
Swiss Franc
Year end rates
US dollar
Euro
Swiss Franc
Transaction rates
US dollar/£
US dollar/Euro
Swiss franc/US dollar
2011
2010
1.60
1.16
1.40
1.55
1.20
1.45
1.65
1.42
1.06
1.54
1.17
1.60
1.57
1.17
1.46
1.65
1.50
1.13
The group hedges known and some
anticipated transaction currency
exposures based on historical experience
and projections. Our policy is to hedge
at least 70% of the next 12 months’
anticipated exposure and to permit
the placing of cover up to five years
ahead. Compared to 2010, the group’s
underlying profit before tax for the year
was adversely affected by £2.9 million
as a result of currency transaction.
Each five cent movement of the US
dollar versus the 2011 rate used of £1 =
$1.65 impacts underlying profit before
tax by approximately £2.0 million. At
31 December 2011, $/£ cover for 2011
was 87% (at a rate of $1.66) and we have
covered approximately 50% of our $/£
exposures for the subsequent four years
at an average rate of $1.55.
Taxation
Meggitt’s underlying tax rate reduced to
24.0% (2010: 25.0%). Our statutory rate,
which includes items reported below
underlying operating profit is 18% (2010:
20%) and our cash rate of tax is 19%
(2010: 15%) reflecting timing differences.
Attention
seeking
When an engine needs attention, a Meggitt health
monitoring system will have told its owner where
and when, long before it becomes a problem.
As effective in large land-based turbines as they are
in their relatively lightweight aero-engine cousins, our
systems detect incipient failure conditions, cut the cost
of unscheduled maintenance and optimise performance
to conserve energy and minimise emissions.
Our strength lies in the integration of powerful sensors,
sophisticated control algorithms and process electronics.
With boots on the ground in key power generation
markets, we are developing highly responsive
relationships with customers, exploiting our
know-how and innovating quickly in response to
their requirements.
With dedicated sales and support facilities in India and
China running as smoothly as the industrial, land-based
and hydro turbines we look after there, Meggitt Sensing
Systems is now poised to capitalise on the energy
markets in South America, directly engaging with
customers through our new base in Brazil, which
opened at the end of 2011.
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
26
Performance review
Dividends
The group has recorded excellent
growth in underlying profit and earnings
per share in 2011 and remains well-
positioned for further growth. Accordingly
we have increased the recommended final
dividend to 7.30 pence (2010: 6.35 pence)
which would result in a 14% increase
in the full-year dividend to 10.50 pence
(2010: 9.20 pence).
Retirement benefit schemes
The group’s defined benefit pension
schemes in the UK and the US are closed
to new members.
The impacts of global economic
uncertainty together with the eurozone
debt crisis and the UK‘s quantitative
easing programme contributed to an
increase in the level of the group’s
scheme deficits. Overall pension scheme
deficits increased to £265.4 million (2010:
£210.5 million). Scheme assets saw
modest increases, helped by a partial
rebound in equity markets in the latter
part of the year together with company
cash contributions. The yields on AA
corporate bonds however, the rates
used to discount scheme liabilities, have
fallen significantly during the year. The
rates, which have now fallen for three
successive years, affect the values at
which the liabilities are recorded in the
financial statements.
Regulations in the UK and US require
repayment of deficits over time. Deficit
payments in the year were £23.9 million
(2010: £20.7 million). In the UK, the
current agreement with the trustees
provides for increases in deficit payments
gradually being phased in over the next 15
years. The next triennial valuation of the
UK scheme is due in 2012 and will impact
the deficit reduction payments from 2013.
In the US there will likely be a short-term
modest increase in funding as legislation
introduced in prior years to alleviate the
impact of the economic downturn on
funding requirements starts to unwind.
Meggitt has two other principal post-
retirement benefit schemes providing
medical and life assurance benefits
to certain US employees. The group’s
exposure to increases in future medical
costs provided under these plans has
been capped. Both schemes are
unfunded and have a combined deficit
of £54.5 million (2010: £54.6 million).
Deficit payments during the year were
£2.3 million (2010: £2.4 million).
Accounting standards
Meggitt’s results were not significantly
affected by changes in financial reporting
standards in 2011.
Defined benefit pension schemes summary (£’m) (Table 11)
Opening net deficits
Service cost
Group cash contributions
Net deficit reduction payments
Prior year service cost
Net finance cost
Actuarial losses/(gains) – schemes’ assets
Actuarial losses – schemes’ liabilities
Acquisition of businesses
Currency movements
Closing net deficits
Assets
Liabilities
Closing net deficits
Funding status
2011
210.5
11.4
(35.3)
(23.9)
0.5
2.0
25.2
48.7
1.7
0.7
265.4
584.9
850.3
265.4
69%
2010
219.5
10.5
(31.2)
(20.7)
1.3
6.5
(21.7)
23.1
–
2.5
210.5
567.9
778.4
210.5
73%
The above analysis excludes post-retirement healthcare schemes which have a deficit at
31 December 2011 of £54.5 million (2010: £54.6 million).
MEGGITT PLC REPORT AND ACCOUNTS 2011
Corporate responsibility
27
At Meggitt, we recognise our responsibility to shareholders,
employees, customers, suppliers and the wider community.
We will comply with all relevant national laws and regulations
and aim to continually improve our financial, social and
environmental performance.
Policy
Meggitt is committed to
• upholding sound corporate governance
• minimising the environmental impact
principles
of products and processes
• providing a supportive, rewarding and
safe working environment
• conducting business relationships in an
• acting as a responsible supplier and
encouraging our contractors and
suppliers to do the same
ethical manner
• supporting our local communities
Action
For our stakeholders, this means
→ providing safe working environments
→ modern operational practices
→ effective risk identification and mitigation
→ dynamic business continuity plans
→ maintaining internationally-accredited environmental management systems
→ conducting independent audits
→ professional and comprehensive employee training programmes
→ the social and economic enrichment of local communities
→ robust internal and external reporting and controls
→ ensuring financial probity
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
28
Corporate responsibility
Environmental metrics
Utilities
Electricity – gWh
MWh per £m
Natural gas – gWh
MWh per £m
Carbon Dioxide (CO2) – tonnes @ 2011 rates1
Tonnes per £m
Waste – tonnes
Tonnes per £m
Water – cubic metres
Cubic metres per £m
2011
Change
2011
2010
Change
Including
Including
Excluding
PacSci
PacSci
PacSci
Excluding
PacSci
175
115
204
134
-12%
-20%
156
123
187
148
148
131
191
168
129,333
116,398
112,941
85.0
-15%
10,160
6.67
737,764
4%
92.0
8,406
6.65
99.6
7,303
6.44
644,018
631,508
-6%
-12%
-8%
3%
485
-13%
509
557
-9%
Our environmental metrics are reported in full on the CR page of our website.
Metrics per £m are calculated using revenue converted at constant foreign exchange rates.
Environmental metrics quoted for PacSci are for the full year 1 January 2011 to 31 December 2011.
Governance and compliance
Environment
Meggitt’s Corporate Responsibility (CR) Policy – published on
www.meggitt.com – underpins the way we manage social,
ethical and environmental issues. We devote significant internal
resources to implementing it across Meggitt facilities
worldwide. Every site records important data on employees,
supply chain and health, safety and environmental (HSE)
performance.
CR is overseen by our Group Corporate Affairs Director. HSE
matters, trade compliance and ethics and business conduct are
managed by a highly experienced team of functional specialists.
The Board has appointed an Ethics and Trade Compliance
Committee to ensure that we have effective programmes in
these areas and to oversee their management. The Board
reviews HSE at each of its meetings and receives a quarterly
written report from the Vice-President, Health, Safety and
Environment. Divisional presidents and site directors are
responsible for implementing our policies at a local level.
There is a phased integration plan for our newly acquired Pacific
Scientific Aerospace (PacSci) businesses. PacSci employees
have already undertaken Code of Conduct and anti-bribery
training under the Ethics programme and have started to
implement the Trade Compliance programme. Integration into
HSE and other programmes also began in 2011.
Meggitt’s Group Environmental Policy, which was reviewed
and updated by the Board in January 2012, commits us to
• complying with applicable environmental legislation
• reducing the environmental impact of our own and our
suppliers’ products and operations
To achieve the goals of our Environmental Policy, Meggitt’s
environmental management programme includes setting
environmental targets, communicating changing regulatory
developments, training and information sharing, data analysis
and internal and external auditing of environmental management
systems. Meggitt is a signatory to the Sustainable Aviation
Strategy of the A|D|S Group (the UK’s primary aerospace, defence
and security trade association) and is represented on the A|D|S
environmental and carbon management working groups. We
provide emissions data to the Carbon Disclosure Project (CDP),
a non-governmental initiative that measures and discloses the
greenhouse gas emissions and climate change strategies of
organisations around the world. Meggitt is a registered
participant in the UK’s CRC Energy Efficiency Scheme.
Meggitt takes a proactive approach to complying with
environmental regulation. Our global environmental audit
programme, supported by external consultants, reviews
compliance standards at all of our sites on a three-year rolling
basis, and recommends best practice. As a result of this
continuous audit programme, we have improved our performance
on inspections conducted by external regulatory agencies,
reducing the number of regulatory citations received in 2011 by
24% on 2010, excluding PacSci. All Meggitt sites, excluding
PacSci, have successfully attained environmental management
system ISO 14001 standard certification. The PacSci sites will
start working towards ISO 14001 certification in 2012.
1
Meggitt’s carbon emissions data is derived from electricity, gas and fuel oils usage which is converted using the 2011 greenhouse gas conversion
factors of the UK Department for Environment and Rural Affairs (DEFRA). For electricity only, DEFRA update prior years’ conversion factors
annually and so Meggitt’s carbon emissions arising from electricity usage in 2010 have been restated.
MEGGITT PLC REPORT AND ACCOUNTS 2011
29
We continued to enhance our information-sharing through
intra-group HSE conferences and an internal website, where we
post environmental bulletins and initiatives.
Our environmental metrics show that our performance relative
to revenue, excluding PacSci, has improved in all key areas,
except waste, which has increased:
Energy: the Meggitt Energy Reduction Programme, initiated in
2010, has improved how we share information and best practice
on energy performance.
We are committed to reducing the carbon footprint of our sites.
We have performed well against our five-year target to reduce
CO2 emissions by 15%2 relative to revenue, using 2009 as the
baseline year. Between 2009 and 2011 we achieved an 8%
reduction in CO2 emissions. PacSci will be incorporated into our
energy programmes and targets during 2012.
As part of our commitment to minimise the environmental
impact of our sites in 2011 our sites have undertaken a number
of initiatives:
• In late 2011, Meggitt Aircraft Braking Systems, Akron began
the conversion from central steam heat to direct fired natural
gas heaters. This £900,000 energy reduction project is
scheduled to conclude in mid-2012 and will result in an
estimated annual saving of over 2,500 tonnes of CO2 and an
annual cost saving of £265,000.
• Meggitt Control Systems, Dunstable achieved an overall 47%
reduction in gas usage by revising shut down procedures,
fitting timers and installing an energy management system.
• Meggitt Safety Systems, Simi Valley realised total annual cost
savings of £16,500 by replacing two cooling towers with
variable frequency fan motors and existing air conditioning
units with higher energy efficiency rated units that use more
environmentally friendly refrigerants.
• Meggitt Polymers & Composites, Rockmart increased the
efficiency of its air compressors by installing a central
receiver tank to allow coordinated compressor output. The
site reduced operational hours on two compressors and
eliminated the need for a third. In total, these energy-saving
modifications resulted in average cost savings of £75,000
per year.
• Meggitt Polymers & Composites in Oregon replaced all T12
lighting with new high-energy efficiency alternatives and
installed occupancy sensors throughout the facility. This
resulted in an annual cost saving of £4,400.
Waste: the 3% increase arose from several large scale projects
to dispose of redundant equipment.
Health and safety
Meggitt’s Group Health and Safety Policy, which was reviewed
and updated by the Board in December 2011, outlines our
commitment to
• formal management systems for regulatory and
legislative compliance and guidance on best practice
• integrating identification, assessment and control of
health and safety risks into operational management
• incorporating health and safety thinking into business plans
• instilling the importance of health and safety in employees
at all levels and providing all employees and temporary
workers with appropriate health and safety information
and training
• delivering products and services that can be installed,
operated and maintained without risk to health and safety
as far as possible
• consulting stakeholders on health and safety risk
management
Our Health and Safety Policy reinforces our belief that a
well-supported, effective health and safety management
programme is essential to building a sustainable workforce
and business.
One of our highest priorities is to provide a safe, healthy
workplace for our employees and we continue to focus on
embedding a strong safety culture. We expect our employees to
take individual responsibility for their health and safety and to
encourage and exhibit safe work behaviour.
In 2011, we continued to work toward improving our health and
safety performance, applying the key principles of our Health
and Safety Policy. This is achieved by ensuring effective
leadership and health and safety programmes are in place, led
by the Group Health and Safety Steering Committee and the
Vice-President, Health, Safety and Environment. Our global
health and safety audit programme, supported by external
consultants, operates according to the same continuous
improvement philosophy as our production facilities. We use it
to review compliance standards, recommend remedial action
and share best practice. In 2011, one third of Meggitt sites
were audited.
In 2011, further measures designed to improve safety in the
workplace were rolled out:
• on-line health and safety training programme for all US sites;
Water: the 9% reduction in water usage is largely attributable to
water efficiency projects.
• Weekly Safety Talk posters for all sites to raise safety
awareness;
•
increased health and safety internal inspection frequency;
and
•
improved reporting and investigation of workplace accidents.
2 At constant exchange rates and carbon conversion rates.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
30
Corporate responsibility
Health and safety (continued)
Trade compliance
In all cases, Meggitt implements programmes across the
group that are equivalent to or more stringent than regional
regulations. In 2011, there were significant improvements
and outstanding achievements at some of our sites:
• 13 manufacturing sites experienced no lost time accidents.
• For its exemplary health and safety management
programmes and injury performance and safety record,
Meggitt Control Systems, Dunstable was requested by the
UK Health and Safety Executive to assist in their local Estates
Excellence initiative, a programme to help small businesses
control their health and safety risks and protect their
employees by creating partnerships between companies,
councils and regulators. The partners guide small
businesses and improve their ability to manage health
and safety.
There were no fatalities at Meggitt sites in 2011 (2010: none).
In 2011, the number of reported injuries3 rose to 69 (including
PacSci) (2010: 53). The accident/incident rate4 remained
constant at 737 (including PacSci) (2010: 737).
In 2011, we continued to improve the way we measure and
collect our health and safety data with the collection of UK
RIDDOR5 equivalent data across the group, trend analysis of
the types and causes of workplace injuries and near-miss data
to identify key risk areas. We seek to achieve continuous
improvement in all areas of workplace risk, driving sustainable
safety behaviour and practices through exemplary leadership of
ongoing health and safety initiatives. This includes integrating
health and safety performance into business operations as part
of overall site and divisional management reviews.
We continue to disseminate information and best practice
through intra-group conferences, health and safety alerts
and all-employee bulletins.
Compliance with the European Community Regulation on
Registration, Evaluation Authorisation and Restriction of
Chemicals (REACH) is managed by the group’s REACH Steering
Committee which has been active in completing due diligence
and dealing with the risks associated with the potential
obsolescence of supply of chemicals used by aerospace
manufacturers. In 2011, Meggitt formed a group Obsolescence
Review Board (ORB) consisting of representatives from our
engineering, quality, HSE, procurement, contracts and legal
functions to work together to assess the impact of REACH and
other regulatory and supply chain requirements affecting our
operations in this area. The HSE Director for Meggitt Sensing
Systems is a member of the Aerospace and Defence Industries
Association of Europe’s REACH Implementation Working Group
which enables us to source and compare information about
REACH compliance across the industry.
Meggitt’s Trade Compliance Policy outlines our commitment
to comply fully with the laws and regulations governing trade
controls in the jurisdictions in which we operate
Meggitt’s group-wide trade compliance programme is based
on the model of excellence outlined in the Nunn-Wolfowitz
Task Force Report of 2000 – the influential report on export
compliance best practice – and US Government guidelines. We
achieve multiple levels of accountability using five key process
tools – assessment, compliance improvement, verification,
corrective action and audit – which are applied in a continuum.
Plans arising from the review elements enable 16 sub-processes
for 54 businesses to be tracked by managers at all levels,
including the executive leadership team.
Meggitt’s trade compliance teams receive training and access to
key subject matter experts inside the group and from global
trade compliance advisors, JP Morgan Trade Management
Consulting. Meggitt’s trade compliance website, a customised
database of training modules, forms, templates, regulations,
editorial and company policy and procedures, is comprehensive
and well-respected by experts in the field.
In 2011 we started to implement our selected global trade
management software solution, Global Trade Services (GTS) 8.0
with Deloitte, to enhance our trade compliance programme. We
completed the design phase for North America, Europe and
Asia. We also began testing the many features of the GTS
programme before implementation at the pilot site in North
America in the first quarter of 2012.
Business ethics
Meggitt’s Ethics and Business Conduct Policy commits us to
• conducting business fairly, impartially and in full
compliance with applicable laws and regulations
• integrity and honesty in all our business relationships
internally and externally
Our Ethics and Business Conduct Policy and Code of Conduct,
overseen by the Ethics and Trade Compliance Committee, must
be followed by all employees and advisers. All employees,
including those from PacSci, have received Code of Conduct
and anti-corruption training and are required to view our ethics
training videos which are released regularly. We are a signatory
to the Statement of Adherence to the Global Principles of
Business Ethics for the Aerospace and Defence Industry. In 2011,
the Group Corporate Affairs Director became a member of the
Business Ethics Committee of the Aerospace and Defence
Industries Association of Europe and our Vice-President,
Ethics and Business Conduct served on the Task Force of the
International Forum on Business Ethical Conduct (IFBEC).
3
4
We define reported injuries as those which are reportable under local laws/regulations.
The accident/incident rate is calculated by taking the number of reported injuries, multiplied by 100,000 and dividing it by the average employee
headcount during the year.
5 Reporting of Injuries, Diseases and Dangerous Occurences Regulations 1995.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Meggitt’s green machines
31
A balanced engine helps aircraft to run more smoothly,
which leads to greater passenger comfort, better fuel
efficiency in flight and lower maintenance costs due to
less wear from excessive vibration. For almost 30 years,
Meggitt has been making it easier, cheaper and more
environmentally friendly to keep aircraft engines balanced.
Balancing an engine was an expensive and
environmentally hazardous proposition until a major
European airline asked Meggitt to help them find a better
solution. Until the 1980s, to gather data to balance the
aircraft’s engine, it had to be run at high thrust whilst the
aircraft was stationary. Meggitt developed the first system
to take in-flight engine and rotor vibration data that could
be used by technicians on the ground. Our cold fan trim
balancing technology was so beneficial that, by the late
1990s, most new aircraft were built with it.
Today, many of the commercial aircraft built before our
cold fan trim balancing technology was developed have
been retrofitted. However, we expect retrofit orders for
the next three years until virtually all older aircraft in
service have the technology. The airlines are very positive
about this technology because it helps them to reduce
delays and cancellation and reduce labour and overtime.
At the same time, Meggitt’s cold fan trim balancing
solution helps them minimise their impact on the
environment by saving 1,500 gallons of fuel per plane
per balancing operation.
For a modest fleet of 120 large jet commercial aircraft,
Meggitt’s technology can save over 100,000 gallons of
aviation fuel per year, reducing CO2 emissions by over
1,000 tonnes and costs by over £200,000. Since most
commercial aircraft worldwide have adopted this
technology to avoid traditional balancing procedures,
the annual savings to our customers and to the
environment are quite profound.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
32
Corporate responsibility
Our people, local communities and
charitable donations
At the end of 2011, Meggitt employed approximately 10,500
people worldwide, having welcomed around 2,400 new
colleagues into the group through the acquisition of PacSci.
The engagement of our employees is key to our future success.
During 2011 all Meggitt’s employees were given the opportunity
to participate in our global employee opinion survey. During
2012, comprehensive feedback will be shared throughout the
group, leading to initiatives to build on our strengths and target
improvements.
Learning, career development and strong leadership are vital
components of Meggitt’s drive for all employees to deliver high
levels of performance in their roles. In 2011, we rolled-out a
global change leadership programme to equip managers with the
skills to work in a complex matrix environment and to become
more effective leaders of their teams. Continued investment was
made in our executive leadership programme. We focused on
our processes for succession planning, recruitment, and
performance management to attract, develop and motivate
talented engineers and staff across all areas of the group.
All employees should have an equal opportunity to succeed in an
environment free of discrimination within which the contribution
of all is fairly recognised. All Meggitt employees are encouraged
through our ethics programme and by adhering to our corporate
values to ensure that everyone is treated fairly.
Meggitt makes an important economic contribution to our local
communities, with salaries, social security contributions and
taxes across the group amounting to approximately £478.3
million in 2011 (32.9% of revenue).
Individual Meggitt sites work with the local community and
support charities at their discretion. Yearly reports reveal the
exceptional generosity of many employees who give time and
money to a wide range of national and local initiatives. Education
Business Partnerships and the UK Government’s STEM
(Science, Technology, Engineering and Mathematics) initiative
were supported locally by sites. Meggitt’s headquarters, based
in Dorset, UK, continued to sponsor the Arkwright Scholarship
Trust, the Institute of Mechanical Engineers’ Schools Aerospace
Challenge, the local Community Foundation and the Poole
Hospital Staff Excellence Awards.
6 As at 31 December 2011
MEGGITT PLC REPORT AND ACCOUNTS 2011
Employees by division6
Number of employees
10,538
Aircraft Braking Systems
Control Systems
Polymers & Composites
Sensing Systems
Equipment Group
Cross-group facilities
1,194
1,121
2,090
1,528
4,107
498
11%
11%
20%
15%
39%
4%
Employees by length of
service (years)6
Number of employees
10,538
4,784
2,069
1,375
521
565
1,224
Less than 5
Between 5 and 10
Between 10 and 15
Between 15 and 20
Between 20 and 25
Over 25
Employees by region6
Number of employees
10,538
North America
UK
Mainland Europe
Rest of World
6,105
2,283
1,484
666
58%
22%
14%
6%
Principal risks and uncertainties
33
Meggitt’s risk management framework includes a formal process for identifying, assessing
and responding to risk in relation to the group’s strategy and business objectives.
Risk management operates at all levels throughout Meggitt, across business lines,
geographies and functions. The Board is responsible for risk management including
maintaining the group’s risk governance structure and an appropriate internal control
framework (see page 46).
Types of risk
We monitor risk across four broad categories – markets, operations,
finance and corporate. The risks outlined below, which are not presented
in any order of priority, are those the group believes are the principal ones it
faces. However, additional risks, of which the group is unaware, or risks the
group does not currently consider material, could have an adverse impact.
Finance
• Credit
• Exchange rates
• Financing
• Retirement benefits funding
Corporate
• Environmental
• Legal and regulatory
• Organisational structure
Markets
• Competition
• Product demand
• IT environment
Operations
• Acquisitions
• Contracts
• Equipment fault
• Supply chain
Change in risk in year
No change
Higher risk
Lower risk
MEGGITT PLC REPORT AND ACCOUNTS 2011
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34
Principal risks and uncertainties
Risk description
Potential impact
Mitigation action
Markets
Competition
Product demand
IT environment
Operations
Acquisitions
Contracts
MEGGITT PLC REPORT AND ACCOUNTS 2011
We operate in a highly competitive global market that has
experienced significant consolidation in recent years. Losing
contracts to competitors, some of whom have greater
financial, technological and marketing resources, or being
forced to accept lower margins, would have an adverse effect
on Meggitt’s results.
The group’s competitive position would suffer were it unable
to meet future investment requirements, continue research
and development or provide cash and equipment incentives
to original equipment manufacturers. Such investments,
which decrease our cash flow in the short-term, need to be
recovered through future revenues.
Losing key intellectual property or failing to enforce its
rights could hinder our development and provide
competitor advantage.
• Protecting our position by maintaining a
broad customer base.
• Maintaining diverse products and operations
to reduce the effect of action by any single
competitor.
• Maintaining a competitive manufacturing
base with low-cost operations in China,
Mexico and Vietnam.
• Maintaining the highest manufacturing and
quality standards and adhering to individual
customer certification requirements.
• Developing proprietary intellectual property
and products in markets that demand high
levels of technology, quality and service
and strong, long-term relationships
with customers.
• Maintaining a robust intellectual property
protection programme.
• Ensuring good operational cash flow and
available finance.
• Organisation structure aligned with
customer requirements.
Military markets currently account for 40% of group
revenues. Any reduction in military spending or reordering
of priorities, particularly by the US government (Meggitt’s
largest end customer), could adversely affect our revenues.
• Spreading our activities across the civil
aerospace, military and energy markets.
• Generating revenues from original equipment
manufacturers and aftermarket products.
A significant or prolonged downturn due to recession,
commodity prices, terrorist attack or aerospace regulations
would decrease demand for the group’s products from civil
aerospace customers, which account for 46% of group
revenues.
• Operating across different geographical
regions.
• Maintaining, where practical, a flexible
manufacturing cost base, maximising
benefits by sourcing from lower cost
markets as appropriate.
Intellectual property and other business data are stored and
transmitted electronically. Accordingly, the group is exposed
to the risk of data loss either through third-party breach of our
systems or the unintentional loss of data by employees.
The group is implementing a global IT solution (SAP) across
its sites. Failure to implement the new system successfully
could lead to loss of data, operational delays and unplanned
increases in working capital.
Meggitt continues to pursue acquisitions as part of our growth
strategy. Such acquisitions may not realise expected benefits.
Multi-year, fixed price contracts with original equipment
manufacturing customers expose us to variations in
production costs.
The group is subject to the contracting regulations of our
government customers, particularly those of the US
government, our largest end customer, which can impose a
range of sanctions in response to violations.
• Monitoring risks and prioritising mitigation
actions through an IT security committee.
• Appointed a group head of IT security.
• Continually enhancing IT security policies and
upgrading and standardising security tools.
• Progressively rolling out SAP under the
governance of a dedicated steering
committee. SAP has been successfully
implemented at 15 group sites.
• Hosting SAP in two separate locations, each
with robust disaster recovery plans.
• Undertaking robust due diligence procedures.
• Obtaining representations, warranties and
indemnities from vendors where possible.
• Appointing full-time integration teams on all
major acquisitions.
• Implementing comprehensive business
integration processes building on the
success of previous acquisition integrations.
• Ensuring estimates of cost are based on
reliable historic data, future productivity
improvements and, where possible, entering
into multi-year, fixed price contracts with
major suppliers.
• Maintaining a comprehensive ethics and
business conduct programme, including
guidelines for doing business with the US
Government and an anti-corruption policy.
• Entering into commitments only after rigorous
commercial and legal reviews of contract terms.
Risk description
Potential impact
Mitigation action
35
Operations continued
Equipment fault
Supply chain
Finance
Credit
Exchange rates
Financing
Meggitt’s products generally operate in extreme
environments where a serious incident arising from failure
could result in liabilities for personal injury or death and
damage to our reputation.
The group may also be subject to material product warranty
obligations to third parties for equipment it manufactures
and services.
• Designing manufacturing processes that
ensure stringent quality and reliability
standards.
• Implementing best practice operational
performance standards through an
Operations Excellence Council.
• Protecting the group from potential product
liability claims with liability insurance
(subject to coverage limits).
We rely on our own manufacturing operations and
independent suppliers for key raw materials and components,
some of which may be available from a limited number of
suppliers. Any disruption to the supply chain could have an
impact on our ability to meet customer requirements and
adversely affect the group’s results.
• Maintaining significant investment in
modernising facilities and improving
production processes to develop leading
manufacturing operations.
• Maintaining a supplier risk assessment
programme.
Credit risk exists in relation to customers and insurers.
We operate in, and sell products to, a range of countries with
different currencies, resulting in exchange rate exposure.
Transaction risk arises where revenues are denominated in
currencies different from those of the costs of manufacture.
Translation risk arises on the conversion into sterling of
income statements and net assets of overseas subsidiaries.
Meggitt’s long-term financing is provided by shareholders in
the form of equity and by banks and other institutions in the
form of debt.
The ability to raise additional equity finance is dependent on
general market conditions and being able to convince potential
investors of the strategic case for investing in Meggitt.
Debt facilities are provided for finite periods of time and
need to be renewed periodically, unless repaid from cash
generated. Such renewal could be affected by any structural
issues in the credit markets.
Debt facilities contain covenants which, if breached, could
result in the facilities being withdrawn.
• Subjecting robust business continuity plans
to regular testing to manage the risk of a
loss of a major facility or supplier.
• Maintaining a wide customer base and
rigorous credit control procedures.
• Maintaining a broad insurer group
and monitoring the credit rating of
those insurers.
• Maintaining hedging in excess of 70% of the
next 12 months’ anticipated transaction
exposure.
• Addressing longer-term risk of exposure
to exchange rate fluctuations by sourcing
goods and services in currencies matching
the revenue exposure where cost-effective.
• Managing translation risk where possible by
matching the currency of borrowings with the
net assets of overseas subsidiaries.
• Maintaining good relationships with major
shareholders as evidenced by the equity
placing of £246 million in January
2011 to support the acquisition of Pacific
Scientific Aerospace.
• Negotiating debt facility extensions. During
the year the group successfully refinanced
a 2012 maturing bank facility with a new
five-year $700 million committed revolving
bank facility. No further refinancing is
required before 2013.
• Maintaining a broad and geographically
diverse banking syndicate, with good
credit ratings.
• Using longer term US private placement
funding to reduce reliance on banks.
• Basing covenant calculations on frozen
GAAP to reduce volatility arising from
certain fair value measurements and
any future accounting standard changes.
• Including covenant clauses that enable
net debt and EBITDA to be retranslated
to sterling at similar exchange rates to
reduce exchange movement volatility.
• Monitoring actual and forecast results
against covenant ratios regularly.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
36
Principal risks and uncertainties
Risk description
Potential impact
Mitigation action
Finance continued
Retirement benefits funding
Corporate
Environmental
Legal and regulatory
The group’s post-retirement benefit schemes are currently
in deficit (£319.9 million at 31 December 2011). The future
deficit position may be adversely affected by poor investment
performance, changes in corporate bond yields and inflation
rates, greater than anticipated improvements in life
expectancy and changes in the regulatory environment.
This would have an adverse affect on amounts recorded
in the income statement and the level of future cash
contributions required to be made.
• Closed all defined benefit pension schemes
in the UK and US to new members.
• Reducing future service costs by basing UK
future accruals on career average salaries
and freezing group contributions to post-
retiree healthcare schemes at 2011 levels.
• Agreeing deficit recovery plans with the
trustees based on actuarial advice and the
results of scheme valuations.
• Designing processes that minimise the
effect of the group’s operations on the
environment.
• Maintaining a programme of independent
third-party audits of our sites.
• Carrying out extensive environmental due
diligence on potential acquisitions.
• Purchasing environmental insurance for
all new, and acquired, sites.
• Maintaining a legal and compliance function
to oversee the management of these risks
and the appropriate response to any issues
as they arise.
• Maintaining a comprehensive health and
safety programme across all of our
businesses, including third-party audits and
benchmarking performance.
• Investing significant resources in
implementing best practice trade
compliance and ethics programmes which
are reviewed quarterly by the Board’s Ethics
and Trade Compliance Committee.
Meggitt’s operations and facilities are subject to laws and
regulations that govern the discharge of pollutants and
hazardous substances into air and water, the handling, storage
and disposal of such materials, and other environmental
matters. Failing to comply with our obligations potentially
exposes the group to serious consequences, including fines,
other sanctions and operational limitations.
We are involved in the investigation and remediation of
current and former sites for which we have been identified
as a potentially responsible party under US law.
We are subject to litigation in the ordinary course of business
and provide for such costs. However, there is a risk that
successful claims or costs could exceed provisions. For
example, a number of asbestos-related claims have been
made against subsidiary companies. To date, the amount
connected with such claims in any year has not been material
and many claims are covered fully or partly by existing
insurance and indemnities.
The group is subject to the laws and regulations of the
countries in which it operates, including health and safety,
environmental, export compliance and government
contracting regulations. In the US, there is a system of
voluntary disclosure to the relevant authorities to deal with
any breach of export laws. Any reported or unreported breach
may be investigated and, depending upon its seriousness,
result in criminal, civil or administrative penalties, including
suspension or debarment. The US authorities are investigating
alleged violations of US export control laws by four US Meggitt
subsidiaries and a UK business. These investigations are likely
to lead to financial penalties for which provision has been
made and the imposition of corrective measures. Suspension
or debarment and denial of export privileges are also possible.
The aerospace industry is highly regulated so the group would
be adversely affected if a material certification, authorisation
or approval were revoked or suspended.
Organisational structure
Meggitt’s success depends upon the efforts, abilities,
experience and expertise of certain senior and specialist
employees. Failure to retain them or recruit alternatives
would have an adverse effect.
The group would be adversely affected by work stoppages
or slowdowns at its facilities and those of key customers
or suppliers.
As the group continues to grow organically and through
acquisition it risks becoming fragmented and unable to
execute its strategic objectives.
• Maintaining development and succession
programmes, competitive benchmarked
remuneration packages and good
communications at all levels.
• Strengthening central sales and marketing,
operational excellence, IT, legal and
compliance functions.
• Implemented new divisional structure.
• Standardising back office functions,
provided increasingly through shared
service centres.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Contents
37
38-54 Governance
55-105 Financial statements
38
39-42
43-46
47-54
Board of directors
Directors’ report
Corporate governance report
Remuneration report
Statutory financial statements including the independent
auditors’ report
55
56
57
58
59
60
Group financial statements
Independent auditors’ report to the members of Meggitt PLC
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
61-97
Notes to the financial statements
98
99
Company financial statements
Independent auditors’ report to the members of Meggitt PLC
Company balance sheet
100-105
Notes to the financial statements of the Company
106-108 Supplementary information
106
Five-year record
107-108
Investor information
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
38
Board of directors
Sir Colin Terry KBE CB FREng DL
Non-Executive Chairman
Brenda Reichelderfer
Non-Executive Director
Chairman of the Nominations and Ethics and Trade Compliance
Committees
Sir Colin, a Chartered Engineer, was appointed to the Board in February
2003, becoming non-executive Chairman on 1 July 2004. He spent 37
years in the Royal Air Force, where he reached the rank of Air Marshal.
Since retiring, he has held the positions of Group Managing Director of
Inflite Engineering Services, Chairman of the Engineering Council (UK),
President of the Royal Aeronautical Society and the Council of European
Aerospace Societies. Sir Colin is now Chairman of the UK Military Aviation
Authority Safety Advisory Committee, member of the Advisory Board
of Horton International and non-executive director and Chairman of the
Audit Committee of Fox Marble Holdings PLC. He is President of the
Soldiers, Sailors, Airmen and Families Association in Buckinghamshire
where he is also a Deputy Lieutenant.
Terry Twigger
Chief Executive
Member of the Nominations and Ethics and Trade Compliance
Committees
Terry, a Chartered Accountant, joined Meggitt in 1993 and was appointed
to the Board as Group Finance Director in 1995, becoming Chief Executive
in January 2001. Before joining Meggitt, he spent 15 years at Lucas
Aerospace. Since June 2009, Terry has been non-executive director
and Chairman of the Audit Committee of Filtrona plc, an international
speciality plastic and fibre products supplier.
Member of the Audit, Nominations and Remuneration Committees
Brenda was appointed to the Board in June 2011. Brenda, an engineer,
was Senior Vice President, Director of Engineering and Chief Technology
Officer of ITT Industries Corporation, until her retirement in 2008. She
is currently Senior Vice President and Managing Director of TriVista,
a boutique consulting firm working in the private equity sector, a member
of the Technology Transfer Group of the Missile Defense Agency
and a non-executive director of Federal Signal Corporation and
Wencor Aerospace.
David Robins
Non-Executive Director
Chairman of the Remuneration Committee
David was appointed to the Board in January 2002. He was, until
December 2000, Chairman and Chief Executive of ING Barings, before
which he spent 18 years at Phillips & Drew and UBS, becoming Executive
Vice President and Regional Head of UBS Europe. He is Chairman of
Henderson TR Pacific Investment Trust PLC and Oriel Securities Ltd, a
director of Fidelity Japanese Values Investment Trust, a venture capital-
backed company and chairman of two charities. On 21 December 2011,
David stepped down from the Audit and Nominations Committees after
nine years of service, in line with the UK Corporate Governance Code.
David will step down as Chairman and member of the Remuneration
Committee with effect from the end of the Company’s Annual General
Meeting in April 2012.
Philip Green
Group Corporate Affairs Director
David Williams
Non-Executive Director
Member of the Ethics and Trade Compliance Committee
Philip joined Meggitt in 1994 as Group Company Secretary and was
appointed to the Board in January 2001 with responsibility for legal and
compliance matters. He relinquished the role of Company Secretary
during 2006. Previously, Philip spent 14 years at British Aerospace. He is
a Fellow of the Institute of Chartered Secretaries and Administrators.
Chairman of the Audit Committee and member of the Nominations
and Remuneration Committees
David, a Chartered Accountant, was appointed to the Board in December
2006, becoming Senior Independent Director in February 2011. He has
held a number of senior financial positions and in 1991 joined distribution
and outsourcing group Bunzl plc as Finance Director where he worked
until his retirement in January 2006. He is the Joint Chairman of Mondi
plc and Mondi Limited and non-executive director and Audit Committee
Chairman of both Tullow Oil plc and DP World Limited.
Paul Heiden
Non-Executive Director
Member of the Audit, Nominations and Remuneration Committees
Paul, a Chartered Accountant, was appointed to the Board in June
2010 and will become Chairman of the Remuneration Committee
in April 2012. He was Chief Executive of FKI Plc from 2003 to 2008,
having held a number of senior positions, including Director, Industrial
Business and Finance Director of Rolls-Royce plc and senior financial
positions with Peat Marwick, Mitchell and Co, Hanson Plc and Mercury
Communications. Paul is Chairman of Talaris Topco Limited and
non-executive director and Chairman of the Audit and Risk Committees
of both UU Plc and the London Stock Exchange Group plc.
Stephen Young
Group Finance Director
Member of the Ethics and Trade Compliance Committee
Stephen, a Chartered Management Accountant, was appointed to the
Board in January 2004. He has held a number of senior financial positions
including Group Finance Director of Thistle Hotels plc, Group Finance
Director of the Automobile Association and Group Financial Controller
of Thorn EMI plc. Stephen was appointed a non-executive director of
Derwent London plc in August 2010 and is also Chairman of its Audit
and Risk Committees and a member of its Remuneration and
Nominations Committees.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Directors’ report
39
The directors hereby submit their annual report and the audited
financial statements for the year ended 31 December 2011.
The consolidated financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union (‘IFRSs as adopted by the EU’) and the
Companies Act 2006.
The Company financial statements have been prepared in accordance
with UK Generally Accepted Accounting Practice (‘UK GAAP’) and the
Companies Act 2006.
Section 417 of the Companies Act 2006 requires that certain
information be included in the Directors’ Report. The information
contained in the Business Review (pages 3 to 36) which fulfils this
requirement is therefore incorporated by reference into this
Directors’ Report.
Acquisitions and disposals
On 21 April 2011, the Company announced the completion of the
acquisition of Pacific Scientific Aerospace (‘PacSci’) from Danaher
Corporation. The total cash consideration payable, after adjustment for
the level of working capital in the business, was £414.7 million. PacSci
is a leading supplier of components to the global civil aerospace
and military markets. Organised in six businesses, PacSci offers fire
suppression, sensing, electric power, electric actuation and security
products, with a balanced presence between civil aerospace and
military markets. The acquisition was funded in part by an equity
placing of 69.8 million new ordinary shares (representing less than
10% of issued share capital as at the date of the placing) (‘the Equity
Placing’) with the balance funded from the Group’s existing debt
facilities. The Equity Placing was completed on 21 January 2011 and
raised £246.0 million.
Principal activities
Share capital and control
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. Its registered
office is at Atlantic House, Aviation Park West, Bournemouth
International Airport, Christchurch, Dorset, BH23 6EW.
Meggitt PLC is the parent company of a Group whose principal
activities during the year were the design and manufacture of high
technology products and systems for the aerospace, defence and
other specialist markets, including energy, medical, industrial, test
and transportation.
Dividends
The directors recommend the payment of a final dividend of 7.30p net
per ordinary 5p share (2010: 6.35p), to be paid on 11 May 2012 to those
members on the register at close of business on 16 March 2012.
An interim dividend of 3.20p (2010: 2.85p) was paid on 30 September
2011. If the final dividend as recommended is approved the total
ordinary dividend for the year will amount to 10.50p net per ordinary
5p share (2010: 9.20p).
Dividends are paid to shareholders net of a non-refundable tax
credit of 10%. Shareholders liable to higher rates of income tax will
have additional tax to pay.
Shareholders will be offered a scrip dividend alternative under
the share dividend plan in respect of the proposed final dividend.
During 2011, the Company made the Meggitt PLC share dividend plan
available for the dividends paid in May 2011 (the final dividend for 2010)
and in September 2011 (the interim dividend for 2011). The cash
dividend necessary to give an entitlement to one new ordinary share
was fixed at 336.76p and 339.66p respectively.
The issued share capital of the Company at 31 December 2011 and
details of shares issued during the financial year are shown in note 35
on page 92. On 31 December 2011 there were 778,759,082 ordinary
shares in issue. A further 41,298 ordinary shares were issued between
1 January 2012 and 23 February 2012, all of which were issued as a
result of the exercise of share options. The ordinary shares are listed
on the London Stock Exchange.
The rights and obligations attaching to the Company’s ordinary shares
are set out in the Articles of Association (‘the Articles’). A copy of the
Articles is available for inspection at the registered office. The holders
of ordinary shares are entitled to receive the Company’s report and
accounts, to attend and speak at general meetings of the Company, to
appoint proxies to exercise full voting rights and to participate in any
distribution of income or capital.
There are no restrictions on transfer, or limitations on holding ordinary
shares and no requirements for prior approval of any transfers. There
are no known arrangements under which financial rights are held by
persons other than holders of the shares and no known agreements
on restrictions on share transfers or on voting rights. Shares acquired
through Company share plans rank pari passu (on an equal footing)
with the shares in issue and have no special rights.
The Company has disclosed significant direct or indirect holdings,
which are published on a regulatory information service and on the
Company’s website.
Rules about the appointment and replacement of Company directors
are contained in the Articles. Changes to the Articles must be
submitted to the shareholders for approval by way of special
resolution. The powers of directors are set out in the Articles and are
governed by applicable legislation. At each Annual General Meeting
(‘AGM’) of the Company, the shareholders are requested to renew the
directors’ powers to allot securities in the Company up to the value
specified in the notice of meeting and to renew the directors’ powers to
allot securities without the application of pre-emption rights up to the
value specified in the notice of meeting in accordance with Article 4 of
the Articles. The Company can seek authority from the shareholders
at the AGM to purchase its own shares.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
40
Directors’ report continued
Share capital and control continued
Share Incentive Plan
The Group has significant financing agreements which include change
of control provisions which, should there be a change of ownership
of the Company, could result in renegotiation, withdrawal or early
repayment of these financing agreements. These are a USD 700 million
revolving credit agreement dated April 2011, a USD 600 million note
purchase agreement dated June 2010, a USD 500 million revolving
credit agreement dated July 2008 and a USD 250 million note purchase
agreement dated June 2003. There are a number of other long-term
commercial agreements that may alter or terminate upon a change of
control of the Company following a successful takeover bid. None is
considered to be significant in terms of potential impact on the Group’s
business as a whole.
The service contracts for the executive directors state that if there
is a change of control in the Company, executive directors may
terminate their employment within six months and would be entitled to
compensation from the Company for loss of office. The compensation
would be annual remuneration plus the value of benefits for the
unexpired notice period less 5%.
The Company does not have any agreements with the non-executive
directors or any other employees that would provide compensation
for loss of office or employment resulting from a takeover except that
provisions in the Company’s share plans may cause options and/or
awards granted to employees under such plans to vest on a takeover.
Conflicts of interest
The Company has a procedure for the disclosure, review, authorisation
and management of directors’ conflicts of interest and potential
conflicts of interest, in accordance with the provisions of the Companies
Act 2006. The procedure, which was summarised in the explanatory
notes to the Notice of AGM in 2008, is included in the Articles and has
been adhered to by the Board since its introduction in 2008. In deciding
whether to authorise a conflict or potential conflict the directors must
have regard to their general duties under the Companies Act 2006. The
authorisation of any conflict matter, and the terms of authorisation are
reviewed by the Board as appropriate and, as a minimum, on an annual
basis.
Substantial shareholdings
The Trustee of the Share Incentive Plan has been allocated £0.7 million
from 2011 profits to acquire ordinary shares in Meggitt PLC for eligible
employees (2010: £0.7 million).
Directors and their interests
The directors who served during the year were: Sir Colin Terry,
Mr T Twigger, Sir Alan Cox (resigned 24 February 2011), Mr P E Green,
Mr P Heiden, Ms B L Reichelderfer (appointed 7 June 2011),
Mr D A Robins, Mr D M Williams and Mr S G Young.
Under the Articles, one-third of the directors are subject to re-election
every year. However, in accordance with the UK Corporate Governance
Code, at the AGM in 2012 all directors will stand for re-election.
Details of directors’ contracts and their interests in the ordinary
shares of the Company are shown in the Remuneration Report on
pages 47 to 54. None of the directors has, or has had, at any time
during the financial year a beneficial interest in any material contract
relating to the business of the Group other than service contracts.
The directors have the benefit of qualifying third-party indemnity
provisions for the purposes of Section 236 of the Companies Act 2006
pursuant to the Articles which were in effect throughout the financial
year and up to the date of this Directors’ Report.
Directors’ share interests
The beneficial interests of the directors and their connected persons
in the ordinary shares of the Company at 31 December 2011 were as
follows:
Sir Colin Terry
T Twigger
Sir Alan Cox1
P E Green
P Heiden2
B L Reichelderfer 3
D A Robins
D M Williams
S G Young
Shareholding
Ordinary shares of 5p each
2010
2011
11,603
1,103,626
–
552,130
5,551
6,000
68,918
5,000
394,649
11,389
970,743
22,113
498,676
–
–
67,464
5,000
310,325
At 23 February 2012 the Company had been notified under the
Disclosure and Transparency Rules of the Financial Services Authority
(FSA) of the following substantial interests in the issued ordinary
shares of the Company requiring disclosure:
1
2
3
Resigned on 24 February 2011.
Appointed on 3 June 2010.
Appointed on 7 June 2011.
The share interests shown in the table above include the balance of
awards made to each of the executive directors under the Deferred Share
Bonus Plan on 11 March 2010 at an award price of 290.70p as detailed
below:
T Twigger: 18,266 shares (due to be released in March 2012).
P E Green: 8,372 shares (due to be released in March 2012).
S G Young: 10,960 shares (due to be released in March 2012).
Between 1 January 2012 and 23 February 2012 (the latest date for
which it was practical to obtain the information), the only changes to
the beneficial interests of the directors in the ordinary shares of the
Company are that Mr T Twigger, Mr P E Green and Mr S G Young each
acquired 69 shares through the Meggitt PLC Share Incentive Plan.
Percentage of
total voting
rights attaching
to the issued
ordinary share
capital of the
Company
Indirect voting
rights*
–
Direct voting
rights*
64,753,939
Prudential plc
Capital Research and
Management Company
Baillie Gifford & Co
Legal & General Group plc
Standard Life Investments Ltd
-
-
25,966,967
22,153,694
42,160,262
34,138,890
-
3,769,560
8.31
5.41
4.38
3.33
3.33
*One voting right per ordinary share.
MEGGITT PLC REPORT AND ACCOUNTS 2011
41
Corporate responsibility
Gender diversity
The Board takes regular account of social, environmental and ethical
matters. Our Corporate Responsibility Report gives a full update on
activities and achievements during 2011 and can be found on pages 27
to 32. The following matters fall under the broad definition of
corporate responsibility:
Health and safety at work
The Group continues to carry out its responsibilities for securing the
health, safety and welfare at work of employees and for protecting
others against risks to health and safety relating to the activities at
work of those employees. Every reasonable effort is made to provide
safe working conditions. Protective equipment is provided and safety
training takes place regularly. There is a Group Health and Safety
Policy, which was reviewed and updated by the Board of Directors in
December 2011. Further details of our approach to health and safety
can be found in the Corporate Responsibility Report on pages 27 to 32.
People
The Group regards employee communication as a vital business
function. Communication and consultation is carried out at facilities by
operations directors and other line managers using a variety of forums
from daily standing meetings on shop floors to monthly all employee
“Town Hall” meetings, team briefings and works councils. We ensure
that all employee relations regulations are respected.
Corporate communications take a variety of forms, including
presentations from the Chief Executive via audio-visual media, global
web-enabled conferences, publications such as the Meggitt Review and
a variety of electronically distributed newsletters. Results presentations
are disseminated across the Group, which enhance our employees’
understanding of the financial and economic factors affecting the
performance of the Group.
The directors encourage employees to become shareholders to
improve active participation in, and commitment to, the Group’s
success. This policy has been pursued for all UK employees through
the Share Incentive Plan and the Sharesave Scheme. As at the year
end, approximately 70% of UK employees held shares under our Share
Incentive Plan and 28% of UK employees were contributing monthly to
one or more Sharesave accounts.
Details of share schemes available to directors and senior executives
across the Group can be found in the Remuneration Report on pages
47 to 54.
Equal opportunities
The Group has a policy supporting the principle of equal opportunities
in employment and opposing all forms of unlawful or unfair
discrimination.
Disabled employees
It is Group policy to give full and fair consideration to applications from
disabled people, to continue wherever possible to employ staff who
become disabled and to provide opportunities for the training, career
development and promotion of disabled employees.
On 30 September 2011, the Board issued a statement to confirm their
strong support for the spirit of Lord Davies’ report “Women on Boards”
and that it aspires to 25% of board positions being filled by women by
2015. The Board encourages diversity in senior management positions
and throughout the workforce and the Group actively seeks to attract
and retain women at every level of the Group. There are specific
challenges in the aerospace and defence industry, which has not
traditionally attracted sufficient women into the talent pool. The
following gender diversity data is provided to comply with
recommendation 2 of Lord Davies’ report:
Board of Directors
Management Board
Senior Executives
All employees
% of
females
13%
9%
6%
29%
Ethics and business conduct
The Group has an Ethics and Business Conduct Policy and a Code of
Conduct which are overseen by the Vice-President of Ethics and
Business Conduct. All employees have received a copy of the Code,
supplemented by follow-up training, which is refreshed regularly.
Ethics and business conduct is reviewed regularly by a Board
committee. Further details of our approach to ethics and business
conduct can be found in the Corporate Responsibility Report on
pages 27 to 32.
Community relations and charitable donations
During the year, the Group made charitable donations of £0.1 million
(2010: £0.1 million), principally to local charities serving the
communities in which the group operates. The Company made
charitable donations of £15,000 (2010: £8,000). Further details of our
approach to community relations and charitable donations can be
found in the Corporate Responsibility Report on pages 27 to 32.
Political contributions
In accordance with the Group’s policy, no contributions were made to
EU political parties or EU political organisations (2010: £Nil) and no EU
political expenditure exceeding £2,000 was incurred in the year by the
Company or any of its subsidiaries (2010: none above £2,000).
No contributions to non-EU organisations with political objectives were
made during the year (2010: £Nil).
Payment policy
The Company’s policy is to seek to comply with the terms of payment
agreed with a supplier. Where terms are not negotiated, the Company
endeavours to adhere to the supplier’s standard terms. The Company’s
creditor days at 31 December 2011 were 39 (2010: 49).
MEGGITT PLC REPORT AND ACCOUNTS 2011
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42
Directors’ report continued
Research and development
Statement of directors’ responsibilities
The Group recognises the importance of investing in research and
development programmes which enhance the Group’s products and
the way they are made. Including amounts funded by customers,
expenditure on research and development amounted to £110.5 million
(2010: £84.2 million). Excluding amounts funded by customers, it
was £83.2 million (2010: £67.5 million), of which £41.5 million (2010:
£33.5 million) was capitalised in accordance with the Group’s
accounting policies (see note 2 of the Group’s financial statements).
Financial risk management
Policies on financial risk management are set out in note 3 of the
Group’s financial statements.
2012 Annual General Meeting
Details of the AGM to be held on 26 April 2012 and explanations of
the proposed resolutions appear in the separate Notice of AGM
which is provided to shareholders in their elected format at least
20 working days before the date of the AGM, and can be viewed on the
e-communications page of our website (www.meggitt.com). In addition
to routine business, shareholders’ consent will be sought to:
(i) approve the Remuneration Report;
(ii) renew the authority of the directors to issue shares under Article 4
of the Articles;
(iii) approve payments to organisations of no more than £60,000 in total,
which might inadvertently be interpreted as donations to EU
political organisations under the Political Parties, Elections and
Referendums Act 2000 (as amended by the Electoral Administration
Act 2006). It is not the policy of the Company to make donations to
political parties and the directors have no intention of changing
that policy;
(iv) approve the convening of general meetings on 14 clear days notice
in accordance with the Articles.
Auditors
PricewaterhouseCoopers LLP has expressed its willingness to
continue as auditors and a resolution to reappoint them will be
proposed at the 2012 AGM.
Disclosure of information to auditors
At the date of this report, as far as the directors are aware, there is
no relevant audit information of which the Company’s auditors are
unaware. Each of the directors has taken all the necessary steps
in order to make himself or herself aware of any relevant audit
information and to establish that the Company’s auditors are aware
of that information.
The directors are responsible for preparing the Annual Report, the
Remuneration Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have elected to
prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and the Company financial statements in accordance
with UK GAAP. Under company law the directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and of the
profit or loss of the Group for that period. In preparing these financial
statements, the directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether IFRSs as adopted by the EU and applicable UK
Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Group and Company
financial statements respectively.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and the Company and enable them to
ensure that the financial statements and the Remuneration Report
comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the International Accounting
Standards Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of
the Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Each of the directors, whose names and functions are listed in the
Board of Directors on page 38, confirm that to the best of their
knowledge:
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the
Group; and
• this Directors’ Report and the Business Review on pages 3 to 36
includes a fair review of the development and performance of the
business and the position of the Group, together with a description of
the principal risks and uncertainties that it faces.
By order of the Board
M L Young
Company Secretary
5 March 2012
MEGGITT PLC REPORT AND ACCOUNTS 2011
Corporate governance report
43
Chairman’s Introduction
The Board considers good corporate governance practice enhances
the strength of our values, our reputation and our ability to implement
our corporate strategy.
In 2012, one of our first corporate governance priorities will be to carry
out an externally facilitated Board evaluation process. Introducing an
external evaluator with specialist skills and expertise will enhance our
existing Board evaluation process and we will report on the outcome of
this external evaluation next year.
During 2011, we appointed Brenda Reichelderfer to the Board as an
independent non-executive director. Brenda, an engineer, has already
made a significant positive contribution to the Board. David Robins
has completed over nine years service on the Board, and as a result
stepped down from our Board Committees in 2011 (except for the
Remuneration Committee, from which he will resign at the end of
the Annual General Meeting in 2012). David is a highly experienced and
valued non-executive director, who makes an important contribution to
the Board and so continues to serve on the Board as a director. In 2012,
another key governance priority will be the recruitment of a further
independent non-executive director to the Board.
Board of Directors
The Board of Directors met eight times in 2011. The Board retains full
and effective control of the Group and is collectively responsible for the
Group’s success through its leadership. It sets the strategy, ensures
appropriate resources are in place and reviews performance on a
regular basis. The Board is responsible for setting the Group’s values
and standards and for ensuring its obligations to shareholders,
employees and others are met. The Board considers it has a good
balance of executive and non-executive directors, is of an appropriate
size and includes the skills and experience required by the business.
The Board regularly receives reports from the Chief Executive on the
Group’s activities, from the Group Finance Director on financial
performance and treasury matters and from the Group Corporate
Affairs Director on legal and compliance issues. Strategic issues and
other matters (including capital structure, financial reporting and
controls) are considered in line with a schedule of matters reserved for
the decision of the Board. If a decision is not reserved for the Board,
then authority lies, in accordance with an authorisation policy, with one
of the Finance Committee of the Board, the Chief Executive, an
executive director, divisional presidents or site directors/general
managers (as appropriate).
I can confirm that the Company has applied the Main Principles set out in
the UK Corporate Governance Code, which was issued in 2010 and is
available on the Financial Reporting Council website (www.frc.org.uk),
(‘the Code’). We have provided explanations where we have not complied
with specific Code provisions in our Statement of Compliance on page 46.
All directors are subject to election by shareholders at the first Annual
General Meeting (‘AGM’) after their appointment and to re-election
annually from 2012 onwards in compliance with the Code. Biographical
and other relevant information on directors submitted for re-election is
provided in the Notice of AGM.
In this report and the Remuneration Report on pages 47 to 54, we have
provided further details about how the principles of the Code have
been applied including those relating to the role and effectiveness of the
Board, together with activities of the Board and its Committees in 2011.
Sir Colin Terry
Chairman of the Board of Directors
5 March 2012
Board of Directors
Board membership and attendance during 2011
Name
Title
Mr S G Young
Mr P E Green
Sir Colin Terry
Mr T Twigger
Chairman
Executive Director
(Chief Executive)
Executive Director
(Group Corporate
Affairs Director)
Executive Director
(Group Finance Director)
Non-Executive Director,
Senior Independent Director
Sir Alan Cox2
Non-Executive Director
Mr P Heiden
Non-Executive Director
Ms B L Reichelderfer3 Non-Executive Director
Mr D A Robins4
Non-Executive Director
Mr D M Williams1
Meetings
eligible Meetings
to attend attended
8
8
8
8
8
2
8
5
8
8
8
8
8
8
2
8
5
8
Appointed as Senior Independent Director on 24 February 2011.
Resigned on 24 February 2011.
Appointed on 7 June 2011.
1
2
3
4 Mr D A Robins is no longer judged to be independent under the Code
by virtue of his having been on the Board for over nine years.
Chairman
• Sir Colin Terry met the independence criteria on appointment as
Chairman on 1 July 2004.
• The roles of the Chairman and Chief Executive are separate and
there is a clear division of responsibilities which has been approved
and agreed in writing by the Board.
• The Chairman is responsible for leading the Board and for ensuring
its effectiveness.
• Accurate, timely and clear information is provided to all directors
and the Chairman is satisfied that effective communication,
principally by the Chief Executive and Group Finance Director, is
undertaken with shareholders.
• The Chairman facilitates the contribution of non-executive directors
and oversees the relationship between them and the executive
directors. The Chairman holds informal meetings with the other
non-executive directors without executives present.
Senior Independent Director
The Senior Independent Director is available to shareholders if they
have concerns which contact through the normal channels has failed
to resolve or for which such contact is inappropriate.
Non-Executive Directors
• All of the non-executive directors are considered independent under
the Code, with the exception of Mr D A Robins who has served on the
Board for over nine years.
• The non-executive directors play a full part by constructively
challenging and contributing to the development of strategy. The
performance of management, the integrity of financial information
and the effectiveness of financial controls and risk management
systems are monitored.
• The non-executive directors are responsible for determining
appropriate levels of remuneration for the executive directors and
have an important role in appointing new directors.
• The terms and conditions of appointment of non-executive directors
are available for inspection. Their letters of appointment set out the
expected time commitment required. On appointment, their other
significant commitments were disclosed, including the time involved.
MEGGITT PLC REPORT AND ACCOUNTS 2011
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44
Corporate governance report continued
The work of the Board in 2011
During the year, the Board approved the acquisition of Pacific Scientific
Aerospace. The Board received regular reports from executive
directors on business and financial performance and corporate affairs
(including litigation, health, safety and environmental, trade
compliance and ethics and business conduct) and received
presentations on business unit updates, strategy, organisation
development and succession planning, investor relations, IT, internal
control and risk management. It also received reports on the activities
of its committees. In 2011, the Board reviewed and updated their
objectives and the following other matters were also reviewed and
approved:
• The 2010 Annual report and preliminary announcement and the 2011
half yearly results;
• The final dividend payment to shareholders in respect of the year
ended 31 December 2010 and the interim dividend payment for the
year ending 31 December 2011;
• The appointment of Ms B L Reichelderfer;
• The budget for 2012;
• A revised Group Health and Safety Policy; and
• The reorganisation of subsidiary entities (see Note 4 to the Company
accounts on page 102).
of major shareholders’ views are enhanced by reports from the
Company’s brokers and attendance at analysts’ briefings. Analysts’
notes on the Company are made available to all directors.
Annual General Meeting
The Board uses the AGM to communicate with its shareholders.
Proxy appointment forms for each resolution provide shareholders
with the option to direct their proxy to vote for or against resolutions
or to withhold their vote. All proxy votes for, against and withheld are
counted by the Company’s Registrars and the level of voting for, against
and withheld on each resolution is made available after the meeting
and on the Company’s website. The proxy form and the announcement
of the results of a vote make it clear that a vote withheld is not a vote
in law and will not be counted in the calculation of the proportion of
votes for and against the resolution.
Separate resolutions are proposed at the AGM on substantially
separate issues and there is a resolution relating to the financial
statements. The Notice of AGM and related papers are sent to
shareholders at least 20 working days before the meeting.
The respective Chairmen of the Audit, Remuneration and Nominations
Committees are available at the AGM to respond to questions. It is
usual for all other directors to attend.
During the year, no unresolved concerns were recorded in the Board’s
minutes.
Nominations Committee
Board performance evaluation
In February 2012, the Board conducted a self-evaluation. The
Chairman led a review and discussion to consider the Board’s
performance against some high level objectives and its own terms of
reference. The Audit, Remuneration and Nominations Committees
have considered their own performance during the year. The Board and
Committees were satisfied with their effectiveness. The performance
of individual directors has been reviewed by the Chairman and Chief
Executive in discussion with other non-executive directors and the
non-executive directors have considered the performance of the
Chairman, taking into account the views of the executive directors.
Responsibilities
The Committee reviews the structure, size and composition (including
the skills, knowledge, experience and diversity) of the Board and, in
consultation with all directors, makes recommendations to the Board
with regard to any proposed changes. Decisions on Board changes are
taken by the Board as a whole.
Terms of reference
The Committee operates within agreed Terms of Reference (last
updated in August 2004) which are available at www.meggitt.com.
Committee membership and attendance during 2011
An external advisor has been appointed to carry out an evaluation of
Board effectiveness during 2012.
Name
Information and professional development
The Board is supplied with the information it needs to discharge its
duties. New directors receive an appropriate induction to the business.
Major shareholders have the opportunity to meet new non-executive
directors should they wish to do so. Directors are encouraged to
update their skills regularly. Their knowledge and familiarity with the
Group is facilitated by access to senior management, reports on the
business and visits to the Group’s operating facilities. Resources are
available to directors for developing and updating their knowledge
and capabilities.
The Board allows all directors to take independent professional advice
at the Company’s expense. Committees are provided with sufficient
resources to undertake their duties. All directors have access to the
advice and services of the Company Secretary who is responsible to
the Board for ensuring that Board procedures are complied with and
there is good information flow within the Board. The appointment
and removal of the Company Secretary is a matter for the Board as a
whole. The Company maintains appropriate insurance for directors
and officers.
Dialogue with shareholders
The Company values its dialogue with institutional and private
investors. Effective communication with fund managers, institutional
investors and analysts about strategy, performance and policy is
promoted by way of meetings involving the Chief Executive and Group
Finance Director. The views of shareholders are reported to the
Board by the Chief Executive. The Chairman and other non-executive
directors are available to attend meetings with shareholders and a
number of such meetings took place in 2011. Directors’ understanding
MEGGITT PLC REPORT AND ACCOUNTS 2011
Sir Colin Terry
Mr T Twigger
Mr D M Williams
Sir Alan Cox1
Mr P Heiden
Ms B L Reichelderfer2
Mr D A Robins3
Meetings
eligible Meetings
attended
to attend
4
4
4
2
4
1
4
4
4
4
1
4
1
4
Resigned on 24 February 2011
Appointed on 7 June 2011
1
2
3 Mr D A Robins is no longer judged to be independent under the
Code by virtue of his having been on the Board for over nine years.
Mr D A Robins stepped down from the Nominations Committee
on 21 December 2011.
The work of the Committee in 2011
The Nominations Committee met four times in 2011. The Committee
reviewed the structure, size, diversity and composition of the Board
and in the light of these reviews, made recommendations in respect
of the role and capabilities required for the appointment of a new
non-executive director. Ms B L Reichelderfer was appointed in
June 2011 using the services of an external search consultancy.
Ms Reichelderfer, an engineer, was appointed as a result of her wealth
of experience of engineering and manufacturing matters across a
range of different commercial markets.
In December 2011 the Committee agreed that a further independent
non-executive director should be recruited in 2012, using the services
of an external search consultancy. It was noted that due care and
attention would be placed on ensuring the appropriate emphasis was
placed on diversity as part of the selection process.
45
Audit Committee
Responsibilities
• Manage the relationship with external auditors including
recommending the appointment, reappointment, assessment of
independence, review of performance and removal of the auditors;
• Recommend the audit fee and non-audit services policy;
• Discuss the nature and scope of the external audit and audit results;
• Review the external auditors management letter and ensure findings
are appropriately acted on;
• Review the effectiveness of the internal audit function and to
consider management’s response to internal audit
recommendations;
• Review the Group’s procedures for handling allegations from
whistleblowers;
• Review the reports from management and internal audit on the
effectiveness of systems for internal financial control, financial
reporting and risk management; and
• Review, and challenge where necessary, the actions and judgements
of management, in relation to the interim and annual financial
statements and to recommend approval of the financial information
contained in those statements to the Board.
Terms of reference
The Committee operates within agreed Terms of Reference (last
updated in March 2012) which are available at www.meggitt.com.
Committee membership and attendance during 2011
Name
Mr D M Williams
Mr P Heiden
Ms B L Reichelderfer1
Mr D A Robins2
Meetings
eligible Meetings
attended
to attend
3
3
2
3
3
3
2
3
Appointed on 7 June 2011
1
2 Mr D A Robins is no longer judged to be independent under the
Code by virtue of his having been on the Board for over nine years.
Mr D A Robins stepped down from the Audit Committee on
21 December 2011.
The Board is satisfied that the Committee’s members have recent
and relevant financial experience.
The work of the Committee in 2011
The Committee met three times in 2011. At these meetings, the
Committee:
• Monitored the integrity of the Group’s financial statements and
reviewed the Group’s internal controls and the effectiveness of the
internal audit function. The Committee reviewed Internal Audit
reports at every meeting.
• Reviewed formal announcements relating to the Groups financial
performance and any significant financial reporting statements
contained in those announcements.
• Received a presentation on Group taxation.
• Received technical updates of relevant changes in the governance
environment and in accounting standards and other reporting
matters.
• Considered and discussed its own effectiveness following an
internal evaluation.
The external auditors attended these meetings to discuss the scope
and the final results of the 2010 audit in detail (which included the main
risks facing the Group), the strategy for the 2011 audit and
the “hard close” results of the 2011 audit.
Auditors
The external auditors are PricewaterhouseCoopers LLP who were
appointed as Group auditors on 2 October 2003. The lead audit partner
is Mr J Maitland whose appointment in this role commenced with the
audit for the financial year ended 31 December 2008.
Non-audit services
The Company places great importance on the independence of its
auditors and is careful to ensure their objectivity is not compromised.
The Committee agrees the fees paid to external auditors for their
services as auditors and is required to approve, in advance, any fees to
the external auditors for non-audit services in excess of £0.1 million.
During 2011, there were no fees paid to PricewaterhouseCoopers LLP
for non-audit services above £0.1 million.
The Group’s policy on non-audit services is as follows:
1. The following non-audit services may be provided by the Group’s
external auditor:
• Assurance on the interpretation and implementation of accounting
standards, financial reporting matters, tax standards and
governance regulations;
• Services related to potential acquisitions or reorganisations such as
working capital reports and due diligence procedures;
• Internal accounting and risk management control reviews and
reviews of policy and procedure compliance; and
• Attestation and other reports as required by third parties where the
information derives principally from the audited financial
statements.
2. In general, the following non-audit services may not be provided by
the Group’s external auditor:
• Executive management of company operations and activities,
including acting temporarily or permanently as a director, officer or
employee of the Group;
• Provision of internal audit services;
• Tax planning services;
• Design and implementation of financial information systems;
• Actuarial consulting services;
• Valuation of assets or liabilities for inclusion in the Group’s financial
statements;
• Broker, investment adviser or investment banking services; and
• General consulting work, where this could impair external auditors’
independence or objectivity.
3. Details of non-audit services provided by the Group’s external
auditor are provided to the Audit Committee annually.
Financial reporting
The financial statements contain an explanation of the directors’
responsibility for the preparation of the accounts (page 42) and a
statement by the auditors concerning their responsibilities (page 55).
The directors also report that the business is a going concern
(page 46).
The Company has in place internal control and risk management
systems in relation to the Company’s financial reporting process
and the Group’s process for preparation of consolidated accounts.
Consolidated Group financial information is derived from the
underlying financial systems of the business units. Business unit
financial processes are integrated into these financial systems and
are monitored and managed through regular monthly reporting. The
finance policies and procedures followed in business unit reporting
are set out in the Meggitt Finance Policies and Procedures Manual.
MEGGITT PLC REPORT AND ACCOUNTS 2011
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46
Corporate governance report continued
Financial reporting continued
Share capital
These polices are reviewed regularly by management and compliance
is monitored by management and internal audit.
The Group Ethics Line enables employees to raise any concerns about
possible improprieties in matters of financial reporting or otherwise.
This allows for proportionate and independent investigation and
appropriate follow-up action.
Internal control
The Board is responsible for maintaining a sound system of internal
control to safeguard shareholders’ investments and the Group’s assets
and for reviewing its effectiveness. The system is designed to manage
the risk of failure to achieve business objectives and can only provide
reasonable assurance against material misstatement or loss. The
Board confirms full implementation of the Financial Reporting
Council’s updated Turnbull guidance on Internal Control (2005).
The Board reviews the effectiveness of the system of internal control
via the following procedures:
• Regular reports at Board meetings on the state of the business from
the Chief Executive and the Group Finance Director and on legal and
compliance activities from the Group Corporate Affairs Director;
• Regular reviews by the Audit Committee on the effectiveness of
the Group’s internal controls and of the reports from the external
auditors and internal audit. Internal audit visits to operating units
are carried out using a risk model approved by the Audit Committee;
• A review of the Group’s key risks and the general risk environment is
presented annually to the Board and the Board receives an annual
report on its insurance coverage and uninsured risks;
• The Ethics and Trade Compliance Committee of the Board reviews
ethics and trade compliance quarterly;
• Every month, each business submits detailed operating and
financial reports covering all aspects of their performance. Issues
are communicated to the Management Board and the Board; and
• The Board receives annual written confirmation from presidents,
site directors/general managers (as appropriate) that Group policies
have been complied with.
This report includes the information required by the Disclosure
and Transparency Rules (‘DTR’) 7.2 to be contained in the Company’s
corporate governance statement, with the exception of the information
required under DTR 7.2.6 which is located in the Directors Report
on pages 39 and 40.
Compliance with the Code
The Board confirms that during the year the Company has complied
with Sections A - E of the Code, with the exception of the following:
(i) B.1.2 At least half of the Board is not independent. Although the
Company complied with provision B.1.2 after the resignation of Sir Alan
Cox in February 2011, the Company has been out of compliance with
the Code since 23 May 2011, when Mr D A Robins had served as a
director for more than nine years since his date of first election.
Although Mr D A Robins is not considered independent under the Code,
the Board consider him to be a highly experienced and valued
non-executive director, who makes an important contribution to the
Board and therefore he has been asked to continue to serve as a
non-executive director. During 2012, it is the intention of the Board to
appoint a further independent non-executive director which will bring
the Company into compliance with B.1.2.
(ii) C.3.1 All members of the Audit Committee were independent, except
for Mr D A Robins who ceased to be independent under the Code on
23 May 2011 and stepped down from the Committee on 15 December
2011. As at the year end and the date of this report, the Company
complied with this provision.
(iii) D.2.1 All members of the Remuneration Committee were
independent, except for Mr D A Robins, who ceased to be independent
under the Code on 23 May 2011. Mr D A Robins has continued to serve
as Chairman of this Committee to maintain consistency of
chairmanship during the 2011 financial reporting cycle, which will end
when the shareholders vote on the Remuneration Report at the AGM in
2012. Mr D A Robins will step down as Chairman and member of the
Remuneration Committee at the end of the AGM, and the Company will
therefore comply with this provision from 26 April 2012.
The process for identifying, evaluating and managing the significant
risks faced by the Group is as follows:
Going concern
• Key risks are identified at risk workshops held at business, division
and Group level and these risks are regularly reviewed by the
businesses, divisional management and, by exception, the
Management Board. The Board reviews the list of key risks and
mitigation plans which have been identified;
• A regular review of the performance of each business is undertaken
by the executive directors and senior Group management;
After making enquiries, the directors have formed a judgement, at the
time of approving the financial statements, that there is a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. For this
reason, the directors continue to adopt the going concern basis in
preparing the financial statements. This statement of going concern
also constitutes part of the Business Review on pages 3 to 36.
• The Meggitt Finance Policies and Procedures Manual, which is
By order of the Board
reviewed and updated regularly, establishes appropriate authority
levels throughout the Group to cover certain items of expenditure,
financial commitments and other matters to ensure overall financial
control is maintained throughout the Group;
• There is a comprehensive insurance programme;
• There are programmes for the management of business continuity
and ethics; and
• There is an ongoing programme, including assurance activities,
covering external tax compliance, environmental, health and safety,
property risk and export law compliance.
The Board confirms this process was in place for the year under review
and up to the date of approval of the financial statements.
The Board considers that there is considerable comfort in the fact that
the Group’s cash inflow from operating activities represented 110%
(2010: 109%) of underlying operating profit in 2011.
M L Young
Company Secretary
5 March 2012
MEGGITT PLC REPORT AND ACCOUNTS 2011
Remuneration report
47
This report has been prepared in accordance with Schedule 8
(Quoted Companies: Directors’ Remuneration Report) to the Large
and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (‘the Regulations’), the UK Corporate Governance
Code (2010) (‘the Code’) and the Financial Services Authority’s Listing
Rules. The Regulations require the auditors to report to the Company’s
members on the audited information in the Remuneration Report and
to state whether in their opinion that part of the report has been
properly prepared in accordance with company law (as implemented by
the Regulations). This report has therefore been divided into separate
sections for unaudited and audited information. A resolution will be put
to shareholders at the Annual General Meeting on 26 April 2012 inviting
them to approve this report.
Unaudited information
Remuneration Committee
The work of the Committee in 2011
The Committee met six times during 2011. At these meetings, the
Committee:
• Benchmarked, reviewed and set the salaries, annual bonuses and
other performance related compensation for the executive directors
and key members of executive management;
• Benchmarked, reviewed and set the fee level for the Chairman;
• Determined the outcome of the 2010 annual bonus;
• Determined the outcome of the awards made in 2008 under the
Meggitt Equity Participation Plan (‘EPP’) and the Meggitt Executive
Share Option Scheme (‘ESOS’);
• Set the performance conditions for the 2011 awards under the
EPP and ESOS;
• Reviewed the Directors’ Remuneration Report for 2010, prior to
approval by the Board; and
• Reviewed the effectiveness and Terms of Reference of the
Committee.
Responsibilities
The Committee is responsible for determining the remuneration policy
and packages for all executive directors and Management Board
members and for agreeing the fees for the Chairman.
The Committee also considered directors’ pension arrangements and
associated tax treatment and reviewed and approved a number of
minor administrative amendments to the rules and operation of the
executive share schemes.
Remuneration policy
Remuneration policy framework
The Group operates in a highly competitive, global market with long
lead-times on complex, technologically-advanced programmes.
The Group is committed to achieving sustained improvements in
performance and this depends on the individual contributions made
by the executive directors, other senior executives and employees at
all levels of the organisation. The Board believes that an effective
remuneration committee and remuneration policy play an essential
part in the future success of the Group.
Remuneration policy for executive directors
The Committee ensures that executive remuneration packages are
designed to attract, motivate and retain directors of a high calibre,
to recognise the international nature of the Group’s business and to
reward the directors for enhancing value to shareholders. The
performance measurement of the executive directors and the
determination of their annual remuneration package is undertaken by
the Committee with advice from Kepler. The remuneration package for
executive directors and senior management targets median levels of
fixed pay, supplemented by performance-related annual bonuses and
equity-based long-term incentive plans. The Company’s incentive
schemes are intended to reward and incentivise growth, provide a
strong link to Group and individual performance and to take account of
corporate governance best practice.
The Chairman, Chief Executive and Organisational Development
Director attend meetings of the Committee by invitation; they are
absent when their own remuneration is under consideration.
Terms of Reference
The Committee operates within agreed terms of reference (last
updated in March 2012) which are available at www.meggitt.com.
External advisors
During the year, the Committee received advice from Kepler Associates
(‘Kepler’), the Committee’s appointed independent remuneration
adviser. Kepler, who were first appointed in July 2010, provide guidance
on remuneration matters at Board level and below, and do not provide
any other services to the Company.
Conflicts of interest
None of the directors has, or has had, any personal financial interests
or conflicts of interests arising from cross-directorships or day-to-day
involvement in running the business.
Committee members and meeting attendance
Name
D A Robins1 (Chairman)
P Heiden
B L Reichelderfer2
D M Williams
Meetings
eligible Meetings
attended
to attend
6
6
3
6
6
6
3
6
1
2
Mr D A Robins is no longer judged to be independent under the Code
by virtue of his having been on the Board for over nine years. He
has continued to serve as Chairman of the Committee to ensure
consistency of Chairmanship throughout the 2011 reporting cycle.
He will step down as Chairman and member of the Committee at
the end of the AGM in April 2012. Mr D A Robins will be replaced as
Chairman of the Committee by Mr P Heiden.
Appointed on 7 June 2011.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
48
Remuneration report continued
Share schemes
Executive directors are eligible to participate in two share-based
long-term incentive schemes; the EPP and ESOS (both were introduced
during 2005 following shareholder approval). These schemes (under
which awards are normally made annually, subject to regulatory and
scheme limits) encourage executive directors to contribute towards
Meggitt’s performance and continuing growth by sharing in the
Company’s success along with other shareholders.
All new long-term incentive schemes are submitted to shareholders
for approval.
Meggitt Equity Participation Plan 2005 (‘EPP’)
An annual basic award of shares, or, as agreed by the Committee,
of nil cost options, of up to 125% of basic salary may be granted to
executive directors under the EPP. Awards made in August 2009 and
April 2011 to executive directors were converted to nil cost options in
September 2011. The August 2011 award to executive directors was
made as nil cost options. The number of shares subject to these
awards is calculated in accordance with the rules of the EPP.
Historically, basic awards have normally been made at 75% of basic
salary and were made at this level to executive directors in 2011.
In addition to basic awards of nil cost options, executive directors are
invited annually to invest in shares worth up to 25% of salary which,
if retained over a 3 year holding period, will be eligible for a matching
award of up to 50% of salary, depending on performance.
EPP performance conditions
The table on page 49 shows the performance conditions for EPP basic
and matching awards granted since 2009.
There is no payout for below-threshold performance. Awards will
vest on a straight-line basis for performance between threshold
and maximum.
EPS and cashflow are considered by the Board to be the most
important internal measures of Meggitt’s financial performance.
Both are highly visible internally and regularly monitored and reported.
Maintaining relative TSR preserves alignment with shareholders.
2009 EPP – outcome
The 2009 EPP award performance condition was based on 50% TSR
and 50% EPS. The Committee confirms that the EPS element of the
2009 EPP award will vest at 100%, as Meggitt achieved an aggregate
87.6p EPS (adjusted for scrip). The performance period for the TSR
element of the 2009 EPP award does not end until August 2012 and so
the Committee is not yet able to confirm vesting of the TSR element
of the award.
2012 EPP - award
2012 EPP awards have yet to be approved by the Committee. It is
intended, however, that awards to executive directors be made in the
autumn at normal award levels, and that awards vest subject to the
same blend of performance conditions as attached to 2011 awards
(25% on TSR, 50% on EPS and 25% on cash conversion).
Remuneration policy for executive directors continued
The key components of executive directors’ compensation are:
• Basic salary;
• Annual bonus relating to Group and individual performance;
• EPP – awards of shares vesting after 3 years subject to cumulative
EPS performance, relative TSR and cash conversion. Matching
awards under the EPP are based on significant co-investment by
executives (normally made annually);
• ESOS – awards of market value options vesting after 3 years subject
to cumulative EPS performance (normally made annually); and
• Other benefits – including membership of the Meggitt Pension Plan
(executive section), a pensions allowance, a fully expensed car and
medical insurance for the individual and their immediate family.
Executive directors’ 2012 basic salary
Basic salary levels are reviewed annually against market practice at
other FTSE 350 companies of similar size and sector to Meggitt, with
changes effective 1 January.
In deciding salary levels, the Committee takes advice from Kepler, and
considers data from appropriate third-party surveys, general market
conditions, employment conditions, salary levels across the Group and
significant changes of responsibility.
A review of executive basic salary levels was undertaken in 2011. The
salaries of Mr T Twigger and Mr S G Young were found to be
appropriate relative to market and the Committee agreed a salary
increase of 3%, which is in line with basic salary rises across the
Group. Mr Green’s salary continues to be significantly below
competitive levels and it was agreed to increase his salary by 7% with
effect from 1 January 2012.
At 1 January 2012, the basic salaries of the executive directors were
as follows:
T Twigger
P E Green
S G Young
2012
2011
£639,000
£309,000
£382,000
£620,000
£289,000
£371,000
Executive directors’ 2011 annual bonus payments
Annual bonus payments to the executive directors are awarded
following consideration of the Group’s performance and the
individual’s contribution to that performance. The maximum bonus
which can be earned by an executive director is 150% of basic salary,
other than in truly exceptional circumstances. Performance criteria
include Group profit and cash targets and the individual’s personal
performance. Bonus awards do not form part of pensionable earnings.
Bonus payments awarded to the executive directors in respect of 2011
performance are 150% of basic salary as at 31 December 2011 and will
be paid in cash. The total bonus pool generated in 2011 was 16% larger
than 2010 reflecting another year of excellent performance in difficult
economic conditions. Profit and cash flow performance were again
very strong with underlying profit before tax up 26% to £323.0 million
and cash conversion at 110%. Excluding Pacific Scientific Aerospace
(‘PacSci’) and at constant currency, organic underlying profit before tax
was up 14% to £293.2 million and cash conversion was 110%. Strategic
objectives were also met in critical areas - the integration of PacSci
generated $6.5 million of cost savings in 2011, ahead of target, and SAP
has been successfully implemented at a further eight sites.
The size of the bonus award recognises these achievements and also
underlines the Committee’s confidence in the executive directors’
experience and their ability to manage the business through further
challenges in 2012.
For 2012, any bonus payments will continue to be based on a blend of
Group profit, cash and strategic targets and the individual’s personal
performance.
MEGGITT PLC REPORT AND ACCOUNTS 2011
49
EPP performance conditions
Award year
2009
Weighting
Threshold (30% of element vests)
Maximum (100% of element vests)
20103
Weighting
Threshold (30% of element vests)
Maximum (100% of element vests)
2011
Weighting
Threshold (30% of element vests)
Maximum (100% of element vests)
Relative TSR vs tailored peer group
Underlying
EPS1
Cash
conversion2
50%
Median ranking
Upper quartile ranking
50%
Median ranking
Upper quartile ranking
25%
Performance in line with median
Outperformance of median by 8% per annum
50%
79.5p
86.0p
50%
79.5p
86.0p
50%
97.0p
111.0p
–
-
25%
87%
95%
1
2
3
3-year cumulative underlying earnings per share. Underlying earnings per share is defined in note 16 of the Group’s financial statements.
Defined as cash flow as a percentage of underlying profit after taxation. Cash will be measured before dividends, merger and acquisition costs
and capital expenditure.
As disclosed in the 2010 report, despite the Committee approving an award in July 2010, no EPP award was made in 2010 because the Company
was in an extended prohibited period in connection with the acquisition of PacSci. Shareholder approval was received in April 2011 to make a
special award in 2011, replicating the structure and economics of the EPP award had it been made in August 2010.
Total shareholder return (‘TSR’) comparator group
TSR-based EPP awards granted in 2010 and 2011 vest on Meggitt’s
TSR performance against the following comparator group, selected to
comprise international aerospace and defence companies that best
reflect Meggitt’s business and geographic mix.
Meggitt Executive Share Option Scheme 2005 (‘ESOS’)
An annual grant of options under the ESOS may be made to executive
directors. The aggregate market value of shares under option each
year may be up to three times salary. In 2011, awards equivalent to
200% of salary were made to executive directors.
BAE Systems
BBA Aviation
Boeing (USA)
Cobham
Curtiss Wright (USA)
EADS (France)
Esterline Technologies (USA)
Finmeccanica (Italy)
Goodrich (USA)
Honeywell (USA)
Moog Inc (USA)
Rockwell Collins (USA)
Rolls-Royce Group
Safran (France)
Senior
Ultra Electronic Holdings
Woodward Governor (USA)
Zodiac Aerospace (France)
The TSR of this peer group is measured in common currency.
Five-year performance
The chart below shows the growth in value over the past 5 financial
years of a hypothetical £100 holding in each of Meggitt, the FTSE 100
Index and the EPP comparator group:
£
200
150
100
50
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
l
a
V
6
0
0
2
r
e
b
m
e
c
e
D
1
3
Meggitt
FTSE 100
EPP Comparator Group
Year
2006
2007
2008
2009
2010
2011
The FTSE 100 Index was chosen as it is a recognised broad equity
market index of which Meggitt is now a member. The EPP comparator
group comprises the closest sector peers for Meggitt.
ESOS awards vest subject to Meggitt’s 3-year EPS performance, which
is considered by the Committee to be the best internal measure of
Meggitt’s performance. Targets attached to outstanding awards are
as follows:
ESOS performance conditions
Award year
2009 (cumulative)
2010 (cumulative)
2011 (cumulative)
Minimum
vesting (30%)
Maximum
vesting (100%)
79.5p
79.5p
97.0p
86.0p
86.0p
111.0p
There is no payout for below-threshold performance. Awards will
vest on a straight-line basis for performance between threshold
and maximum.
2009 ESOS – outcome
The Committee confirms that 2009 ESOS awards will vest at 100% as
Meggitt achieved an aggregate 87.6p EPS (adjusted for scrip).
2012 ESOS - award
As a result of the review of total remuneration packages for executive
directors, the Committee has approved 2012 awards of 200% of salary
to Mr T Twigger and 300% of salary to Mr P E Green and Mr S G Young.
The vesting schedule will be the same for prior awards, minimum
vesting of 30% and maximum vesting of 100%, with a performance
range of 110.0 pence to 120.0 pence. The Committee believes this range
to be appropriately demanding within the wider economic environment.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
50
Remuneration report continued
Policies relevant to directors’ remuneration continued
Share retention policy
Directors (and senior executives) are required to build and retain a
shareholding amounting to at least one year’s salary.
Mr T Twigger, Mr P E Green
and Mr S G Young
All executive directors have
shareholdings valued above the
share retention policy requirements.
External directorships of executive directors
Executive directors are allowed to hold external appointments
and to receive payment provided such appointments are agreed
by the Board or Committee in advance, that there is no conflict of
interests and the appointment does not lead to a deterioration in
the individual’s performance.
Mr T Twigger
Mr P E Green
Mr S G Young
Mr T Twigger is currently a non-executive
director and Chairman of the Audit
Committee of Filtrona plc .
During 2011, he was entitled to retain
fees of £40,000 (2010: £37,740) and £8,874
(2010: £8,874) respectively for these
appointments.
Mr P E Green is not a director of any
other public company.
Mr S G Young is currently a non-
executive director of Derwent London plc
(appointed August 2010).
During 2011, he was entitled to retain
fees of £47,000 (2 August – 31 December
2010: £18,333).
On 1 April 2011, Mr Young was appointed
as Chairman of the Audit Committee and
was entitled to retain fees for 2011 of
£4,125 (2010: £Nil).
Remuneration policy for non-executive directors
The fees paid to the Chairman for 2011 of £155,000 per annum were
determined by the Committee within the limits set in the Articles. The
fees paid to non-executive directors for 2011 of £46,000, and the
Chairmen of the Audit and Remuneration Committees of £10,000 were
determined by the Finance Committee of the Board within the limits
set in the Articles. The Remuneration and Finance Committees set the
level of fees for non-executive directors to reflect the time commitment
and responsibilities of the role after consulting independent surveys of
such fees. Fees paid to non-executive directors during 2011 are shown
on page 51. Non-executive directors are appointed for a term of no
longer than three years, do not have a contract of service, are not
eligible to join the Company’s pension schemes and cannot participate
in any of the Company’s share schemes.
Pensions
The Group’s UK pension scheme relevant to the executive directors is
the executive section of the Meggitt Pension Plan (‘MPP’), a funded,
registered scheme which was approved under the regime applicable
until 5 April 2006. It is a defined benefit pension scheme providing, at
retirement, a pension of up to two-thirds of final pensionable salary
(inclusive of pensions from previous employments), subject to HM
Revenue & Customs limits.
The pension contribution for the executive directors and all UK
members of the scheme (after taking into account the employee
contribution) is set following the receipt of actuarial advice from
Mercer Limited. Details of any changes in pension entitlements arising
in 2011 are shown on page 51.
The Meggitt Pension Plan (‘MPP’) scheme cap for the tax year 2010/11
was £135,000 (‘2010/11 Scheme Cap’) and for the tax year 2011/12 the
scheme cap applicable to directors was £104,160 (together, the
‘applicable Scheme Caps’) .
Bonus payments to executive directors are not pensionable and there
are no unfunded pension promises or similar arrangements for
directors.
Mr P E Green and Mr S G Young
During 2011, Mr P E Green and Mr S G Young were members of the
executive section of the Meggitt Pension Plan (‘MPP’). Their
dependents are eligible for “dependents’ pensions” and the payment
of a lump sum in the event of death in service.
As the contributions made by Mr P E Green and Mr S G Young are
restricted, additional contributions are made through a pensions
allowance paid to them, so that they can make their own arrangements
for retirement savings. The pensions allowance is calculated as 50% of
the amount by which the executive director’s basic salary exceeds the
applicable Scheme Caps.
Mr T Twigger
From 1 January to 5 April 2011, Mr T Twigger was a member of the
executive section of the MPP. From 1 January 2011 to 5 April 2011, as
the contributions made by Mr T T Twigger were restricted, additional
contributions were made through a pensions allowance paid to him, so
that he could make his own arrangements for retirement savings. The
pensions allowance was calculated as 50% of the amount by which Mr
Twigger’s basic salary exceeds the 2010/11 Scheme Cap.
As at 6 April 2011, Mr T Twigger reached the Life Time Allowance and
could no longer accrue tax efficient pension benefit, so he ceased to
pay any contributions and accrue any pension benefit from that date
and has received the pensions allowance calculated as 50% of his
full salary. Since 6 April 2011, Mr T Twigger has been entitled to receive
a full pension. During 2011, his dependents were eligible for
“dependents’ pensions” and the payment of a lump sum in the event of
death in service.
Policies relevant to directors’ remuneration
Executive directors’ service contracts
The policy of the Committee is to offer executive directors contracts
requiring one year’s notice from the Company. Should the Company
terminate the contracts in breach of the contract terms then damages
would be due which are equivalent to annual remuneration plus the
value of benefits for the unexpired notice period less 5%. The notice
period required from the Company is twelve months and directors
are required to give the Company notice of six months.
Mr T Twigger and
Mr P E Green
Mr S G Young
Rolling service contract dated
26 February 2001.
Rolling service contract dated
27 February 2004.
MEGGITT PLC REPORT AND ACCOUNTS 2011
51
Audited information
Details of directors’ remuneration
Executive directors
T Twigger
P E Green
S G Young
Non-executive directors
Sir Colin Terry
Sir Alan Cox4
P Heiden4
P J Hill4
B L Reichelderfer4
D A Robins
D M Williams
Total
Basic
salary1
2011
£
620,000
289,000
371,000
Fees
2011
£
–
–
–
Taxable
benefits2
2011
£
Bonus
payments
2011
£
Pension
allowance3
2011
£
Total emoluments
excluding pension
2011
£
2010
£
29,735
17,479
19,100
930,000
433,500
556,500
298,281
93,721
134,721
1,878,016
833,700
1,081,321
1,630,483
710,059
948,756
–
–
–
–
–
–
–
155,000
10,667
46,000
–
26,025
56,000
56,000
–
732
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155,000
11,399
46,000
–
26,025
56,000
56,000
150,000
66,020
25,952
11,250
–
52,000
52,000
1,280,000
349,692
67,046
1,920,000
526,723
4,143,461
3,646,520
Basic salary is shown gross of a salary sacrifice arrangement entered into on 1 April 2009 relating to pension contributions.
1
2 Taxable benefits include company car, private medical insurance, fuel and telephone.
3
4
The executive directors receive a pension allowance as detailed on page 50.
Resignations: Mr P J Hill resigned on 31 March 2010 and Sir Alan Cox resigned on 24 February 2011. Appointments: Mr P Heiden was appointed
on 3 June 2010 and Ms B L Reichelderfer was appointed on 7 June 2011.
Directors’ pension benefits
Meggitt Pension Plan
Accumulated total accrued pension at 31 December 2010
Real increase in accrued pension in year excluding inflation
Total increase in accrued pension in year
Accumulated total accrued pension at 31 December 2011
Transfer value basis at 31 December 20102
Increase in transfer value excluding directors’ contributions
Directors’ contributions3
Transfer value basis at 31 December 20112
T Twigger1
£
P E Green
£
S G Young
£
50,686
(1,903)
733
51,419
73,315
(2,531)
1,281
74,596
1,186,565
397,945
–
1,289,578
426,102
–
1,584,510
1,715,680
30,758
2,868
4,467
35,225
531,306
272,088
–
803,394
1
Mr T Twigger opted to leave the Meggitt Pension Plan and take his pension benefits with effect from 6 April 2011. The value shown for his
accrued benefits at 31 December 2011 has not changed since 6 April 2011 when his benefits ceased to accrue.
2 Transfer values do not represent a sum payable to the individual director, but represent a potential liability of the pension scheme.
3
Although there are no direct member contributions, the directors all contribute 7% of their capped pensionable salary amounting to £2,363 for
T Twigger and £7,832 for P E Green and S G Young (2010: £9,384 for each director) through a salary sacrifice arrangement in the same way as
all other members of the plan.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
52
Remuneration report continued
Page heading
Directors’ share scheme participation
The directors’ interests in the Meggitt Equity Participation Plan 2005 and movements therein during the year are set out below:
T Twigger
Basic Award
Basic Award
Basic Award
Basic Award
Matching Award
Matching Award
Matching Award
Matching Award
P E Green
Basic Award
Basic Award
Basic Award
Basic Award
Matching Award
Matching Award
Matching Award
Matching Award
S G Young
Basic Award
Basic Award
Basic Award
Basic Award
Matching Award
Matching Award
Matching Award
Matching Award
Date of
award
Value of
award £
at 1 Jan
2011
Awarded
Released
Lapsed
Number of shares
at 31 Dec
2011
Market price
at date
of transfer
Date
exerciseable
from
07.08.08
05.08.09
21.04.11
17.08.11
18.08.08
12.08.09
21.04.11
17.08.11
07.08.08
05.08.09
21.04.11
17.08.11
18.08.08
12.08.09
21.04.11
17.08.11
07.08.08
05.08.09
21.04.11
17.08.11
18.08.08
12.08.09
21.04.11
17.08.11
750,000
450,000
450,000
465,000
300,000
300,000
300,000
310,000
343,749
206,250
206,250
216,750
137,500
137,500
137,500
144,500
450,000
270,000
269,998
278,248
180,000
180,000
180,000
185,000
389,388
277,180
–
–
133,038
154,560
–
–
178,469
127,041
–
–
60,976
70,840
–
–
233,633
166,308
–
–
79,823
92,736
–
-
–
–
147,299
128,117
–
–
109,210
89,855
–
–
67,512
59,719
–
–
50,054
41,884
–
–
88,379
76,663
–
–
65,526
53,768
(194,694)
–
–
–
(66,519)
–
–
–
(89,234)
–
–
–
(30,488)
–
–
–
(116,816)
–
–
–
(39,911)
–
–
-
(194,694)
–
–
–
(66,519)
–
–
–
(89,235)
–
–
–
(30,488)
–
–
–
(116,817)
–
–
–
(39,912)
–
–
-
–
277,180
147,299
128,117
-
154,560
109,210
89,855
–
127,041
67,512
59,719
-
70,840
50,054
41,884
–
166,308
88,379
76,663
–
92,736
65,526
53,768
325.01p
–
–
–
325.01p
–
–
–
325.01p
–
–
-
325.01p
–
–
–
325.01p
–
–
–
325.01p
–
–
-
-
05.08.12
16.08.13
17.08.14
-
12.08.12
16.08.13
17.08.14
-
05.08.12
16.08.13
17.08.14
-
12.08.12
16.08.13
17.08.14
-
05.08.12
16.08.13
17.08.14
-
12.08.12
16.08.13
17.08.14
Awards made in August 2011 were made as nil cost options. Further, in September 2011 the Basic and Matching Awards dated April 2011 and
August 2009 were converted to nil cost options. The expiry date for all nil cost options is 10 years from the date of grant.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
53
The directors held the following options and stock-settled share appreciation rights (‘SARs’)under the 1996 Executive Share Option Scheme, 2005
Executive Share Option Scheme, Sharesave 1998 and Sharesave 2008:
T Twigger
1996 No 2 (options)
2005, Part A (options)
2005, Part B (stock SARs)
Sharesave (options)
P E Green
1996 No 2 (options)
2005, Part A (options)
2005, Part B (stock SARs)
Sharesave (options)
S G Young
1996 No1 (options)
2005, Part B (stock SAR’s)
Sharesave (options)
Number of shares under option/award
Date of grant
at 1 Jan
2011
Granted/
(exercised)
at 31 Dec
2011
Option/base
price
Market price
at date of
exercise
Date
exercisable
from
06.10.04
30.04.09
10.10.05
27.09.06
29.03.07
25.03.08
30.04.09
12.03.10
02.03.11
05.10.06
04.09.08
178,070
17,699
322,987
365,613
334,448
475,248
477,876
419,434
–
3,222
3,290
(178,070)
–
–
–
–
–
–
–
352,573
(3,222)
(3,290)
–
17,699
322,987
365,613
334,448
475,248
477,876
419,434
352,573
–
–
2,597,887
167,991
2,765,878
210.59p
169.50p
278.65p
263.67p
299.00p
252.50p
169.50p
286.10p
351.70p
203.18p
171.40p
354.76p
–
–
–
–
–
–
–
–
352.50p
371.90p
-
30.04.12
10.10.08
27.09.09
29.03.10
25.03.11
30.04.12
12.03.13
02.03.14
-
-
Number of shares under option/award
Date of grant
at 1 Jan
2011
Granted/
(exercised)
at 31 Dec
2011
Option/base
price
Market price
at date of
exercise
Date
exercisable
from
06.10.04
29.03.07
30.04.09
10.10.05
27.09.06
29.03.07
25.03.08
30.04.09
12.03.10
02.03.11
05.10.06
04.09.08
06.09.10
83,099
2,759
12,832
143,549
162,326
145,402
217,822
214,306
192,240
–
3,222
3,798
1,389
(83,099)
–
–
–
–
–
–
–
–
164,345
(3,222)
–
–
-
2,759
12,832
143,549
162,326
145,402
217,822
214,306
192,240
164,345
-
3,798
1,389
210.59p
299.00p
169.50p
278.65p
263.67p
299.00p
252.50p
169.50p
286.10p
351.70p
203.18p
171.40p
222.35p
354.76p
–
–
–
–
–
–
–
–
–
382.80p
–
–
-
29.03.10
30.04.12
10.10.08
27.09.09
29.03.10
25.03.11
30.04.12
12.03.13
02.03.14
-
01.11.13
01.11.15
1,182,744
78,024
1,260,768
Number of shares under option/award
Date of grant
at 1 Jan
2011
Granted/
(exercised)
at 31 Dec
2011
Option/base
price
Market price
at date of
exercise
Date
exercisable
from
01.04.04
10.10.05
27.09.06
29.03.07
25.03.08
30.04.09
12.03.10
02.03.11
07.04.05
06.09.10
17,200
186,615
210,871
192,642
285,149
297,345
251,660
-
9,468
4,047
–
–
–
–
–
–
-
210,975
–
-
17,200
186,615
210,871
192,642
285,149
297,345
251,660
210,975
9,468
4,047
174.40p
278.65p
263.67p
299.00p
252.50p
169.50p
286.10p
351.70p
188.76p
222.35p
1,454,997
210,975
1,665,972
–
–
–
–
–
–
–
-
–
–
01.04.07
10.10.08
27.09.09
29.03.10
25.03.11
30.04.12
12.03.13
02.03.14
01.06.12
01.11.13
Expiry
date
-
29.04.19
09.10.15
26.09.16
28.03.17
24.03.18
29.04.19
11.03.20
01.03.21
-
-
Expiry
date
-
28.03.17
29.04.19
09.10.15
26.09.16
28.03.17
24.03.18
29.04.19
11.03.20
01.03.21
-
01.05.14
01.05.16
Expiry
date
31.03.14
09.10.15
26.09.16
28.03.17
24.03.18
29.04.19
11.03.20
01.03.21
30.11.12
01.05.14
None of the non-executive directors held options over the Company’s shares at any time during the relevant periods.
The market price of the shares at 31 December 2011 was 352.80p and the range during the year was 305.00p to 397.60p. Options and stock-settled
SARs may, in certain circumstances, be exercised or lapse earlier than the dates shown on page 52 and above.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
54
Remuneration report continued
Page heading
Gains made on exercise of directors’ share options
T Twigger
P E Green
S G Young
Option
1996 No 2 Executive Share Option Scheme
1996 No 2 Executive Share Option Scheme
Sharesave
Sharesave
1996 No 2 Executive Share Option Scheme
1996 No 2 Executive Share Option Scheme
Sharesave
Sharesave
1996 No 2 Executive Share Option Scheme
2011 options exercised
Exercise
date
03.05.11
-
08.12.11
01.11.11
03.05.11
-
01.12.11
-
-
Options
exercised
178,070
-
3,222
3,290
83,099
-
3,222
-
-
Gain
2011
£’000
257
-
5
7
120
-
6
-
-
395
Gain
2010
£’000
-
184
-
-
-
89
-
2
274
549
Gains in 2011 were made on options granted under the rules of the 1996 No 2 Executive Share Option Scheme and the 1998 and 2008 Sharesave
Schemes, as detailed in directors’ share interests above. During 2011, other than the share interests held in the Share Incentive Plan and
Deferred Share Bonus Plan which are included in the table of Directors’ Interests in the Directors’ Report on page 40, there were no other
schemes to benefit directors by enabling them to acquire shares in or debentures of the Company or any other company.
By order of the Board
D A Robins
Chairman, Remuneration Committee
5 March 2012
MEGGITT PLC REPORT AND ACCOUNTS 2011
Independent auditors’ report to the members of Meggitt PLC
55
We have audited the group financial statements of Meggitt PLC for
the year ended 31 December 2011 which comprise the Consolidated
income statement, the Consolidated statement of comprehensive
income, the Consolidated balance sheet, the Consolidated statement
of changes in equity, the Consolidated cash flow statement and the
related notes. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement
set out on page 42, the directors are responsible for the preparation of
the group financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an opinion
on the group financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the group’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of
the financial statements. In addition, we read all the financial and
non-financial information in the Meggitt PLC Annual report and
accounts to identify material inconsistencies with the audited
financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on financial statements
In our opinion the group financial statements:
• give a true and fair view of the state of the group’s affairs as at
31 December 2011 and of its profit and cash flows for the year
then ended;
• have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
• have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the lAS Regulation.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the information given in the Directors’ Report for the financial year
for which the group financial statements are prepared is consistent
with the group financial statements; and
• the information given in the Corporate Governance Statement set
out on pages 43 to 46 with respect to internal control and risk
management systems and about share capital structures is
consistent with the financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit; or
• a Corporate Governance statement has not been prepared by the
parent company.
Under the Listing Rules we are required to review:
• the Directors’ Statement, set out on page 46, in relation to going
concern;
• the part of the Corporate Governance Statement relating to the
company’s compliance with the nine provisions of the June 2008
Combined Code specified for our review; and
• certain elements of the report to shareholders by the Board on
directors’ remuneration.
Other matter
We have reported separately on the parent company financial
statements of Meggitt PLC for the year ended 31 December 2011
and on the information in the Directors’ Remuneration Report that
is described as having been audited.
John Maitland (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
5 March 2012
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
56
Consolidated income statement
Page heading
For the year ended 31 December 2011
Continuing operations
Revenue
Cost of sales
Gross profit
Net operating costs
Operating profit*
Finance income
Finance costs
Net finance costs
Profit before tax**
Tax
Notes
2011
£’m
2010
£’m
5
7
7
6
12
13
1,455.3
(839.8)
1,162.0
(639.8)
615.5
522.2
(353.0)
(302.1)
262.5
220.1
36.9
(73.4)
(36.5)
33.6
(81.2)
(47.6)
226.0
172.5
14
(41.1)
(33.7)
Profit for the year from continuing operations attributable to owners of the parent
184.9
138.8
Earnings per share:
Basic
Diluted
* Underlying operating profit
** Underlying profit before tax
16
16
10
10
24.0p
23.8p
359.5
323.0
20.1p
19.9p
303.7
256.1
MEGGITT PLC REPORT AND ACCOUNTS 2011
For the year ended 31 December 2011
Consolidated statement of comprehensive income
Page heading
continued
57
Profit for the year
Other comprehensive income for the year:
Actuarial losses
Currency translation differences
Cash flow hedge movements
Other comprehensive (expense)/income before tax
Related tax movements
Other comprehensive (expense)/income for the year
Notes
34
14
2011
£’m
184.9
(76.6)
10.7
5.3
(60.6)
21.6
(39.0)
2010
£’m
138.8
(1.5)
29.3
20.6
48.4
(7.5)
40.9
Total comprehensive income for the year attributable to owners of the parent
145.9
179.7
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
58
Consolidated balance sheet
Page heading
As at 31 December 2011
Notes
2011
£’m
2010
£’m
19
20
20
21
22
24
31
33
23
24
31
25
1,544.0
185.8
197.5
865.8
229.9
114.7
39.7
112.5
1,295.5
151.3
183.8
722.1
207.1
88.6
12.0
105.0
3,289.9
2,765.4
277.5
317.4
4.1
2.6
94.6
696.2
239.1
238.4
6.2
0.8
51.9
536.4
6
3,986.1
3,301.8
26
31
28
29
32
27
31
33
28
29
32
34
35
(349.4)
(12.8)
(49.4)
(0.7)
(7.0)
(50.6)
(469.9)
226.3
(6.5)
(4.2)
(316.8)
(8.2)
(867.1)
(200.2)
(319.9)
(249.9)
(4.0)
(60.8)
(0.8)
(12.7)
(40.7)
(368.9)
167.5
(7.8)
(17.1)
(329.6)
(3.9)
(755.9)
(115.3)
(265.1)
(1,722.9)
(1,494.7)
(2,192.8)
(1,863.6)
1,793.3
1,438.2
38.9
1,130.1
14.1
177.8
432.4
34.9
859.4
14.1
159.1
370.7
1,793.3
1,438.2
Non-current assets
Goodwill
Development costs
Programme participation costs
Other intangible assets
Property, plant and equipment
Trade and other receivables
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax recoverable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Obligations under finance leases
Bank and other borrowings
Provisions
Net current assets
Non-current liabilities
Trade and other payables
Derivative financial instruments
Deferred tax liabilities
Obligations under finance leases
Bank and other borrowings
Provisions
Retirement benefit obligations
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Hedging and translation reserves
Retained earnings
Total equity attributable to owners of the parent
The notes on pages 61 to 97 form an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors on 5 March 2012 and signed on its behalf by:
T Twigger
Director
S G Young
Director
MEGGITT PLC REPORT AND ACCOUNTS 2011
For the year ended 31 December 2011
Consolidated statement of changes in equity
Page heading
continued
59
At 1 January 2010
Profit for the year
Other comprehensive income for the year:
Actuarial losses
Currency translation differences arising in the year
Cash flow hedge movements:
Movement in fair value
Transferred to income statement
Other comprehensive income/(expense) before tax
Related tax movements
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
Employee share option schemes:
Value of services provided
Shares issued
Dividends
At 31 December 2010
Profit for the year
Other comprehensive income for the year:
Actuarial losses
Currency translation differences arising in the year
Cash flow hedge movements:
Movement in fair value
Transferred to income statement
Other comprehensive income/(expense) before tax
Related tax movements
Other comprehensive income/(expense) for the year
Total comprehensive income for the year
Equity placing
Employee share option schemes:
Value of services provided
Shares issued
Dividends
At 31 December 2011
Notes
6
34
35
17
6
34
35
35
17
Share
capital
Share
premium
Other
reserves*
Hedging and
translation
Retained
earnings
£’m
34.3
£’m
825.9
£’m
14.1
reserves**
£’m
117.3
£’m
282.0
Total
equity
£’m
1,273.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.5
–
4.5
29.0
–
–
–
–
–
–
–
–
–
–
–
–
–
138.8
138.8
–
29.3
(3.0)
23.6
49.9
(8.1)
41.8
(1.5)
–
–
–
(1.5)
0.6
(0.9)
(1.5)
29.3
(3.0)
23.6
48.4
(7.5)
40.9
41.8
137.9
179.7
–
–
–
10.4
(0.4)
(59.2)
10.4
4.2
(29.7)
34.9
859.4
14.1
159.1
370.7
1,438.2
–
–
–
–
–
–
–
–
–
3.5
–
0.1
0.4
–
–
–
–
–
–
–
–
–
242.5
–
3.4
24.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
184.9
184.9
–
10.7
0.2
5.1
16.0
2.7
18.7
18.7
–
–
–
–
(76.6)
–
–
–
(76.6)
18.9
(57.7)
(76.6)
10.7
0.2
5.1
(60.6)
21.6
(39.0)
127.2
145.9
–
246.0
8.2
(0.1)
(73.6)
8.2
3.4
(48.4)
38.9
1,130.1
14.1
177.8
432.4
1,793.3
* Other reserves relate to capital reserves arising on the acquisition of businesses in 1985 and 1986 where merger accounting was applied.
** Hedging and translation reserves at 31 December 2011 comprise a credit balance on the hedging reserve of £5.9 million (2010: £1.9 million) and
a credit balance on the translation reserve of £171.9 million (2010: £157.2 million). Amounts recycled from the hedging reserve to the income
statement, in respect of cash flow hedge movements, have affected finance costs.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
60
Consolidated cash flow statement
Page heading
For the year ended 31 December 2011
Cash inflow from operations before exceptional operating items
Cash outflow from exceptional operating items
Cash inflow from operations
Interest received
Interest paid
Tax paid
Tax equalisation swap received*
Cash inflow from operating activities
Businesses acquired
Net cash acquired with businesses
Capitalised development costs
Capitalised programme participation costs
Purchase of other intangible assets
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Cash outflow from investing activities
Dividends paid to Company’s shareholders
Issue of equity share capital
Proceeds from borrowings
Debt issue costs
Repayments of borrowings
Cash inflow/(outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of year
Exchange (losses)/gains on cash and cash equivalents
Cash and cash equivalents at end of year
Notes
11
40
42
42
17
25
2011
£’m
395.8
(17.1)
378.7
0.3
(31.0)
(42.6)
-
305.4
(418.1)
0.5
(41.2)
(33.2)
(25.1)
(27.0)
7.5
(536.6)
(48.4)
249.5
214.3
(2.9)
(137.4)
275.1
43.9
51.9
(1.2)
94.6
2010
£’m
331.3
(15.5)
315.8
0.4
(38.5)
(29.9)
4.2
252.0
-
-
(33.5)
(28.4)
(13.7)
(14.0)
0.2
(89.4)
(29.7)
4.2
395.4
(1.7)
(542.3)
(174.1)
(11.5)
62.9
0.5
51.9
* In 2010, a settlement was received under a tax equalisation swap designed to hedge the Group’s tax exposure on foreign exchange movements.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Notes to the financial statements
61
1. Basis of preparation
Foreign currencies
The consolidated financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union (‘IFRSs as adopted by the EU’) and the
Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the
historical cost convention, as modified by the revaluation of certain
financial assets and financial liabilities (including derivative
instruments) at fair value.
2. Summary of significant accounting policies
The principal accounting policies adopted by the Group in the
preparation of the consolidated financial statements are set out below.
These policies have been applied consistently to all periods presented
unless stated otherwise.
Basis of consolidation
The Group financial statements consolidate the financial statements of
the Company and all of its subsidiaries. A subsidiary is an entity over
which the Group has the power to govern the financial and operating
policies. The existence and nature of potential voting rights that are
currently available to the Group are considered when determining
whether the entity is a subsidiary. The results of subsidiaries acquired
are consolidated from the date on which control passes to the Group.
The results of disposed subsidiaries are consolidated up to the date on
which control passes from the Group.
The cost of an acquisition is the fair value of consideration provided,
including the fair value of any contingent consideration, as measured at
the acquisition date. Subsequent changes to the fair value of any
contingent consideration are recorded in the income statement.
Identifiable assets and liabilities of an acquired business that meet the
conditions for recognition under IFRS 3 are recognised at their fair
value at the date of acquisition. To the extent the cost of an acquisition
exceeds the fair value of net assets acquired the difference is recorded
as goodwill. Where the fair value of the net assets acquired exceeds
the cost of an acquisition the difference is recorded directly in the
income statement.
Where businesses are acquired, fair values of the identifiable assets
and liabilities of the acquired business are finalised within 12 months
of the acquisition date. All fair value adjustments are recorded with
effect from the date of acquisition and consequently may result in the
restatement of previously reported financial results.
Transactions between, and balances with, Group companies are
eliminated together with unrealised gains on inter-group transactions.
Unrealised losses are eliminated to the extent the asset transferred is
not impaired. The accounting policies of acquired businesses are
changed where necessary to be consistent with those of the Group.
Functional and presentational currency
The Group’s consolidated financial statements are presented in pounds
sterling. Items included in the financial statements of each of the
Group’s subsidiaries are measured using the functional currency of the
primary economic environment in which the subsidiary operates.
Transactions and balances
Transactions in foreign currencies are recorded at the rates of
exchange prevailing at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies are reported at the
rates of exchange prevailing at the balance sheet date. Exchange
differences on retranslating monetary assets and liabilities are
recognised in the income statement except where they relate to
qualifying cash flow hedges or net investment hedges in which case
exchange differences are recognised in other comprehensive income.
Foreign subsidiaries
The results of foreign subsidiaries are translated at the average rates
of exchange for the period. Assets and liabilities of foreign subsidiaries
are translated at the exchange rates prevailing at the balance sheet
date. Exchange differences arising from the retranslation of the results
and opening net assets of foreign subsidiaries are recognised as a
separate component of equity in the hedging and translation reserves.
Exchange differences on borrowings and other currency instruments
designated as a net investment hedge of foreign subsidiaries are also
recognised in equity.
When a foreign subsidiary is sold the cumulative exchange differences
relating to the retranslation of the net investment in the foreign
subsidiary are recognised in the income statement as part of the gain
or loss on disposal. This applies only to exchange differences recorded
in equity after 1 January 2004. Exchange differences arising prior to
1 January 2004 remain in equity on disposal as permitted by IFRS 1
(‘First time Adoption of International Financial Reporting Standards’).
Goodwill and fair value adjustments arising from the acquisition of a
foreign subsidiary are treated as assets and liabilities of the subsidiary
and are retranslated at the rates of exchange prevailing at the balance
sheet date.
Revenue recognition
Revenue represents the fair value of consideration received or
receivable in respect of the sale of goods and services provided in the
normal course of business, net of trade discounts, returns and sales
related taxes.
Revenue is recognised when the significant risks and rewards of
ownership have been transferred to the customer, which occurs when
products are delivered, or services provided, to the customer, title and
risk of loss have been transferred and collection of related receivables
is probable. An appropriate proportion of total long-term contract
value, based on the fair value of work performed, is included in revenue
and an appropriate level of profit is recognised based on the estimated
percentage completion of contractual obligations provided the final
outcome can be reliably assessed.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
62
Notes to the financial statements continued
2. Summary of significant accounting policies continued
Segment reporting
Operating segments are those segments for which results are
reviewed by the Group’s Chief Operating Decision Maker (‘CODM’) to
assess performance and make decisions about resources to be
allocated. The CODM has been identified as the Board. The Group has
determined that its current segments are Aircraft Braking Systems,
Control Systems, Polymers & Composites, Sensing Systems and the
Equipment Group. On April 21 2011, the Group acquired Pacific
Scientific Aerospace (‘PacSci’) from Danaher Corporation. Although
PacSci is managed within the Equipment Group, its results have been
reported separately to the CODM for the period from acquisition to 31
December 2011 and accordingly PacSci is treated as a separate
segment under IFRS 8 for this period.
The principal profit measure reviewed by the CODM is “underlying
operating profit” as defined in note 10. A segmental analysis of
underlying operating profit is accordingly provided in the notes to the
financial statements.
Segmental information on assets is provided in respect of “trading
assets” which are defined to exclude from total assets amounts which
the CODM does not review on a segmental level. Excluded assets
comprise goodwill, other intangible assets, deferred tax, current tax,
derivative financial instruments and cash and cash equivalents.
No segmental information is provided in respect of liabilities as no
such measure is reviewed by the CODM.
Exceptional operating items
Items which are significant by virtue of their size or nature and which
are considered non-recurring are classified as exceptional operating
items. They include for instance adjustments to the fair value of any
contingent consideration payable in respect of an acquired business,
costs directly attributable to the acquisition of businesses, the costs of
integrating significant acquisitions, significant restructuring costs and
profits or losses made on the disposal of businesses. Exceptional
operating items are included within the appropriate consolidated
income statement category but are highlighted separately in the notes
to the financial statements. They are excluded from the underlying
profit measures used by the Board to monitor and measure the
underlying performance of the Group (see note 10).
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group’s share of the identifiable net assets acquired and the
liabilities and contingent liabilities assumed. Goodwill is no longer
amortised but is tested annually for impairment. Goodwill is carried at
cost less amortisation charged prior to 1 January 2004 less
accumulated impairment losses. In the event the business to which
goodwill relates is disposed of, the attributable goodwill is included in
the determination of the gain or loss on disposal.
Research and development
Research expenditure is recognised as an expense in the income
statement as incurred. Costs incurred on development projects where
the related expenditure is separately identifiable, measurable and
management are satisfied as to the ultimate technical and commercial
viability of the project based on all relevant available information are
recognised as an intangible asset. Capitalised development costs are
carried at cost less accumulated amortisation. Amortisation is
charged over the periods expected to benefit, typically up to 10 years,
commencing with the launch of the product. Development costs not
meeting the criteria for capitalisation are expensed as incurred.
Programme participation costs
Programme participation costs consist of incentives given to Original
Equipment Manufacturers in connection with their selection of the
Group’s products for installation onto new aircraft where the Group
has obtained principal supplier status. These incentives comprise cash
payments and/or the supply of initial manufactured parts on a free of
charge or deeply discounted basis. Programme participation costs are
carried at cost less accumulated amortisation. Amortisation is
charged over the periods expected to benefit (typically through the sale
of replacement parts) from receiving the status of principal supplier,
typically over periods up to 15 years.
Other intangible assets
a) Licences, trademarks, patents and software
Purchased licences, trademarks, patents and software are carried at
cost less accumulated amortisation. Amortisation is charged over their
estimated useful economic life, typically over periods up to 10 years.
b) Intangible assets acquired as part of a business combination
For acquisitions, the Group recognises intangible assets separately
from goodwill provided they are separable or arise from contractual or
other legal rights and their fair value can be measured reliably. The
intangible assets recognised are recorded at fair value. Where the
intangible assets recognised have finite lives their fair value is
amortised on a straight-line basis over those lives. The nature of
intangibles recognised and their estimated useful lives are as follows:
Customer relationships .............................. Up to 25 years
Technology .................................................. Up to 25 years
Trade names and trademarks .................... Up to 25 years
Order backlogs ............................................ Over period of backlog
(typically up to 3 years)
Amortisation of intangible assets acquired as part of a business
combination is excluded from the underlying profit measures used by
the Board to monitor and measure the underlying performance of the
Group (see note 10).
Property, plant and equipment
Property, plant and equipment is recorded at cost less subsequent
depreciation and impairment except for land which is shown at cost
less any impairment. Cost includes expenditure directly attributable
to the acquisition of the asset. Depreciation is calculated on a
straight-line basis over the estimated useful lives of the assets as
follows:
Freehold buildings ...................................... 40 to 50 years
Long and short leasehold property ........... Over period of lease
Plant and machinery ................................... 3 to 10 years
Furnaces ...................................................... Up to 20 years
Fixtures and fittings .................................... 3 to 10 years
Motor vehicles.............................................. 4 to 5 years
Assets’ residual values and useful lives are reviewed annually and
adjusted if appropriate.
Borrowing costs
Borrowing costs directly attributable to the construction or production
of qualifying assets, are capitalised as part of the cost of those assets,
until such time as the assets are substantially ready for their intended
use. Qualifying assets are those that necessarily take a substantial
period of time to get ready for their intended use, which would
generally be at least twelve months. All other borrowing costs are
recognised in the income statement in the period in which they are
incurred.
MEGGITT PLC REPORT AND ACCOUNTS 2011
63
2. Summary of significant accounting policies continued
Trade receivables
Taxation
Tax payable is based on taxable profit for the period, calculated using
tax rates enacted or substantially enacted at the balance sheet date.
Deferred tax is provided in full using the liability method on temporary
differences between the tax bases of assets and liabilities and their
corresponding book values as recorded in the Group’s financial
statements. Deferred tax is provided on unremitted earnings of foreign
subsidiaries except where the Group can control the remittance and it
is probable that the earnings will not be remitted in the foreseeable
future. Deferred tax assets are recognised only to the extent it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Where deferred tax arises on
the initial recognition of an asset or liability, other than in a business
combination, and the recognition gives rise to no impact on taxable
profit or loss, then deferred tax is not recognised. Deferred tax is
calculated using tax rates enacted or substantially enacted at the
balance sheet date.
Impairment of non-current non-financial assets
Assets with indefinite lives are tested for impairment annually. Assets
subject to amortisation or depreciation are reviewed for impairment
annually and also whenever events or changes in circumstances
indicate the carrying value may not be recoverable. To the extent the
carrying value exceeds the recoverable amount, the difference is
recorded as an expense in the income statement. The recoverable
amount used for impairment testing is the higher of the value in use
and fair value less costs of disposal. For the purpose of impairment
testing, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (Cash Generating Units or ‘CGU’s’).
Inventories
Inventories are recorded at the lower of cost and net realisable value.
Cost represents materials, direct labour, other direct costs and related
production overheads (based on normal operating capacity) and is
determined using the first-in first-out (FIFO) method. Net realisable
value is based on estimated selling price, less further costs expected
to be incurred to completion and disposal.
When a business is acquired, inventory of the acquired business is
recorded at fair value in the Group’s balance sheet. Finished goods are
valued at fair value, which is typically estimated selling price less costs
of disposal and a reasonable profit allowance for the selling effort.
Work in progress is valued at fair value, which is typically estimated
selling price less costs to complete, costs of disposal and a reasonable
profit allowance for work not yet completed. When this inventory is
subsequently disposed of post acquisition, the fair value is charged to
the income statement. The difference between the fair value of the
inventory consumed and its cost is excluded from the underlying profit
measures used by the Board to monitor and measure the underlying
performance of the Group (see note 10).
In all cases provision is made for obsolete, slow moving or defective
items where appropriate and for unrealised profits on items of
inter-group manufacture. Provision is made for the full amount of
foreseeable losses on contracts.
Trade receivables are stated initially at fair value, then measured at
amortised cost less provisions for impairment. Provisions for
impairment are recognised in the income statement, when there is
objective evidence the Group will not be able to collect all amounts due
according to the original terms of the receivables. The impairment
recorded is the difference between the carrying value of the
receivables and the estimated future cash flows discounted where
appropriate.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at
call with banks. Bank overdrafts are disclosed as current liabilities,
within bank and other borrowings, except where the Group participates
in offset arrangements with certain banks whereby cash and overdraft
amounts are offset against each other.
Trade payables
Trade payables are not interest bearing and are stated at their
nominal value.
Leases
Leases where the Group has substantially all the risks and rewards
of ownership are classified as finance leases. Finance leases are
capitalised at the lease’s commencement at the lower of the fair value
of the leased asset and the present value of the minimum lease
payments. Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate on the finance balance
outstanding. The corresponding rental obligations, net of finance
charges, are included in liabilities. The interest element of the finance
cost is charged to the income statement over the lease period so as to
produce a constant periodic rate of interest on the remaining balance
of the liability for each period. Assets acquired under finance leases
are depreciated over the shorter of the useful life of the asset or the
lease term.
Leases in which a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any incentives
received from the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.
Dividends
Interim dividends are recognised as liabilities when they are approved
by the Board. Final dividends are recognised as liabilities when they
are approved by the shareholders.
Borrowings
Borrowings are initially recognised at fair value being proceeds
received less directly attributable transaction costs incurred.
Borrowings are subsequently measured at amortised cost with any
transaction costs amortised to the income statement over the period of
the borrowings using the effective interest method. Borrowings are
held at fair value where a hedge relationship is in place. Any related
interest accruals are included within borrowings. Borrowings are
classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the
balance sheet date.
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64
Notes to the financial statements continued
2. Summary of significant accounting policies continued
Derivative financial instruments and hedging
Provisions
Provision is made for environmental, legal and regulatory liabilities,
onerous contracts and product warranty claims when the Group has a
present obligation as a result of past events, it is more likely than not
that an outflow of economic benefits will be required to settle the
obligation and the amount can be reliably estimated. Provisions are
discounted to present value where the impact is significant, using a
pre-tax rate. The discount rate used is based on current market
assessments of the time value of money, adjusted to reflect any risks
specific to the obligation which have not been reflected in the
undiscounted provision. The impact of the unwinding of discounting is
recognised as a finance cost in the income statement.
Retirement benefit schemes
For defined benefit schemes, pension costs and the costs of providing
other post-retirement benefits (principally healthcare) are charged to
the income statement in accordance with the advice of qualified
independent actuaries. Past service costs are recognised immediately
in the income statement unless the changes are dependent on the
employees remaining in service for a particular period in which case
the costs are recognised on a straight-line basis over that period.
Retirement benefit obligations represent, for each scheme, the
difference between the fair value of the schemes’ assets and the
present value of the schemes’ defined benefit obligations measured at
the balance sheet date. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit
method. The present value of the defined benefit obligation is
determined by discounting the defined benefit obligations using
interest rates of high quality corporate bonds denominated in the
currency in which the benefits will be paid and with terms to maturity
comparable with the terms of the related defined benefit obligations.
Actuarial gains and losses are recognised in the period in which they
arise in other comprehensive income.
For defined contribution schemes, payments are recognised in the
income statement when they fall due.
Share-based compensation
The Group operates a number of equity-settled and cash-settled
share-based compensation schemes.
For equity-settled schemes, the fair value of an award is measured at
the date of grant and reflects any market-based vesting conditions.
Non market-based vesting conditions are excluded from the fair value
of the award. At the date of grant the Group estimates the number of
awards expected to vest as a result of non market-based vesting
conditions and the fair value of this estimated number of awards is
recognised as an expense in the income statement on a straight-line
basis over the period for which services are received. At each balance
sheet date the Group revises its estimate of the number of awards
expected to vest as a result of non market-based vesting conditions
and adjusts the amount recognised cumulatively in the income
statement to reflect the revised estimate.
For cash-settled schemes, the total amount recognised is based on the
fair value of the liability incurred. The fair value of the liability is
remeasured at each balance sheet date with changes in the fair value
recognised in the income statement for the period.
The Group uses derivative financial instruments to hedge its exposure
to interest rate risk and foreign currency transactional risk. Derivative
financial instruments are recognised at fair value on the date the
derivative contract is entered into and are subsequently remeasured
at fair value at each balance sheet date using values determined
indirectly from quoted prices that are observable for the asset or
liability.
The method by which any gain or loss arising from remeasurement
is recognised depends on whether the instrument is designated as
a hedging instrument and if so the nature of the item hedged.
The Group recognises an instrument as a hedging instrument by
documenting, at the inception of the instrument, the relationship
between the instrument and the hedged item and the objectives and
strategy for undertaking the hedging transaction. To be designated as
a hedging instrument, an instrument must also be assessed, at
inception and on an ongoing basis, to be highly effective in offsetting
changes in fair values or cash flows of hedged items.
To the extent the maturity of the financial instrument is more than 12
months from the balance sheet date then the fair value is reported as a
non-current asset or non-current liability. All other derivative financial
instruments are reported as current assets or current liabilities.
Fair value hedges
Changes in the fair value of derivative financial instruments, that are
designated and qualify as fair value hedges, are recognised in the
income statement together with changes in the fair value of the hedged
item. Any difference between the movement in the fair value of the
derivatives and the hedged items are excluded from the underlying
profit measures used by the Board to monitor and measure the
underlying performance of the Group (see note 10). The Group
currently only applies fair value hedge accounting to the hedging of
fixed interest rate risk on borrowings.
Cash flow hedges
Changes in the fair value of the effective portion of derivative financial
instruments, that are designated and qualify as cash flow hedges, are
initially recognised in other comprehensive income. Changes in the fair
value of the ineffective portion are recognised immediately in the
income statement.
To the extent changes in fair value are recognised in other
comprehensive income they are recycled to the income statement in
the periods in which the hedged item affects the income statement.
The Group currently only applies cash flow hedge accounting to the
hedging of floating interest rate risk on borrowings.
If the forecast transaction to which the cash flow hedge relates is
no longer expected to occur, the cumulative gain or loss previously
recognised in other comprehensive income is transferred to the income
statement immediately. If the hedging instrument is sold, expires or no
longer meets the criteria for hedge accounting the cumulative gains and
losses previously recognised in other comprehensive income are
transferred to the income statement when the forecast transaction is
recognised in the income statement.
Net investment hedges
Hedges of net investments of foreign subsidiaries are accounted for in
a similar way to cash flow hedges. Gains and losses relating to the
effective portion of any hedge are recognised in other comprehensive
income. Changes in the fair value of any ineffective portion are
recognised in the income statement. Cumulative gains and losses
previously recognised in other comprehensive income are transferred
to the income statement if the foreign subsidiary to which they relate is
disposed of.
MEGGITT PLC REPORT AND ACCOUNTS 2011
65
2. Summary of significant accounting policies continued
Recent accounting developments
Derivatives that do not meet the criteria for hedge accounting
Where derivatives do not meet the criteria for hedge accounting,
changes in fair value are recognised immediately in the income
statement. The Group utilises a number of foreign currency forward
contracts to mitigate against currency fluctuations. The Group has
determined the additional costs of meeting the extensive
documentation requirements for the Group’s large number of foreign
currency forward contracts are not merited. Gains and losses arising
from measuring these contracts at fair value are excluded from the
underlying profit measures used by the Board to monitor and measure
the underlying performance of the Group (see note 10).
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are deducted from
the proceeds recorded in equity.
Own shares represent shares in the Company that are held by an
independently managed Employee Share Ownership Plan. The
consideration paid for own shares, including any incremental directly
attributable costs, is recorded as a deduction from shareholders’
equity. When such shares are sold any consideration received, net of
any directly attributable costs, is recorded within shareholders’ equity.
Adoption of new and revised accounting standards
The following amendments to existing standards and new
interpretations became effective during the current period, but have
no significant impact on the Group’s financial statements:
• IAS 24 (Revised), ‘Related party disclosures’;
• ‘Annual improvements (2010)’;
• IFRIC 14 (Amendment), ‘IAS 19 – Prepayments of a minimum
funding requirement’;
• IFRIC 19, ‘Extinguishing financial liabilities with equity
instruments’.
The following amendment to an existing accounting standard has been
published and is mandatory for the Group’s future accounting periods.
It is subject to endorsement by the European Union. The amendment is
effective for annual periods beginning on or after 1 January 2013 and
has not been early adopted in these financial statements. The expected
impact is still being assessed in detail by management:
• IAS 19 (revised 2011), ‘Employee benefits’.
The following new standards, amendments to existing standards and
new interpretations have been published and are mandatory for the
Group’s future accounting periods. They are, with the exception of the
amendment to IFRS 7, subject to endorsement by the European Union.
They have not been early adopted in these financial statements and are
not expected to have a significant impact on future financial statements
when they are adopted:
Effective for annual periods beginning on or after 1 July 2011:
• IFRS 1 (Amended), ‘First-time Adoption of International Financial
Reporting Standards’;
• IFRS 7 (Amended), ‘Financial instruments: Disclosures’.
Effective for annual periods beginning on or after 1 January 2012:
• IAS 1 (Amended), ‘Separate financial statements’;
• IAS 12 (Amended), ‘Income taxes’.
Effective for annual periods beginning on or after 1 January 2013:
• IFRS 10, ‘Consolidated financial statements’;
• IFRS 11, ‘Joint arrangements’;
• IFRS 12, ‘Disclosures of interests in other entities’;
• IFRS 13, ‘Fair value measurement’;
• IAS 27 (revised 2011), ‘Separate financial statements’;
• IAS 28 (revised 2011), ‘Associates and joint ventures’;
• IFRIC 20, ‘Stripping costs in the production phase of a surface mine’.
Effective for annual periods beginning on or after 1 January 2015:
• IFRS 9, ‘Financial instruments’.
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Notes to the financial statements continued
Page heading
3. Financial risk management
Financial risk factors
The Group’s operations expose it to a number of financial risks including market risk (principally foreign exchange risk and interest rate risk),
credit risk and liquidity risk. These risks are managed by a centralised treasury department, in accordance with Board approved objectives,
policies and authorities. Regular reports monitor exposures and assist in managing the associated risks.
Market risk
Foreign exchange risk
The Group operates internationally and is subject to foreign exchange risks on future commercial transactions and net investments in foreign
subsidiaries. The principal exposures arise with respect to the US dollar against the Pound sterling. To mitigate risks associated with future
commercial transactions the Group policy is to hedge known, and certain forecast transaction exposures based on historical experience and
projections. The Group hedges at least 70% of the next 12 months anticipated exposure and can hedge up to five years ahead. The Group uses
borrowings denominated in the relevant currencies to hedge its investment in foreign subsidiaries. Details of the hedges in place are provided in
note 31.
Interest rate risk
The Group has borrowings issued at both fixed and floating rates of interest. Borrowings issued at fixed rates expose the Group to fair value
interest rate risk whereas floating rate borrowings expose the Group to cash flow interest rate risk. The Group’s policy is to maintain at least 25%
of its net debt at fixed rates. The Group mitigates interest rate risks through swaps which have the economic effect of converting fixed rate
borrowings into floating rate borrowings and floating rate borrowings into fixed rate borrowings. Details of the hedges in place are provided in
note 31.
Credit risk
The Group is not subject to significant concentration of credit risk with exposure spread across a large number of customers across the world. In
addition, many of the Group’s principal customers are either government departments or large multinationals. Policies are maintained to ensure
the Group makes sales to customers with an appropriate credit history. Letters of credit, or other appropriate instruments, are put in place to
reduce credit risk where considered necessary. The Group is also subject to credit risk on the counterparties to its other financial instruments
which it controls through only dealing with highly rated counterparties and netting transactions on settlement wherever possible.
Liquidity risk
The Group maintains sufficient committed facilities to meet projected borrowing requirements based on cash flow forecasts. Additional
headroom is maintained to protect against the variability of cash flows and to accommodate small bolt-on acquisitions. Key ratios are monitored
to ensure continued compliance with covenants contained in the Group’s principal credit agreements. The following table analyses the Group’s
financial liabilities and derivative assets and liabilities as at the balance sheet date. The amounts disclosed in the table are the contractual
undiscounted cash flows:
Trade and other payables*
Bank and other borrowings
Interest payments on borrowings
Obligations under finance leases (see note 28)
Derivative financial instruments:
Inflows**
Outflows**
Total
Trade and other payables*
Bank and other borrowings
Interest payments on borrowings
Obligations under finance leases (see note 28)
Derivative financial instruments:
Inflows**
Outflows**
Total
Less than
1 year
£’m
339.4
3.2
28.4
0.7
2011
1-2 years
2-5 years
£’m
1.4
335.0
27.8
1.3
£’m
3.0
123.8
66.5
1.6
Greater than
5 years
£’m
2.1
386.9
81.8
5.3
Total
£’m
345.9
848.9
204.5
8.9
(86.5)
79.7
(7.9)
–
(23.6)
–
(28.6)
–
(146.6)
79.7
364.9
357.6
171.3
447.5
1,341.3
2010
1-2 years
2-5 years
Less than
1 year
£’m
241.8
9.1
27.9
0.8
£’m
1.4
204.2
27.6
1.4
(8.8)
8.9
(8.9)
5.0
279.7
230.7
Greater than
5 years
£’m
0.7
384.0
81.2
–
Total
£’m
249.6
758.4
202.7
4.7
(41.8)
–
(86.4)
13.9
424.1
1,142.9
£’m
5.7
161.1
66.0
2.5
(26.9)
–
208.4
* Excludes social security and other taxes of £10.0 million (2010: £8.1 million) (see note 26).
** Assumes no change in interest rates from those prevailing at year end.
MEGGITT PLC REPORT AND ACCOUNTS 2011
67
Page heading
continued
3. Financial risk management continued
Sensitivity analysis
The Group’s principal exposures in relation to market risks are to changes in the exchange rate between the US dollar and Pound sterling and to
changes in US interest rates. The table below illustrates the sensitivity of the Group’s results to changes in these key variables as at the balance
sheet date. The analysis covers only financial assets and liabilities held at the balance sheet date and is made on the basis of the hedge
designations in place on the relative dates and assuming no hedge ineffectiveness.
USD/GBP exchange rate +/- 5%
US yield curve +/- 1%
2011
2010
Income
statement
£’m
6.7
2.5
Equity
£’m
31.0
0.4
Income
statement
£’m
8.7
4.8
Equity
£’m
28.0
1.5
Of the impact on equity from movements in the exchange rate, £36.3 million (2010: £31.0 million) relates to US dollar net debt. However, as all US
dollar debt is designated as a net investment hedge, the impact is entirely offset by the retranslation of overseas operations.
Capital risk management
The Group’s objective when managing its capital structure is to minimise the cost of capital while maintaining adequate capital to protect against
volatility in earnings and net asset values. The strategy is designed to maximise shareholder return over the long-term. The relative proportion of
debt to equity will be adjusted over the medium-term depending on the cost of debt compared to equity and the level of uncertainty facing the
industry and the Group. The Group’s committed credit facilities contain two principal financial covenants. The Group has complied with these
covenant requirements for the year ended 31 December 2011. During the year the Group acquired Pacific Scientific Aerospace, which was funded
by a combination of debt and an equity placing (see note 35). The equity placing ensured that the Group maintained its comfortable headroom
against covenant measures. Further details on the covenant requirements and the Group’s performance against these can be found on page 23 of
the Performance Review. The capital structure of the Group at the balance sheet date is as follows:
Obligations under finance leases – current (see note 28)
Bank and other borrowings – current (see note 29)
Obligations under finance leases – non-current (see note 28)
Bank and other borrowings – non-current (see note 29)
Less cash and cash equivalents (see note 25)
Total net debt
Total equity
Debt/equity %
2011
£’m
0.7
7.0
8.2
867.1
(94.6)
2010
£’m
0.8
12.7
3.9
755.9
(51.9)
788.4
1,793.3
721.4
1,438.2
44.0%
50.2%
4. Critical accounting estimates and judgements
In applying the Group’s accounting policies set out in note 2, management is required to make certain estimates and judgements concerning the
future. These estimates and judgements are regularly reviewed and updated as necessary. The estimates and judgements that have the most
significant effect on the amounts included in these consolidated financial statements are as follows:
Goodwill
Each year the Group carries out impairment tests of its goodwill balances which requires estimates to be made of the value in use of its cash
generating units (‘CGUs’). These value in use calculations are dependent on estimates of the future cash flows, long-term growth rates and
appropriate discount rates to be applied to the future cash flows of the CGUs. Further details on these estimates are provided in note 19.
Development costs and programme participation costs
The Group capitalises development costs and programme participation costs provided they meet certain criteria. Costs are only capitalised
where management are satisfied as to the ultimate commercial viability of the project based on available information. Projects typically involve
long-term relationships on aircraft platforms and, in assessing commercial viability, estimates need to be made of future revenues, margins and
cash flows which are dependent on a number of factors including the size, utilisation and life of the aircraft fleet to which the capitalised costs
relate.
Fair value of intangible assets acquired in a business combination
On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired (provided they meet the criteria to be
recognised). The fair values of these intangible assets are dependent on estimates of attributable future revenues, margins and cash flows.
Income taxes
In determining the Group’s provisions for income tax and deferred tax it is necessary to consider transactions in a small number of key tax
jurisdictions for which the ultimate tax determination is uncertain. To the extent the final outcome differs from the tax that has been provided,
adjustments will be made to income tax and deferred tax provisions held in the period the determination is made.
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Notes to the financial statements continued
Page heading
4. Critical accounting estimates and judgements continued
Environmental matters
The Group is involved in the investigation and remediation of certain sites for which we have been identified as a potentially responsible party
under US law. Advice is received by the Group from its environmental consultants and legal advisors to assist in the determination of the timing
and estimation of the costs the Group may incur in respect of such claims and an appropriate provision is made. To the extent these estimates
change as more information becomes available, adjustments are made to the carrying value of the provision. The Group has extensive insurance
arrangements in place to mitigate the impact of historical environmental events on the Group.
Legal and regulatory
The Group is subject to legal proceedings and other claims arising in the ordinary course of business. The Group is required to assess the
likelihood of any adverse judgements or outcomes, as well as potential ranges of probable losses. A determination of the provisions required for
these matters is based on a careful analysis of each individual issue with the assistance of outside legal counsel. However, actual claims incurred
could differ from the original estimates.
Retirement benefit obligations
The liability recognised in respect of retirement benefit obligations is dependent on a number of estimates including those relating to mortality,
inflation, salary increases and the rate at which liabilities are discounted. Any change in these assumptions would impact the retirement benefit
obligations recognised. Further details on these estimates are provided in note 34.
5. Revenue
The Group’s revenue is analysed as follows:
Sale of goods
Contract accounting revenue
Revenue from services
Revenue from funded research and development
Total
6. Segmental analysis
2011
£’m
1,325.2
61.1
41.7
27.3
2010
£’m
1,065.0
38.8
41.5
16.7
1,455.3
1,162.0
The Group manages its businesses under the key segments of Aircraft Braking Systems, Control Systems, Polymers & Composites, Sensing
Systems and the Equipment Group.
• Aircraft Braking Systems is a leading supplier of aircraft wheels, brakes and brake control systems.
• Control Systems is a leading supplier of pneumatic, fluid control, thermal management and electro-mechanical equipment and sub-systems.
• Polymers & Composites is a leading specialist in fuel containment, engineered aircraft sealing solutions and technical polymers, electro-
thermal ice protection and complex composite structures and assemblies.
• Sensing Systems is a leading provider of high-performance sensing and condition-monitoring solutions for high-value rotating machinery and
other assets.
• The Equipment Group division was created to enable a set of strong, technologically distinct businesses market their offerings to specialist
customers, while benefiting from the Group’s investment in shared services and common processes. The division supplies aircraft fire
protection and control systems, avionics, combat systems, live-fire and simulation training, heat transfer equipment for off-shore oil and gas,
power generation, linear motion control, aircraft safety and security equipment and automotive and industrial control electronics.
• Pacific Scientific Aerospace (‘PacSci’) is managed within the Equipment Group. However, the results of PacSci have been reported separately to
the Group’s Chief Operating Decision Maker (‘CODM’) for the period from acquisition to 31 December 2011 and accordingly PacSci is treated as a
separate segment under IFRS 8 for this period.
MEGGITT PLC REPORT AND ACCOUNTS 2011
69
Page heading
continued
6. Segmental analysis continued
Year ended 31 December 2011
The key performance measure reviewed by the CODM is underlying operating profit. A detailed reconciliation of operating profit to underlying operating
profit is provided in note 10.
Gross segment revenue
Inter-segment revenue
Revenue from external customers
Aircraft
Braking
Systems
£’m
320.5
–
320.5
Control
Systems
Polymers &
Composites
Sensing
Systems
Equipment
Group
PacSci
Total
£’m
202.9
(1.3)
201.6
£’m
173.2
(2.0)
171.2
£’m
234.6
(0.7)
233.9
£’m
338.6
(0.1)
338.5
£’m
189.6
–
189.6
£’m
1,459.4
(4.1)
1,455.3
Underlying operating profit (see note 10)*
Items not affecting underlying operating profit (see note 10)
119.9
47.9
31.7
43.2
78.6
38.2
Operating profit (see note 10)
Finance income (see note 12)
Finance costs (see note 13)
Net finance costs
Profit before tax
Tax (see note 14)
Profit for the year
Exceptional operating items (see note 11)
Amortisation of intangible assets (see notes 20 and 21)**
Depreciation (see note 22)
1.6
76.5
10.0
0.4
3.1
3.0
0.8
0.5
3.0
4.6
6.3
7.5
1.0
7.1
5.6
11.9
18.4
3.1
* Central costs are allocated using a variety of bases designed to reflect the beneficial relationship between the costs and the segments.
Bases include headcount, payroll costs, gross assets and revenue.
** Of the total amortisation in the year, £36.8 million has been charged to underlying operating profit as defined in note 10.
The Group’s largest customer accounts for 9.8% of revenues (£142.2 million). Revenues from this customer arise across all segments.
359.5
(97.0)
262.5
36.9
(73.4)
(36.5)
226.0
(41.1)
184.9
20.3
111.9
32.2
Aircraft
Braking
Systems
£’m
14.9
32.1
10.4
57.4
Additions to non-current assets
Development costs (see note 20)
Programme participation costs (see note 20)
Property, plant and equipment (see note 22)
Total
As at 31 December 2011
Aircraft Braking Systems
Control Systems
Polymers & Composites
Sensing Systems
Equipment Group
PacSci
Total segmental trading assets
Centrally managed trading assets
Goodwill (see note 19)
Other intangible assets (see note 21)
Derivative financial instruments – non-current (see note 31)
Deferred tax assets (see note 33)
Derivative financial instruments – current (see note 31)
Current tax recoverable
Cash and cash equivalents (see note 25)
Total assets
Control
Systems
Polymers &
Composites
Sensing
Systems
Equipment
Group
PacSci
Total
£’m
7.4
1.1
2.9
11.4
£’m
1.8
–
3.8
5.6
£’m
£’m
£’m
£’m
9.2
–
5.0
6.3
–
6.4
14.2
12.7
1.9
–
3.0
4.9
41.5
33.2
31.5
106.2
Total
£’m
470.4
131.4
79.1
190.2
195.9
109.9
1,176.9
145.9
1,544.0
865.8
39.7
112.5
4.1
2.6
94.6
3,986.1
Centrally managed trading assets principally include amounts recoverable from insurers in respect of environmental issues relating to former
sites, other receivables and property, plant and equipment of central companies.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
70
Notes to the financial statements continued
Page heading
6. Segmental analysis continued
Year ended 31 December 2010
The key performance measure reviewed by the Group’s CODM is underlying operating profit. A detailed reconciliation of operating profit to underlying
operating profit is provided in note 10.
Gross segment revenue
Inter-segment revenue
Revenue from external customers
Aircraft
Braking
Systems
£’m
309.7
–
309.7
Control
Systems
Polymers &
Composites
Sensing
Systems
Equipment
Group
Total
£’m
183.3
(0.5)
182.8
£’m
156.9
(0.9)
156.0
£’m
213.7
(5.3)
208.4
£’m
305.4
(0.3)
305.1
£’m
1,169.0
(7.0)
1,162.0
Underlying operating profit (see note 10)*
Items not affecting underlying operating profit (see note 10)
120.7
44.7
28.4
39.5
70.4
Operating profit (see note 10)
Finance income (see note 12)
Finance costs (see note 13)
Net finance costs
Profit before tax
Tax (see note 14)
Profit for the year
Exceptional operating items (see note 11)
Amortisation of intangible assets (see notes 20 and 21)**
Depreciation (see note 22)
3.4
67.5
11.0
2.0
4.1
3.3
3.0
8.1
3.1
2.3
4.5
5.8
5.0
12.4
5.6
303.7
(83.6)
220.1
33.6
(81.2)
(47.6)
172.5
(33.7)
138.8
15.7
96.6
28.8
* Central costs are allocated using a variety of bases designed to reflect the beneficial relationship between the costs and the segments. Bases
include headcount, payroll costs, gross assets and revenue.
** Of the total amortisation in the year £31.9 million has been charged to underlying operating profit as defined in note 10.
The Group’s largest customer accounts for 10.6% of revenues (£123.1 million). Revenues from this customer arise across all segments.
Additions to non-current assets
Development costs (see note 20)
Programme participation costs (see note 20)
Property, plant and equipment (see note 22)
Total
As at 31 December 2010
Aircraft Braking Systems
Control Systems
Polymers & Composites
Sensing Systems
Equipment Group
Total segmental trading assets
Centrally managed trading assets
Goodwill (see note 19)
Other intangible assets (see note 21)
Derivative financial instruments – non-current (see note 31)
Deferred tax assets (see note 33)
Derivative financial instruments – current (see note 31)
Current tax recoverable
Cash and cash equivalents (see note 25)
Total assets
Aircraft
Braking
Systems
£’m
10.2
24.6
3.0
37.8
Control
Systems
Polymers &
Composites
Sensing
Systems
Equipment
Group
Total
£’m
4.9
–
1.6
6.5
£’m
£’m
£’m
£’m
–
–
2.1
2.1
11.3
–
4.0
15.3
7.1
–
3.5
10.6
33.5
24.6
14.2
72.3
Total
£’m
454.6
114.5
69.4
176.4
179.6
994.5
113.8
1,295.5
722.1
12.0
105.0
6.2
0.8
51.9
3,301.8
Centrally managed trading assets principally include amounts recoverable from insurers in respect of environmental issues relating to former
sites, other receivables and property, plant and equipment of central companies.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
6. Segmental analysis continued
Geographical information
Revenue
UK
Rest of Europe
North America
Rest of World
Total
Revenues are based on the location of the customer.
Segment non-current assets
UK
Rest of Europe
North America
Rest of World
Total
71
2011
£’m
134.0
324.7
805.2
191.4
2010
£’m
117.9
261.2
631.2
151.7
1,455.3
1,162.0
2011
£’m
2010
£’m
681.9
215.6
2,121.1
4.4
564.3
129.5
1,863.5
2.5
3,023.0
2,559.8
Segment non-current assets are based on the location of the assets. They exclude deferred tax, derivative financial instruments and trade and
other receivables.
7. Expenses by nature
Raw materials and consumables used
Changes in inventories of finished goods and work in progress
Employee costs (see note 9)
Depreciation (see note 22)
Research and development costs expensed as incurred
Amortisation of capitalised development costs (see note 20)
Amortisation of programme participation costs (see note 20)
Amortisation of other purchased intangible assets (see note 21)
Amortisation of intangibles acquired in business combinations (see note 10)
(Profit)/loss on disposal of property, plant and equipment
Exceptional operating items (see note 11)
Financial instruments (see note 10)
Disposal of inventory revalued in business combinations (see note 10)
Net foreign exchange losses
Operating lease rentals – land and buildings
Operating lease rentals – plant, equipment and vehicles
Other administration costs
Other operating income
Total
Analysed in the income statement:
Cost of sales
Net operating costs
Total
2011
£’m
385.6
(13.1)
469.6
32.2
41.7
11.3
20.8
4.7
75.1
(2.0)
20.3
(9.7)
11.3
0.6
13.1
1.1
134.5
1,197.1
(4.3)
1,192.8
839.8
353.0
1,192.8
2010
£’m
302.5
(12.9)
370.2
28.8
34.0
8.2
19.7
4.0
64.7
0.2
15.7
3.2
–
1.3
10.9
0.8
93.8
945.1
(3.2)
941.9
639.8
302.1
941.9
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
72
Notes to the financial statements continued
Page heading
8. Auditor remuneration
Payable to PricewaterhouseCoopers LLP and network firms:
Audit services:
Fees payable to the Company’s auditor for the audit of the Company and the consolidated financial statements
Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries pursuant to legislation
Non-audit services:
Fees payable to the Company’s auditor and its associates for all other services
Total
2011
£’m
0.6
1.2
0.1
1.9
2010
£’m
0.4
1.0
0.5
1.9
No significant fees were paid in 2011 for non-audit services. The non-audit services in 2010 primarily relate to fees in respect of cost saving advice
on procurement.
The Group engages PricewaterhouseCoopers LLP to undertake those non-audit related activities which they are required to, and most suited to
perform. Further details on the Group’s policy in respect of non-audit fees is contained in the Directors’ statement on corporate governance on
page 45.
9. Employee information
Employee costs including executive directors:
Wages and salaries
Social security costs
Retirement benefit costs (see note 34)
Share-based payment expense (see note 36)
Total
2011
£’m
373.7
63.5
24.0
8.4
469.6
2010
£’m
289.7
51.9
14.3
14.3
370.2
Details of directors’ remuneration is provided in the Remuneration Report on pages 47 to 54, which forms part of these financial statements.
Average monthly number of persons employed including executive directors:
Aircraft Braking Systems
Control Systems
Polymers & Composites
Sensing Systems
Equipment Group
Pacific Scientific Aerospace
Corporate including shared services and centres of excellence
Total
2011
No.
2010
No.
1,176
1,040
1,939
1,470
1,669
1,614
449
9,357
1,170
945
1,741
1,371
1,638
–
323
7,188
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
73
10. 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:
Operating profit
Exceptional operating items (see note 11)
Amortisation of intangible assets acquired in business combinations
Disposal of inventory revalued in business combinations
Financial instruments
Adjustments to operating profit*
Underlying operating profit
Profit before tax
Adjustments to operating profit per above
Underlying profit before tax
Profit for the year
Adjustments to operating profit per above
Tax effect of adjustments to operating profit
Adjustments to profit for the year
Underlying profit for the year
Note
a
b
c
2011
£’m
262.5
20.3
75.1
11.3
(9.7)
97.0
359.5
2010
£’m
220.1
15.7
64.7
–
3.2
83.6
303.7
226.0
172.5
97.0
323.0
83.6
256.1
184.9
138.8
97.0
(36.4)
60.6
245.5
83.6
(30.3)
53.3
192.1
* Of the adjustments to operating profit, £3.7 million (2010: £4.9 million) relating to exceptional operating items and £11.3 million (2010: £Nil
relating to the disposal of inventory revalued in business combinations has been charged to cost of sales, with the balance of £82.0 million
(2010: £78.7 million) included within net operating costs.
a. The Group excludes from its underlying profit figures the amortisation of intangible assets acquired in business combinations.
Amortisation of other intangible assets (see note 21)
Less amortisation of purchased intangible assets (see note 21)
Amortisation of intangible assets acquired in business combinations
2011
£’m
79.8
(4.7)
75.1
2010
£’m
68.7
(4.0)
64.7
b. IFRS 3 requires finished goods acquired in a business combination to be valued at fair value, which is typically estimated selling price less costs
of disposal and a reasonable profit allowance for the selling effort. Work in progress acquired in a business combination is valued at fair value,
which is typically estimated selling price less costs to complete, costs of disposal and a reasonable profit allowance for work still to be carried
out. The fair value of acquired inventory is thus significantly higher than the same items built post acquisition, the value of which includes no
profit element. The difference between the fair value of the inventory consumed and its cost is excluded from the Group’s underlying profit
figures.
c. 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 IAS 39 (‘Financial Instruments: Recognition and
Measurement’) 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 do not qualify to be hedge accounted, movements in the fair value of the derivatives are excluded from
underlying profit. Where interest rate derivatives do qualify to be hedge accounted, any difference between the movement in the fair value of the
derivatives and in the fair value of fixed rate borrowings is excluded from underlying profit.
Movement in the fair value of foreign currency forward contracts
Impact of retranslating net foreign currency assets and liabilities at spot rate
Movement in the fair value of interest rate derivatives
Movement in the fair value of fixed rate borrowings
Financial instruments – (gain)/loss
2011
£’m
5.6
(1.4)
(30.0)
16.1
(9.7)
2010
£’m
(0.3)
0.7
(6.1)
8.9
3.2
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
74
Notes to the financial statements continued
Page heading
11. Exceptional operating items
Transformation programme
Acquisition of Pacific Scientific Aerospace (‘PacSci’)
Integration of PacSci
Sensing Systems consolidation
Other
Exceptional operating items
Note
a
b
c
d
2011
£’m
4.4
6.0
5.9
3.7
0.3
20.3
2010
£’m
13.2
1.3
-
-
1.2
15.7
a. The previously announced transformation programme was substantially completed during 2011 and the increased annual run-rate savings
target of £57.0 million, set for the end of 2011, has been achieved.
b. Costs were incurred in respect of the acquisition of PacSci which completed on 21 April 2011. Total costs associated with the acquisition were
£7.3 million of which £6.0 million were incurred in the year.
c. Cost synergies achieved in 2011 as part of the on-going PacSci integration process were £4.1 million. Costs incurred in the year in respect of
this integration process were £5.9 million.
d. In June 2011, Sensing Systems announced the consolidation of its New Hampshire and San Juan Capistrano facilities to a single new location in
Southern California. This decision will result in the closure of the New Hampshire site in 2013.
Cash expenditure on exceptional operating items was £17.1 million (2010: £15.5 million), including £3.9 million in respect of the transformation
programme (2010: £13.7 million), £6.6 million in respect of the acquisition of PacSci (2010: £0.7 million), £4.4 million in respect of the integration
of PacSci (2010: £Nil), £1.9 million in respect of the Sensing Systems consolidation (2010: £Nil) and £0.3 million in respect of other items (2010:
£1.1 million). The tax credit in respect of exceptional operating items was £5.6 million (2010: £4.9 million).
12. Finance income
Interest on bank deposits
Unwinding of interest on other receivables
Expected return on retirement benefit scheme assets (see note 34)
Other finance income
Finance income
13. Finance costs
Interest on bank borrowings
Interest on senior notes
Interest on finance lease obligations
Unwinding of interest on provisions (see note 32)
Unwinding of interest on retirement benefit scheme liabilities (see note 34)
Amortisation of debt issue costs
Less: amounts capitalised in the cost of qualifying assets
Finance costs
14. Tax
Current tax – current year
Current tax – adjustment in respect of prior years
Deferred tax – origination and reversal of temporary differences
Deferred tax - effect of changes in tax rates
Total taxation
2011
£’m
0.1
1.1
35.5
0.2
36.9
2011
£’m
11.1
19.8
0.3
1.1
40.0
1.7
(0.6)
73.4
2011
£’m
44.5
(8.5)
6.5
(1.4)
41.1
2010
£’m
0.2
1.2
32.0
0.2
33.6
2010
£’m
24.6
12.2
0.3
1.3
41.8
1.5
(0.5)
81.2
2010
£’m
45.0
0.7
(9.8)
(2.2)
33.7
The Finance Act 2011 included legislation to reduce the main rate of corporation tax in the UK from 26% to 25% with effect from 1 April 2012.
Further reductions are proposed to reduce the main rate by 1% per annum to 23% by 1 April 2014.
The reduction in the main UK tax rate to 25% is reflected in the financial statements for the year ended 31 December 2011. The impact, of this
change, on net deferred tax liabilities as at 31 December 2011, profit for the year (underlying and statutory) and other comprehensive income for
the year has not been significant. As the further reductions in the main UK tax rate have not been substantially enacted at the balance sheet date,
their impact is not reflected in these financial statements.
MEGGITT PLC REPORT AND ACCOUNTS 2011
75
Page heading
continued
14. Tax continued
Reconciliation of total tax charge
A reconciliation of the notional tax charge based on average standard rates of tax (weighted in proportion to accounting profits) to the actual tax
charge is as follows:
Profit on ordinary activities before taxation at weighted average standard tax rate of 30.1%* (2010: 30.8%)
Effects of:
Permanent differences
Timing differences
Changes in statutory tax rates
Tax credits and incentives
Prior year credits
Total taxation
2011
£’m
68.0
(14.6)
(0.1)
(1.4)
(4.3)
(6.5)
41.1
2010
£’m
53.1
(11.2)
0.1
(2.2)
(6.0)
(0.1)
33.7
* The sensitivity of the tax charge to changes in the tax rate is such that a one percentage point increase, or reduction, in the tax rate would cause
the total taxation charge for 2011 to increase, or reduce respectively, by approximately £2.3 million.
Tax relating to components of other comprehensive income
Current tax - currency translation movements
Deferred tax - currency translation movements
Deferred tax - actuarial losses
Deferred tax - cash flow hedge movements
Other comprehensive income
Current tax
Deferred tax
Total
Tax relating to items recognised directly in equity
Deferred tax credit relating to share-based payment
Total
15. Profit of parent company
After
tax
£’m
15.1
(0.4)
(57.7)
4.0
(39.0)
Before
tax
£’m
28.3
1.0
(1.5)
20.6
48.4
Before
tax
£’m
11.2
(0.5)
(76.6)
5.3
(60.6)
2011
Tax credit
/(charge)
£’m
3.9
0.1
18.9
(1.3)
21.6
3.9
17.7
21.6
2010
Tax credit
/(charge)
£’m
(2.0)
(0.3)
0.6
(5.8)
(7.5)
(2.0)
(5.5)
(7.5)
2011
£’m
0.9
0.9
After
tax
£’m
26.3
0.7
(0.9)
14.8
40.9
2010
£’m
2.6
2.6
The profit, after dividends received, attributable to the shareholders of Meggitt PLC is £782.7 million (2010: £86.5 million) and has been dealt with
in the accounts of that Company. Meggitt PLC, which prepares its accounts in accordance with UK GAAP, has taken advantage of the legal
dispensation contained in Section 408 of the Companies Act 2006 allowing it not to publish a separate profit and loss account.
16. Earnings per ordinary share
Earnings per ordinary share (‘EPS’) is calculated by dividing the profit attributable to owners of the parent by the weighted average number of
shares in issue during the year. The weighted average number of shares used excludes 0.2 million shares (2010: 0.6 million shares) being the
weighted average number of own shares bought by the Group and held during the year by an independently managed Employee Share Ownership
Plan Trust (see note 37). 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 equity-settled share options and share appreciation rights in
issue are exercised.
Basic EPS
Potential effect of dilutive ordinary shares
Diluted EPS
2011
Profit*
£’m
184.9
–
184.9
2011
Shares
No. ‘m
769.7
6.2
775.9
2011
EPS
Pence
24.0
(0.2)
23.8
2010
Profit*
£’m
138.8
–
138.8
2010
Shares
No. ‘m
691.5
7.9
699.4
2010
EPS
Pence
20.1
(0.2)
19.9
* Profit for the year from continuing operations attributable to owners of the parent.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
76
Notes to the financial statements continued
Page heading
16. Earnings per ordinary share continued
Underlying EPS is based on underlying profit (see note 10) and the same number of shares as is used in the calculation of basic EPS. It is
reconciled to basic EPS below:
Basic EPS
Add back effects of:
Exceptional operating items
Amortisation of intangible assets acquired in business combinations
Disposal of inventory revalued in business combinations
Financial instruments
Underlying EPS
2011
Pence
24.0
1.9
6.0
0.9
(0.9)
31.9
2010
Pence
20.1
1.6
5.8
–
0.3
27.8
As the impact was not significant, earnings per share data for the prior year has not been restated for the effects of the equity placing completed
on 21 January 2011.
17. Dividends
In respect of earlier years
In respect of 2010:
Interim of 2.85p per share
Final of 6.35p per share
In respect of 2011:
Interim of 3.20p per share
Dividends paid
Less paid as scrip dividend (see note 41)
Dividends paid in cash
2011
£’m
–
–
48.8
24.8
73.6
(25.2)
48.4
2010
£’m
39.4
19.8
–
–
59.2
(29.5)
29.7
A final dividend in respect of 2011 of 7.30p per share (2010: 6.35p), amounting to an estimated total final dividend of £56.9 million (2010: £48.8
million) is to be proposed at the Annual General Meeting on 26 April 2012. This dividend is not reflected in these financial statements as it is has
not been approved by the shareholders at the balance sheet date.
18. Related party transactions
Transactions between the Company and its subsidiaries have been eliminated on consolidation. The remuneration of the key management
personnel of the Group, including executive directors, is set out below:
Salaries and other short-term employee benefits
Retirement benefit costs
Share-based payment expense
Total
2011
£’m
8.7
0.4
3.8
12.9
2010
£’m
7.9
0.5
4.8
13.2
Interests of key management personnel, including executive directors, in share schemes operated by the Group at the balance sheet date are set
out below:
Share options
Share appreciation rights – equity-settled
Share appreciation rights – cash-settled
Equity Participation Plan shares
Deferred Share Bonus Plan shares
2011
Average
option/base
price
Pence
217.41
265.79
269.05
N/A
N/A
2011
Number
outstanding
‘m
0.1
9.7
0.4
4.2
0.1
2010
Average
option/base
price
Pence
209.39
250.39
264.70
N/A
N/A
2010
Number
outstanding
‘m
0.5
9.2
0.6
4.2
0.2
Full details of all elements in the remuneration package of each director together with directors’ share interests and share options are given in
the Remuneration Report on pages 47 to 54 which forms part of these financial statements.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
19. Goodwill
Cost as at 1 January
Exchange rate adjustments
Businesses acquired (see note 42)
Cost as at 31 December
77
2011
£’m
1,295.5
15.9
232.6
2010
£’m
1,261.9
33.6
–
1,544.0
1,295.5
Goodwill is tested for impairment annually or more frequently if there is any indication of impairment. No impairment charge was required in the
year (2010: £Nil) and the cumulative impairment charge recognised to date is £Nil (2010: £Nil). The total amount of goodwill acquired in the year
that is expected to be deductible for tax purposes is £85.4 million.
For the purposes of testing goodwill for impairment, goodwill is allocated to the Group’s cash generating units (‘CGUs’) which principally
comprise its individual business operations. Goodwill is initially allocated, in the year a business is acquired, to CGUs expected to benefit from the
acquisition. Subsequent adjustments are made to this allocation to the extent operations to which goodwill relates are transferred between CGUs.
An analysis of goodwill by principal CGU is shown below:
Meggitt Aircraft Braking Systems (‘MABS’)
Meggitt (North Hollywood), Inc
Pacific Scientific HTL (Acquired as part of Pacific Scientific Aerospace)
Meggitt (Rockmart) Inc
Meggitt Training Systems Inc
Other*
Total
2011
£’m
701.8
173.0
95.2
73.1
67.1
433.8
2010
£’m
697.5
171.7
–
72.5
66.6
287.2
1,544.0
1,295.5
* Includes five CGUs acquired as part of the acquisition of Pacific Scientific Aerospace, with a total value of £145.8 at 31 December 2011.
For each acquired CGU the Group has determined its recoverable amount from value in use calculations. The value in use calculations are based
on cash flow forecasts derived from the most recent budgets and plans for the next five years, as approved by management in December 2011.
Cash flows for periods beyond five years are extrapolated using estimated growth rates. The resultant cash flows are discounted using a pre-tax
discount rate appropriate for the relevant CGU.
The key assumptions for the value in use calculations are shown below:
• Sales volumes, selling prices and cost increases over the five years covered by management’s detailed plans. Sales volumes are based on
industry forecasts and management estimates for the businesses in which each CGU operates including forecasts for OEM deliveries of large
jets, regional aircraft and business jets; air traffic growth and military spending by the US DoD and other major governments. Selling prices
and cost increases are based on past experience and management expectations of future changes in the market. Overall a cautious approach
to volume levels, selling prices and cost increases has been taken given the continued global economic uncertainty. The extent to which these
assumptions affect each principal CGU with a significant level of goodwill are described below.
MABS, Meggitt (North Hollywood), Inc and Pacific Scientific HTL are broadly spread across both civil aerospace and military platforms with
Meggitt (North Hollywood), Inc also operating in the energy sector. MABS is a world leader in the supply of braking systems particularly for
regional aircraft, business jets, and military aircraft. Meggitt (North Hollywood), Inc designs and manufactures fluid control devices and systems
for most aircraft types and has a higher content on large jets. Pacific Scientific HTL designs and manufactures customised aviation safety
equipment for large, regional, business and military aircraft. All three businesses have significant OEM and aftermarket revenues derived from
sole source positions with the aftermarket, where platform lives can be up to thirty years for civil aircraft and longer for military, representing
the greater proportion of revenues. Meggitt (Rockmart) Inc and Meggitt Training Systems Inc both operate in military markets. The principal
customer of Meggitt (Rockmart) Inc is the US DoD to whom Meggitt (Rockmart) Inc are a leading supplier of flexible fuel tanks. Meggitt Training
Systems Inc supplies integrated live and virtual training packages for armed forces and law enforcement agencies across the world.
In civil aerospace, growth in capacity terms, measured in available seat kilometres (ASK’s), is forecast to grow in line with the long-term trend
rate of 5%, which together with the Group’s growing fleet and price increases, should drive an increase in aftermarket revenues of 8 to 9% per
annum over the medium term. The recovery in air passenger travel has been reflected in an increase in orders received by Boeing and Airbus.
Large jet deliveries increased by 4% in 2011 and compound annual growth of 10% is expected over the next five years as airlines replace ageing
fleets with more efficient aircraft. Deliveries of regional aircraft increased by 6% in 2011 and growth at similar levels is anticipated over the next
five years, particularly in 70-90 seat passenger aircraft on which the Group has strong shipset content. Regional aftermarket revenues are
expected to grow as operators expand capacity and utilisation particularly in Europe, Latin and South America and Asia. Whilst business jet
deliveries declined in 2011, recovery is expected from 2012 with compound annual growth of 10% expected over the next five years. The
business jet aftermarket has been strong in 2011 and further growth is expected on the back of a growing fleet, growing market share and
pricing. In military markets, defence budgets remain under pressure. However, the Group has key positions on growth platforms of the future
and is not currently expected to be significantly affected by any cancellation, delay or changes in scope arising from the US DoD, or other
governments’ spending reviews. Overall the Group anticipates organic revenue growth from military markets at around 2% over the medium-
term and expects its energy revenues to grow at double–digit percentages in the medium-term.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
78
Notes to the financial statements continued
Page heading
19. Goodwill continued
• Growth rates used for periods beyond those covered by management’s detailed budgets and plans. Growth rates are derived based on
management’s estimates which take into account the long-term nature of the industry in which each CGU operates, external industry forecasts
of long-term growth in the aerospace and defence sectors, the extent to which a CGU has sole source position on platforms where it is able to
share in a continuing stream of highly profitable aftermarket revenues, the maturity of the platforms supplied by the CGU and the technological
content of the CGU’s products. For the purpose of impairment testing, a conservative approach has been used and where the derived rate is
higher than the long-term GDP growth rates for the countries in which the CGU operates (UK: 2.1% (2010: 2.4%), US: 2.5% (2010: 2.5%)), the
latter has been used;
• Discount rates applied to future cash flows. The Group’s pre-tax weighted average cost of capital (WACC) was used as the foundation for
determining the discount rates to be applied. The WACC was then adjusted to reflect risks specific to the CGU not already reflected in the future
cash flows for that CGU. The discount rates used were as follows: MABS 10.8% (2010: 10.5%), Meggitt (North Hollywood), Inc, 11.1% (2010:
10.9%), Pacific Scientific HTL 11.2% (2010: Not applicable), Meggitt (Rockmart) Inc 11.1% (2010: 10.9%), and Meggitt Training Systems Inc 11.3%
(2010: 10.0%).
The Group has carried out a sensitivity analysis to determine the extent to which its assumptions would need to change for the calculated
recoverable amounts from value in use, to fall below the carrying value of goodwill of the CGU. Management has concluded that no reasonably
foreseeable change in the key assumptions used in the impairment model would result in a significant impairment charge being recorded in the
financial statements.
20. Development costs and programme participation costs
At 1 January 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2010
Opening net book amount
Exchange rate adjustments
Additions
Interest capitalised
Amortisation*
Net book amount
At 31 December 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2011
Opening net book amount
Exchange rate adjustments
Businesses acquired (see note 42)
Additions
Interest capitalised
Amortisation*
Net book amount
At 31 December 2011
Cost
Accumulated amortisation
Net book amount
Development
costs
£’m
147.2
(28.2)
119.0
119.0
6.7
33.5
0.3
(8.2)
151.3
184.3
(33.0)
151.3
151.3
1.4
2.4
41.5
0.5
(11.3)
Programme
participation
costs
£’m
237.3
(62.4)
174.9
174.9
4.0
24.6
–
(19.7)
183.8
266.5
(82.7)
183.8
183.8
1.3
-
33.2
–
(20.8)
185.8
197.5
230.3
(44.5)
185.8
301.8
(104.3)
197.5
* Charged to net operating costs in respect of development costs and to cost of sales in respect of programme participation costs.
Meggitt Sensing Systems has the largest share of Group development costs with a net book amount of £62.6 million (2010: £57.2 million), which
have an estimated weighted average remaining life of 9.1 years (2010: 9.6 years). Meggitt Aircraft Braking Systems has the largest share of
Group programme participation costs with a net book amount of £195.9 million (2010: £183.2 million), which have an estimated weighted average
remaining life of 9.4 years (2010: 9.7 years).
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
21. Other intangible assets
At 1 January 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2010
Opening net book amount
Exchange rate adjustments
Additions
Interest capitalised
Amortisation - net operating costs (see note 10)
Net book amount
At 31 December 2010
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2011
Opening net book amount
Exchange rate adjustments
Businesses acquired (see note 42)
Additions
Interest capitalised
Amortisation - net operating costs (see note 10)
Net book amount
At 31 December 2011
Cost
Accumulated amortisation
Net book amount
79
Customer
relationships
Technology
Order
backlogs
(*)
£’m
716.4
(128.8)
587.6
587.6
15.8
–
–
(46.1)
557.3
734.6
(177.3)
557.3
557.3
6.5
119.9
–
–
(50.2)
(*)
£’m
187.6
(47.6)
140.0
140.0
3.6
–
–
(16.6)
127.0
192.3
(65.3)
127.0
127.0
2.0
51.7
–
–
(14.8)
633.5
165.9
863.2
(229.7)
633.5
246.7
(80.8)
165.9
(*)
£’m
21.4
(21.0)
0.4
0.4
0.1
–
–
(0.5)
–
21.8
(21.8)
–
–
–
11.3
–
–
(8.1)
3.2
11.4
(8.2)
3.2
Trade
names and
trademarks
(*)
£’m
26.0
(12.6)
13.4
13.4
0.4
–
–
(1.5)
12.3
26.5
(14.2)
12.3
12.3
0.2
4.1
–
–
(2.0)
14.6
30.9
(16.3)
14.6
Other
purchased
(**)
£’m
29.2
(16.1)
13.1
13.1
0.4
15.8
0.2
(4.0)
25.5
45.9
(20.4)
25.5
25.5
0.1
0.7
26.9
0.1
(4.7)
48.6
73.4
(24.8)
48.6
Total
£’m
980.6
(226.1)
754.5
754.5
20.3
15.8
0.2
(68.7)
722.1
1,021.1
(299.0)
722.1
722.1
8.8
187.7
26.9
0.1
(79.8)
865.8
1,225.6
(359.8)
865.8
* Acquired in business combinations. Amortisation of these items is excluded from the Group’s underlying profit figures (see note 10).
** Principally relates to software costs.
The net book amount of customer relationships include £444.1 million (2010: £478.0 million) in respect of Meggitt Aircraft Braking Systems which
have an estimated weighted average remaining life of 12.0 years (2010: 13.0 years). The net book amount of technology includes £88.8 million
(2010: £95.6 million) in respect of Meggitt Aircraft Braking Systems which have an estimated weighted average remaining life of 12.0 years (2010:
13.0 years).
During the current year, cost and accumulated amortisation relating to completed order backlogs has been eliminated.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
80
Notes to the financial statements continued
Page heading
22. Property, plant and equipment
At 1 January 2010
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2010
Opening net book amount
Exchange rate adjustments
Additions
Disposals
Depreciation
Net book amount
At 31 December 2010
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2011
Opening net book amount
Exchange rate adjustments
Businesses acquired (see note 42)
Additions
Disposals
Depreciation
Net book amount
At 31 December 2011
Cost
Accumulated depreciation
Net book amount
Land and
buildings
£’m
Plant,
equipment
and vehicles
£’m
145.3
(35.2)
110.1
110.1
3.3
1.7
(0.6)
(6.1)
108.4
151.4
(43.0)
108.4
108.4
0.4
5.6
8.7
(1.1)
(7.6)
328.4
(222.6)
105.8
105.8
3.1
12.5
–
(22.7)
98.7
335.9
(237.2)
98.7
98.7
0.7
18.1
22.8
(0.2)
(24.6)
Total
£’m
473.7
(257.8)
215.9
215.9
6.4
14.2
(0.6)
(28.8)
207.1
487.3
(280.2)
207.1
207.1
1.1
23.7
31.5
(1.3)
(32.2)
114.4
115.5
229.9
164.8
(50.4)
114.4
372.2
(256.7)
115.5
537.0
(307.1)
229.9
The Group’s obligations under finance leases (see note 28) are secured by the lessors’ title to the leased assets, which have a carrying amount of
£5.0 million included within land and buildings (2010: £Nil) and £2.0 million (2010: £3.2 million) included within plant, equipment and vehicles.
23. Inventories
Contract costs incurred
Less progress billings
Net contract costs
Raw materials and bought-in components
Manufacturing work in progress
Finished goods and goods for resale
Total
2011
£’m
12.1
(3.5)
8.6
105.4
110.0
53.5
277.5
2010
£’m
6.8
(1.0)
5.8
99.0
93.3
41.0
239.1
The cost of inventories recognised as an expense and included in cost of sales amounted to £828.3 million (2010: £631.3 million).
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
24. Trade and other receivables
Trade receivables
Amounts recoverable on contracts
Prepayments and accrued income
Other receivables
Total
Less non-current portion:
Other receivables
Non-current portion
Current portion
81
2011
£’m
263.0
8.3
10.8
150.0
432.1
114.7
114.7
317.4
2010
£’m
189.3
4.7
8.9
124.1
327.0
88.6
88.6
238.4
Other receivables includes £112.8 million (2010: £95.3 million) in respect of insurance receivables arising on environmental issues pertaining to
businesses sold by Whittaker Corporation prior to its acquisition by the Group (see note 32) of which £5.1 million (2010: £10.0 million) is shown as
current.
Trade receivables are stated after a provision for impairment of £7.2 million (2010: £3.9 million). Other balances within trade and other receivables
do not contain impaired assets. The provision for impairment against trade receivables is based on a specific risk assessment taking into account
past default experience and is analysed as follows:
At 1 January
Exchange movements
Charge to income statement - net operating costs
At 31 December
2011
£’m
3.9
0.1
3.2
7.2
At 31 December 2011, trade receivables of £42.8 million (2010: £35.0 million) were past due but not impaired. These relate to a number of
independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:
Up to 3 months
Over 3 months
Total
2011
£’m
34.4
8.4
42.8
2010
£’m
3.5
0.1
0.3
3.9
2010
£’m
28.0
7.0
35.0
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable reported above. The Group does not hold
any collateral as security.
Trade and other receivables are denominated in the following currencies:
Sterling
US dollar
Euro
Other
Total
2011
£’m
60.0
325.0
38.6
8.5
432.1
2010
£’m
50.5
243.2
28.7
4.6
327.0
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
82
Notes to the financial statements continued
Page heading
25. Cash and cash equivalents
Cash at bank and on hand
Short-term bank deposits
Total
Cash and cash equivalents are subject to interest at floating rates. The credit quality of cash and cash equivalents is as follows:
S&P rating:
AAA
AA
A
BBB
Total
26. Trade and other payables – current
Payments received on account
Trade payables
Social security and other taxes
Accrued expenses
Deferred consideration relating to acquired businesses
Other payables
Total
27. Trade and other payables – non-current
Deferred consideration relating to acquired businesses
Other payables
Total
28. Obligations under finance leases
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
After five years
Total
Less: future finance charges
Present value of lease obligations
Less non-current portion
Current portion
2011
£’m
80.6
14.0
94.6
2011
£’m
0.6
16.0
63.8
14.2
94.6
2011
£’m
42.1
142.4
10.0
53.2
–
101.7
349.4
2011
£’m
3.1
3.4
6.5
2010
£’m
51.9
–
51.9
2010
£’m
0.1
24.7
26.9
0.2
51.9
2010
£’m
43.7
89.2
8.1
33.6
1.7
73.6
249.9
2010
£’m
2.3
5.5
7.8
Minimum
lease payments
Present value
of minimum
lease payments
2011
£’m
0.7
2.9
5.3
8.9
2010
£’m
0.8
3.9
–
4.7
2011
£’m
1.8
7.1
15.5
24.4
(15.5)
8.9
8.2
0.7
2010
£’m
1.3
4.4
–
5.7
(1.0)
4.7
3.9
0.8
The underlying currency of obligations under finance leases is Sterling £Nil (2010: £0.1 million) and US dollar £8.9 million (2010: £4.6 million). The
weighted average period to maturity is 12.0 years (2010: 2.9 years) and the weighted average interest rate is 15.3% (2010: 5.7%).
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
29. Bank and other borrowings
Current
Bank loans
Other loans
Total current
Non-current
Bank loans
Other loans
Total non-current
Total
Analysis of bank and other borrowings repayable:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total
83
2011
£’m
2.7
4.3
7.0
292.6
574.5
867.1
2010
£’m
8.2
4.5
12.7
201.6
554.3
755.9
874.1
768.6
7.0
334.2
121.4
411.5
874.1
12.7
203.6
159.8
392.5
768.6
Bank and other borrowings are stated after deduction of unamortised debt issue costs. Debt issue costs are written off over the period of the
facility to which they relate. Secured borrowings amounted to £0.2 million (2010: £1.0 million) which are secured by specific land and buildings of
the Group.
The Group has the following committed facilities:
Senior notes (2011: USD 250.0 million, 2010: USD 250.0 million)
Senior notes (2011: USD 600.0 million, 2010: USD 600.0 million)
Syndicated credit facility (2011: USD 500.0 million, 2010: USD 500.0 million)
Syndicated credit facility (2011: USD 700.0 million, 2010:USD 920.0 million)
Total
Drawn
£’m
160.9
386.1
218.3
77.3
842.6
2011
Undrawn
£’m
–
–
103.4
373.1
476.5
Total
£’m
160.9
386.1
321.7
450.4
1,319.1
Drawn
£’m
159.7
383.2
–
203.1
746.0
2010
Undrawn
£’m
–
–
319.3
384.5
703.8
Total
£’m
159.7
383.2
319.3
587.6
1,449.8
The Group issued USD 250.0 million of loan notes to private placement investors in 2003. These were all drawn at 31 December 2011 and the
sterling equivalent was £160.9 million. The notes are in two tranches as follows: USD 180.0 million carry an interest rate of 5.36% and are due for
repayment in 2013 and USD 70.0 million carry an interest rate of 5.46% and are due for repayment in 2015.
The Group issued USD 600.0 million of loan notes to private placement investors in 2010. These were all drawn at 31 December 2011 and the
sterling equivalent was £386.1 million. The notes are in four tranches as follows: USD 200.0 million carry an interest rate of 4.62% and are due for
repayment in 2017, USD 125.0 million carry an interest rate of 5.02% and are due for repayment in 2020, USD 150.0 million carry an interest rate of
5.17% and are due for repayment in 2020 and USD 125.0 million carry an interest rate of 5.12% and are due for repayment in 2022.
During 2011 the USD 920.0 million credit facility which was available at 31 December 2010 was cancelled and replaced by a pre-arranged
USD 700.0 million revolving credit facility which matures in 2016. The Group also has a USD 500.0 million revolving credit facility which matures
in 2013.
At 31 December 2011 the amounts drawn under our revolving credit facilities were £295.6 million (2010: £203.1 million) represented by
borrowings denominated in US dollars of £212.9 million (2010: £112.1 million) and in Swiss francs of £82.7 million (2010: £91.0 million). Borrowings
under the facilities are subject to interest at floating rates. The Group also has various uncommitted facilities with its relationship banks.
The committed facilities available as at 31 December 2011 and 31 December 2010 expire as follows:
Within one to two years
In more than two years
Total
Drawn
£’m
334.2
508.4
842.6
2011
Undrawn
£’m
103.4
373.1
476.5
Total
£’m
437.6
881.5
1,319.1
Drawn
£’m
203.1
542.9
746.0
2010
Undrawn
£’m
384.5
319.3
703.8
Total
£’m
587.6
862.2
1,449.8
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
84
Notes to the financial statements continued
Page heading
29. Bank and other borrowings continued
The fair value of bank and other borrowings is as follows:
Current
Non-current
Total
2011
2010
Carrying
value
£’m
Fair
value
£’m
Carrying
Fair
value
£’m
value
£’m
7.0
867.1
874.1
7.0
885.6
892.6
12.7
755.9
768.6
12.7
769.1
781.8
After taking account of the financial derivatives that alter the interest and currency basis of the financial liabilities entered into by the Group, the
interest rate exposure on gross bank and other borrowings is:
As at 31 December 2011:
US dollar
Swiss franc
Euro
Other
Gross bank and other borrowings
Less unamortised debt issue costs
Bank and other borrowings
As at 31 December 2010:
US dollar
Swiss franc
Euro
Other
Gross bank and other borrowings
Less unamortised debt issue costs
Bank and other borrowings
Fixed rate borrowings
Weighted
average
interest rate
%
5.1
5.9
Weighted
average
period
for which
rate is fixed
years
2.7
1.0
Fixed rate borrowings
Weighted
average
interest rate
%
5.1
5.9
Weighted
average
period
for which
rate is fixed
years
3.7
1.5
Floating
£’m
233.6
82.7
75.8
0.2
392.3
Fixed
£’m
482.6
–
0.2
–
482.8
(3.7)
(1.1)
388.6
481.7
Non-interest
bearing
£’m
–
–
3.8
–
3.8
–
3.8
Floating
£’m
192.9
93.1
0.6
2.0
288.6
Fixed
£’m
479.0
–
0.4
–
479.4
(2.6)
(1.0)
286.0
478.4
Non-interest
bearing
£’m
–
–
4.2
–
4.2
–
4.2
Total
£’m
716.2
82.7
79.8
0.2
878.9
(4.8)
874.1
Total
£’m
671.9
93.1
5.2
2.0
772.2
(3.6)
768.6
The weighted average period to maturity for non-interest bearing borrowings is 3.4 years (2010: 3.1 years).
30. Financial instruments
For cash and cash equivalents, trade and other receivables, trade and other payables, obligations under finance leases and the current portion
of bank and other borrowings, fair values approximate to their carrying values due to the short maturity periods of these financial instruments.
For trade and other receivables, allowances are made within the carrying value for credit risk. For other financial instruments, fair values are
based on market values, or where not available on discounting future cash flows at prevailing market rates, and by applying year end exchange
rates.
IFRS 7 ‘Financial Instruments: Disclosures’ requires the disclosure of financial assets and liabilities held at fair value using a hierarchy that
reflects the significance of the inputs used in making the fair value measurements. Derivative financial instruments measured at fair value in the
following table 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 value of the non-current portion of bank and other borrowings has 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 for which the
Group takes advice from a third party (credit risk). The non-current portion of bank and other borrowings, held at fair value, in the following table
is therefore classified as level 3 in the fair value measurement hierarchy.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
30. Financial instruments continued
As at 31 December 2011:
Financial assets
Non-current:
Trade and other receivables (see note 24)
Derivative financial instruments (see note 31)
Current:
Trade and other receivables*
Derivative financial instruments (see note 31)
Cash and cash equivalents (see note 25)
Financial liabilities
Current:
Trade and other payables**
Derivative financial instruments (see note 31)
Obligations under finance leases (see note 28)
Bank and other borrowings (see note 29)
Non-current:
Trade and other payables (see note 27)
Derivative financial instruments (see note 31)
Obligations under finance leases (see note 28)
Bank and other borrowings (see note 29)
Total
As at 31 December 2010:
Financial assets
Non-current:
Trade and other receivables (see note 24)
Derivative financial instruments (see note 31)
Current:
Trade and other receivables*
Derivative financial instruments (see note 31)
Cash and cash equivalents (see note 25)
Financial liabilities
Current:
Trade and other payables**
Derivative financial instruments (see note 31)
Obligations under finance leases (see note 28)
Bank and other borrowings (see note 29)
Non-current:
Trade and other payables (see note 27)
Derivative financial instruments (see note 31)
Obligations under finance leases (see note 28)
Bank and other borrowings (see note 29)
Total
85
Total
fair
value
£’m
114.7
39.7
306.6
4.1
94.6
559.7
(339.4)
(12.8)
(0.7)
(7.0)
(6.5)
(4.2)
(8.2)
(885.6)
Total
fair
value
£’m
88.6
12.0
229.5
6.2
51.9
388.2
(241.8)
(4.0)
(0.8)
(12.7)
(7.8)
(17.1)
(3.9)
(769.1)
(945.3)
(1,245.9)
(1,264.4)
515.9
(945.3)
(686.2)
(704.7)
Held at fair value
Held at amortised cost
Through
profit
& loss
£’m
Derivatives
used for
hedging
£’m
Loans &
receivables
Other
liabilities
£’m
£’m
Total
carrying
value
£’m
–
39.7
–
1.1
–
40.8
–
(10.3)
–
–
–
(4.2)
–
(283.6)
(298.1)
(257.3)
–
–
–
3.0
–
3.0
–
(2.5)
–
–
–
–
–
–
(2.5)
0.5
114.7
–
306.6
–
94.6
515.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(339.4)
–
(0.7)
(7.0)
(6.5)
–
(8.2)
(583.5)
114.7
39.7
306.6
4.1
94.6
559.7
(339.4)
(12.8)
(0.7)
(7.0)
(6.5)
(4.2)
(8.2)
(867.1)
Held at fair value
Held at amortised cost
Through
profit
& loss
£’m
Derivatives
used for
hedging
£’m
Loans &
receivables
Other
liabilities
£’m
£’m
Total
carrying
value
£’m
–
12.0
–
6.2
–
18.2
–
(4.0)
–
–
–
(12.3)
–
(265.6)
(281.9)
(263.7)
–
–
–
–
–
–
–
–
–
–
–
(4.8)
–
–
(4.8)
(4.8)
88.6
–
229.5
–
51.9
370.0
–
–
–
–
–
–
–
–
–
370.0
–
–
–
–
–
–
(241.8)
–
(0.8)
(12.7)
(7.8)
–
(3.9)
(490.3)
(757.3)
(757.3)
88.6
12.0
229.5
6.2
51.9
388.2
(241.8)
(4.0)
(0.8)
(12.7)
(7.8)
(17.1)
(3.9)
(755.9)
* Excludes prepayments and accrued income of £10.8 million (2010: £8.9 million) (see note 24).
** Excludes social security and other taxes of £10.0 million (2010: £8.1 million) (see note 26).
MEGGITT PLC REPORT AND ACCOUNTS 2011
(1,044.0)
(1,057.2)
(655.8)
(669.0)
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
86
Notes to the financial statements continued
Page heading
30. Financial instruments continued
The following table presents the changes in fair value of financial instruments classified as level 3 during the year:
Bank and other borrowings at fair value through profit and loss:
Opening balance
Exchange rate adjustments
Additions
Gains and losses recognised in net operating costs
Closing balance
31. Derivative financial instruments
As at 31 December 2011:
Interest rate swaps - cash flow hedges
Interest rate swaps - fair value hedges
Interest rate swaps - not hedge accounted
Cross currency swaps - net investment hedges
Foreign currency forward contracts - not hedge accounted
Total
Less non-current portion:
Interest rate swaps - fair value hedges
Foreign currency forward contracts - not hedge accounted
Non-current portion
Current portion
As at 31 December 2010:
Interest rate swaps - cash flow hedges
Interest rate swaps - fair value hedges
Interest rate swaps - not hedge accounted
Foreign currency forward contracts - not hedge accounted
Total
Less non-current portion:
Interest rate swaps - cash flow hedges
Interest rate swaps - fair value hedges
Interest rate swaps - not hedge accounted
Foreign currency forward contracts - not hedge accounted
Non-current portion
Current portion
Interest rate swaps
2011
£’m
2010
£’m
(265.6)
(2.6)
-
(15.4)
(283.6)
(35.2)
2.5
(224.0)
(8.9)
(265.6)
Contract or underlying
principal amount
Fair value
Assets
£’m
–
257.4
-
75.2
72.8
405.4
257.4
47.0
304.4
101.0
Liabilities
£’m
Assets
£’m
Liabilities
£’m
(112.6)
-
(80.4)
–
(143.0)
(336.0)
–
(35.9)
(35.9)
(300.1)
–
39.2
-
3.0
1.6
43.8
39.2
0.5
39.7
4.1
(2.5)
-
(1.8)
–
(12.7)
(17.0)
–
(4.2)
(4.2)
(12.8)
Contract or underlying
principal amount
Fair value
Assets
£’m
-
255.5
-
79.0
334.5
-
255.5
-
27.2
282.7
51.8
Liabilities
£’m
Assets
£’m
Liabilities
£’m
(111.8)
-
(79.8)
(137.2)
(328.8)
(111.8)
-
(79.8)
(102.2)
(293.8)
(35.0)
-
10.9
-
7.3
18.2
-
10.9
-
1.1
12.0
6.2
(4.8)
-
(3.4)
(12.9)
(21.1)
(4.8)
-
(3.4)
(8.9)
(17.1)
(4.0)
The total notional principal amount of outstanding interest rate swap contracts at 31 December 2011 is £450.4 million (2010: £447.1 million), of
which £193.0 million will expire in 2012, £64.3 million will expire in 2017, £112.6 million will expire in 2020 and £80.5 million will expire in 2022. The
contracts are all denominated in USD. Of the notional principal amount outstanding, £193.0 million (2010: £191.6 million) has the economic effect
of converting floating rate US dollar borrowings into fixed rate US dollar borrowings and £257.4 million (2010: £255.5 million) has the economic
effect of converting fixed rate US dollar borrowings into floating rate US dollar borrowings. To the extent they meet the criteria for hedge
accounting, the floating rate to fixed rate swap contracts are accounted for as cash flow hedges and the fixed to floating rate contracts as fair
value hedges.
Cross currency swaps
Cross currency swaps are used to synthetically convert US dollar denominated borrowings into Euro denominated borrowings to hedge against
Euro denominated assets of overseas subsidiaries. To the extent they meet the criteria for hedge accounting, swaps are accounted for as net
investment hedges.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
31. Derivative financial instruments continued
Foreign currency forward contracts
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 IAS 39 (‘Financial Instruments: Recognition and
Measurement’) are not merited.
2011
Assets
£’m
2011
Liabilities
£’m
2010
Assets
£’m
2010
Liabilities
£’m
87
Fair value:
US dollar forward sales (USD/£)
Forward sales denominated in other currencies
Total
Credit quality of derivative financial assets
The credit quality of derivative financial assets is as follows:
AA
A
BBB
Total
32. Provisions
At 1 January 2011
Exchange rate adjustments
Businesses acquired (see note 42)
Transfers (to)/from trade and other payables – non-current
Charge to income statement – cost of sales
Charge to income statement – net operating costs
Charge to income statement – finance costs (see note 13)
Utilised
At 31 December 2011
Current
Non-current
At 31 December 2011
1.0
0.6
1.6
(9.3)
(3.4)
(12.7)
1.5
5.8
7.3
2011
£’m
13.8
21.9
8.1
43.8
Environmental
legal & regulatory
(a)
£’m
Onerous
contracts
(b)
£’m
Warranty
costs
(c)
£’m
136.2
2.9
20.2
–
–
35.7
1.1
(10.9)
185.2
6.7
1.4
40.2
(0.1)
0.4
0.4
–
(4.9)
44.1
13.1
0.5
9.4
0.9
2.5
–
–
(4.9)
(12.8)
(0.1)
(12.9)
2010
£’m
7.8
10.4
-
18.2
Total
£’m
156.0
4.8
69.8
0.8
2.9
36.1
1.1
(20.7)
21.5
250.8
2011
£’m
50.6
200.2
250.8
2010
£’m
40.7
115.3
156.0
a) Provision has been made for known exposures arising from environmental, health and safety, product liability matters, legal proceedings
and contractual disputes in a number of businesses. The Group’s operations and facilities are subject to laws and regulations that govern
the discharge of pollutants and hazardous substances into the ground, air and water as well as the handling, storage and disposal of such
materials and other environmental matters. Failure to comply with its obligations potentially exposes the Group to serious consequences,
including fines, other sanctions and limitations on operations. The Group is involved in the investigation and remediation of current and
former sites for which it has been identified as a potentially responsible party under US law. Provision has been made for the expected costs
arising from these sites based on information currently available. A receivable has been established to the extent these costs are recoverable
under the Group’s environmental insurance policies or from other parties. During the year an increase of £28.2 million (2010: £66.3 million)
in amounts recoverable from insurers was recognised within other receivables and credited to operating profit. A number of asbestos-
related claims have been made against subsidiary companies of the Group. To date, the amount connected with such claims in any year has
not been material and many claims are covered fully or partly by existing insurance and indemnities. There is a provision for claims which
cannot be recovered from insurers. The US Government is investigating alleged violations of US export control laws by four US subsidiaries
and one UK subsidiary of the Group. These investigations are likely to lead to financial penalties and the imposition of corrective measures
for which provision has been made. The provisions are expected to be substantially utilised over the next ten years and are discounted, where
appropriate, using a discount rate appropriate to each provision.
b) Onerous contracts include lease obligations and trading contracts. Provision has been set up for the estimated rental shortfall in respect of
properties with onerous lease obligations. These will be utilised over the lease terms typically up to five years and are discounted using a
discount rate appropriate to each provision. Provision has also been set up for the estimated losses to be made under certain trading contracts.
These are expected to be substantially utilised over the next ten years.
c) Provision has been made for product warranty claims. These provisions are expected to be utilised over the next three years.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
88
Notes to the financial statements continued
Page heading
33. Deferred tax
Movements in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax
jurisdiction, are as follows:
Deferred tax assets
Other
Total
At 1 January 2010
Exchange rate adjustments
Reclassifications
(Charged)/credited to income statement (see note 14)
Credited/(charged) to other comprehensive income (see note 14)
Credited to equity (see note 14)
At 31 December 2010
Exchange rate adjustments
Businesses acquired (see note 42)
Reclassifications
Charged to income statement (see note 14)
Credited/(charged) to other comprehensive income (see note 14)
Credited to equity (see note 14)
At 31 December 2011
Deferred tax liabilities
At 1 January 2010
Exchange rate adjustments
(Charged)/credited to income statement (see note 14)
At 31 December 2010
Exchange rate adjustments
Businesses acquired (see note 42)
(Charged)/credited to income statement (see note 14)
At 31 December 2011
*Acquired in business combinations.
Retirement
benefit
obligations
£’m
93.6
1.8
–
(7.0)
0.6
-
89.0
0.5
0.6
–
(7.3)
18.9
–
101.7
£’m
6.6
(0.2)
(4.3)
4.6
(6.1)
2.6
3.2
0.6
23.3
(1.1)
(6.6)
(1.2)
0.9
19.1
Accelerated
tax
depreciation
£’m
Intangible
assets
(*)
£’m
(11.1)
(0.2)
(0.1)
(11.4)
(0.3)
(1.9)
(5.2)
(311.7)
(8.2)
14.5
(305.4)
(1.1)
(13.8)
14.0
£’m
100.2
1.6
(4.3)
(2.4)
(5.5)
2.6
92.2
1.1
23.9
(1.1)
(13.9)
17.7
0.9
120.8
Total
£’m
(322.8)
(8.4)
14.4
(316.8)
(1.4)
(15.7)
8.8
(18.8)
(306.3)
(325.1)
Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same tax authority. The balances after allowing for such offsets are as follows:
Deferred tax assets
Deferred tax liabilities
Net balance at 31 December
Deferred tax assets are analysed as follows:
To be recovered within 12 months
To be recovered after more than 12 months
Total
Deferred tax liabilities are analysed as follows:
Falling due within 12 months
Falling due after more than 12 months
Total
2011
£’m
112.5
(316.8)
(204.3)
2011
£’m
0.9
111.6
112.5
2011
£’m
(0.4)
(316.4)
(316.8)
2010
£’m
105.0
(329.6)
(224.6)
2010
£’m
2.9
102.1
105.0
2010
£’m
(3.7)
(325.9)
(329.6)
The Group has unrecognised deferred tax assets of £28.1 million (2010: £20.9 million). The majority relate to the Group’s operations in the US
together with unutilised losses. Deferred tax assets have not been recognised in respect of these items, as it is not regarded as more likely than
not that they will be recovered. Deferred tax assets not recognised would be recoverable in the event that they reverse and suitable taxable profits
are available. No provision has been made for taxation that would arise in the event of foreign subsidiaries distributing their reserves as these
amounts are retained for investment in the businesses. The aggregate unrecognised deferred tax liability in respect of such unremitted earnings
is £Nil (2010: £Nil).
MEGGITT PLC REPORT AND ACCOUNTS 2011
89
Page heading
continued
34. Retirement benefit obligations
Pension schemes
The Group operates a number of pension schemes for the benefit of its employees. The nature of each scheme which has a significant impact on
the financial statements is as follows:
• In the UK, the Group operates a funded defined benefit scheme which is closed to new members;
• In the US, the Group operates a number of defined benefit schemes, all of which are closed to new members. The US schemes are a mixture of
funded and unfunded plans;
• In Switzerland, the Group operates a funded defined benefit scheme.
The assets of all defined benefit schemes are held in trust funds separate from the Group’s finances. The Group also operates a number of defined
contribution schemes.
Healthcare schemes
The Group has two principal other post-retirement benefit schemes providing medical and life assurance benefits, covering certain employees,
and former employees, of Meggitt Aircraft Braking Systems Corporation and Meggitt (Rockmart), Inc. These schemes are unfunded.
Amounts recognised in the income statement
In respect of:
Defined contribution pension schemes
Defined benefit pension schemes
Service cost
Past service cost
Expected return on scheme assets
Interest cost
Total cost of defined benefit pension schemes
Healthcare schemes
Service cost
Past service credit*
Interest cost
Total credit in respect of healthcare schemes
Total charge
2011
£’m
2010
£’m
14.7
11.0
11.4
0.5
(35.5)
37.5
13.9
0.8
(3.4)
2.5
(0.1)
28.5
10.5
1.3
(32.0)
38.5
18.3
1.0
(9.5)
3.3
(5.2)
24.1
* During 2010, the Group reached agreement with certain employees in the US whereby the Group’s contribution to post-retirement medical costs is
frozen at 2011 levels. During 2011, the number of healthcare plans made available to employees was reduced. The reductions in scheme liabilities
arising from these changes have been recorded as past service credits.
Of the total charge, £24.0 million (2010: £14.3 million) has been charged to operating profit (see note 9), of which £15.6 million (2010: £10.3 million)
has been included in cost of sales and £8.4 million (2010: £4.0 million) in net operating costs. The remaining £4.5 million (2010: £9.8 million) is
included in net finance costs (see notes 12 and 13).
Amounts recognised in the balance sheet
Fair value of scheme assets
Present value of scheme liabilities
Retirement benefit obligations
Fair value of scheme assets
Present value of scheme liabilities
Retirement benefit obligations
2011
UK
pension
scheme
£’m
381.1
(538.5)
Overseas
pension
schemes
£’m
203.8
(311.8)
(157.4)
(108.0)
Overseas
healthcare
schemes
£’m
–
(54.5)
(54.5)
UK
pension
scheme
£’m
370.6
(481.4)
(110.8)
2010
Overseas
pension
schemes
£’m
197.3
(297.0)
(99.7)
Overseas
healthcare
schemes
£’m
–
(54.6)
(54.6)
Total
£’m
584.9
(904.8)
(319.9)
Total
£’m
567.9
(833.0)
(265.1)
Of the total deficit of £319.9 million (2010: £265.1 million), £67.8 million (2010: £69.8 million) is in respect of unfunded schemes.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
90
Notes to the financial statements continued
Page heading
34. Retirement benefit obligations continued
Analysis of scheme assets
Equities
Hedge funds
Commodities
Property
Corporate bonds
Government bonds
Other assets
Total
Equities
Hedge funds
Commodities
Property
Corporate bonds
Government bonds
Other assets
Total
UK pension scheme
Overseas pension schemes
Total
2011
%
46.2
8.3
4.9
–
14.9
24.1
1.6
100.0
Expected
return %
7.50
7.50
7.50
N/A
4.70
2.80
2.80
5.87
Expected
return %
9.50
7.50
7.50
7.50
5.00
3.50
4.80
7.13
£’m
275.4
34.0
20.7
11.2
108.0
126.4
9.2
584.9
£’m
99.2
2.3
2.3
11.2
51.1
34.4
3.3
%
48.7
1.1
1.1
5.5
25.1
16.9
1.6
203.8
100.0
2010
UK pension scheme
Overseas pension schemes
Total
%
51.1
8.9
5.4
–
11.1
21.9
1.6
100.0
Expected
return %
7.70
7.70
7.70
N/A
5.40
4.20
3.40
6.61
£’m
96.6
2.7
2.2
8.4
45.2
35.3
6.9
%
49.0
1.4
1.1
4.2
22.9
17.9
3.5
197.3
100.0
Expected
return %
9.75
7.70
7.70
7.70
5.50
4.25
3.30
7.43
£’m
285.9
35.7
22.3
8.4
86.4
116.4
12.8
567.9
£’m
176.2
31.7
18.4
–
56.9
92.0
5.9
381.1
£’m
189.3
33.0
20.1
–
41.2
81.1
5.9
370.6
%
47.1
5.8
3.5
1.9
18.5
21.6
1.6
100.0
%
50.3
6.3
3.9
1.5
15.2
20.5
2.3
100.0
The schemes have no investments in any assets of the Group.
To develop the expected long-term rate of return on assets assumption, the Group considered the current level of expected returns on risk free
investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in the investment
portfolio and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the
target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.
Changes in the fair value of scheme assets
Fair value of scheme assets at 1 January
Exchange rate adjustments
Businesses acquired (see note 42)
Expected return on scheme assets (see note 12)
Contributions – Group
Contributions – Members
Benefits paid
Actuarial (losses)/gains
Fair value of scheme assets at 31 December
The actual return on scheme assets was a gain of £10.3 million (2010: Gain of £53.7 million).
Financial assumptions used to calculate scheme liabilities
2011
£’m
567.9
1.9
0.2
35.5
38.4
3.9
(37.7)
(25.2)
584.9
2010
£’m
504.2
11.4
–
32.0
34.6
3.3
(39.3)
21.7
567.9
UK
pension
scheme
4.70%
3.00%
2.20%
2.90%
4.00%
2011
Overseas
pension
schemes
4.65%
N/A
N/A
N/A
4.00%
Overseas
healthcare
schemes
4.65%
N/A
N/A
N/A
N/A
UK
pension
scheme
5.40%
3.30%
2.80%
3.30%
4.30%
2010
Overseas
pension
schemes
5.25%
N/A
N/A
N/A
4.00%
Overseas
healthcare
schemes
5.25%
N/A
N/A
N/A
N/A
Discount rate
Inflation rate
Increases to deferred benefits during deferment*
Increases to pensions in payment*
Salary increases
* To the extent not overridden by specific scheme rules.
MEGGITT PLC REPORT AND ACCOUNTS 2011
91
Page heading
continued
34. Retirement benefit obligations continued
In determining the fair value of scheme liabilities, the Group uses mortality assumptions which are based on published mortality tables adjusted
to reflect the characteristics of the scheme populations. The Group’s mortality assumptions in the UK are based on recent mortality
investigations of Self Administered Pension Schemes adjusted to reflect the profile of the membership of the Plan. Allowance has also been made
for rates of mortality to continue to fall in the medium-term and that in the long-term, rates of mortality will continue to fall at the rate of 1% per
annum. In the US mortality assumptions are based on the RP2000 IRS RPA tables.
Member age 45 (life expectancy at age 65) – male
Member age 45 (life expectancy at age 65) – female
Member age 65 (current life expectancy) – male
Member age 65 (current life expectancy) – female
2011
2010
UK
scheme
years
Overseas
schemes
years
UK
scheme
years
Overseas
schemes
years
23.9-26.4
26.7-28.0
22.0-24.6
24.8-26.0
19.1
20.9
19.1
20.9
23.8-26.3
26.6-27.9
21.9-24.5
24.7-25.9
19.0
20.9
19.0
20.9
Details on the sensitivity of scheme liabilities to changes in assumptions are provided below:
• The impact of a 10 basis point reduction in discount rate would cause scheme liabilities at 31 December 2011 to increase by approximately
£13.5 million;
• The impact of a 10 basis point increase in inflation rate would cause scheme liabilities at 31 December 2011 to increase by approximately
£9.5 million;
• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December 2011 to
increase by approximately £24.0 million.
Changes in the present value of scheme liabilities
Present value of scheme liabilities at 1 January
Exchange rate adjustments
Businesses acquired (see note 42)
Service cost
Past service credit
Interest cost (see note 13)
Contributions – Members
Benefits paid
Actuarial losses
Present value of scheme liabilities at 31 December
Cumulative losses recognised in other comprehensive income
As at 1 January
Actuarial losses
Deferred tax credit
Net actuarial losses
As at 31 December
2011
£’m
833.0
3.0
1.9
12.2
(2.9)
40.0
3.9
(37.7)
51.4
904.8
2011
£’m
(87.7)
(76.6)
18.9
(57.7)
2010
£’m
784.7
16.0
–
11.5
(8.2)
41.8
3.3
(39.3)
23.2
833.0
2010
£’m
(87.0)
(1.5)
0.6
(0.9)
(145.4)
(87.9)
History of experience gains and losses and retirement benefit obligations
Experience adjustments on scheme assets:
(Loss)/gain
Percentage of scheme assets
Experience adjustments on scheme liabilities:
Gain/(loss)
Percentage of scheme liabilities
Fair value of scheme assets
Present value of scheme liabilities
Scheme deficits
2011
£’m
(25.2)
(4.3%)
3.7
0.4%
584.9
(904.8)
(319.9)
2010
£’m
21.7
3.8%
(5.0)
(0.6%)
567.9
(833.0)
(265.1)
2009
£’m
46.1
9.1%
3.0
0.4%
504.2
(784.7)
(280.5)
2008
£’m
2007
£’m
(115.0)
(25.4%)
(4.9)
(0.7%)
451.9
(693.1)
(241.2)
(8.7)
(1.8%)
22.1
3.5%
471.4
(624.7)
(153.3)
The estimated Group contributions expected to be paid to the schemes during 2012 are £38.4 million.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
92
Notes to the financial statements continued
Page heading
35. Share capital and share schemes
Issued share capital
Allotted and fully paid:
At 1 January 2010
Issued on exercise of executive share options
Issued on exercise of sharesave options
Scrip dividends
At 31 December 2010
Equity placing
Issued on exercise of executive share options
Issued on exercise of sharesave options
Scrip dividends
At 31 December 2011
Ordinary
shares of
5p each
No.‘m
Nominal
Net
value consideration
£’m
£’m
685.3
1.7
0.6
10.4
698.0
69.8
2.4
1.1
7.5
778.8
34.3
0.1
–
0.5
34.9
3.5
0.1
–
0.4
38.9
3.6
1.0
29.5
246.0
1.7
1.8
25.2
From 1 October 2009, the Companies Act 2006 abolished the requirement for a company to have an authorised share capital. On 21 April 2010 the
Company adopted new Articles of Association by special resolution, which had the effect of removing the authorised share capital of the Company.
Share Options
Year of grant
Meggitt 1998 Sharesave Scheme
2005
2006
2006
Meggitt 2008 Sharesave Scheme
2008
2008
2008
2010
2010
2010
Meggitt 1996 No 1 Executive Share Option Scheme
2004
Meggitt Executive Share Option Scheme 2005 Part A
2005
2006
2007
2007
2008
2009
2010
2011
2011
No. of
ordinary shares
under option
Exercise
price
per share
Exercise period
From
To
164,731
38,344
50,669
25,111
593,989
81,640
470,045
500,320
59,537
188.76p
203.18p
203.18p
171.40p
171.40p
171.40p
222.35p
222.35p
222.35p
01.06.12
01.12.11
01.12.13
01.11.11
01.11.13
01.11.15
01.11.13
01.11.15
01.11.17
30.11.12
31.05.12
31.05.14
30.04.12
30.04.14
30.04.16
30.04.14
30.04.16
30.04.18
17,200
174.40p
01.04.07
31.03.14
256,352
24,959
32,306
10,152
26,031
76,416
60,469
142,738
8,683
278.65p
263.67p
299.00p
295.50p
252.50p
169.50p
286.10p
351.70p
345.50p
10.10.08
27.09.09
29.03.10
16.04.10
25.03.11
30.04.12
12.03.13
02.03.14
17.08.14
09.10.15
26.09.16
28.03.17
15.04.17
24.03.18
29.04.19
11.03.20
01.03.21
16.08.21
All the above options, which were granted for nil consideration, may in certain circumstances, be exercised earlier than the dates given. The
weighted average remaining contractual life of outstanding options is 3.7 years (2010: 3.2 years).
Share Appreciation Rights – Equity-settled
Year of grant
Meggitt Executive Share Option Scheme 2005 Part B
2005
2006
2006
2007
2007
2008
2008
2009
2010
2011
2011
Indicative
number of shares
to be released*
Number of
ordinary shares
under award
Exercise
price
per share
Exercise period
From
To
230,929
423,923
14,475
257,545
5,771
667,319
284,318
2,141,288
862,547
12,547
12,182
1,098,742
1,677,998
61,108
1,688,882
35,533
2,347,259
674,108
4,121,367
4,562,317
4,024,227
588,746
278.65p
263.67p
269.23p
299.00p
295.50p
252.50p
204.00p
169.50p
286.10p
351.70p
345.50p
10.10.08
27.09.09
09.10.09
29.03.10
16.04.10
25.03.11
07.08.11
30.04.12
12.03.13
02.03.14
17.08.14
09.10.15
26.09.16
08.10.16
28.03.17
15.04.17
24.03.18
06.08.18
29.04.19
11.03.20
01.03.21
16.08.21
*Based on indicative share price of 352.80p, the share price as at 31 December 2011.
All the above share appreciation rights, which were granted for nil consideration, may in certain circumstances, be exercised earlier than the
dates given. The weighted average remaining contractual life of outstanding share appreciation rights is 7.2 years (2010: 7.5 years).
MEGGITT PLC REPORT AND ACCOUNTS 2011
93
Page heading
continued
36. Share-based payment
The Group operates a number of share schemes for the benefit of its employees. The total expense recorded in the income statement for the year
in respect of such schemes was £8.4 million (2010: £14.3 million) (see note 9). The nature of each scheme which has a significant impact on the
expense recorded in the income statement is set out below.
Meggitt 1996 No 1 & No 2 Executive Share Option Schemes and Executive Share Option Scheme 2005
Equity-settled
Share options are granted to certain senior executives at an option price equal to the market price of the shares on the date the grant is made. The
options are generally exercisable at the earliest three years after the grant is made. Options can only be exercised if the Group meets an earnings
per share performance condition. The Group has no obligation, legal or constructive, to settle the options in cash. Awards under Part A of the
schemes provide for the executive on exercise to be entitled, on payment of the option price, to the number of shares under option. Awards under
Part B of the schemes are in the form of equity-settled share appreciation rights (SAR’s) and provide for the executive on exercise to be entitled to
receive equity equivalent to the gain in value between the option price and the market price on the date of exercise.
An expense of £2.7 million (2010: £3.2 million) was recorded in the year. Movements in the number of outstanding awards and their related
weighted average option prices are as follows:
At 1 January
Granted
Lapsed
Exercised
At 31 December
2011
Average
option
price
Pence
247.34
350.88
283.83
247.83
270.11
2011
Number of
awards
outstanding
‘m
19.5
4.9
(0.3)
(2.6)
21.5
2010
Average
option
price
Pence
232.91
286.10
227.15
224.73
247.34
2010
Number of
awards
outstanding
‘m
17.5
4.9
(0.6)
(2.3)
19.5
As at 31 December 2011, of the total number of awards outstanding, 8.0 million (2010: 6.5 million) are exercisable at an average exercise price of
265.60 pence (2010: 274.67 pence). The fair values of the awards made in the year were determined using the Black-Scholes option pricing model.
The significant assumptions used in the model and the fair values determined were:
Share price at date of grant (pence)
Option price (pence)
Vesting period (years)
Expected volatility
Expected life of option (years)
Risk free rate
Expected dividend yield
Fair value at date of award (pence)
2011
Award in
August
345.50
345.50
3.0
37%
5.0
1.61%
3.29%
86.40
2011
Award in
March
351.70
351.70
3.0
38%
5.0
2.45%
3.29%
92.98
2010
Award in
March
286.10
286.10
3.0
36%
5.0
2.75%
3.10%
74.74
Expected volatility figures are based on volatility over the last five years measured using a statistical analysis of daily share prices. Awards may
be exercised at any point between the vesting date and ten years after the date the award was made.
Cash-settled
Under the terms of the Meggitt Executive Share Option Scheme 2005, the Group may grant cash-settled SAR’s to certain overseas employees.
The Group is required to pay the intrinsic value of the SAR’s to the employee at the date of exercise. A charge of £0.5 million (2010: £6.4 million)
was recorded in the year. The Group has recorded a liability at the balance sheet date of £6.6 million (2010: £8.4 million). The total intrinsic value
at the balance sheet date was £6.8 million (2010: £10.1 million).
Movements in the number of outstanding cash-settled SAR’s and their related weighted average option prices are as follows:
At 1 January
Granted
Lapsed
Exercised
At 31 December
2011
Average
option
price
Pence
243.05
350.29
243.74
256.52
252.59
2011
Number of
SAR’s
outstanding
‘m
8.2
0.9
(0.4)
(1.9)
6.8
2010
Average
option
price
Pence
242.70
286.10
221.91
269.38
243.05
2010
Number of
SAR’s
outstanding
‘m
9.2
0.6
(0.4)
(1.2)
8.2
As at 31 December 2011, of the total number of awards outstanding, 4.0 million (2010: 2.9 million) are exercisable at an average exercise price of
255.13 pence (2010: 283.07 pence). The fair value of each cash-settled SAR was determined at the grant date using the Black-Scholes model and
reflects the same assumptions used for equity-settled awards as disclosed above. As a cash-settled award, the fair value of outstanding SAR’s is
remeasured at each balance sheet date.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
94
Notes to the financial statements continued
Page heading
36. Share-based payment continued
Meggitt Equity Participation Plan 2005
Under the Meggitt Equity Participation Plan 2005, an annual award of shares may be made to certain senior executives. For awards made in 2011,
the number of shares, if any that an executive ultimately receives, depends on three performance conditions:
• An earnings per share (EPS) measure (50% of the award);
• A cash flow measure (25% of the award); and
• Total Shareholder Return (TSR) achieved by the Group as measured against a comparator group selected by the Remuneration Committee (25%
of the award).
Each of the conditions is measured over a three year performance period. For awards made between 2008 and 2010, 50% of the award was based
on an EPS measure and 50% on a TSR condition. For awards made in 2007, vesting depended solely on a TSR condition. An expense of £4.6 million
(2010: £4.3 million) was recorded in the year. Movements in the number of outstanding shares that may potentially be released to employees are
as follows:
At 1 January
Awarded
Lapsed
Released to employees
At 31 December
2011
No. of
shares
under award
outstanding
‘m
2010
No. of
shares
under award
outstanding
‘m
5.9
4.6
(1.1)
(1.1)
8.3
7.7
-
(1.8)
-
5.9
As at 31 December 2011, none of the shares under award are eligible for release (2010: Nil).
The fair value of the awards made in 2011, which were subject to the EPS and cashflow performance conditions, were 345.00 pence and 351.50
pence respectively. The fair value of the awards made in 2011, which were subject to the TSR performance condition, were determined using a
Monte Carlo model. The significant assumptions used in the model and the fair values determined were:
Share price at date of grant (pence)
Vesting period (years)
Expected volatility
Expected life of award (years)
Risk free rate
Fair value at date of award (pence)
No awards were made in 2010.
37. Own shares
2011
Award in
August
345.00
3.0
41%
3.0
0.82%
241.00
2011
Award in
April
351.50
2.3
36%
3.0
1.30%
217.00
Own shares represents shares in the Company that are held by an independently managed Employee Share Ownership Plan Trust (‘the trust’)
formed to purchase shares to be used to meet certain of the Company’s future obligations in respect of employee share schemes as described in
the Remuneration Report on pages 47 to 54.
At 31 December 2011 the trust held 111,335 ordinary shares (2010: 727,247 shares) all of which were allocated to the Deferred Share Bonus Plan
(2010: 718,027 shares) and none were unallocated (2010: 9,220 shares). The shares were purchased during 2010 and had a cost of £0.3 million at
31 December 2011 (2010: £2.1 million).
The market value of the shares at 31 December 2011 was £0.4 million (2010: £2.7 million) representing 0.1% of the issued share capital of the
Company (2010: 0.1%). The Group retains the full benefit of 26,545 of the shares in the Deferred Share Bonus Plan until such time as awards are
released to participating employees (2010: 135,909 shares). The Group has no benefit accruing to it over the remaining 84,790 shares in the
Deferred Share Bonus Plan (2010: 582,118 shares).
38. Contingent liabilities
The Company has given guarantees in respect of credit facilities for certain of its subsidiaries, some property leases, other leasing arrangements
and the performance by some current and former subsidiaries of certain contracts. Also, there are similar guarantees given by certain other
Group companies. The fair value of these guarantees is not considered to be significant.
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.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
39. Contractual commitments
Capital commitments
Contracted for but not incurred:
Intangible assets
Property, plant & equipment
Total
Operating lease commitments
95
2011
£’m
0.9
6.9
7.8
2010
£’m
0.5
4.3
4.8
The Group leases various factories, warehouses and offices under non-cancellable operating leases. These leases have various lease periods,
escalation clauses and renewal rights. Additionally the Group also leases various items of plant and machinery under cancellable operating
leases. The expenditure on operating leases is charged to the income statement as incurred and is disclosed in note 7.
The future aggregate minimum lease payments under non–cancellable operating leases are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
Total
Other financial commitments
2011
£’m
11.6
27.6
11.2
50.4
2010
£’m
11.0
27.1
16.4
54.5
The Group enters into long-term arrangements with Aircraft and Original Equipment Manufacturers to design, develop and supply products to
them for the life of the aircraft. This represents a significant long-term financial commitment for the Group and requires the consideration of a
number of uncertainties including the feasibility of the product and the ultimate commercial viability over a period which can extend over 40 years.
The directors are satisfied that, at this time, there are no significant contingent liabilities arising from these commitments.
40. Cash inflow from operations
Profit for the year
Adjustments for:
Tax (see note 14)
Depreciation (see note 22)
Amortisation (see notes 20 and 21)
(Profit)/loss on disposal of property, plant & equipment
Finance income (see note 12)
Finance costs (see note 13)
Financial instruments (see note 10)
Retirement benefit obligation deficit payments
Share-based payment expense (see note 36)
Changes in working capital:
Inventories
Trade and other receivables
Trade and other payables
Provisions
Cash inflow from operations
41. Major non-cash transactions
2011
£’m
184.9
41.1
32.2
111.9
(2.0)
(36.9)
73.4
(9.7)
(26.2)
8.4
6.4
(59.0)
35.9
18.3
2010
£’m
138.8
33.7
28.8
96.6
0.2
(33.6)
81.2
3.2
(23.1)
14.3
4.7
(77.7)
3.4
45.3
378.7
315.8
During the year Meggitt PLC issued 7.5 million shares worth £25.2 million in respect of scrip dividends (2010: 10.4 million shares worth £29.5
million) (see notes 17 and 35).
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
96
Notes to the financial statements continued
Page heading
42. Business combinations
On 21 April 2011 the Group acquired Pacific Scientific Aerospace (‘PacSci’) from Danaher Corporation. The acquisition comprised 100% of the
voting rights of Pacific Scientific Company, Artus SAS, Linear Motion LLC, OECO Holdings LLC, Securaplane Technologies Inc and Sunbank Family
of Companies LLC. Each of the acquired entities is incorporated in the USA with the exception of Artus SAS, which is incorporated in France. The
Group also acquired, in the UK and Germany, certain assets and liabilities used in connection with the PacSci business. The acquisition adds fire
and smoke suppression capabilities to the Group’s existing product portfolio, creating a leading integrated fire and smoke detection and
suppression offering and will enhance the Group’s electric solutions offering as aircraft of the future move away from hydraulic/pneumatic
technology and towards electric power. The acquisition also strengthens the Group’s portfolio of sensors and anti-icing products and enhances
the Group’s low cost manufacturing capability with the addition of factories in Mexico and Vietnam.
The assets and liabilities of PacSci on 21 April 2011, including goodwill arising on consolidation, were as follows:
Notes
Fair value
£’m
Non-current assets
Goodwill
Development costs
Other intangible assets
Property, plant and equipment
Trade and other receivables
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax recoverable
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Bank and other borrowings
Provisions
Net current assets
Non-current liabilities
Trade and other payables
Deferred tax liabilities
Provisions
Retirement benefit obligations
Total liabilities
Net assets
The fair value of consideration payable in respect of PacSci is as follows:
Cash paid on acquisition
Less amounts recoverable under working capital mechanism
Total consideration payable in respect of PacSci
19
20
21
22
33
32
33
32
34
232.6
2.4
187.7
23.7
4.2
23.2
473.8
42.7
34.1
0.7
0.5
78.0
551.8
(49.8)
(0.1)
(7.6)
(57.5)
20.5
(0.7)
(15.0)
(62.2)
(1.7)
(79.6)
(137.1)
414.7
2011
£’m
417.1
(2.4)
414.7
Goodwill is attributable to the profitability of the acquired businesses and expected future synergies arising following the acquisition.
Trade and other receivables had a fair value at acquisition of £38.3 million. The gross contractual amounts receivable at acquisition were £39.3
million, the difference of £1.0 million is the best estimate of the contractual cash flows not expected to be collected.
For the period from acquisition to 31 December 2011, PacSci contributed revenue of £189.6 million, underlying operating profit of £38.2 million and
an operating loss of £3.0 million to the Group’s results. Had PacSci been consolidated from 1 January 2011, the Group’s consolidated income
statement for the year ended 31 December 2011 would show revenue of £258.6 million, underlying operating profit of £45.4 million and operating
profit of £4.2 million.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
42. Business combinations (continued)
Costs related to the acquisition were £7.3 million, of which £6.0 million were incurred in the current year and £1.3 million in the prior year. These
costs have been treated as an exceptional operating item (note 11).
Total consideration paid in respect of acquisitions during the year is as follows:
97
Cash paid in respect of PacSci
Cash paid in respect of acquisitions in earlier years
Total consideration paid
43. Group companies
2011
£’m
417.1
1.0
418.1
2010
£’m
-
-
-
The following information is not a complete listing of all subsidiary companies at 31 December 2011 and relates only to those subsidiaries
principally affecting the profits or assets of the Group.
United Kingdom
Dunlop Limited‡
Dunlop Aerospace Group Limited‡
Dunlop Aerospace Holdings Limited‡
Meggitt Aerospace Holdings Limited‡
Meggitt Finance Limited‡
Meggitt Properties PLC‡
Continental Europe
Artus SAS – France
Meggitt Holdings (France) SNC - France
Meggitt SA – Switzerland
North America
Joslyn Sunbank Company LLC
Meggitt Aircraft Braking Systems Corporation
Meggitt GP Inc‡
Meggitt Oregon, Inc
Meggitt Training Systems Inc
Meggitt-USA Holdings LLC‡
Meggitt (Maryland), Inc
Meggitt (North Hollywood), Inc
Meggitt (San Juan Capistrano), Inc
Meggitt (Troy), Inc
OECO LLC
Securaplane Technologies Inc
Dunlop Holdings Limited‡
Dunlop Aerospace Overseas Limited‡
Meggitt Aerospace Limited
Meggitt International Holdings Limited*‡
Meggitt International Limited‡
Meggitt (UK) Limited
Meggitt Acquisition (France) SAS - France‡
Meggitt (France) SAS – France
Piher Sensors & Controls SA – Spain
Linear Motion LLC
Meggitt Defense Systems, Inc
Meggitt Holdings (USA) Inc‡
Meggitt Safety Systems Inc
Meggitt-USA, Inc‡
Meggitt (Addison), Inc
Meggitt (New Hampshire), Inc
Meggitt (Rockmart), Inc
Meggitt (Simi Valley), Inc
NASCO Aircraft Brake Inc
Pacific Scientific Company
Whittaker Corporation‡
Rest of World
Meggitt Aerospace Asia Pacific Pte Limited – Singapore
Meggitt (Xiamen) Sensors & Controls Co Limited – China
i)
United Kingdom companies listed above are incorporated and registered in England and Wales. North American companies listed above
are incorporated and registered in the United States of America. Other companies above are incorporated in the country named.
ii) The ordinary shares of all subsidiaries were 100% owned by Meggitt PLC, either directly or indirectly, at 31 December 2011.
iii) All companies listed above are included in the consolidation.
iv) The company marked * is a direct subsidiary of Meggitt PLC.
v)
Companies marked ‡ are management companies. Otherwise all companies are operating companies engaged in the Group’s principal
activities as described in the Report of the Directors on page 39.
A full list of subsidiary companies will be annexed to the next annual return to the Registrar of Companies.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
98
Independent auditors’ report to the members of Meggitt PLC
We have audited the parent company financial statements of Meggitt
PLC for the year ended 31 December 2011 which comprise the
Company balance sheet and the related notes. The financial reporting
framework that has been applied in their preparation is applicable law
and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set
out on page 42, the directors are responsible for the preparation of the
parent company financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit the parent
company financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the
parent company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the
financial statements. In addition, we read all the financial and
non-financial information in the Meggitt PLC Annual report and
accounts to identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our
report.
Opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the company’s affairs as at 31
December 2011;
• have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
Opinion on other matters prescribed by the Companies
Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act 2006;
and
• the information given in the Directors’ Report for the financial year
for which the parent company financial statements are prepared is
consistent with the parent company financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit.
Other matter
We have reported separately on the group financial statements of
Meggitt PLC for the year ended 31 December 2011.
John Maitland (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
5 March 2012
MEGGITT PLC REPORT AND ACCOUNTS 2011
Company balance sheet
As at 31 December 2011
Fixed assets
Tangible fixed assets
Derivative financial instruments
Investments
Current assets
Debtors
Derivative financial instruments
Cash at bank and in hand
Creditors – amounts falling due within one year
Derivative financial instruments
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Provision for liabilities and charges
Derivative financial instruments
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other reserves
Profit and loss reserve
Total shareholders’ funds
The notes on pages 100 to 105 form an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 5 March 2012 and signed on its behalf by:
T Twigger
Director
S G Young
Director
99
2010
£’m
9.6
12.0
187.1
208.7
2,298.8
6.2
14.8
2,319.8
(561.1)
(9.3)
1,749.4
Notes
2011
£’m
16.8
39.9
2,052.4
2,109.1
1,010.4
7.4
28.6
1,046.4
(89.5)
(13.4)
943.5
3
9
4
5
9
6
9
7
8
9
12
14
14
13
14
3,052.6
1,958.1
(864.0)
(0.9)
(4.2)
(752.6)
(0.3)
(17.6)
2,183.5
1,187.6
38.9
1,130.1
17.5
997.0
34.9
859.4
17.5
275.8
2,183.5
1,187.6
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
100
Notes to the financial statements of the Company
1. Basis of preparation
Foreign currencies
These financial statements have been prepared under the historical cost
accounting convention, as modified by the revaluation of financial
assets and financial liabilities (including derivative financial
instruments) at fair value, in accordance with the Companies Act 2006.
The Company continues to prepare its annual financial statements in
accordance with UK Generally Accepted Accounting Practice (UK GAAP).
2. Summary of significant accounting policies
Investments
Investments in subsidiaries are stated at cost less provision for
impairment in value except for investments acquired before 1 January
1988 where Section 612 merger relief has been taken and investments
are stated at the nominal value of the shares issued in consideration.
Tangible fixed assets
Tangible fixed assets are stated at cost, net of depreciation and any
provision for impairment. Cost includes the original purchase price of
the asset and costs attributable to bringing the asset into use.
Depreciation is not provided on freehold land. On other assets it is
provided in equal annual instalments over the estimated useful lives of
the assets as follows:
Freehold buildings ...................................... 40 to 50 years
Leasehold property ..................................... over period of lease
Fixtures and fittings .................................... 3 to 10 years
Plant and equipment ................................... 3 to 10 years
Motor vehicles.............................................. 5 years
Operating leases
Rental costs under operating leases are charged to the profit and loss
account on a straight-line basis over the lease term, even if the
payments are not made on such a basis.
Taxation
The charge for taxation is based on the profit for the period and takes
into account taxation deferred because of timing differences between
the treatment of certain items for taxation and accounting purposes.
Deferred taxation is provided in full, without discounting, on timing
differences that result in an obligation at the balance sheet date to pay
more tax, or a right to pay less tax, at a future date, at rates expected to
apply when they crystallise based on current tax rates and law.
Deferred taxation assets are recognised to the extent it is regarded as
more likely than not that they will be recovered.
Deferred taxation is not provided on timing differences arising from
the sale or revaluation of fixed assets unless, at the balance sheet date,
a binding commitment to sell the asset has been entered into and it is
unlikely that any gain will qualify for rollover relief.
Provision for liabilities and charges
In accordance with FRS 12, provision is made for onerous property
leases. Provisions are discounted where appropriate to reflect the time
value of money.
Local currency
The Company’s financial statements are presented in pounds sterling,
the functional currency of the Company.
Transactions and balances
Transactions in foreign currencies are recorded at the rate of exchange
prevailing at the dates of the transactions. Monetary assets and
liabilities, denominated in foreign currencies at the balance sheet date,
are reported at the rates of exchange prevailing at that date. Exchange
differences on retranslating monetary assets and liabilities are
recognised in the profit and loss account except where they relate to
qualifying cash flow hedges in which case the exchange differences are
recognised in equity.
Pension scheme arrangements
As the Company is unable to identify its share of the underlying assets
and liabilities of the Meggitt Pension Plan on a consistent and
reasonable basis, the Company accounts for the scheme as though it
were a defined contribution scheme. Accordingly the amount charged
to the profit and loss account is the contribution payable in the period.
Differences between contributions payable in the period and
contributions paid are shown as accruals or prepayments in the
balance sheet.
Share-based payment
The fair value of services received from employees is recognised as an
expense in the profit and loss account over the period for which
services are received (‘the vesting period’).
For equity-settled awards, the fair value of an award is measured at
the date of grant and reflects any market-based vesting conditions.
Non market-based vesting conditions are excluded from the fair value
of the award. At the date of grant, the Company estimates the number
of awards expected to vest as a result of non market-based vesting
conditions and the fair value of this estimated number of awards is
recognised as an expense in the profit and loss account on a straight-
line basis over the vesting period. At each balance sheet date the
Company revises its estimate of the number of awards expected to vest
as a result of non market-based vesting conditions and adjusts the
amount recognised cumulatively in the profit and loss account to
reflect the revised estimate. Proceeds received, net of directly
attributable transaction costs, are credited to share capital and share
premium.
For cash-settled awards, the total amount recognised is based on the
fair value of the liability incurred. The fair value of the liability is
remeasured at each balance sheet date with changes in the fair value
recognised in the profit and loss account for the period.
The grant by the Company of options over its equity instruments to
employees of subsidiary undertakings, is treated as a capital
contribution. The fair value of the awards made are recognised, over
the vesting period, as an increase in investment in subsidiary
undertakings, with a corresponding credit to the profit and loss
reserve.
Shares in the Company are held by an independently managed
Employee Share Ownership Trust (‘ESOP Trust’), to meet future
obligations in respect of the Company’s employee share schemes.
The cost of own shares held by the ESOP Trust is deducted from
shareholders’ funds.
MEGGITT PLC REPORT AND ACCOUNTS 2011
101
2. Summary of significant accounting policies continued
Loans
Derivative financial instruments and hedging
Derivative financial instruments are recognised at fair value on the
date the derivative contract is entered into and are subsequently
remeasured at fair value at each balance sheet date. To the extent the
maturity of the financial instrument is more than 12 months from the
balance sheet date, the fair value is reported as a non-current asset or
liability. Derivative financial instruments with maturities of less than 12
months from the balance sheet are shown as current assets or
liabilities. The method by which any gain or loss is recognised depends
on the designation of the derivative financial instrument:
Fair value hedges
Fair value hedges are hedges of the fair value of recognised assets or
liabilities or a firm commitment. Interest rate swaps that change fixed
rate interest to variable rate interest are an example of an instrument
that is treated as a fair value hedge provided it meets the hedge
criteria. Changes in the fair value of derivative financial instruments,
designated as fair value hedges, are recognised in the profit and loss
account together with changes in the fair value of the hedged item.
Cash flow hedges
Cash flow hedges are hedges of highly probable forecast transactions.
Interest rate swaps that change variable rate interest to fixed rate
interest are an example of an instrument that is treated as a cash flow
hedge provided it meets the hedge criteria. Changes in the fair value of
the effective portion of derivative financial instruments, designated as
cash flow hedges, are initially recorded within equity. To the extent
changes in fair value are recorded in equity, they are recycled to the
profit and loss account in the periods in which the hedged item affects
the profit and loss account. However, when the transaction to which the
hedge relates results in the recognition of a non-monetary asset or a
liability then gains and losses previously recognised in equity are
included in the initial measurement of the cost of the non-monetary
asset or liability.
If the forecast transaction to which the cash flow hedge relates is no
longer expected to occur, the cumulative gain or loss previously
recognised in equity is transferred to the profit and loss account
immediately. If the hedging instrument is sold, expires or no longer
meets the criteria for hedge accounting the cumulative gains and
losses previously recognised in equity are transferred to the profit and
loss account when the forecast transaction is recognised in the profit
and loss account.
Derivatives that do not meet the criteria for hedge accounting
Where derivatives do not meet the criteria for hedge accounting,
changes in fair value are recognised immediately in the profit and loss
account. The Company utilises a number of foreign currency forward
contracts to mitigate against currency fluctuations. The Company has
determined that the additional costs of meeting the extensive
documentation requirements for the Company’s large number of
foreign currency contracts are not merited. Accordingly gains and
losses arising from measuring the contracts at fair value are recorded
immediately in the profit and loss account.
Loans are initially recognised at fair value, being proceeds received
less directly attributable transaction costs incurred. Loans are
subsequently measured at amortised cost with transaction costs
amortised to the profit and loss account over the period of the loans.
Loans are held at fair value where a hedge relationship is in place. Any
related interest accruals are included within loans. Loans are
classified as current liabilities unless the Company has an
unconditional right to defer settlement of the liability for at least
12 months after the balance sheet date.
Capital instruments
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are deducted from
the proceeds recorded in equity. Other instruments are classified as
liabilities if they contain an obligation to transfer economic benefits,
otherwise they are included in shareholders’ funds. The finance cost
recognised in the profit and loss account in respect of capital
instruments, other than equity shares, is allocated to periods over the
term of the instrument at a constant rate of charge based on the
carrying amount.
Dividends
Interim dividends are recognised when they are approved by the Board.
Final dividends are recognised when they are approved by the
Company’s shareholders.
Profit and recognised gains and losses of the Company
The Company has taken advantage of the legal dispensation contained
in Section 408 of the Companies Act 2006 allowing it not to publish a
separate profit and loss account and related notes (see Meggitt PLC
Group accounts note 15). The Company has also taken advantage of
the legal dispensation contained in Section 408 of the Companies Act
2006 allowing it not to publish a separate statement of recognised
gains and losses.
Cash flow statement
The Company has taken advantage of the exemption under the terms of
FRS 1 (revised 1996) from the requirement to produce a cash flow
statement. A consolidated cash flow statement is included in the
Meggitt PLC Group accounts.
Related party transactions
The Company has taken advantage of the exemption contained in FRS 8
from the requirement to disclose related party transactions within the
Group.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
102
Notes to the financial statements of the Company continued
3. Tangible fixed assets
Cost at 1 January 2011
Additions
Disposals
Cost at 31 December 2011
Accumulated depreciation at 1 January 2011
Charge for year
Disposals
Accumulated depreciation at 31 December 2011
Net book amount at 31 December 2011
Net book amount at 31 December 2010
Net book amount of land and buildings:
Freehold
Short leasehold
Total
4. Investments
Shares in subsidiaries:
At 1 January
Additions
Disposals
Cost of share-based payments in respect of employees of subsidiary undertakings net of recoveries (see note 14)
Reversal of provision for impairment in value
At 31 December
Land and
buildings
£’m
Plant,
equipment
and vehicles
£’m
0.8
–
–
0.8
0.3
0.1
–
0.4
0.4
0.5
Total
£’m
13.2
9.3
(1.0)
21.5
3.6
1.3
(0.2)
4.7
12.4
9.3
(1.0)
20.7
3.3
1.2
(0.2)
4.3
16.4
16.8
9.1
2011
£’m
0.1
0.3
0.4
2011
£’m
187.1
1,983.7
(133.7)
7.6
7.7
2,052.4
9.6
2010
£’m
0.1
0.4
0.5
2010
£’m
176.6
–
–
10.5
–
187.1
During the year an internal Group reorganisation was undertaken. Following this, the direct subsidiaries of the Company were sold to a new
subsidiary holding company, Meggitt International Holdings Limited. No impact on the Company’s investments arose on this transaction. In
addition, £1,850.0 million of the Company’s inter-group receivables were transferred to the new holding company in consideration for additional
shares subscribed for in Meggitt International Holdings Limited.
A list of principal subsidiaries is included in note 43 of the Meggitt PLC Group accounts.
5. Debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments and accrued income
Deferred tax assets (see note 8)
Total
2011
£’m
1,005.9
2.9
1.6
–
2010
£’m
2,296.8
0.1
0.9
1.0
1,010.4
2,298.8
Amounts owed by subsidiary undertakings include £Nil (2010: £200.0 million) due after more than one year. Deferred tax assets include £Nil
(2010: £0.5 million) due after one year. All other debtors fall due within 1 year.
MEGGITT PLC REPORT AND ACCOUNTS 2011
Page heading
continued
6. Creditors – amounts falling due within one year
Bank loans and overdrafts
Other loans
Trade creditors
Amounts owed to subsidiary undertakings
UK corporation tax payable
Taxation and social security
Other creditors
Accruals
Total
Bank loans and overdrafts and other loans are unsecured.
7. Creditors – amounts falling due after more than one year
Bank loans
Other loans
Total
Bank loans and overdrafts and other loans are unsecured.
Analysis of bank loans and overdrafts repayable:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
Total
Analysis of other loans repayable:
In one year or less
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
Total
8. Provisions for liabilities and charges
At 1 January 2011
Charged to profit and loss account
At 31 December 2011
103
2010
£’m
0.2
3.4
4.0
533.1
10.2
3.9
1.4
4.9
561.1
2010
£’m
201.4
551.2
752.6
2010
£’m
0.2
201.4
–
201.6
2010
£’m
3.4
–
159.5
391.7
554.6
Total
£’m
0.3
0.6
0.9
2011
£’m
0.4
3.4
5.9
55.0
12.4
3.7
1.8
6.9
89.5
2011
£’m
292.5
571.5
864.0
2011
£’m
0.4
217.6
74.9
292.9
2011
£’m
3.4
115.7
45.0
410.8
574.9
Onerous
lease costs
£’m
Deferred tax
provision
£’m
0.3
–
0.3
–
0.6
0.6
Onerous lease costs
Provision has been made for the estimated rental shortfall in respect of properties with onerous lease obligations and will be utilised over the
lease terms, typically up to three years.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
104
Notes to the financial statements of the Company continued
Page heading
8. Provisions for liabilities and charges continued
Deferred tax
Deferred tax assets (see note 5)
Deferred tax liabilities
Total (liability)/asset
Deferred tax balances are analysed as follows:
Accelerated capital allowances
Other short-term timing differences
Total
Movements in deferred tax balances are analysed as follows:
At 1 January 2011
Charged/(credited) to profit and loss account
Charged to profit and loss reserve
At 31 December 2011
9. Derivative financial instruments
Interest rate swaps
Cross currency swaps
Foreign currency forward contracts
Total
Less non-current portion:
Interest rate swaps
Foreign currency forward contracts
Non-current portion
Current portion
2011
£’m
–
(0.6)
(0.6)
2011
£’m
(1.0)
0.4
(0.6)
2011
£’m
1.0
(0.5)
(1.1)
(0.6)
2010
Assets
£’m
10.9
–
7.3
18.2
10.9
1.1
12.0
6.2
2010
£’m
1.0
–
1.0
2010
£’m
(0.4)
1.4
1.0
2010
£’m
5.6
1.3
(5.9)
1.0
2010
Liabilities
£’m
(8.2)
–
(18.7)
(26.9)
(8.2)
(9.4)
(17.6)
(9.3)
2011
Assets
£’m
39.2
3.0
5.1
47.3
39.2
0.7
39.9
7.4
2011
Liabilities
£’m
(4.3)
–
(13.3)
(17.6)
–
(4.2)
(4.2)
(13.4)
The Company is exempt from the FRS 29 disclosures as the consolidated financial statements of Meggitt PLC give the disclosures required by
IFRS 7 (see Meggitt PLC Group accounts notes 30 and 31).
10. Commitments
Capital commitments
Contracted for but not incurred:
Property, plant & equipment
Total
Operating lease commitments
The annual commitments under non-cancellable operating leases expire as follows:
Within two to five years
Later than five years
Total
MEGGITT PLC REPORT AND ACCOUNTS 2011
2011
£’m
–
–
2011
£’m
0.1
0.1
0.2
2010
£’m
0.5
0.5
2010
£’m
0.1
0.1
0.2
Page heading
continued
11. Pensions
The Directors believe that the FRS 17 deficit for the schemes in which the Company participates would be consistent with the IAS 19 deficits
reported in note 34 to the Meggitt PLC Group accounts.
105
12. Called-up share capital
Allotted and fully paid:
At 1 January 2011
Equity placing
Issued on exercise of executive share options
Issued on exercise of sharesave options
Scrip dividends
At 31 December 2011
Ordinary
shares of
5p each
No. ‘m
698.0
69.8
2.4
1.1
7.5
778.8
Nominal
value
£’m
Net
consideration
£’m
34.9
3.5
0.1
–
0.4
38.9
246.0
1.7
1.8
25.2
From 1 October 2009, the Companies Act 2006 abolished the requirement for a company to have an authorised share capital. On 21 April 2010 the
Company adopted new Articles of Association by special resolution, which had the effect of removing the authorised share capital of the Company.
13. Profit and loss reserve
At 1 January 2011
Profit for the financial year
Dividends
Cash flow hedge movements
Employee share option schemes:
Value of subsidiary employee services (see note 4)
Value of services provided
Shares issued
At 31 December 2011
14. Reconciliation of movement in shareholders funds
At 1 January 2011
Profit for the financial year
Dividends
Cash flow hedge movements
Currency translation differences
Equity placing
Employee share option schemes:
Value of subsidiary employee services (see note 4)
Value of services provided
Shares issued
Scrip dividends
£’m
275.8
782.7
(73.6)
4.0
7.6
3.6
(3.1)
997.0
Total
2010
£’m
1,096.8
86.5
(59.2)
14.8
0.7
–
10.5
3.8
4.2
29.5
Share
capital
£’m
Share
premium
£’m
Other
reserves
£’m
34.9
–
–
–
–
3.5
–
–
0.1
0.4
859.4
–
–
–
–
242.5
–
–
3.4
24.8
17.5
–
–
–
–
–
–
–
–
–
Profit and
loss
reserve
£’m
275.8
782.7
(73.6)
4.0
–
–
7.6
0.6
(0.1)
–
Total
2011
£’m
1,187.6
782.7
(73.6)
4.0
–
246.0
7.6
0.6
3.4
25.2
At 31 December 2011
38.9
1,130.1
17.5
997.0
2,183.5
1,187.6
Details of the Group’s employee share schemes are included in note 36 of the Meggitt PLC Group accounts.
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
106
Five-year record
Page heading
Revenue and profit
Revenue
Underlying profit before tax
Exceptional operating items
Amortisation of intangible assets acquired in business combinations
Disposal of inventory revalued in business combinations
Financial instruments
Goodwill adjustment arising from recognition of tax losses
Profit before tax
Earnings and dividends
Earnings per share – basic
Earnings per share – underlying
Dividends per ordinary share (paid or proposed in respect of the year)
Gearing ratio
Year end net cash/borrowings as a percentage of capital employed
2011
£’m
2010
£’m
2009
£’m
2008
£’m
1,455.3
323.0
(20.3)
(75.1)
(11.3)
9.7
–
226.0
24.0p
31.9p
10.50p
1,162.0
256.1
(15.7)
(64.7)
–
(3.2)
–
172.5
20.1p
27.8p
9.20p
1,150.5
234.2
(20.8)
(69.2)
–
36.6
–
180.8
20.5p
25.3p
8.45p
1,162.6
243.3
(15.8)
(61.8)
(0.3)
(46.1)
–
119.3
15.0p
26.5p
8.45p
2007
£’m
878.2
179.0
(5.4)
(38.4)
(21.3)
(5.3)
(3.2)
105.4
14.6p
22.1p
8.20p
44.0%
50.2%
63.5%
81.5%
76.7%
MEGGITT PLC REPORT AND ACCOUNTS 2011
Investor Information
Page heading
continued
107
Dividends
The proposed 2011 final dividend of 7.30p per ordinary share, if approved, will be paid on 11 May 2012 to
shareholders on the register on 16 March 2012. The expected payment date for the 2012 interim dividend is
5 October 2012.
Shareholder enquiries
Enquiries about the following administrative matters should be addressed to Meggitt PLC’s registrar:
Registrar:
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
T: 0870 703 6210
E: www.investorcentre.co.uk/contactus
• Change of address notification.
• Lost share certificates.
• Dividend payment enquiries.
• Dividend mandate instructions. Shareholders may have their dividends paid directly into their bank or
building society accounts by completing a dividend mandate form. Tax vouchers are sent directly to
shareholders’ registered addresses.
• Amalgamation of shareholdings. Shareholders who receive more than one copy of the annual report
are invited to amalgamate their accounts on the share register.
Shareholders can view and manage their shareholdings online at www.investorcentre.co.uk, including
updating address records, making dividend payment enquiries, updating dividend mandates and viewing
the latest share price. Shareholders will need their Shareholder Reference Number (SRN), which can be
found on their share certificate or a recent dividend tax voucher, to access this site. Once signed up to
Investor Centre, an activation code will be sent to the shareholder’s registered address to enable the
shareholder to manage their holding.
Electronic communications
and electronic proxy voting
Meggitt encourages shareholders to vote at the Annual General Meeting and provides a facility for
electronic proxy voting. Shareholders who are not Crest members can vote online on resolutions
proposed at the Annual General Meeting via our website after voting has opened. Proxy cards contain
further details on how and when to vote and further information for Crest members.
We provide annual reports and other documents to shareholders in their elected format under the
electronic communications provisions, which were approved by the shareholders at the Annual General
Meeting in 2007.
Electronic copies of the Annual Report and Accounts 2011 and the Notice of Annual General Meeting will
be posted on our website where Meggitt PLC’s announcements to the Stock Exchange and press releases
are also published.
We have established share dealing services with the Group’s registrar, Computershare Investor Services
PLC, which provides shareholders with an easy way to buy or sell Meggitt PLC ordinary shares on the
London Stock Exchange.
The internet share dealing service commission is 0.5%, subject to a minimum charge of £30. Stamp duty,
currently 0.5%, is payable on purchases. There is no need to open an account to deal. Real-time dealing
is available during market hours. There is a facility to place orders outside market hours. Up to 90-day
limit orders are available for sales. To access the service, shareholders should have their SRN to hand
and log onto www.computershare.com/dealing/uk.
The telephone share dealing service commission is 1%, subject to a minimum charge of 1% plus £35.
Stamp duty, currently 0.5%, is payable on purchases. The service is available from 8 a.m. to 4.30 p.m.
Monday to Friday, excluding bank holidays, on telephone number 0870 703 0084. Shareholders should
have their SRN ready when making the call. Detailed terms and conditions are available on request by
telephoning 0870 702 0000.
This is not a recommendation to buy, sell or hold shares in Meggitt PLC. Shareholders who are unsure of
what action to take should obtain independent financial advice. Share values may go down as well as up
which may result in shareholders receiving less than they originally invested.
Insofar as this statement constitutes a financial promotion for the share dealing service provided by
Computershare Investor Services PLC, it has been approved by Computershare Investor Services PLC
for the purpose of Section 21 (2) (b) of the Financial Services and Markets Act 2000 only. Computershare
Investor Services PLC is authorised and regulated by the Financial Services Authority. Where this
statement has been received in a country where providing such a service would be contrary to local laws
or regulations, this should be treated as information only.
ShareGift (registered charity number 1052686), the independent share donation charity, is especially
useful for those who may want to dispose of a small number of shares which are uneconomic to sell on
their own. Shares which have been donated to ShareGift are aggregated and sold when practicable, with
the proceeds passed on to a wide range of UK registered charities. Further details about ShareGift can
be obtained from www.ShareGift.org.
Share dealing services
8.00am – 4.30pm
Monday – Friday
T: 0870 703 0084
ShareGift
17 Carlton House Terrace
London SW1Y 5AH
T: 0207 930 3737
MEGGITT PLC REPORT AND ACCOUNTS 2011
AT A GLANCE | BUSINESS REVIEW | GOVERNANCE | FINANCIAL STATEMENTS | SUPPLEMENTARY INFORMATION
108
Investor Information continued
Page heading
Analysis of ordinary shareholders as at 31 December 2011
Size of holdings
1–999
1,000–9,999
10,000–99,999
100,000–249,999
250,000–499,999
500,000–999,999
1,000,000 and over
Number of
shareholders
% of total
shares
Number of
shareholders
% of total
shares
5,581
2,538
514
113
67
69
110
8,992
0.17
1.01
2.00
2.30
3.19
6.33
85.00
100.00
Types of shareholder
Individuals
Banks and nominees
Investment and insurance companies
Other
7,665
1,226
28
73
1.90
97.30
0.15
0.65
8,992
100.00
2012 provisional financial calendar
Key dates
Full-year announcement for year
ended 31 December 2011
Final dividend ex-dividend date
Final dividend record date
Report and accounts for year
ended 31 December 2011 despatched
Deadline for receipt of scrip dividend elections
AGM and interim management statement
Final dividend for year ended
31 December 2011 – payment date
Interim announcement for period ended 30 June 2012
Interim dividend ex-dividend date
Interim dividend record date
Deadline for receipt of scrip dividend elections
Interim dividend for period ended
30 June 2012 – payment date
Interim management statement
6 March
14 March
16 March
23 March
23 April
26 April
11 May
7 August
15 August
17 August
21 September
5 October
2 November
MARCH
6
Full-year
results
APRIL
26
AGM & interim
management
statement
AUGUST
NOVEMBER
7
Interim
results
2
Interim
management
statement
Contact us
Investor relations
T: 01202 597 597
investors@meggitt.com
Information on Meggitt PLC, including the latest share
price: www.meggitt.com
Advisors
Registrars
Computershare Investor Services PLC
Principal clearing bankers
HSBC Bank plc
Barclays Bank PLC
Bank of America Merrill Lynch
Merchant bankers
N M Rothschild & Sons Limited
Auditors
PricewaterhouseCoopers LLP
Solicitors
Clifford Chance LLP
Brokers
Bank of America Merrill Lynch
MEGGITT PLC REPORT AND ACCOUNTS 2011
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Company information
Meggitt PLC
Atlantic House
Aviation Park West
Bournemouth International Airport
Christchurch
Dorset BH23 6EW
United Kingdom
Registered in England and Wales
Company number 432989
T +44 (0) 1202 597 597
F +44 (0) 1202 597 555
www.meggitt.com