Meggitt PLC
Annual Report & Accounts
2020
Introduction
Working closely with our
Customers, we deliver
technologically differentiated
systems and products with
high certification requirements
in aerospace, defence and
selected energy markets.
Through focusing on
engineering and operational
excellence, we build broad
installed bases of equipment
for which we provide
through life services
and support.
Our ambitious and diverse
teams act with integrity
to create superior and
sustainable value for
all of our stakeholders.
Meggitt PLC
Annual Report & Accounts 2020
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Strong portfolio
Diverse end market exposure
with four aligned divisions
Focus on sustainability
Next-generation technologies
that create more sustainable
and efficient aircraft, engines,
power and defence systems
Strong leadership
Leading through the
pandemic: responding and
adapting to the external
environment
See more on page 20
See more on page 68
See more on page 14
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Meggitt PLC
Annual Report & Accounts 2020
What’s in the report
Contents
Strategic Report
4 Our vision
6 At a glance
8 Chairman’s statement
10 CEO’s statement
14 Our response to COVID-19
16 Market review
20 Strategy
22 Business model
24 Innovating for the future
28 Strategy in action
36 Divisional reviews
44 CFO’s review
50 Key performance indicators
54 Risk management
56 Principal risks & uncertainties
62 Section 172 statement
63 Stakeholder engagement
66 Corporate responsibility
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Governance
90 Chairman’s introduction
92 Board of Directors
96 Corporate Governance report
105 Audit Committee report
112 Nominations Committee report
114 Directors’ remuneration report
142 Directors’ report
Group Financial Statements
146 Independent auditors’ report
to the members of Meggitt PLC
157 Consolidated income statement
158 Consolidated statement of
comprehensive income
159 Consolidated balance sheet
160 Consolidated statement of changes
in equity
161 Consolidated cash flow statement
162 Notes to the consolidated
financial statements
Company Financial Statements
218 Company balance sheet
219 Company statement of
changes in equity
220 Notes to the financial
statements of the Company
Other Information
229 Five-year record
230 Investor information
231 Glossary
We deliver innovative solutions
for the most demanding
environments. Our differentiated
products and technologies
satisfy the highest requirements
for product safety, performance
and reliability and we continue
to prioritise investment in
sustainable solutions for
our customers.
CEO statement
Continuing to support our
customers while keeping our
employees safe.
See page 10
Response
to COVID-19
Adapting and responding
to the sudden change in
the external environment.
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Our strategy
Remaining focused on
operational execution and our
four strategic priorities.
See page 20
Meggitt PLC
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Delivering
the future
Remaining committed to our
investment in technology.
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Business model
Innovation is at the heart of
what we do with safety, reliability
and operating and environmental
performance underpinning our
approach.
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Corporate
responsibility
We are committed to protecting
our people and planet to
develop technologies for the
benefit of future generations.
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Our vision
Meggitt PLC
Annual Report & Accounts 2020
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To Fly
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To Power
Expertise relied upon by
customers to enable safe, cost-
effective and environmentally
responsible flight.
Products and services that
enable customers to operate
critical infrastructure reliably
and without disruption.
Every second of every day a Meggitt
enabled aircraft takes off.1
Enabling advances in cleaner
energy with innovative technology.
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1 Reflects pre-COVID-19 normalised traffic in 2019.
Meggitt PLC
Annual Report & Accounts 2020
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To Live
Innovative technologies which
enhance lives and make the
world more secure.
Investing at least two-thirds of our
innovation budget on technologies for
sustainable aviation; working to ensure
a sustainable future for generations
to come.
Performance
Financial summary
£1,684m
Revenue
2019: £2,276m
£191m
Underlying operating profit1
2019: £403m
£773m
Net debt
2019: £911m
16.5p
Underlying basic
earnings per share3
2019: 37.3p
2.2x
Net debt: EBITDA5
2019: 1.5x
£32m
Free cash flow2
2019: £268m
£908m
Liquidity headroom4
2019: £806m
£334m
Statutory loss before tax
2019: Profit of £287m
Strategic highlights
– Kept our people safe while continuing to
support our global customers
– Lowered net debt by £138m
– Completed the streamlining of our portfolio
with the sale of Training Systems
– Addition of 14 SMARTSupport® contracts,
securing market share in the aftermarket
– Investment in operational capability with the
opening of our new Ansty Park campus
– Accelerated sustainability strategy under
People, Planet and Technology framework
1 Underlying operating profit is reconciled to operating profit in note 9
to the Group’s consolidated financial statements on page 180.
2 Free cash flow is reconciled to cash from operating activities in note 42
to the Group’s consolidated financial statements on page 214.
3 Underlying earnings per share is reconciled to basic earnings per share
in note 14 to the Group’s consolidated financial statements on
page 184.
4 Liquidity headroom is the difference between the Group’s committed
credit facilities and its net borrowings (excluding lease liabilities).
5 As calculated in accordance with covenants in the Group’s committed
credit facilities as described on page 49.
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At a glance
Meggitt PLC
Annual Report & Accounts 2020
Diverse end-market
exposure
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Group revenue by end market
43%
2020: £726m
46%
2020: £768m
11%
2020: £190m
Aerospace
Unique technologies for
aerospace
Civil aerospace accounts for 43% of
Group revenue, with products and
sub-systems installed on almost every
jet airliner, regional aircraft and
business jet in service today.
Energy & other
Keeping the
lights on
Energy & Other accounts for 11%
of Group revenue. We supply
unique technology to enable clean
and efficient production and use
of natural gas and support nuclear,
hydro-electric and novel
clean-energy power generation.
Defence
Protecting defence
forces worldwide
Defence represents 46% of Group revenue.
We have equipment on an installed base
of around 22,000 fixed wing and
rotary aircraft and a significant
number of ground vehicles.
Meggitt PLC
Annual Report & Accounts 2020
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Four vertically integrated
customer aligned divisions
Airframe Systems
Market-leading industry provider of
braking systems for commercial, business
and defence aircraft, fire protection and
safety systems, power and motion,
fuel systems, avionics and sensors and
advanced polymer seals for around 51,000
in-service civil and 22,000 defence aircraft.
47%
of revenue
Engine Systems
Market-leading position in advanced engine
composites, thermal and safety systems with a
broad range of technologies including
vibration monitoring and engine health
management systems. This division also
provides aerospace engine flow control and
sensing solutions.
14%
of revenue
Energy & Equipment
Specialises in energy and defence
equipment ranging from electronics
cooling to ammunition handling systems
and heat transfer equipment for off-shore
oil and gas facilities and renewable
energy applications.
20%
of revenue
Services & Support
Provides a full service aftermarket
offering including spares distribution
and maintenance, repair and overhaul
(MRO) to our commercial, business jet
and defence customers throughout the
lifecycle of our products.
19%
of revenue
Global coverage
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Total Group
Employees
9,280
North America
United Kingdom
Rest of World
Europe
Employees
Locations
Employees
Locations
Employees
Locations
Employees
Locations
4,871
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2,305
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Meggitt PLC
Annual Report & Accounts 2020
Chairman's statement
Introduction
While 2019 will be remembered as the year
that saw a step change in awareness of the
threat posed by climate change, the events
of 2020 will also go down in history as a
time when the world faced one of its
biggest challenges for generations.
And just as climate change requires the
collective actions of individuals, businesses
and governments worldwide, so too has the
outbreak of COVID-19 and the knock-on
impact this has had on peoples’ lives
everywhere.
While there is no doubt that the impact of
the pandemic on civil aerospace has been
unprecedented, the breadth of the Group’s
end-market exposure across civil aerospace,
defence and energy, coupled with the work
we have done in recent years to streamline
and strengthen the Group, has been key in
helping us navigate our way successfully
through the crisis.
Having been asked by the Board to stay
on as Chairman to provide stability and
continuity throughout this difficult period,
I have ensured that the Board’s number one
priority has been, and continues to be, to
keep our employees and sites safe, while
continuing to meet the needs of customers
through the adoption of a number of new
working practices across the Group.
Meggitt has also played an important role in
supporting our local communities, whether
utilising our facilities and employees for
the production of personal protective
equipment or through participation in
initiatives like the Ventilator Challenge in
the UK.
In light of the significant reduction in
demand in our civil aerospace business, we
had to take a number of actions during the
year in order to protect cash, reduce our
cost base and position ourselves for the
recovery. Part of this has meant taking the
difficult, but necessary decision to reduce
the size of the Group and our headcount, to
ensure that we are well placed in 2021 as
the recovery in civil aerospace gathers
momentum.
I am extremely grateful to and proud of our
employees for demonstrating outstanding
levels of determination and dedication
throughout what has been an extremely
challenging 2020.
While we remain vigilant and agile to
changes in the external environment, there
is significant pent-up demand to travel and
as a result of the development and rollout of
a number of vaccines, improvements in
testing and treating COVID-19, as well as
stable conditions across our defence and
energy end markets, the outlook for the
Group is encouraging.
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I am extremely
grateful to our
employees for
their dedication
throughout
an extremely
tough year.
Meggitt PLC
Annual Report & Accounts 2020
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2020 performance
Having delivered another year of strong
organic growth across our end markets and
record profits for the Group in 2019, we saw
another good performance from our
defence business in 2020, which
represented 46% of Group revenue, and
which, along with energy, helped to
mitigate the significant reduction in
end-market demand and revenue in our civil
aerospace business.
The overall performance of the Group in the
year not only demonstrates our diverse
end-market exposure, but also the fact that
we entered the year in a strong position,
reflecting the progress we have made in
executing our strategy in recent years,
making the business more resilient and
more competitive.
As a result of our focus on managing costs
and preserving cash, along with the
divestment of our Training Systems business
as we continued to optimise our portfolio,
we have reduced our year-end net debt
levels with our key balance sheet ratios
remaining well within covenant limits. This
represents a significant achievement and
testament to the work done by our
employees in moving quickly to adjust to
the rapid change in market conditions.
Where possible, we have sought to
safeguard future growth by protecting
investment in new technologies, an
important measure as we look to support
our customers in new projects, including
those focused on making aviation more
sustainable and the development of talent
through continued investment in both our
graduate and apprentice programmes.
As we look ahead, and as the recovery
continues, we have already reinstated a
number of key projects, most notably the
move to Ansty Park which we look forward
to completing in 2021.
Capital allocation
As a consequence of the Group’s focus on
preserving cash and protecting profit, the
Board and the Group had to adjust the
allocation of capital in 2020.
On our first priority, investing in the
business to deliver future long-term
sustainable growth, we entered 2020 at a
peak in the investment cycle with a
significant amount of expenditure already
committed to key projects such as the move
to Ansty Park and expansion of our carbon
furnace capacity in the UK and US. Clearly,
the decision to delay these important
projects has meant that expenditure has
been scaled back compared with our
original plans at the start of the year.
Looking forward, while we will maintain a
disciplined approach to capital expenditure,
we will continue to invest in developing
sustainable and differentiated technologies,
world-class facilities and recruiting and
retaining the best talent, all of which are
critical to our future success.
The Board recognises the importance of the
dividend to shareholders and so our
decisions to cancel the final dividend for
2019 and the interim and final dividends for
2020 were difficult. Subject to prevailing
market conditions, it is the Board’s intention
to restore the payment of a dividend at the
appropriate time.
Thirdly, the Board regularly discusses the
Group’s strategy and has a clear view on
how we can improve and strengthen its
position with carefully targeted acquisitions
to complement our existing portfolio.
During the year, we continued to enhance
and optimise our portfolio through the sale
of Training Systems, enabling us to further
sharpen our focus on attractive aerospace,
defence and selected energy markets where
we have or can leverage our differentiated
technology to achieve a strong position.
The core focus of the Board throughout
2020 has been to ensure we navigate the
downturn in civil aerospace and maintain
sufficient headroom between our net debt
levels and covenants. As we look ahead to
2021, we will continue to ensure we manage
the balance sheet effectively and
appropriately as the recovery continues.
Board interaction/developments
The Board has operated effectively during
the year through virtual meetings, with a
higher cadence of interactions necessitated
by the market environment. In particular,
both Alison Goligher, Chair of the
Remuneration Committee and Colin Day,
Chair of the Audit Committee, have had to
dedicate additional time to their duties
because of the impact of COVID-19 on
the Group.
As in previous years, I have continued the
process of direct engagement with our top
shareholders throughout the year,
discussing a range of topics.
Alongside continuing the implementation of
our strategy, the main focus areas for the
Board throughout 2020 were monitoring
progress on the recovery, maintenance of a
robust balance sheet and right-sizing the
business to ensure we are well placed for
the recovery.
With no changes to the membership of the
Board in 2020, this has provided important
continuity and consistency throughout the
year and will continue to do so as we move
through 2021.
I am also pleased to report that Nancy
Gioia, Chair of the Corporate Responsibility
Committee and Non-Executive Director
responsible for employee engagement, was
able to continue her engagement activities
across the Group remotely.
People
We have no higher priority than ensuring a
safe and secure working environment for all
employees. As well as the introduction of
additional measures at each site to protect
our people and reduce the risk of infection,
I am also pleased to report an improvement
in our overall safety performance during the
year, with a reduction in our Total Recordable
Incident Rate to 0.70 (2019: 0.74).
The Board is pleased that our work on
culture could continue during the crisis, not
only through monthly culture briefings run
for all of our leaders, but also through our
Inclusion Week in October, which had a real
impact in helping to introduce and connect
more of our employees across Meggitt to
our eight Employee Resource Groups.
I am also very encouraged that the work
we have done to create a positive culture
has been reflected in our Employee
Engagement score which, despite extremely
challenging circumstances, remained high
and above the 2018 level with a very good
participation rate.
Although no site visits have been possible
in 2020, the Board has been able to monitor
the impacts of COVID-19 on employee
morale and culture. This has been achieved
through direct engagement with senior
executives as well as the ongoing activities
of Nancy Gioia, which included virtual
meetings with cross sections of employees
from the UK, US and Asia, as well as more
specific engagements with HR, graduates,
apprentices and those involved in our
culture programme and Employee Resource
Groups for diversity and inclusion.
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Navigating the crisis has required agility in
establishing strong leadership across the
Group, particularly our line managers,
operational leaders, finance and human
resources teams. On behalf of the Board, I
would like to thank these leaders and
indeed all employees for their resilience,
dedication and hard work during the most
testing circumstances.
In particular, I’d like to thank those that have
continued to work at our sites from the very
beginning of the crisis to deliver for our
customers throughout the year.
Looking ahead
With a focused portfolio, strong market
positions and diverse end-market exposure
and having moved quickly and decisively in
response to the crisis, Meggitt is well placed
to benefit from the recovery as air travel
returns in 2021 and beyond.
Sir Nigel Rudd
Chairman
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CEO's statement
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9 Continuing
to support
customers
while keeping
our employees
safe.
Meggitt PLC
Annual Report & Accounts 2020
Introduction
Our focus throughout 2020 and as we
move into 2021 continues to be ensuring
the safety and well-being of our people,
protecting our sites, serving our customers
and communities and executing our strategy.
I want to thank all of my colleagues for their
hard work and dedication in helping us
navigate our way through the year.
Faced with a reduction in activity and
demand in one of our core markets, we
acted fast, executed well operationally and
took decisive action to position the Group
for the recovery in civil aerospace. While our
full-year performance has clearly been
impacted by the ongoing effects of
COVID-19, it also reflects the resilience and
diverse nature of the Group and the
mitigating impact of our defence and
energy businesses.
The rollout of vaccines, coupled with
significant pent-up demand to travel,
provides a supportive backdrop for the
recovery in civil aerospace in 2021, albeit
this positive development is likely to take
time to feed through into growth in global
flight activity and the aftermarket.
Based on the significant progress we’ve
made over the last four years to transform
the Group, the effective actions we’ve taken
in 2020, diverse end-market exposure and
leading market positions, we are well placed
to benefit from the recovery and to continue
to deliver long-term profitable growth.
Our response to the crisis
Leveraging our experience of navigating
previous downturns in civil aerospace and
through close communication with our
customers and supply chain, the Group
moved quickly to implement a revised
demand scenario for planning purposes and
adjusted production levels early in the
second quarter.
We took a series of decisive actions focused
on safeguarding our people, supporting the
community, ensuring that our sites
continued to operate and a number of
specific actions to preserve cash, reduce
cost and reposition the Group for the
recovery. Details of our response is set out
later in this report.
As a result of the hard work and focus of our
global teams to deliver our in-year cash
savings, the Group generated £32m of free
cash flow which was slightly better than our
expectations at the half year. The free cash
inflow, combined with proceeds from the
sale of Training Systems, meant the Group
ended the year with net debt of £773m,
some £138m lower than 2019, testament to
the Group’s focus on tight management of
the balance sheet during the most
challenging of times.
Meggitt PLC
Annual Report & Accounts 2020
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Strategy update
Strategic portfolio
We focus investment in attractive markets
where we have, or can develop, a leading
position. This encompasses organic
investment in differentiated products and
manufacturing technologies; targeted,
value-enhancing acquisitions; and selective
non-core disposals. More than 70% of
revenue is generated from sole-source,
life-of-programme positions underpinned
by Meggitt-owned intellectual property. As
such, the continued strengthening of our
technology portfolio remains a critical
priority of the Group.
In June 2020, we further focused our
portfolio with the sale of Training Systems,
consistent with our strategy to focus on
businesses of scale in markets where leading
positions offer exposure to aftermarket
revenue, greater potential for growth and
operational efficiencies. In January 2021, we
completed the sale of our Dunstable (UK)
business of designing and manufacturing
ducting for a range of space, defence and
civil customers. As a result of these disposals,
over 80% of our revenue is now generated
from businesses in attractive markets and
where we have a strong competitive position,
above our target set out three years ago.
Despite the challenges posed by COVID-19
and the need to preserve cash, we sustained
our investment in differentiated technology.
During the year, we met our target of
prioritising at least two-thirds of our
investment in Applied Research &
Technology to enable our customers to
deliver the next generation of more
sustainable aircraft. Despite changes in
normal working patterns, we also maintained
strong milestone adherence on our major
development and customer programmes. A
summary of our key highlights and progress
is as follows:
• Next generation of fuel-efficient engines
– we are positioning and promoting the
breadth of our technology with our
customers to play a critical role in
enabling the development of the next
generation of fuel-efficient engines
specifically leveraging our capabilities in
thermal management, high temperature
optical sensing and engine composites.
For example, in 2020, our Thermal
Systems programme patented
technology for six products which will
allow a step change in engine thermal
management applications.
• Green fire suppression – we have made
good progress working with major
aircraft OEMs with VERDAGENT™,
Meggitt’s new, proprietary ‘green’ fire
suppressant agent to replace ozone-
depleting Halon 1301, with further tests
in Europe and the US to approve its
engine APU and cargo applications
scheduled for 2021.
• Optical sensing – we successfully
completed the first customer trials of our
optical dynamic pressure sensing system
for ground-based industrial gas turbines
and now have an installation running
with a major energy customer. We also
remain on track to install this new
technology on a demonstrator aero
engine with a major OEM in 2021.
• Engine composites – significant progress
in development of manufacturing
processes for advanced gas path engine
composite components with thin wall,
high structural integrity requirements.
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• Electric flight – working closely with a
customer we have supplied electric
motors and motor drive units to support
the development of a leading electric
urban/air mobility prototype which is
undergoing trials.
Enabling our sustainable future
At Meggitt, we work in partnership with all
our stakeholders to enable a sustainable
future and have adopted a framework to
support our ambition of net zero
greenhouse gas emissions by 2050,
focusing on three core pillars: People,
Planet and Technology. This framework is
aligned with the United Nations
Sustainability Development Goals and the
Taskforce on Climate Related Financial
Disclosures:
• People – through our core values of
Teamwork, Integrity and Excellence and
our High Performance Culture we are
committed to creating a rewarding, safe
and productive working environment for
our employees and supporting our local
communities. During 2020, we started
the rollout of our leadership programme
in Operations, introduced our
Extraordinary People recognition
scheme and expanded the number of
Employee Resource Groups to eight with
further initiatives planned for 2021.
• Planet – our goal is to contribute to a
cleaner future by continuously improving
and adapting our operational systems
across our sites to promote efficiencies
and improvements by harnessing green
energy, driving operational excellence
and reducing harmful emissions, where
we have set a target to reduce net
carbon emissions by 50% by 2025. While
we made progress in a number of areas
during the year, including the
completion of several sustainability
projects at our sites, and from March
2021 sourcing 100% of electricity from
green sources in the UK, we recognise
that we still have more work to do. We
have set reduction targets for our sites in
2021 covering reducing our electricity
and natural gas usage, consumption of
water and rates of waste to landfill, as we
look to build on the progress we have
made over the last few years.
• Technology – to support the evolving
needs of our global customers and
building on our rich heritage, we
continue to invest in innovative new
technologies to support and enable
sustainable aviation in areas including
thermal and electric aircraft systems, fire
protection, composites and optical
sensing. In 2020, we made very good
progress on a number of these
technologies and specific customer
projects as set out in our Strategy
section.
12
CEO’s statement
continued
39
SMARTSupport® contracts
with an aggregate value of
c. £190m
34%
Reduction in the number of
global sites since 2016,
ahead of our original target
reduction of 25%
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We have also continued to leverage
advanced manufacturing technology and
processes across our sites:
• Additive layer manufacturing (ALM)
– working with our UK joint venture
partner HiETA, we have applied ALM
to build prototype heat exchangers to
operate at high temperatures for
industrial and aero applications. We
have also expanded our US additive
manufacturing capability to develop
flow valves and production tooling.
• Digital manufacturing – the rollout of
advanced digital work instructions and
greater use of automation at our sites
has resulted in a meaningful increase in
productivity and quality, and we are
working on plans to deploy this
technology more extensively across
the Group in 2021.
As reported at the half year, we have
intensified our focus on driving improved
margin and return on capital in braking
systems, while continuing to remain
selective on investing in new opportunities.
Recognising the change in fleet dynamics
as a result of the downturn in civil
aerospace, where possible we have
re-phased our investment in production
capacity with a proportion of our
capital commitments moving into 2021
and beyond.
While our focus remains on three core
markets: aerospace, defence and selected
energy, over the medium term we also
look to increase the application of our
aero-derivative intellectual property and
technology in adjacent markets, including
space and ground vehicles, to further
strengthen the portfolio.
Meggitt PLC
Annual Report & Accounts 2020
Customers
Our success in moving from a transactional
approach to building long-term relationships
through our customer aligned divisions
extends our visibility of near-term customer
requirements and has enabled us to better
support the demand for original equipment
and spare parts and maintenance, repair and
overhaul (MRO) from our three global hubs
for the aftermarket.
During the year, we maintained close
contact with our customers which was
critical in the creation of our scenarios
for planning purposes, including the
adjustment of production schedules for
original equipment based on new build
rates from the OEMs and tracking
customer sentiment and buying behaviour
by region in the aftermarket. In the period,
we continued to win a number of new
customer contracts including:
• $73m from Bell Textron Inc for the
supply of composite ice protection
components on the V-22 Osprey;
• $27m for the supply of liquid palletised
cooling units for the Boeing P-8A aircraft;
• $21m for the supply of high-temperature
cables for a nuclear energy application;
• $20m from Northrop Grumman for the
supply of fuel bladders on the F/A-18
Super Hornet;
• $15m from the Defence Logistics Agency
to support the supply of fuel bladders;
and
• £8m from MODEC for the supply of
Heatric printed circuit heat exchangers,
representing the largest order for that
business in over five years
In Services & Support, we saw continued
momentum with SMARTSupport®, our
long-term contract offering for aftermarket
customers, adding an additional 14
agreements, including those with ST
Aerospace, Derco and Ameco Beijing,
taking the total number to 39 with an
aggregate value of £187m, with a number
of additional opportunities in the pipeline.
These long-term contracts underpin our
aftermarket and market share growth in
the future and provide better insights into
customer requirements and order patterns.
Meggitt PLC
Annual Report & Accounts 2020
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Outlook
While the rollout of vaccines is expected
to ease lockdowns and drive a gradual
increase in air traffic activity, which is a
positive indicator for the civil aerospace
sector and the Group, uncertainties remain
in predicting the timing and pace of the
civil recovery. At the current time, our
assumption is that the trends seen in civil
aerospace during the second half of 2020
are likely to continue in the first half of
2021, with recovery weighted more
towards the second half of the year.
Conditions in our defence and energy
end markets are expected to remain robust
in 2021.
Assuming no further disruption to normal
operations during the year as a result of
additional lockdowns, in 2021 we expect
the Group to generate:
• Revenue broadly in line with 2020;
• An increase in underlying operating
profit versus 2020; and
• Positive free cash flow
We will continually review our assumptions
as the year progresses and as we gain
greater clarity on the path to recovery in
civil aerospace.
While we recognise the need to remain
agile and respond quickly to changes in
the external environment, based on the
significant progress we have made over the
last four years to transform the Group, the
effective actions we’ve taken in 2020, our
diverse end-market exposure and leading
market positions, we are well placed to
benefit from the recovery in civil aerospace
and to deliver long-term profitable growth.
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Tony Wood
Chief Executive Officer
Competitiveness
While our priority during the year has been
to ensure that people and sites operate
safely as we respond to the challenges
posed by COVID-19, we remained focused
on driving operational improvements in
line with our strategy.
We made further progress reducing our
global footprint, with site closures and
consolidations in the UK (Basingstoke)
and the US (Orange County) and the
divestment of Training Systems. As a result
of these actions and the recent sale of our
Dunstable (UK) business, we now have 37
Meggitt manufacturing sites, reduced from
our original 56 sites in 2016 and 42 sites
at the end of December 2019 and have
identified additional opportunities to
reduce our footprint by 50% from our
2016 baseline by 2023.
In June 2020, we opened our new UK
manufacturing and engineering centre for
Braking Systems, Thermal Systems and
Services & Support together with our
relocated Group Headquarters at Ansty
Park in the West Midlands, UK, providing
office-based employees that have been
working from home with the flexibility to
return to the workplace as restrictions
allowed. The successful relocation of our
teams to Ansty Park will promote more
integrated and efficient ways of working
across both the Group central functions
and the divisions.
Having been deferred due to the
disruption caused by COVID-19, the full
transition of manufacturing from four UK
sites into Ansty Park is well underway, with
the capital expenditure associated with
this transition also moving into 2021. The
transition to Ansty Park is scheduled to be
completed by the end of the third quarter
in 2021.
On inventory, where we have brought
significant improvements in recent years
and steadily increased inventory turns from
just above 2.0x in 2016 to 2.7x in 2019, our
priority in 2020 was to reduce absolute
inventory levels as part of our cash
preservation measures as we responded to
the change in demand from our customers.
We used the change in market conditions
as an opportunity to tighten our supply
parameters and production scheduling
(including moving from monthly to weekly
deliveries of raw materials). While we made
very good progress reducing absolute
inventory levels during the year, this will
remain a focus area in 2021.
Within purchasing, we offered our
suppliers access to an ePayables scheme
and supported them gaining access to
government schemes in the US, UK and
France. Alongside this, we have taken the
opportunity to further strengthen and
consolidate our supply chain, including
identifying opportunities to derive further
savings by moving more of our supply base
to low-cost countries where appropriate.
Our recovery plan in Engine Composites
continued as we applied engineering and
process improvements to achieve higher
quality and further improvements in yields.
During the year, our facility in Saltillo,
Mexico, received approval for the
manufacture and direct shipment of
additional high-volume composite parts
to end customers. In addition, lower
production of aircraft engines caused by
COVID-19 allowed us to accelerate the
adoption of new manufacturing technology
and transfer of production lines to Mexico,
with further high-volume parts transitioning
in 2021.
Culture
Our priority in 2020 was to ensure the
health and well-being of our people across
our sites and their response to the crisis
has been outstanding, enabling us to
support all our stakeholders in what have
been extremely challenging circumstances.
During the year, our teams used their
capabilities to support our local
communities in a variety of ways – from
supporting the production of critical
ventilators for the NHS in the UK, to visors,
masks and other protective equipment for
key workers.
Over the last three years we have
worked hard to build and nurture a High
Performance Culture (HPC) and improve
engagement where our ambitious and
diverse teams help us to accelerate the
execution of our strategy. The progress we
have made in this area and the support of
our employees has been instrumental in
the Group being able to respond strongly
to the crisis during 2020. While our focus
on responding to the crisis necessitated
deferring a lot of planned HPC activities
into 2021, we did deliver a number of
training sessions virtually and in person
during the year.
In addition, our customer aligned
organisational structure and more
integrated approach to working across
teams has been a key enabler as we
moved quickly to respond to a significant
adjustment in demand across our civil
business. Despite the huge challenges
presented by the need to respond to the
pandemic and the re-sizing of the business,
our Group-wide Engagement score was
maintained at the ‘High Performance
Norm’1 with our scores for Alignment
and Agility increasing by 2% and 4%
respectively, providing reassuring
feedback on the manner in which the
Group engaged with all employees as
we responded to the COVID-19 crisis.
We further strengthened our commitment
to Diversity and Inclusion, including a
series of activities during Inclusion Week
in October 2020 and the introduction of
an additional three Employee Resource
Groups bringing the total number of
groups to eight.
1 Culture IQ employee survey benchmark.
14
Meggitt PLC
Annual Report & Accounts 2020
Our response to COVID-19
Nobody could have predicted the events of the last
12 months and their impact across the world. Faced
with an unprecedented challenge, our Crisis Management
Team (CMT) moved quickly to respond and adapt to
the sudden change in the external environment and
the associated impact on our colleagues, customers
and communities.
Looking after the well-being of
all our colleagues was our first
priority. We stringently adhered
to national and local health
authority guidelines across our
global sites, introducing a number
of measures including: social
distancing, provision of personal
protective equipment, changes to
work patterns and home working.
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Customer aligned and
engaged organisation
02
Crisis management teams
Andrew Garard,
Group General Counsel and Director Corporate Affairs, Chair Crisis
Management Team
– Provided highly effective
communciation channels
– Allowed us to respond quickly
and decisively to the anticipated
reduction in demand
– Twice-weekly meetings
focused on employee
safety and business continuity
– Directly reporting to the
Board on progress
03
Scenario planning and execution
– Developed business scenarios
allowing us to manage production
levels across the Group
– Output was converted into a number
of targeted actions
Meggitt PLC
Annual Report & Accounts 2020
15
Protecting our
people and our
sites
Supporting our
communities
Preserving cash
Well placed for
the recovery
• Our number one priority remains the well-being of our employees
• Protected colleagues who remained on-site as manufacturing continued right from
the start of the crisis
• Introduced global ‘Stay the Distance’ campaign, social distancing measures
including split shifts and one-way systems
• Provided hand sanitiser and temperature stations at all sites, masks and other
Personal Protective Equipment
• Enabled office-based employees to work from home
• Provided global support networks to promote and protect the physical and mental
well-being of colleagues, including mental health first aiders
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• Founding member of a consortium of leading UK businesses on Ventilator
Challenge UK
• Our Coventry teams stitched over 49,000 straps for a UK supplier of medical
visors to help them meet the demands of health care workers
• Our colleagues in the US made masks for team members and local
communities
• Our Rockmart team in Georgia, USA mixed and supplied hand sanitiser for
the local community
• Supported food drives for those in need
• Our site in Fribourg provided free meals for emergency services
• Our colleagues in Xiamen, China collected and distributed school uniforms
and equipment for children in need
• Reduced size of our global workforce
• Reduced pay for Board and Executive Committee; salary sacrifice for senior
managers
• Reduced discretionary expenditure including travel and pay freezes
• Cancelled final dividend for 2019 and interim dividend for 2020
• Reduced capital expenditure through re-phasing of projects
• Reduced gross inventory levels across the Group
• Secured forward start on our Revolving Credit Facility
• Accessed Bank of England’s and HM Treasury’s COVID Corporate Finance Facility
and other government support schemes
• Issued $300m of senior notes in USPP market
• Ended the year with positive free cash flow and substantially lower net debt
• Continued to execute our focused strategy to emerge stronger from the crisis
• Remained agile and adaptable to changes in the external environment
• Continued our focus on our values and High Performance Culture with employees
and communities at the heart of this
• Positioned to continue to deliver value for all our stakeholders: employees,
customers, shareholders, local communities, suppliers and governments
• Strong fundamentals including diverse end-market exposure across civil
aerospace, defence and selected energy means we are well placed for the
recovery
• Progressive recovery anticipated in the second half of 2021, with positive news on
vaccines and significant pent-up demand to travel
16
Market review
01
Civil original
equipment
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2020 market trends
Meggitt performance in 2020
• The outbreak of COVID-19 caused a
• Civil OE revenue was down 40%
significant reduction in civil air traffic and a
dramatic reduction in airline and operator
revenue.
organically, reflecting lower demand for
original equipment from the airframe and
engine manufacturers.
• Reduction in demand for new-build
• In large jets, which is the largest
aircraft across large, regional and business
jets as airlines and operators deferred
orders to preserve cash.
component of our civil OE revenue (68%),
revenue was down 44%.
• Revenue from regional jets (6% of civil OE
• Airframe and engine OEMs significantly
revenue) was 46% lower.
cut back production rates, with Airbus and
Boeing reducing delivery rates by 34% and
59% respectively.
• 737 MAX returned to service in the US in
December 2020 and was authorised to
return to service in Europe by EASA in
early 2021.
• Revenue from business jets (26% of
civil OE revenue) was down 25%,
outperforming commercial on a
relative basis.
• Within the year, civil OE was down 29%
and 51% in the first and second halves
respectively, reflecting more normal
trading in the first quarter of 2020 before
the impact of COVID-19 was felt in civil
aerospace markets.
Business jet deliveries are expected to be
in line with, or slightly up on, 2020 levels.
Over the medium term, deliveries of new
aircraft are expected to take a few years to
recover to pre-COVID levels, with most
industry commentators estimating this
taking place in 2024/2025.
2021 outlook
OEM production rates expected to be in
line with or slightly up on 2020 levels, as
airframe and engine manufacturers begin
to gradually increase supply to match
demand for new aircraft as air traffic
recovers.
Deliveries of new commercial aircraft are
expected to exceed production rates as
large jet numbers are supported by the
delivery of previously manufactured 737
MAX from inventory.
Both production rates and deliveries of
commercial aircraft are expected to
remain below 2019 levels.
Meggitt PLC
Annual Report & Accounts 2020
Revenue
£306m
Market segments
Large jet >100 seats
Regional jet <100 seats
Business jet
Civil helicopters
Group OE revenue
by platform category
Large jets
Regional jets
Business jets
68%
6%
26%
Annual commercial
deliveries
‘20
‘19
‘18
‘17
‘16
‘15
687
119
1,188
219
1,581
234
1,472
1,420
259
289
1,372
287
Large jets
Regional jets
Annual business jet
deliveries
‘20
‘19
‘18
‘17
‘16
‘15
556
707
625
643
651
714
Meggitt PLC
Annual Report & Accounts 2020
17
02
Civil
aftermarket
2020 market trends
Meggitt performance in 2020
COVID-19 and the subsequent imposition
of global lockdowns and border closures
resulted in a significant reduction in
commercial air traffic with ASKs and RPKs
down 57% and 66% respectively for the full
year vs 2019.
• Flight activity levels started to decline in
Q1, with ASKs down 9% and 39% in
February and March 2020, respectively.
• Air traffic started to recover at the end of
Q2 and through Q3 before plateauing in
Q4 as infection levels increased and
national lockdowns returned.
• Domestic ASKs down 49% with
international traffic down 76% reflecting
widespread travel restrictions.
• Business jets outperformed, with total
flights in this category down 21% in the
year compared with the wider global
commercial fleet, which was down 48%.
• As a result of the reduction in air traffic
activity in 2020, Group civil aftermarket
revenue was down 41% organically as
airlines and other aftermarket customers
deferred orders for spare parts and
repairs.
• Regionally, within our dedicated Services
& Support division, civil aftermarket
revenue (excluding Braking Systems) was
down 32%, 36% and 34% across APAC,
EMEA and the US, respectively.
• Aftermarket revenue for large jets was
down 41%, regional jets down 49% and
business jets down 32%.
• Civil AM revenue was down 26% and 54%
in the first and second halves, respectively,
reflecting more normal trading in the first
quarter of 2020 before the impact of
COVID-19 was felt in civil aerospace
markets.
2021 outlook
Rollout of vaccines underpins a positive
outlook for the continued recovery in civil
aerospace.
Expectation that lockdown restrictions
could be eased and passenger confidence
returns in the second half of 2021.
Looking further ahead, most industry
commentators now expect air traffic to
return to 2019 levels by around 2023/2024.
Business jet activity to remain robust
having recovered well in 2020 (with activity
levels in December close to the
comparative period in 2019).
In any recovery, we expect regional jets
and narrow body aircraft to recover first
as short haul and domestic routes are
restored, while the recovery in wide body
activity will take longer reflecting a change
in consumer attitudes towards long haul
and business travel.
Beyond the recovery period, key drivers
supporting air traffic growth over the long
term remain intact with IATA forecasting a
growth rate in global passenger journeys
of 3.7% per annum over the next 20 years.
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Revenue
£420m
Market segments
Large jet >100 seats
Regional jet <100 seats
Business jet
Civil helicopters
Group AM revenue
by platform category
Large jets
Regional jets
Business jets
Commercial
active fleet
‘20
‘19
‘18
‘17
‘16
‘15
57%
20%
23%
90%
91%
91%
91%
90%
65%
Commercial
ASKs (Bn)
‘20
‘19
‘18
‘17
‘16
‘15
381
877
848
794
745
693
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Market review
03
Defence
2020 market trends
Meggitt performance in 2020
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• US Department of Defense (DOD) outlays
for fiscal 2020 up 6%.
• Outlays for Research, Development, Test &
Evaluation and Procurement both up 12%.
• 2% growth in size of global military fixed
wing fleet.
• Slight decline in non-US defence spending
vs. 2019, with Europe and Rest of World
down and 6% and 1%, respectively.
• Defence revenue grew 4% on an organic
basis with strong growth of 8% in the first
half.
• In OE, revenue grew 14% organically
driven by continuing strong growth on the
F-35 Joint Strike Fighter, the F-135 engine,
Eurofighter, F/A-18 Hornet and in rotary
wing, the AH-64 Apache.
• Good performance from our Defense
Systems business, particularly in
countermeasures, ammunition handling
and cooling systems for ground vehicles.
• Aftermarket revenue was 7% lower
organically, reflecting some disruption to
military exercises caused by COVID-19,
with growth in fighters more than offset by
lower revenue in rotary wing and military
transports.
2021 outlook
Global defence spending expected to
grow around 3%, crossing the $2 trillion
mark.
US foreign military sales expected to
increase, continuing the trend seen in
2020.
The outlook for defence expenditure in
the US, our single most important defence
market, remains healthy.
Most major defence spending nations
remain committed to strengthening
military presence.
With the US defence budget for 2021
approved at $696 billion, outlays are
expected to be in line with 2020.
Meggitt PLC
Annual Report & Accounts 2020
Revenue
£768m
Market segments
Military helicopters
Military aircraft
Ground vehicles
Naval
Space
US DoD Spending (US$Bn)
FY21
143
FY20
146
FY19
147
FY18
147
107
105
95
92
446
444
442
432
Procurement
Research, Development, Test & Eval
Other
Group defence revenue
by platform category
Fighter jet
Transport
Light attack
Special mission
Rotary wing
Ground/naval
36%
9%
4%
3%
25%
23%
Group defence revenue
by geography
UK
Rest of Europe
US
Rest of World
4%
14%
74%
8%
Meggitt PLC
Annual Report & Accounts 2020
19
04
Energy & other
Revenue
£190m
Market segments
Power generation
Oil & Gas
Renewables
2020 market trends
Meggitt performance in 2020
In energy, both supply and demand side
factors led to volatility in the oil price moving
from $57 in January to below $20 per barrel
in April.
• While the oil price subsequently increased
off its lows, and traded in a range of $37
to $49 in the second half, this dampened
overall capital expenditure levels and
delayed certain projects across the oil and
gas sector during the year.
Energy revenue was down 8% on an organic
basis, reflecting volatile end-market
conditions in the first half and some
disruption in the supply chain caused by
COVID-19 towards the end of the year.
• In Heatric, organic revenue was down 7%
and revenue derived from our valve and
condition monitoring business 12% lower
on an organic basis.
• Revenue from other markets was up 11%
• Growth in sales opportunities for new
on the comparative period.
energy applications and more sustainable
power generation systems.
2021 outlook
Medium-term growth expectations for our
energy businesses remain good.
We have differentiated technology which
plays a critical role in the extraction of
deep water offshore gas reserves and
good opportunities in adjacent markets
including LNG and increasingly lower
carbon and renewable applications.
Our energy businesses benefit from
synergistic relationships across the Group,
e.g. thermal systems for the aerospace
market, as well as the long-term demand
for energy, particularly in emerging
markets.
Group energy revenue
by application
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Low carbon
Other
18%
68%
14%
2020 Global investment in
power generation*
Coal
Gas
Oil
Nuclear
Renewables
11%
9%
4%
9%
67%
* Source: IEA (2020) World Energy Investment
20
Strategy
Meggitt PLC
Annual Report & Accounts 2020
Whilst we experienced
the disruption in civil
aerospace in the year,
we remained focused
on operational
execution and our four
strategic priorities to
accelerate growth,
increase cash flow and
improve return on
capital employed.
These priorities are:
Strategic Portfolio,
Customers,
Competitiveness
and Culture.
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Strategic
portfolio
02
Customers
Focus areas
– Investment in sustainable and
differentiated technologies
– Increasing our exposure to
attractive markets where we have
strong competitive positions
Focus areas
– Growing market share in the
aftermarket
– Consolidating our customer-
aligned organisation
2020 progress
• Over 80% of portfolio now in attractive
markets where Meggitt has a strong
position
• Sale of Meggitt Training Systems and
ducting businesses
• Continued investment in differentiated
technologies including those to support
development of next generation of fuel
efficient engines, use of optical sensing in
ground-based power generation and aero
engines, certification of VERDAGENT™
green fire suppression, and deployment of
electric motors and control systems in
electric flight applications
• Intensified focus on returns across product
portfolio
2020 progress
• Customer aligned organisation key to
navigating the crisis
• 14 SMARTSupport® deals signed in the
year taking total number of contracts to 39
with a total aggregate value of £187m
• Secured a number of new customer
contract awards in defence and energy
across our four divisions
• Investment in capability across our three
aftermarket hubs in Singapore, UK and the
US creating Centres of Excellence
See more on page 11
See more on page 12
2021 priorities
• Continue to invest at least two-thirds of
our Research and Technology budget in
technologies for sustainable aviation and
low-carbon energy
• Progress technology and product
development programmes with customers
2021 priorities
• Grow our market share in the aftermarket by
securing additional SMARTSupport®
agreements
• Continued investment in systems and capability
across our three aftermarket hubs to improve
competitiveness and enhance our offering
• Focus on opportunities to grow revenue in
• Continued focus on operational
defence and energy
See more on page 11
improvements to drive customer satisfaction
See more on page 12
Key risks
• Technology strategy – failure to develop
meaningful technologies to meet customer
needs
Key risks
• Customer satisfaction – failure to meet
customers’ cost, quality and delivery
standards as preferred suppliers
Meggitt PLC
Annual Report & Accounts 2020
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03
Competitiveness
04
Culture
Focus areas
Focus areas
– Driving productivity
improvements across all sites
– Improving inventory management
– Rationalise supply chain and
deliver further purchasing cost
savings
– Optimise factory footprint
2020 progress
• Ansty Park office opened to employees
• Transfer of high volume engine composite
parts to our facility in Saltillo, Mexico
• Further reduction in our global footprint
with 37 sites at the end of 2020,
representing a 34% reduction compared
with our 2016 baseline
• Reduction in absolute inventory levels in
response to dramatic reduction in civil
aerospace volumes to preserve cash
• Implementation of greater automation and
advanced digital manufacturing at our sites
driving greater efficiency
• Launched Spitfire Programme to promote
next generation of operations leaders
– Protect our people and sites
– Support our local communities
– High Performance Culture
– Improve employee engagement
– Focus on Diversity & Inclusion
2020 progress
• High Performance Culture (HPC) critical
in navigating the crisis and keeping our
sites open
• Supported our communities across the
world including production of personal
protective equipment
• Engagement score at High Performance
Norm1 level with scores for Alignment and
Agility up 2% and 4%, testament to the way
we continue to handle the COVID-19 crisis
• Strengthened commitment to Diversity &
Inclusion with introduction of Inclusion
Week and three additional Employee
Resource Groups
See more on page 13
See more on page 13
2021 priorities
• Complete the transfer of production from
four UK sites into Ansty Park
• Drive environmental and sustainability
improvements across our sites including
meeting our 2021 targets
• Drive further operational improvements
across all sites
2021 priorities
• Continue to protect employees across
our global sites and support our local
communities
• Roll out ‘LeadX’, our leadership
development programme, across the
Group
• Drive engagement across the Group
through continued rollout of HPC
See more on page 13
See more on page 13
Key risks
• Project/programme management – failure
to meet new product programme
milestones or lower than expected
production volumes
Key risks
• People – failure to attract, motivate and
retain people due to lack of opportunities
and/or training
1 Culture IQ employee survey benchmark.
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Business model
Meggitt PLC
Annual Report & Accounts 2020
01
What we do
Innovation is at the heart
of what we do with safety,
reliability, and operating and
environmental performance
underpinning our approach.
By investing in and developing
sustainable and differentiated
technologies for application in
our selected markets, including
civil aerospace, defence and
energy, we develop pioneering
products in collaboration
with our customers.
Our products are
manufactured in our globally
located facilities and we
go to market through our
four customer aligned
business divisions:
02 How we create value through the investment cycle
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Differentiated
technology
We invest in differentiated
technologies for extreme
environments with deep
intellectual property.
As such, our products are
hard to replicate with
high barriers to entry.
Strong content
and sole source
We maximise our content
on new-to-market platforms,
where possible securing sole-
source, life-of-programme
positions across a diverse fleet
of over 72,000 civil and
military aircraft.
Through-life
Services & Support
We provide aftermarket
services and support building
longer term, more durable and
deep partnerships through
SMARTSupport®.
Outstanding
operations
We value operational excellence
as a strategic imperative,
continuously striving to do things
better through investment in our
High Performance System
and initiatives such as our
Operations Academy
and campus at
Ansty Park.
04
Maintaining a
competitive
advantage
Strong partnerships
Market-leading technology
We seek strong, collaborative and
close relationships with our customers
and suppliers. Our business cycle is
multi-year, and we seek relationships
to support this.
We invest in market-leading
technology and robustly defend
our intellectual property rights.
We hold leading market positions
across a number of product lines.
See more on page 11
See more on page 24
Meggitt PLC
Annual Report & Accounts 2020
23
• Airframe Systems
• Engine Systems
• Energy & Equipment
• Services & Support
Through our Services
& Support division and
SMARTSupport® (our
brand name for a range
of tailored, longer term,
aftermarket offerings),
we provide a tailored
package of spare parts
and repair services to our
customers depending on
their requirements to fit
their operational model.
03
How we share
value
Aerospace, defence and aero-derived energy
We secure content across a broad range of platforms in civil aerospace,
defence and selected energy end markets, generating original equipment
(OE) revenue from day one and a growing aftermarket (AM) revenue stream
as the fleet grows over time.
Illustrative
Production
Post Production
)
£
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s
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l
F
Product
development
Entry in service
Revenue from
original equipment
as OEMs produce
each new aircraft
Revenue from
aftermarket grows
over the life of the
programme
25 years
Annual deliveries
Total fleet
Aftermarket annuity
Leveraging our long-term customer relationships, strong IP and differentiated
technology we have secured increased content on the latest generation of
platforms. Our business model is to grow and constantly refresh our aftermarket
revenue providing a strong annuity revenue stream for years to come.
Illustrative
)
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Customers
We develop innovative and
differentiated technology for our
customers, that anticipates future
market demand and meets high
certification requirements.
Equity and debt holders
Over the last five years we
have returned c. £486m to our
shareholders through dividends,
and paid c. £164m in interest to
our holders of debt.
Employees
We employ over 9,000 people and
in 2020 paid over £659m in wages,
salaries, and employee benefits.
Governments
We paid over £95m in social
security and corporation taxes
to governments in 2020. The
Group’s employees also paid
a share of their wages and
salaries to governments through
income taxes.
Suppliers
Over the last five years, through
our central procurement function,
we have paid c. £4.6Bn to our
suppliers.
Legacy platforms
Younger platforms
New and future platforms
Time
Diverse end markets
World-class services and support
Strong values
We have diverse end-market
exposure with our technology
and products utilised in a large
fleet across civil, defence and
selected energy markets.
Our customers demand high quality, timely
services and support to maximise the value
of our products through their lifecycles.
Our values underpin what we
do and are supported by HPC.
Our people collaborate to create
value by combining extensive
technical capabilities and long-
standing sector knowledge.
See more on page 6
See more on page 34
See more on page 28
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Meggitt PLC
Annual Report & Accounts 2020
Innovating for the future
Ongoing focus on sustainable
aviation and low carbon energy.
Our 170-year history is built on
the invention and development of
technologies that bring our vision
to life and ‘enable the extraordinary’
across our end markets of aerospace,
defence and selected energy.
From the world’s first altimeter
nearly two centuries ago, to today’s
next-generation technologies that
create more sustainable and efficient
aircraft, engines, power and defence
systems, innovation is in our DNA.
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Fundamental to this is our belief that
designing future technologies must
support a more sustainable future.
That is why this is at the heart of our innovation strategy
as we anticipate and prepare for the new challenges our
customers face. With an accelerating need to address
climate change we are focusing two-thirds of our
investment in Research & Technology on developing
the products and capabilities needed to support a
net-zero future.
Our design and manufacture of pioneering technology for
the most extreme environments improves safety, reliability,
life cycle management and operating and environmental
performance, enabling our customers around the world
to deliver on their commitments and ensuring a more
sustainable future for the generations to come.
Shaping the future of heat
exchanger technology.
Additive manufacturing is enabling much greater flexibility in
the way products are conceived, designed and manufactured.
This makes it the ideal process to support production of our
next generation of valves and heat exchangers. Additive
manufacturing allows us to produce more complex shapes
which improve thermal and flow properties to produce parts
that have both improved performance and are shaped to fit
our customers’ increasingly challenging applications.
Using our additive manufacturing facilities in California and
working with HiETA Technologies, our UK joint venture partner,
we are developing the next generation of high-performance and
light-weight thermal and flow systems with the right performance
and cost to be brought to the market at a critical time for
sustainable aviation and lower carbon power generation solutions.
Meggitt PLC
Annual Report & Accounts 2020
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Heat exchangers for the most
demanding applications.
Meggitt’s Heatric business is recognised
as an industry leader in Printed Circuit Heat
Exchanger technology. With 3,000 units in
operation in some of the most demanding
high-pressure applications this technology
is playing a key role in the transition to
low-carbon energy.
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We have a 30-year history in
providing high performance
heat exchangers for demanding
applications. The increased offshore
production of natural gas and LNG
continues to drive demand, and as
decarbonisation accelerates we are
increasingly providing advanced
heat exchangers to low-carbon
power generation and energy
storage plants.
Printed Circuit Heat Exchangers are a high-performance compact
heat exchanger that combine the thermal performance associated
with compact heat exchangers, the mechanical capabilities traditionally
reserved for shell and tube exchangers and a superior safety and
integrity to all other heat exchanger types.
A bespoke design for every exchanger is tailored to the process
requirements yielding high thermal effectiveness and process
efficiencies as flow arrangements are custom designed to optimise
heat transfer and pressure drop performance with pressure capability
in excess of 1,000 bar.
Our heat exchangers are used in the production of liquefied natural
gas, a fuel that is being increasingly used to replace coal and in
power generation, our heat exchangers are used to pre-heat fuel
within combined cycle plants to improve efficiency and reduce
emissions. We are also actively involved in supplying heat exchangers
to novel new power plants that are capturing the CO2 instead of
allowing it to be released to the atmosphere and supplying equipment
to plants using thermal energy storage to provide grid-scale energy
storage.
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Meggitt PLC
Annual Report & Accounts 2020
Innovating for the future
Optical sensing
technology for
power generation.
Meggitt advanced optical sensors enable
improved control of combustion in gas
turbines which reduces emissions and
improves efficiency.
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As more and more renewable energy is
added to electrical grids around the
world, modern gas turbines need to be
able to flex their output in response to
changes of supply. This in turn requires
increasingly sophisticated control of
the combustor system to maximise
efficiency and minimise emissions.
Accurately measuring the dynamic pressures within the harsh
environment of the combustor is key to the real-time monitoring of
these critical combustor components, and our team in Fribourg,
Switzerland, has successfully developed high-temperature fibre optic
pressure sensing systems for gas turbines which are now operating
at customer sites. Our pioneering optical sensing technology offers
significant advantages over traditional sensing technologies:
fibre-optics are more sensitive, more accurate and can be installed
much closer to the combustion process.
We continue to invest in optical sensing for both ground and
air applications and see it as a promising technology to help
improve monitoring and sensing accuracy and efficiency.
Meggitt PLC
Annual Report & Accounts 2020
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Composite radomes
protecting the Typhoon’s
new advanced radar.
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We have been selected by BAE
Systems and Leonardo to supply a
pioneering radome for their Typhoon
upgrade to support the operation
of a sophisticated Active Electronically
Scanned Array (AESA) system, which
allows pilots to locate, identify and
suppress enemy air defence radar.
The radome is a composite structure at the nose of the aircraft that
houses the radar systems and antennae and protects them when the
Typhoon jet is flying at speeds in excess of 2,000 km/h.
Meggitt’s composite radome technology is used to build a robust and
lightweight nose cone that helps to ensure the jet’s aerodynamic
stability whilst ensuring that the critical electronic signals can pass
through it.
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Meggitt PLC
Annual Report & Accounts 2020
Culture
01
Embedding
our High
Performance
Culture
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Our culture is shaped by our
shared values, goals and
practices.
It’s the glue that binds us and the secret to making
good extraordinary. It breathes life into our values of
Teamwork, Integrity and Excellence and is the heartbeat
that powers our vision: Enabling the Extraordinary,
To Fly To Power To Live.
We’ve done further positive work to build our Culture
in 2020, creating our shared sense of purpose and
emotional connection with what we do. Teamwork and
collaboration are the hallmarks of this Culture and have
enabled us to move with pace and purpose during 2020.
Our Culture journey started in 2017, with the launch
of our global High Performance Culture workshops.
This has created a strong foundation that has proved
invaluable in the face of the COVID-19 pandemic.
Applying the principles learned to real life situations
has enabled our global teams to navigate the pandemic
successfully and build the necessary flexibility to
allow them to respond at pace to our customers'
changing needs.
We have continued our Culture-building activity virtually
throughout the past 12 months as we continue to equip
our colleagues with the essential tools to propagate our
High Performance Culture. More than two-thirds of our
colleagues have now been through the workshop and
we have more than 40 internal facilitators who continue
to deliver our Culture concepts to our colleagues
worldwide.
Celebrating and valuing our differences are crucial to
our High Performance Culture and our Employee
Resource Groups (ERGs) underpin this. This year our
ERGs have grown in number to eight, with more in
creation, and in October we held our very first Inclusion
Week as we continue to create more opportunities for
voices to be heard.
Meggitt PLC
Annual report & accounts 2020
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6,400
The number of colleagues who have
attended our culture workshops.
1,100
The number of leaders who have
attended culture reinforcement
workshops.
2020 also saw the launch of our ‘Extraordinary People’
recognition programme, giving colleagues the
opportunity to acknowledge the extraordinary people
they work with every day and in turn be recognised for
their own contributions. 2,353 colleagues have already
been nominated, and 536 colleagues have received
awards.
Launching “Our Green Future” is one further step on
our culture journey as we build a framework for our
commitment to sustainability, through caring for our
people and communities; our environmental
responsibility to better protect our planet; or investing
in next-generation technologies that create more
sustainable and efficient aircraft, engines, power and
defence systems.
It’s the power of our diverse thinking together with
our individual behaviours, continuing to value our
differences and the respect we show to each other
that is enabling us to build our inclusive, diverse and
progressive culture.
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Meggitt PLC
Annual report & accounts 2020
Strategy
02
Fire suppression
that protects
the environment
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Our patented VERDAGENTTM solution
VERDAGENTTM has passed US Federal
Aviation Agency (FAA) Minimum
Performance Standard (MPS) testing
for cargo applications and is part of
Boeing’s Eco-Demonstrator project.
We are now in the process of soliciting
approval for use as an alternative to
Halon 1301 by the US Environmental
Protection Agency and in 2021 we will
be conducting further tests with the
European Aviation Safety Agency for
cargo applications and with the FAA
for engine and APU applications.
Global regulations on ozone-depleting
substances are leading aircraft OEMs to
phase-out the use of Halon 1301 in
aircraft fire suppression systems. We are
working closely with the major OEMs to
develop a new solution that is both an
efficient way of extinguishing aircraft
fires and protecting the environment for
future generations. Our patented green
fire suppression solution, VERDAGENT™,
can be used to extinguish cargo bay,
engine and Auxillary Power Unit (APU)
fires. Unlike other green solutions, it
does not leave corrosive residues
after application, performs at low
temperatures and can be delivered
using existing ancillary equipment,
such as cylinders and bottles,
making it an easy retrofit option for
operators worldwide.
Meggitt PLC
Annual report & accounts 2020
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1
VERDAGENTTM is currently the only
agent that has passed FAA MPS
testing for cargo applications.
2035
Is the anticipated goal to retrofit
all aircraft with green agent.
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Meggitt PLC
Annual Report & Accounts 2020
Competitiveness
03
Continuous
improvements
and investing
for growth
Letting the robot take the strain
installed new paint spray machines
to support our radome production,
capable of operating to the fine
tolerances required to support
product functionality whilst
reducing waste.
We have similarly validated the
automation of the ferruling and
dimpling processes used in the
manufacture of our current air/oil
heat exchangers for implementation
in our state-of-the-art facilities at
Ansty Park.
Advanced manufacturing technologies
create many opportunities for us to
improve productivity and meet tighter
tolerances. Sealants used for bonding
aerospace composites are inherently
expensive, and manual application of
these advanced materials can result in a
significant amount of waste. We recently
designed and installed a robotic system
in our Saltillo composites facility which
resulted in a 90% saving in the amount
of sealant being used. Good for the
financials and good for the environment.
We have also successfully delivered
robotic capability to build advanced
composite structures which provides
a cost saving of 60% compared to
conventional manual lay-up methods
along with weight savings and reduced
material waste. In addition, we have
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Meggitt PLC
Annual Report & Accounts 2020
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90%
Saving in the amount of
material used.
60%
Cost saving compared to
conventional manual methods.
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Meggitt PLC
Annual Report & Accounts 2020
Customer
04
Customer-led
forecasting in
a digital age
Specialist knowledge, with three global hubs
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Effectively managing customer
requirements across regions
requires the best software
solutions to ensure accurate
forecasting and optimisation of
inventory around the world. Having
the right parts, in the right place,
at the right time, is critical to our
customers and our business
model.
To achieve this, Services & Support
has established three global hubs
in Asia, North America and
Europe, creating regional MRO
centres of excellence and allowing
us to support and understand
better the unique needs of our
customers and markets. To
improve forecast accuracy we
segment our customers to gain
greater insight into their bespoke
material requirements. Whether
they are an engine MRO provider,
distributor or an operator,
it is important that the offering
is customised to support their
demand needs. This is where our
digital journey starts.
Using customer-led forecasting tools,
we collate all our customers’ forecast
information centrally, incorporate
platform knowledge, and produce
an accurate rolling forecast at a
customer level. This data is then fed
into our innovative new software
solution that is supporting our
delivery of reliable and accurate part
and MRO services around the world.
The system takes the sales data and
refines it by incorporating known
maintenance events, flight hours,
fleet lifecycle, growth rates, fleet
concentration and part reliability
information.
Managing this process needs
specialist knowledge and we have
established a team of global
material experts in our new Ansty
Park headquarters who take this
information down to a detailed
part-level forecast. Centralising
this activity means our OE
manufacturing facilities deal with
a single customer, facilitating the
process and building greater
transparency. This improved
forecast accuracy enables the sites
to forward-plan more effectively
leading to improved on-time
delivery, optimised inventory,
and satisfied customers.
This digital evolution has been
fundamental to the efficient
navigation of fluctuating demand
during the COVID-19 pandemic
and due to the new system’s
success there are plans to extend
its use to other parts of the
business.
Meggitt PLC
Annual Report & Accounts 2020
35
10,000+
The number of components available to our
customers.
3
Regional Centres of Excellence for
Maintenance, Repair and Overhaul
operations.
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Meggitt PLC
Annual Report & Accounts 2020
Providing core components for original equipment
airframe manufacturers and the Services & Support
division across multiple platforms, and specialising in
products designed to operate in demanding conditions
across a diverse range of applications.
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Airframe
Systems*
£793m
Revenue
(2019: £1,030m)
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2020 Performance
Organic revenue was down 22%. Civil
OE revenue was down 34% with large
jets and regional jets OE down 39% and
38%, respectively. Business jet OE was
down 18%, outperforming large and
regional jets on a relative basis. Civil
aftermarket revenue was 42% lower on
an organic basis reflecting the reduction
in commercial air traffic and lower
demand for spares. For the full year,
organic aftermarket revenue in large,
regional and business jets was down
38%, 52% and 32%, respectively.
Defence revenue was flat, with OE 6%
higher driven by growth in fighters
including F-35 and Typhoon. In the
aftermarket, revenue was 5% lower than
the prior year, with growth on Typhoon,
F/A-18 and light attack platforms more
than offset by declining demand on
rotary wing and special mission.
As a result of the lower volumes in civil
OE and reduction in higher margin civil
aftermarket revenue, underlying
operating margin was 890 basis points
lower than the comparative period at
15.2% (FY 2019: 24.1%).
In 2021, responsibility for all aftermarket
activities in Braking Systems including
spares and repairs will transfer to the
Services & Support division and be
managed across the Group’s three
regional aftermarket hubs.
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Meggitt PLC
Annual Report & Accounts 2020
President: Chris Allen
Divisional capabilities:
– Wheels and brakes (including
control and monitoring systems)
– Aircraft fire protection and
safety systems
– Electro-thermal ice protection
– Power generation, conversion
and storage
– Avionics and air data systems
– High performance sensors
– Flexible fuel tanks for defence
and civil aircraft
– Sealing solutions
Divisional revenue by market
Revenue
26%
22%
26%
22%
4%
Market
Civil OE
Civil AM
Defence OE
Defence AM
Energy & Other
Markets
Civil aerospace
Fixed wing
defence aircraft
Rotary wing
defence aircraft
Unmanned
aerial vehicles
What does the division do?
Provides Braking Systems, Fire
Protection & Safety Systems, Power
& Motion, Fuel Systems, Avionics &
Sensors and Polymer Seals for around
51,000 in-service civil and 22,000
defence aircraft. As well as increasing
our content on the new generation
aircraft by as much as 250%, we also
have a strong presence on all of the
fastest growing and hardest worked
defence platforms.
As such, we have strong relationships
with all of the major OEMs, whether
commercial, defence or business jet;
fixed wing or rotorcraft; US, European or
Rest of World. The division represents
47% of Group revenue, generating 55%
of its revenue from OE sales and 45%
from the aftermarket derived mainly
from Braking Systems, with the
remaining aftermarket revenue from
other product groups reported in
Services & Support.
Operational and
strategic highlights
• Protected our people and kept our
sites open to support Airframe
Systems’ customers
• Responded quickly to reduce costs
and preserve cash in response to the
reduction in civil demand
• Good progress on development of
new technologies, including new
green fire suppression agent
VERDAGENT™
• Continued to support customers on
new product development and
testing across a number of platforms
• Transfer of products associated with
further footprint consolidation,
including moves out of Orange
County, US, to Airframe Systems sites
in Simi Valley, US, Fareham, UK and
Fribourg, Switzerland
• Secured $15m of funding under the
CARES Act to support critical
industrial base capability for military
grade fuel bladders at our Rockmart,
US, facility
• Deferral of capital expenditure
relating to carbon capacity
expansion in Braking Systems
E-brake®
Our E-brake®, installed
on the Airbus A220,
reduce system weight
by replacing hydraulic
control lines with lighter
electronic signalling
and actuation systems,
this also eliminates the
possibility of harmful
hydraulic fluid leaking
into the environment.
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Meggitt PLC
Annual Report & Accounts 2020
Providing core technologies for engine manufacturers
across a broad range of competencies including thermal
management, engine sensing and advanced composites.
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Engine
Systems*
£234m
Revenue
(2019: £329m)
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2020 Performance
Revenue decreased by 28% on an
organic basis with good growth in
defence more than offset by lower
demand for OE parts across civil
aerospace. Civil OE revenue was 49%
lower on an organic basis, with the
absolute reduction in revenue mainly
driven by large jets. In defence,
revenue grew by 9% on an organic
basis with particularly strong growth
on the F-135 programme and the
F-22 Raptor.
Despite the work done within the
division to reduce costs significantly
in response to the dramatic reduction
in civil OE and AM volumes across all
product groups, Engine Systems
generated an underlying operating
loss in the year of £13.2m (FY 2019:
profit of £27.2m).
Within our Engine Composites business,
we continued to make good progress
with operational improvements including
the transfer of additional high-volume
parts to our facility in Mexico.
We remain firmly focused on our
recovery plan in Engine Composites
and returning this product group to
mid-teens margins having delivered a
number of operational improvements.
However, as reported at the half year,
due to the severe and sudden
downturn in civil OE volumes, margin
recovery will now take longer and
extend beyond our previous timeline
of the end of 2021.
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Meggitt PLC
Annual Report & Accounts 2020
President: Troy Peterson
Divisional capabilities:
– Complex high-temperature engine
composite components
– Control valves and sub-systems
– Engine sensors
– Thermal management
Divisional revenue by market
Revenue
41%
2%
41%
9%
7%
Market
Civil OE
Civil AM
Defence OE
Defence AM
Energy & Other
Markets
Civil aerospace
Fixed wing
defence aircraft
Rotary wing
defence aircraft
What does the division do?
Market-leading position in advanced
engine composites, thermal and
safety systems with a broad range
of technologies including vibration
monitoring and engine health
management systems. This division
also provides aerospace engine flow
control and sensing solutions. Strong
positions on high volume platforms
mean we are well positioned for growth
in Engine Systems.
The division represents 14% of Group
revenue, generating 89% of its revenue
from OE and 11% from the aftermarket
as a result of its principal route to the
aftermarket being through the Services
& Support division.
Operational and
strategic highlights
• Protected our people and kept our
sites open to support Engine
Systems’ customers
• Moved quickly to resize the business,
reduce costs and preserve cash while
maintaining focus on technology and
programme development
• Good progress developing new
products in the engine core to
displace heat, increase efficiency,
and reduce fuel, particularly projects
to support next generation engine
demonstrators
• Transfer of high volume engine
composite parts to Saltillo, Mexico
and direct shipments from Mexico to
end customers
• Transfer of Engine Sensing products
from Basingstoke to Airframe
Systems Fareham in the UK as part of
ongoing footprint consolidation
• Completed sale of our ducting
business based in Dunstable (UK) in
January 2021
• In defence, continued strong growth
including to support the F-135
engine programme
Advanced composite
solutions
Providing weight
savings and extending
product life cycle
are important steps
towards more
sustainable aviation.
Our advanced
composites play a
critical role in our
latest technologies
designed to increase
engine efficiency.
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Meggitt PLC
Annual Report & Accounts 2020
Providing innovative, aero-derivative technologies with
applications across the energy and defence sectors.
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Energy &
Equipment*
£335m
Revenue
(2019: £413m)
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2020 Perfomance
Revenue was up 7% organically (down
19% on a reported basis with the
inclusion of Training Systems) with a
strong performance from Defense
Systems and strong OE growth on the
Apache AH-64 and other rotary wing.
In energy, despite the volatility in
market conditions during the year,
revenue was 12% lower on an organic
basis, reflecting a strong order book
as we entered the year. Underlying
operating margins in Energy &
Equipment at 12.7% were 20 basis
points lower than the comparative
period (FY 2019: 12.9%).
With the US defence budget agreed
for 2021, a healthy order book and a
number of promising commercial
opportunities in both energy and
defence, the outlook for 2021 is
encouraging. As well as focusing on the
conversion of these opportunities in
2021, our focus in Energy & Equipment
will continue to be the delivery of
further operational improvements
across all sites.
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Meggitt PLC
Annual Report & Accounts 2020
President: Paul Devaux
Divisional capabilities:
– Combat support (ammunition
handling, electronics cooling and
countermeasure launch and
recovery systems)
– Energy sensing and controls
– Vibration condition monitoring
systems for energy markets
– Heat transfer equipment for
offshore oil and gas
– Fuel handling
Divisional revenue by market
Market
Defence
Energy & Other
Revenue
57%
43%
Markets
Defence ground
vehicles
Defence and
security
Energy and
industrial
Ground fuelling
What does the division do?
Energy & Equipment consists of our
energy product groups and businesses
that provide products directly to
defence customers. Energy Sensors
& Controls provides a range of valves,
actuators, sensor and condition
monitoring systems for oil and gas
applications. Heatric provides
innovative printed circuit heat
exchanger technology for offshore
gas applications. Defense Systems
provides a series of complex
engineered products to defence
agencies in electronic cooling,
ammunition handling and scoring
systems. Training Systems was sold on
30 June 2020 and revenue from this
product group (FY 2020: revenue of
£32.8m) is excluded from organic
figures. Energy & Equipment
represents 20% of Group revenue and
generates 83% of its revenue from OE
and 17% from the aftermarket.
Operational and
strategic highlights
• Protected our people and kept our
sites open and operating safely to
support customers
• Moved quickly to reduce cost and
preserve cash
• Strong defence performance across
ground vehicle cooling systems,
countermeasures and ammunition
handling
• Sale of the Training Systems business
in June 2020
• Continued footprint consolidation
with closure of the Orange County
site and the transfer of products to
other sites in the US and Europe
• Continued transfer of production
volumes to low-cost countries
Optical sensing for
increased accuracy
Our innovative
high-temperature
fibre optic pressure
sensing technology
for gas turbines offers
significant advantages.
We continue to invest in
pioneering optical
sensing for both ground
and air applications.
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Meggitt PLC
Annual Report & Accounts 2020
Providing throughlife MRO and spares services across
our extensive installed base through our three
regional hubs.
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Services
& Support*
£322m
Revenue
(2019: £499m)
What does the division do?
Services & Support provides a
full-service aftermarket offering
including spares distribution and MRO
to our commercial, business jet and
defence customer base throughout the
lifecycle of our products. The division
represents 19% of Group revenue and
generates 100% of its revenue from the
aftermarket.
Operational and
strategic highlights
• Protected our people and kept our
sites open and operating safely to
support customers
• Moved quickly to reduce cost in the
face of the reduction in aftermarket
revenue as airlines and operators
deferred orders for spares and
repairs as commercial flight activity
reduced
• Continued delivery of strategic
initiatives with consolidation of repair
capabilities in our three regional
centres of excellence: Ansty Park in
the UK, Singapore, and Miami in the
US
• Expansion of Singapore aftermarket
capability and footprint
• Enhanced maintenance forecasting
capabilities leveraging best-in-class
technologies to improve inventory
management, reduce lead times and
enhance customer service levels
• Introduction of ‘Smart Scoping’ in
our three regional hubs to leverage
engineering capabilities to increase
efficiency and reduce MRO costs
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2020 Performance
Within Services & Support, order intake
in civil aftermarket was down 49% in
the year as our aftermarket customers
deferred orders for both spare parts
and MRO. In APAC, orders were down
37% with the recovery in the Chinese
domestic market underpinning the
region. Order intake was down 48% in
the Americas with the 737 MAX
grounding negatively influencing
demand for spare parts. And, as a
result of repeated lockdowns and
associated border controls, within
EMEA order intake was down 59% in
the period.
Divisional revenue was 35% lower
organically with civil aerospace revenue
down 40%. Large jet revenue, which
represented 82% of Services & Support
civil revenue, was down 41% organically
in the year, with regional and business
jets down 39% and 32%, respectively.
In defence, revenue was 11% lower on
an organic basis.
On a regional basis, organic revenue
was down 32% in APAC and 34%
and 36% in Americas and EMEA,
respectively. Underlying operating
margin was 210 basis points lower at
12.7% (FY 2019: 14.8%).
In the coming year, our core priorities
within Services & Support will be to
ensure the smooth integration of
Braking Systems spares and repairs into
the division, drive an increase in market
share through signing additional
SMARTSupport® contracts and
investing further in our three regional
aftermarket centres of excellence.
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Meggitt PLC
Annual Report & Accounts 2020
President: Stewart Watson
Divisional capabilities:
– Maintenance, Repair
and Overhaul (MRO)
– Spares provisioning
– SMARTSupport®
Divisional revenue by market
Market
Civil AM
Defence AM
Revenue
74%
26%
Markets
Civil aftermarket
Fixed wing defence aircraft
AM
Rotary wing
defence aircraft
SMARTSupport®
for our customers
worldwide
We have continued to
invest in new aftermarket
capabilities with our three
regional MRO centres
of excellence.
44
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quickly to execute
a series of actions
to maintain a robust
balance sheet.
(Table 1) Financial summary
Orders
Revenue
Underlying2:
EBITDA3
Operating profit
Profit before tax
Earnings per share (p)
Statutory:
Operating (loss)/profit
(Loss)/profit before tax
(Loss)/earnings per share (p)
Free cash flow4
Net cash flow5
Net debt
Dividend (p)
FY 2020
£’m
1,547.1
1,684.1
FY 2019
£’m
2,468.4
2,276.2
296.9
190.5
159.5
16.5
(297.3)
(334.0)
(40.4)
31.9
136.0
773.0
–
507.3
402.8
370.3
37.3
325.3
286.7
28.8
267.8
205.7
911.2
5.55
Change
Reported
%
Organic 1
%
(38)
(22)
(40)
(50)
(55)
(37)
(26)
(41)
(53)
(57)
(56)
(191)
(217)
(240)
(88)
(34)
(15)
Meggitt PLC
Annual Report & Accounts 2020
Introduction
In 2020, the Group moved quickly to
adapt to the significant change in market
conditions and executed a series of actions
to reduce our cost base and preserve
cash. As well as delivering our internal
cash savings targets, we have focused on
maintaining a robust balance sheet and
on external financing, including securing
a forward start on our revolving credit
facility to September 2022, raising $300m
in the US private placement market and
honouring all our 2020 scheduled debt
repayments. I am particularly pleased that
the Group has delivered a reduction in
net debt of £138m ending the year with
net debt: EBITDA of 2.2x providing ample
headroom against our banking covenants.
The Finance team has been at the forefront
of this work. I am incredibly grateful
to all of them for their hard work and
dedication during these challenging times.
Group orders and revenue
Our full year results reflect the effects
of COVID-19 and the unprecedented
reduction in civil aerospace activity with key
financial metrics, both on a statutory and
underlying basis, declining in the period.
In our half year results, we reported that
Group revenue for the six months ended
30 June 2020 was 14% lower than the
comparative period. This reflected the
marked deterioration in trading in our civil
aerospace business in the second quarter,
as a result of the significant reduction in
commercial air traffic and grounding of a
large proportion of the global fleet, which
more than offset a strong performance from
our defence business.
While the level of global civil aerospace
flight activity recovered in the second half,
market conditions have remained
challenging with the recovery impacted
by second waves of COVID-19 and further
lockdowns in the fourth quarter. In the
second half, Group civil aerospace
organic revenue was 53% lower than the
comparative period, with OE down 51%
(large jets -55%, regional -59% and business
jets -37%) and aftermarket down 54% (large
jets -52%, regional -63% and business jets
1 Organic numbers exclude the impact of
acquisitions, disposals and foreign exchange.
2 Underlying profit and EPS are used by the Board
to measure the trading performance of the
Group as set out in notes 9 and 14.
3 Underlying EBITDA represents underlying
operating profit adjusted to add back
depreciation, amortisation and impairment
losses.
4 Free cash flow is defined and reconciled to
statutory measures in note 42 to the Group’s
consolidated financial statements
5 Net cash flow is defined and reconciled to
statutory measures in note 43 to the Group’s
consolidated financial statements
Meggitt PLC
Annual Report & Accounts 2020
45
Profit and earnings per share
In common with previous years, underlying
profit is used by the Board to measure the
underlying trading performance of the
Group and excludes certain items including
amounts arising on the acquisition,
disposal and closure of businesses;
amortisation of intangible assets acquired
in business combinations; movements in
financial instruments; and exceptional
operating items.
As a result of the reduction in Group
revenue, and notwithstanding the
significant action taken to reduce costs
to mitigate the impact of lower volumes
and under absorption of fixed costs, the
Group's underlying operating margins
decreased by 640 basis points, to 11.3%
(FY 2019: 17.7%), with underlying operating
profit 53% lower in the year at £190.5m (FY
2019: £402.8m).
Underlying profit before tax decreased by
57% to £159.5m (FY 2019: £370.3m) with
underlying earnings per share also down
56% at 16.5 pence (FY 2019: 37.3 pence).
The level of exceptional costs at £428.7m
is significantly higher than forecast at the
start of the year, including impairment of
goodwill and other asset write-downs
arising from the unprecedented downturn
in civil aerospace during the year, resulting
in Group underlying operating profit
becoming an operating loss of £297.3m
at the statutory level. Within exceptional
costs, £374.2m relates to impairment losses
and other asset write downs comprising:
goodwill (£335.7m); development costs
(£24.5m); inventory (£8.6m); and trade
receivables (£5.4m). Further details relating
to impairment losses and other asset
write-downs are set out in note 10.
As a result of the impairment losses and
other asset write downs, Group loss before
tax was £334.0m (FY 2019: £286.7m profit)
and basic loss per share was 40.4 pence
(FY 2019: earnings per share of 28.8
pence).
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(Table 2) Revenue growth
Civil OE
Civil AM
Total civil aerospace
Defence
Energy
Other
Group
FY 2020
Revenue
£’m
306.0
419.6
725.6
768.4
131.1
59.0
1,684.1
Growth
%
(41)
(41)
(41)
(7)
(8)
(21)
(26)
Organic
growth1,2
%
(40)
(41)
(41)
4
(8)
11
(22)
-49%). After a strong first half with organic
growth of 8% (excluding Training Systems),
defence revenue was flat in the second half
on an organic basis, somewhat dampened
by disruption to production at one of our
US sites caused by a number of COVID-19
cases. Energy revenue was down 11%
organically in the second half, partly
reflecting the timing of projects and
phasing of revenue.
For the full year, Group orders were 38%
lower on an organic basis with book to bill
of 0.88x. Our order book in defence remains
robust with an organic book to bill of 1.05x.
Group organic revenue was down 22% with
lower revenue in civil aerospace and energy
more than offsetting a good performance in
defence where revenue grew 4%. In civil
aerospace, revenue was 41% lower, with
sales from civil OE and civil AM down
40% and 41%, respectively. Energy revenue
was 8% lower on an organic basis.
Reported Group revenue of £1,684m (FY
2019: £2,276m) decreased by 26% as
analysed in Table 3.
The adjustments for business disposals
include the sale of Angouleme (completed in
March 2019), Orange County product lines
(completed in June to December 2019),
Training Systems (completed in June 2020),
and our Dunstable site and associated
product lines (completed in January 2021).
Currency movements in the year reflect the
slight strengthening of pound sterling
against our trading currencies, principally the
US dollar. The organic revenue decline
reflects the impact of COVID-19 on civil
aerospace partially offset by defence.
(Table 3) Organic growth
Revenue
2020
£’m
2019
£’m
Growth
%
1,684.1
(42.2)
12.4
2,276.2
(146.1)
–
(26) Reported
Impact of M&A1
Impact of currency2
Underlying operating profit
2020
£’m
190.5
3.7
(2.1)
2019
£’m
Growth
%
(53)
402.8
(14.8)
–
1,654.3
2,130.1
(22) Organic
192.1
388.0
(50)
1 Excludes the results of businesses acquired and disposed during the current and prior year or classified as
held for sale.
2 Restates the current year using 2019 translation and transaction exchange rates.
(Table 4) Reconciliation between underlying
operating profit and statutory operating loss
Underlying operating profit
Impairment losses and other asset write-downs
COVID-19 incremental non-recurring costs
Site consolidations
Other
Exceptional operating items
Amortisation of intangible assets arising on acquisition of businesses
Financial instruments
Amounts arising on the acquisition, disposal and closure of businesses
Statutory operating loss
£’m
190.5
(374.2)
(22.0)
(33.5)
1.0
(428.7)
(88.2)
(2.9)
32.0
(297.3)
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Meggitt PLC
Annual Report & Accounts 2020
(Table 5) Operational highlights
Revenue
Growth %
FY 2020
FY 2019
Reported
Organic
793.1
233.6
335.0
322.4
–
1,029.5
329.5
412.5
499.1
5.6
1,684.1
2,276.2
(23.0)
(29.1)
(18.8)
(35.4)
(100.0)
(26.0)
(22.4) Airframe Systems
(28.4) Engine Systems
6.5 Energy & Equipment
(34.8) Services & Support
Other1
(22.3) Group
Underlying operating profit
FY 2020
FY 2019
Reported
Organic
Growth %
120.5
(13.2)
42.4
40.8
–
190.5
247.7
27.2
53.4
74.0
0.5
402.8
(51.4)
(148.5)
(20.6)
(44.9)
(100.0)
(52.2)
(150.4)
18.1
(44.5)
(52.7)
(50.5)
1 Those businesses which were disposed of prior to the effective date of the new divisional structure on 1 January 2019, or were classified as held for
sale at that date, are presented separately as ‘Other’.
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Finance costs
Underlying net finance costs were £31.0m
(2019: £32.5m) principally reducing as a
result of lower USD interest rates on our
floating rate debt, partly offset by the
full-year impact of interest arising from the
new Ansty Park lease, which commenced in
H2 2019. With the raising of the USD 300m
private placement debt in November 2020,
a higher proportion of the Group’s
borrowings are now subject to fixed
interest rates, which will result in a modest
headwind to underlying net finance costs
for 2021.
Taxation
The Group’s underlying tax rate for the
year was 19.7% (FY 2019: 22.0%).
As reported in 2019, the Group is impacted
by the EU Commission ruling that the UK
CFC regime constituted partial state aid.
The Group maintains the provision held at
31 December 2019 of £18.3m in respect of
this matter. During the period the Group
has been in dialogue with HMRC and
continues to appeal against the ruling, in
parallel with the UK Government’s own
appeal, to the European General Court.
While dates for these appeals to be heard
have not been set, the UK tax authority is
obliged to collect amounts it considers
state aid and in late February 2021 the
Group received assessments from the UK
tax authority. The assessments are in line
with the provision held and we shall be
making a cash payment in respect of the
CFC regime in the first half of 2021.
As expected, cash tax increased in the year
to £42.1m (FY 2019: £14.4m) driven by the
phasing of payments. Over the next two to
three years, we expect the cash tax rate to
start converging with the P&L tax rate as
historical tax reliefs and allowances come
to an end and tax relief on certain capital
expenditure is received over a longer time
period. As a result of this and the payment
in respect of the UK CFC regime, we
expect the level of cash tax to be around
£60m for full year 2021.
including amortisation and impairment,
decreased by 1% (increased by 4% on an
organic basis) to £68.3m (2019: £68.7m).
Capital expenditure of £89.7m in 2020 was
slightly lower than the prior year (FY 2019:
£94.4m) and below our initial guidance of
around £130m issued in February 2020,
before the impact of COVID-19 on the
sector and the Group was understood.
This reduction reflects the actions we have
taken to preserve cash in 2020 and the
associated deferral of capital expenditure
relating to the transfer of production to
Ansty Park and investment in carbon
capacity, which will now be incurred in
2021 and beyond as these projects are
completed.
For full year 2021, we expect to invest
around £90m on R&D and £80m on capital
expenditure, as we complete major
projects deferred from 2020.
Dividends
The Board concluded that it was prudent
not to pay a final dividend for 2019, and in
light of ongoing challenging market
conditions, the Board did not recommend
the payment of an interim dividend or final
dividend for 2020. This has helped retain
cash within the Group, ensured the
continued management of net debt levels
and preserved financial flexibility. The
Board is very aware of the importance of
dividends to our shareholders and looks
forward to restoring dividend payments
when the recovery is more established.
The Company has a balance on its profit
and loss reserve at 31 December 2020 of
£1,591.4m (2019: £1,460.3m) of which
approximately £1,440.0m (2019: £1,310.0m)
relates to reserves which can be distributed
as a dividend or used for share buybacks.
Investing for the future
While we have scaled back expenditure on
R&D in the year as part of our overall cash
saving initiative, we have continued to
invest in sustainable technologies to
support new product development and
future growth opportunities. Accordingly,
total R&D expenditure in the full year of
£97.9m (FY 2019: £118.5m) was broadly in
line with the prior year as a percentage of
revenue at 5.8% (FY 2019: 5.2%). The
charge to underlying net operating costs,
(Table 6) Investing for the future
£m
FY 2020
FY 2019
Organic
Reported
% Change
Total research and development (R&D)
Less: Charged to cost of sales/WIP
Less: Capitalised
Add: Amortisation/Impairment
Charge to underlying net operating costs
Capital expenditure
97.9
(20.8)
(41.4)
32.6
68.3
89.7
118.5
(23.8)
(54.7)
28.7
68.7
94.4
(14)
(12)
(20)
24
4
(17)
(13)
(24)
14
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Meggitt PLC
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47
In May 2020, we extended the duration of
our debt by securing a forward start on our
revolving credit facility, with the signing of a
new one-year $575m multi-currency facility
maturing in September 2022.
There are two main financial covenants
in our financing agreements. The net
borrowings: underlying EBITDA ratio, which
must not exceed 3.5x, was at 2.2x at
31 December 2020 (December 2019: 1.5x)
and interest cover, which must not be less
than 3.0x, was 9.8x (December 2019: 16.3x).
The Group has significant headroom
against both key covenant ratios, and net
borrowings: underlying EBITDA is within our
target range of 1.5x to 2.5x.
Capital allocation priorities
The unprecedented impact of COVID-19 in
2020 meant we had to adjust our normal
capital allocation approach, as we focused
on a series of measures to reduce costs
and preserve cash.
Notwithstanding this, our prime objective
continues to be to invest cash organically
in developing differentiated technologies,
to accelerate the Group’s growth and
maintain its strong market positions across
a number of product categories, and
operational efficiencies. A mainstay of our
capital allocation approach over several
decades has been to maintain a
progressive dividend policy and the
payment of a regular dividend to our
shareholders. The decision not to pay a
dividend in 2020 was difficult and so we
look forward to restoring dividend
payments when the recovery in civil
aerospace is more established.
At present, the Board continues to believe
that in maintaining an efficient balance
sheet with ample covenant headroom and
investment capacity, a net debt: EBITDA
ratio of between 1.5x and 2.5x is
appropriate, while preserving flexibility
to move outside this range in certain
situations, of which COVID-19 is one. The
Board will keep this policy under review.
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(Table 7) Full year cash flow statement (£m)
Underlying operating profit
Depreciation and amortisation
Working capital movements
Net interest paid
Tax paid
Exceptional operating items paid
Purchase of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Capitalised development costs/programme participation costs
Retirement benefit deficit reduction payments
Other
Free cash flow
Net proceeds from disposal/acquisition of businesses
Dividends paid to Company's shareholders
Issue of equity share capital
Other
Net cash generated
Lease liabilities entered
Lease liabilities disposed with business
Exchange differences
Other movements
Net debt movements
FY 2020
FY 2019
190.5
106.4
8.1
(32.1)
(42.1)
(49.3)
(89.7)
1.3
(43.0)
(21.7)
3.5
31.9
104.2
–
0.3
(0.4)
136.0
(11.4)
5.6
7.6
0.4
138.2
402.8
104.5
(21.0)
(33.1)
(14.4)
(27.3)
(94.4)
23.1
(56.7)
(35.2)
19.5
267.8
68.9
(130.4)
–
(0.6)
205.7
(54.2)
–
31.2
(19.8)
162.9
Net debt at 1 January
Net debt at 31 December
(911.2)
(773.0)
(1,074.1)
(911.2)
Cash flow
The Group generated a free cash inflow of
£31.9m (FY 2019: £267.8m inflow), which
was ahead of our guidance issued in
September 2020, reflecting the work done
across the Group to offset the impact of
the lower operating result, including a
reduction in absolute inventory levels and
planned levels of capex.
Investment in capital expenditure was
£89.7m (FY 2019: £94.4m) and working
capital was an inflow of £8.1m (FY 2019:
£21.0m outflow). Higher cash tax payments
of £42.1m (FY 2019: £14.4m) reflects the
phasing of payments in the US, and the
increase in cash exceptional costs to
£49.3m (FY 2019: £27.3m), includes £18.9m
of non-recurring COVID-19-related costs
and site consolidation costs as we continue
to rationalise our global footprint. Deficit
payments made in respect of retirement
benefit schemes were £21.7m (FY 2019:
£35.2m) following an agreement with the
trustees of the UK scheme to defer four
months of payments totalling £9.6m that
will now be spread across the 2021 to 2023
period. The free cash inflow of £31.9m was
augmented by proceeds from the sale of
Training Systems which generated net
proceeds of £117.0m, with a net cash inflow
for the Group of £136.0m for the full year
(FY 2019: £205.7m inflow).
As a result, at the end of December 2020,
our net debt was £773.0m (FY 2019:
£911.2m), including lease liabilities of
£144.3m, a decrease of £138.2m from
December 2019 after taking into account
proceeds from the sale of Training Systems
and favourable currency movements of
£7.6m, and we had significant headroom of
£908.1m on committed facilities of
£1,536.8m.
Debt structure and financing
In June and October 2020, we repaid $125m
and $150m respectively on the maturity of
two separate tranches of 2010 US Private
Placement Notes. In November 2020, we
raised $300m in aggregate of three and five
year senior notes providing us with additional
liquidity and financial flexibility as we look
ahead to 2021 and beyond.
In April 2020, the Group was confirmed as an
eligible issuer under the Bank of England and
HM Treasury’s Covid Corporate Financing
Facility (CCFF), under which the Group is
able to draw up to £600m. While the Group
issued commercial paper under this facility
during the year, as at the end of December
2020, there were no borrowings under this
facility. The Group is eligible to issue
commercial paper using this facility (subject
to certain terms and restrictions) up to and
including 22 March 2021, with a maturity
period of up to 12 months.
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(Table 8) Post-retirement benefit scheme summary (£’m)
Opening net deficit
Service cost
Group cash contributions
Deficit reduction payments
Other amounts charged to income statement1
Remeasurement gains – schemes’ assets
Remeasurement losses – schemes’ liabilities
Currency movements
Closing net deficit2
Assets
Liabilities
Closing net deficit2
Assets as percentage of liabilities
2020
267.9
15.2
(36.9)
(21.7)
8.4
(93.5)
136.1
(1.8)
295.4
1,168.5
1,463.9
295.4
80%
2019
209.1
12.8
(48.0)
(35.2)
8.8
(53.5)
142.7
(4.0)
267.9
1,079.6
1,347.5
267.9
80%
1 Comprises past service amounts, administration expenses borne directly by schemes and net
interest expense.
2 Comprises £248.7m (2019: £222.0m) in respect of pension schemes and £46.7m (2019: £45.9m) in respect
of US healthcare schemes.
In the UK, the Group is currently making
deficit payments in accordance with a
recovery plan agreed with the trustees
following the 2018 triennial funding
valuation, amended in 2020 following the
four month deferral of deficit contributions.
This amended recovery plan provides for
the 2018 deficit to be addressed by
payments which gradually increase over
the period to August 2023. Under the plan,
the Group will make deficit contributions of
£38.4m in 2021, £40.2m in 2022 and
£29.9m in 2023.
At 31 December 2020, principally due to
the significant fall in bond yields since the
date of the 2018 valuation, the current UK
funding position is approximately £135.0m
lower than that projected in the 2018
valuation. This funding shortfall will, should
it remain, be addressed through a revised
recovery plan as part of the April 2021
triennial valuation, which we would expect
to be finalised during H1 2022. Deficit
contributions to address any additional
deficit would commence at a date to be
agreed with the trustees once the valuation
is finalised.
Foreign exchange
The Group is exposed to both translation
and transaction risk due to changes in
foreign exchange rates. These risks
principally relate to the US dollar/sterling
rate, although exposure also exists in
relation to other currency pairs, principally
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Post-retirement benefit schemes
The Group’s principal defined benefit
pension schemes are in the UK and US.
On 1 February 2021, the Group
announced, following a consultation
process with employees, that the UK plan
would be closed to future accrual with
effect from 6 April 2021. Once this change
takes effect, and following the closure of
one of the Group’s US schemes during
2020, none of the UK or US defined benefit
pension schemes will be open to future
accrual.
Total scheme deficits in 2020 increased to
£295.4m (2019: £267.9m) with the principal
drivers of the net increase being:
• an increase of £136.1m (2019: increase of
£142.7m) relating to remeasurement
losses on scheme liabilities principally
arising from the significant weakening of
AA corporate bond yields in both the UK
and US;
• a reduction of £93.5m (2019: reduction
of £53.5m) due to remeasurement gains
on scheme assets; and
• net deficit reduction payments in the
year of £21.7m (2019: £35.2m). In the UK,
following the COVID-19 outbreak, the
Group agreed with the trustees to defer
four months of deficit contributions
amounting to £9.6m, which will now be
made over the remainder of the current
recovery plan to August 2023. Deficit
contributions recommenced in Q3 of
2020. In the US, legislation was passed
in response to COVID-19 allowing
companies to defer contributions due
in 2020 to January 2021, as a result of
which the Group deferred £2.4m of
payments planned for 2020.
Meggitt PLC
Annual Report & Accounts 2020
translation risk for the sterling/euro and
sterling/Swiss franc and transaction risk
for the US dollar/euro and US dollar/
Swiss franc.
(Table 9) Exchange rates
2020
2019
Average translation
rates against Sterling:
US Dollar
Euro
Swiss Franc
Average transaction
rates:
US Dollar/Sterling
US Dollar/Euro
US Dollar/Swiss Franc
Year-end rates against
Sterling:
US Dollar
Euro
Swiss Franc
1.29
1.14
1.22
1.38
1.17
1.09
1.37
1.11
1.20
1.28
1.14
1.27
1.42
1.19
1.06
1.32
1.18
1.28
The results of foreign subsidiaries are
translated into sterling at weighted
average exchange rates. Sterling remained
volatile throughout 2020, trading at
between $1.15 and $1.37 against the US
dollar. Over the year as a whole, the
average sterling rate against the US dollar
was $1.29 (2019: $1.28) providing a modest
negative impact on our reported results for
the year. Compared to 2019, translation of
results from overseas businesses
decreased Group revenue by £8.6m and
decreased underlying profit before tax
(PBT) by £0.1m in the year.
The sensitivity of full-year revenue and
underlying PBT to exchange rate
translation movements against sterling,
when compared to the 2020 average rates,
is shown in Table 10.
Transaction risk arises where revenues and/
or costs of our businesses are denominated
in a currency other than their own.
We hedge 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 2019, the Group’s
revenue was unfavourably impacted by
(Table 10) Translation currency sensitivity
Impact of 10 cent movement*
US Dollar
Euro
Swiss Franc
2020
average
rate
1.29
1.14
1.22
Revenue
£’m
85
9
6
Underlying
PBT
£’m
5
1
1
* As measured against 2020 actual full-year revenue and underlying PBT.
Meggitt PLC
Annual Report & Accounts 2020
49
Interest risk
The Group seeks to reduce volatility
caused by interest rate fluctuations on net
borrowings. Our US private placements are
subject to fixed interest rates, whereas
borrowings under our syndicated and
bilateral 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 generally
maintain at least 25% of net borrowings
at fixed rates with a weighted average
maturity of two years or more. At
31 December 2020, the percentage of net
borrowings at fixed rates was 108% (2019:
70%), and of gross borrowings was 84%
(2019: 58%) and the weighted average
period to maturity for the first 25% was 6.0
years (2019: 6.5 years). A higher proportion
of debt is held at fixed interest rates, than
the minimum required under our policy, in
anticipation of further increases in market
interest rates and pending further clarity
on floating rates when we refinance our
USD 575m RCF maturing in 2022, given the
replacement of LIBOR.
Non-financial information
Our non-financial information statement is
contained in the Corporate responsibility
report on page 66.
Louisa Burdett
Chief Financial Officer
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£3.8m and underlying PBT for the year
benefited by £2.5m from currency
transaction movements.
Each ten cent movement in the US dollar
against the average hedge rates achieved
in 2020 would affect underlying PBT by
approximately £7.0m in respect of US
dollar/sterling exposure, £2.0m in respect
of US dollar/euro exposure and £2.0m in
respect of US dollar/Swiss franc exposure.
The following table details hedging
currently in place:
(Table 11) Transaction hedging
2021:
US Dollar/Sterling
US Dollar/Euro
US Dollar/Swiss Franc
2022 – 2024 inclusive:
US Dollar/Sterling
US Dollar/Euro
US Dollar/Swiss Franc
Hedging
in place
%1
Average
transaction
rates2
100
100
100
70
25
0
1.36
1.16
1.13
1.33
1.21
N/A
1 Based on forecast transaction exposures.
2 Hedging in place with unhedged exposures
based on exchange rates at 29 January 2021.
Taking translation and transaction benefit
into account, FY 2020 reported revenue
decreased by £12.4m and underlying PBT
increased by £2.4m.
At the end of the year, sterling
strengthened against the US dollar. Should
the current level of sterling against the US
dollar as at the date of this report be
maintained throughout 2021, it will
generate a headwind for both Group
revenue and profit.
Debt financing risks
The Group seeks to minimise debt
financing risk as follows:
a. Concentration of risk
We raise funds through private placement
issuances and committed bank facilities to
reduce reliance on any one market. Bank
financing is sourced from 14 international
institutions spread across North America,
Europe and Asia. No single lender
accounts for more than 10% of the Group’s
total credit facilities and the credit rating of
lenders is monitored by our treasury
department. The Group’s largest lenders
are Bank of America, Bank of China,
Barclays, BNP Paribas, Crédit Industriel et
Commercial, HSBC, JP Morgan, Sumitomo
Mitsui Banking Corporation and Wells
Fargo. We seek to maintain at least £100m
of undrawn committed facilities, net of
cash, as a buffer.
b. Set-off arrangements
The Group utilises set-off and netting
arrangements 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 seek to ensure the maturity of our
facilities is staggered and any refinancing is
concluded in good time, typically more
than 12 months before expiry.
d. Currency risk
To ensure we mitigate headroom erosion
due to currency movements, over 90% of
our credit facilities are denominated in US
dollars, the currency in which most of our
borrowings are held.
(Table 12) Net debt by drawn
currency (£’m)
Sterling
US Dollar
Euro
Swiss Franc
Other
Net debt
2020
39.2
786.3
(32.4)
(16.1)
(4.0)
773.0
2019
128.5
807.8
(12.7)
(2.3)
(10.1)
911.2
e. Covenant risk
Our committed credit facilities contain two
financial ratio covenants – net debt:
EBITDA and interest cover. The covenant
calculations are drafted to protect us from
potential volatility caused by accounting
standard changes, sudden movements in
exchange rates and exceptional items. This
is achieved by measuring EBITDA on a
frozen GAAP basis, retranslating net debt
and EBITDA at similar average exchange
rates for the year and excluding
exceptional items from the definition of
EBITDA. At 31 December 2020, we have
comfortable headroom on both key
financial covenant measures.
(Table 13) Covenant ratios
Net debt:
EBITDA
Interest cover
Covenant
2020
2019
≤3.5x1
≥3.0x
2.2x
9.8x
1.5x
16.3x
1 A ratio of 4.0x applies in the two six month
reporting periods following a significant
acquisition.
50
Meggitt PLC
Annual Report & Accounts 2020
Key performance indicators
The Group uses a mix of financial and
non-financial key performance indicators
(KPIs) to measure execution against
our strategic objectives. To ensure we
deliver value to our shareholders over the
investment cycle, financial KPIs balance
short-term measures (underlying operating
profit and free cash flow in the year) with
longer-term measures (organic revenue
growth, return on capital employed and
underlying EPS growth). Non-financial KPIs
focus on investment in R&D to drive
future revenues, the health and safety of
our employees and raising standards
of operational performance to satisfy
our customers.
The Group adopted IFRS 15 and IFRS 16
with effect from 1 January 2018, with prior
year comparatives for 2017 restated.
KPIs for 2016 and for those for 2017,
where calculations are based on growth
compared to performance in 2016, are not
fully restated, though they reflect the
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requirement to expense free of charge
manufactured parts (FOC) as incurred
under IFRS 15, rather than initially
recognising costs as an intangible asset
and then amortising them over their
useful lives.
The Group’s performance against climate
change objectives continues to be a focus.
From 2021, the Group intends to include
measures supporting the Group’s
environmental commitments in its KPI
monitoring, including the Group’s
greenhouse gas emissions. For reference,
in 2020 the Group emitted 87,062 carbon
dioxide equivalent tonnes (gross) from its
operations on a Scope 1 and 2 basis. This
is down 21% from 2019, when the measure
was 110,075 CO2e.
Meggitt PLC
Annual Report & Accounts 2020
51
Organic revenue growth
Performance
-22.3%
'20
-22.3
'19
'18
'17
'16
8.3
8.9
1.6
0.9
Definition and basis of calculation
Revenue growth is calculated by measuring current and
prior year revenue at constant currency, excluding the
revenue of any businesses acquired or disposed of in those
periods or classified as held for sale. To measure revenue at
constant currency, current year revenue is restated using
translation and transaction exchange rates prevailing in the
prior year. See page 45 for a reconciliation of organic
revenue to revenue.
Target
The Group started the year targetting organic revenue
growth of 2–4% in 2020. However, since March 2020 and
with the impact of COVID-19, the Group does not currently
have any published revenue guidance for either 2020 or
2021. The Group was targetting 5.5% pa organic revenue
growth in its 2018 LTIP Award.
1
2
3
4
Result
2020: -22.3% three-year average of -1.7%.
See page 45 for details.
Directors’ incentive plans
Organic revenue growth is a performance
measure for the 2018 LTIP.
Underlying operating profit
1
3
4
Performance
£190.5m
'20
'19
'18
'17
'16
190.5
402.8
367.3
353.3
356.6
Definition and basis of calculation
Underlying operating profit is defined and reconciled to
statutory measures in note 9 to the Group's consolidated
financial statements on page 180.
Result
2020: £190.5m. See page 45 for details.
The 2020 STIP did not reach threshold and no
STIP bonus will be paid in respect of 2020.
Target
By exception, as part of the Q3 2020 Trading Update the
Group guided that FY20 underlying operating profit would
be between £180 – £200m. The Group typically does not
publish profit targets.
Directors’ incentive plans
Underlying operating profit was a performance
measure in the 2020 STIP and is a measure for
the 2021 Plan. For the purposes of these plans,
actual and target underlying operating profit
are measured at constant currency. See pages
121 and 129 for details.
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Return on capital employed (ROCE)
Performance
5.2%
'20
'19
'18
'17
'16
5.2
11.0
9.9
9.4
10.0
Definition and basis of calculation
Return on capital employed is underlying operating profit
expressed as a percentage of average capital employed
(i.e. the underlying return on average capital employed).
Underlying operating profit is defined above. Capital
employed is defined as net assets excluding net debt,
retirement benefit obligations net of associated deferred
tax and derivative financial instruments. Average capital
employed is the mean of the period's opening and closing
capital employed.
Target
As LTIP ROCE targets are set over a three-year period,
there are no specific targets for 2020 alone. Details of the
ROCE target from the 2020 LTIP are shown on page 124.
1
3
4
Result
2020: 5.2%. Three-year average ROCE to 2020
was 8.6%. See page 123 for details.
Directors’ incentive plans
ROCE is a performance measure for executive
directors in the 2018, 2019 and 2020 LTIP.
ROCE will be a performance measure for the
2021 LTIP. For the purposes of these plans,
underlying operating profit and capital
employed are measured at constant currency.
See pages 123 & 129 for details.
Link to strategic priorities
1
2
3
4
Strategic Portfolio
Customers
Competitiveness
Culture
2020
Reflect the full impacts
of IFRS 15 and IFRS 16,
where appropriate.
Restated only for the
impact of expensing
FOC as incurred.
52
Meggitt PLC
Annual Report & Accounts 2020
Key performance indicators
continued
Underlying EPS growth
Performance
-55.8%
'20
-55.8
'19
'18
'17
'16
9.1
6.9
8.3
-1.5
Free cash flow
Performance
£31.9m
31.9
267.8
167.4
197.4
131.1
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'19
'18
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Performance
5.8%
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5.8
5.2
6.6
7.9
7.9
Definition and basis of calculation
The percentage change in underlying earnings per share
(EPS) from the previous year. Underlying EPS is defined and
reconciled to statutory measures in note 14 to the Group's
consolidated financial statements.
Target
We do not typically publish profit targets. As LTIP
upderlying EPS targets are set over a three-year period,
there are no specific targets for 2020 alone. Details of
the underlying EPS target from the 2020 LTIP are shown
on page 124.
1
2
3
4
Result
2020: -55.8%. See page 45 for details.
Directors’ incentive plans
Underlying EPS is a performance measure
for the 2018, 2019 and 2020 LTIPs, and is
proposed for the 2021 Award. See pages
123 and 129 for details.
1
2
3
4
Definition and basis of calculation
Cash generated excluding amounts in respect of the
acquisition and disposal of businesses and payments to
shareholders. Free cash flow is reconciled to statutory
measures in note 42 to the Group's consolidated financial
statements on page 214.
Result
2020: £31.9m. This was in line with the level
guided in the Q3 Trading Update. See page 47
for details. As with underlying operating profit,
the 2020 STIP did not vest and no bonus will
be paid.
Target
We do not typically publish free cash flow targets. At the
start of 2020, the Group was expecting a free cash flow
conversion of c. 60%. By exception, as part of the Q3 2020
Trading Update, the Group guided that it would be free
cash flow neutral for the full year at the top end of our
underlying operating profit guidance of £180 – £200m.
We have not published guidance for 2021.
Directors’ incentive plans
Free cash flow is a performance measure for
the 2020 and 2021 STIP. For the purposes of
these plans, actual and target free cash flow
figures are measured at constant currency and
exclude interest and tax. See pages 121 and
129 for details.
Definition and basis of calculation
Investment in research and development (R&D) expressed
as a percentage of revenue. Investment is measured as
total expenditure in the year as disclosed in note 7 to the
Group's consolidated financial statements on page 179.
It is not adjusted for amounts capitalised, amortised,
impaired or incurred on contracts funded by customers.
Target
Investment of 5% to 7% per annum. This range reflects
typical investment fluctuations within the industry cycle.
1
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4
Result
2020: 5.8%. Average over the last three years
of 5.9%. See page 46 for details.
Directors’ incentive plans
R&D investment is not a specific measure
used in directors' incentive plans. However,
the 2018 (from year 2), 2019 and 2020 LTIP
include programme performance measures
which include the effective delivery of R&D
programmes. The same measure is proposed
for 2021 LTIP. See pages 123 and 129
for details.
Meggitt PLC
Annual Report & Accounts 2020
53
Total recordable incident rate (TRIR)
1
2
3
4
Performance
0.7
'20
'19
'18
'17
Definition and basis of calculation
The total recordable safety incident rate calculated per
100 employees. It is calculated as the number of recordable
incidents multiplied by 200,000 and then divided by the
total number of hours worked during the year.
Result
2020: 0.7. The Group has been collecting
TRIR data for this KPI since 2017. See page 80
for details.
0.7
0.7
0.8
1.2
Target
In 2020, the Group had a TRIR target of less than or
equal to 0.7. For 2021, that target is maintained at a rate of
less than or equal to 0.7.
Directors’ incentive plans
Health and safety performance is not a specific
measure used in directors' incentive plans.
However, improvement in health and safety is
included in the personal objectives of the
Chief Executive in the 2020 and 2021 STIP.
Inventory turns
Performance
2.1x
'20
'19
'18
'17
'16
2.1
2.7
2.7
2.5
2.3
Definition and basis of calculation
Underlying cost of sales divided by average inventory
measured at constant currency and excluding businesses
acquired or disposed of in the year. Underlying cost of sales
adjusts cost of sales for the impact of items which are
excluded from the Group's underlying profit measures as
disclosed in note 9 to the Group's consolidated financial
statements on page 180. Average inventory is calculated
as the 13-month average of inventory, gross of provision,
at the end of the previous financial year and at the end of
each month of the current year. To measure inventory at
constant currency, average inventory of foreign subsidiaries
is translated at average exchange rates for the year.
Target
At the start of 2020, the Group was targeting inventory
turns of 4.0 by 2021. The proposed 2021 LTIP contains an
inventory turns target of 2.8 for 2021 using the Group's
updated four-month average inventory turns measure.
1
2
3
4
Result
2020: 2.1. See page 13 for details.
Directors’ incentive plans
Inventory reduction is a performance measure
for the 2018, 2019 and 2020 LTIP. Inventory
turns is also proposed as a measure for 2021.
See pages 123 and 129 for details.
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Strategic Portfolio
Customers
Competitiveness
Culture
2020
Reflect the full impacts
of IFRS 15 and IFRS 16,
where appropriate.
Restated only for the
impact of expensing
FOC as incurred.
54
Risk management
Meggitt PLC
Annual Report & Accounts 2020
Meggitt seeks to operate within a low risk appetite range overall. Effective risk
management is required to deliver this while supporting the achievement of the
Group’s strategic and business objectives. Our risk management framework is based
on ISO 31000 and includes a formal process for identifying, assessing and responding
to risk.
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During 2020 we continued to refine our risk management
approach in a consistent way to prior years but we were pleased
to note the processes described below continued to operate
throughout the pandemic, providing dynamic risk assessments
for site, functional and executive management.
The Board approved an updated Group risk appetite statement
with associated risk tolerances to ensure that identified risks are
managed within acceptable limits. Comfort over the management
of these risks is demonstrated through the updated Group risk
assurance map which summarises the assurance activities taking
place throughout the Group in relation to the principal risks.
Where appropriate, insurance is used to manage risks and our
risk management procedures are shared with our insurers when
assessing any potential exposures. Our insurers have provided
funding via bursaries to enable more detailed reviews of certain
risks to increase understanding of the key drivers and enable more
efficient action to address these, either through mitigation or
insurance. These reviews have been well received by the risk
owners for improving their ability to monitor and assess their risks
and by the insurers for providing a more detailed analysis of the
causes and their respective impacts.
Our process
Our risk management processes require identified risks
throughout the Group to be owned by a named individual. They
must review them regularly and consider related emerging risks.
Risk identification is embedded within other processes, including
strategy, project and programme management, bid approvals and
other operational activities. Risk tolerance levels are flowed down
to the divisions and functions. The likely timeframe within which
the impact of risks might be felt (risk velocity) and how we
prioritise risks is considered as part of our risk management
strategy and feeds into our assessment of long-term viability.
Once identified, risks are reviewed at a site level and aggregated
for review at divisional and functional levels on a consistent basis,
before being submitted for the Group’s regular review process.
The resultant Group Risk Register is subject to a detailed review
and discussion by the Executive Committee which includes
discussion of risks which may not have been identified through
the normal channels. The Board assesses the outputs from this
process and takes comfort from the ‘three lines of defence’
risk assurance model. The first line represents operational
management who own and manage risk on a day-to-day basis,
utilising effective internal controls. Group functions and divisions
monitor and oversee these activities, representing governance
and compliance at the second line. The third line is the
independent assurance over these activities provided by
internal and external audits.
Meggitt’s corporate strategy is designed to optimise our
business model and take risk, with the required controls, on
an informed basis. See pages 22 to 23 for a full description of
our business model and strategy. To enable value to be created
for our shareholders, we set varying risk tolerances and associated
criteria. We accept and manage risk as described on the
following pages.
Governance
Responsibility for risk management operates at all levels
throughout Meggitt:
The Board takes overall responsibility,
determining the nature and extent of
the principal risks it is willing to take in
achieving our strategic objectives, and
overseeing the Group’s risk governance
structure and internal control framework.
During 2020, the Board carried out a
robust assessment of the principal risks
facing the Group, including those
emerging, that would threaten its
business model, future performance,
solvency or liquidity. This report
describes those risks and how they
are being managed or mitigated.
The Board has delegated responsibility
for reviewing and ensuring the
effectiveness of the risk management
process to the Audit Committee.
Divisional and functional leadership are
responsible for the management of risk
and for compiling and maintaining their
own risk registers, which outline risks at
business unit and programme levels.
The Executive Committee as a whole
regularly reviews the Group’s principal
risks, while individual members own
specific risks.
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Annual Report & Accounts 2020
55
Risk heat map
The heat map below shows the outcome of the risk identification and assessment processes used to compile the Group Risk Register.
This shows the relative likelihood and impact of the principal risks identified. Risks rated as green or those with a low expected impact
are not considered principal risks of the Group for inclusion in the Group Risk Register, although they may feature on divisional or
functional risk registers and be managed at that level.
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Medium
High
Increasing risk impact
05
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Very high
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Strategic risks
Medium to low tolerance for risks
arising from poor business decisions
or sub-standard execution of business
objectives.
Business model
Operational risks
Low to near-zero tolerance for risks
arising from business processes including
the technical, quality, and project
management or organisational risks
associated with programmes and
products.
Corporate risks
Low to zero tolerance for compliance and
reputational risks including those related
to the law and regulations, health, safety
and the environment.
12
Legal and compliance
Industry changes
04 Quality escape/equipment failure
Climate change
05
06
07
08
09
Business interruption
Project/programme management
Customer satisfaction
IT/systems failure
Supply chain
10 Group change management
11
People
Financial risks
Medium to low tolerance for financial
risks including taxation, pension funding,
failure to provide adequate liquidity to
meet our obligations and managing
currency, interest rate and credit risks.
13
14
Pension funding
Liquidity
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Principal risks & uncertainties
The Group’s strategic objectives can only be achieved
if certain risks are taken and managed effectively. We have
listed below the most significant risks that may affect our
business, although there may be other risks – of which the
Group is unaware or are considered less significant – which
may affect our performance. The potential impacts of each
of our principal risks were considered as part of the viability
stress testing and considered to be consistent with,
analogous to or less significant than the scenarios modelled.
Approach to COVID-19
Given the wide-ranging impact of COVID-19 on the aviation
industry we have assessed the effect on our existing risks
and considered resultant emerging risks rather than having a
single, standalone COVID-19 risk.
Strategic priorities
Change in risk
Risk velocity
KPIs
Strategic Portfolio
Increase
H
High:
Impact within 6 months of
risk occurring
1
2
3
4
Customers
No change
Competitiveness
Decrease
Culture
– Financial performance
(organic revenue growth,
underlying operating profit,
ROCE, underlying EPS
growth and free cash flow)
M
Medium:
Impact between 6 and
36 months of risk occurring
L
Low:
Impact after more than
36 months of risk occurring
– R&D investment
– TRIR (total recordable
incident rate)
– Inventory turns
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Strategic risks
Risk
Description
Impact
How we manage it
Industry changes
1 H
KPIs:
• Financial performance
Business model
2
M
KPIs:
• Financial performance
• R&D investment
Significant variation in demand
for air travel and/or our products
due to aerospace and defence
business downcycles coinciding;
serious political, economic,
pandemic (including the on-going
impacts of COVID-19) or terrorist
events; or industry consolidation
that materially changes the
competitive landscape.
Failure to respond to fundamental
changes in our aerospace
business model, primarily the
evolving aftermarket. This
includes more durable parts
requiring less frequent
replacement, a growing supply
of surplus parts, OE customers
seeking greater control of their
aftermarket supply chain and
accelerated pace of new aircraft
deliveries leading to the earlier
retirement of older aircraft.
Volatility in revenue
and underlying
profitability.
– Demand is managed by monitoring external economic and
commercial environment and long-lead indicators whilst
maintaining focus on balanced portfolio.
– Monitoring international political and tax developments to
assess implications of future legislation.
Decreased revenue
and profit.
– Alignment of Group, divisional and functional strategy
processes.
– Dedicated full-service aftermarket organisation.
– Long-term customer agreements including
SMARTSupport® packages to create tailored solutions for
customers throughout the product life cycle enabling more
effective performance monitoring and more predictable
pricing.
– Investment in research and development to maintain and
enhance Meggitt’s intellectual property.
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Climate change
3 M
KPIs:
• Financial performance
• R&D investment
Failure to adapt to the transition
and physical impacts of climate
change, including:
– government legislation to limit
air travel;
– regulations limiting greenhouse
gas emissions from aviation come
into effect faster than technical
solutions;
– societal attitudes shifting
against air travel (e.g. "flight
shaming");
– acute physical risks such as the
increased likelihood of extreme
weather events; and
– chronic physical risks such as
changing weather patterns
including rising temperatures and
sea levels.
Decreased revenue
and profit, damage
to operational
performance and
reputation.
– Continued dialogue with governments, industry bodies
and customers to maintain awareness of evolving aviation
sector requirements.
– Continued focus on developing technologies to support
sustainable aviation and on reducing the carbon intensity
of our production operations.
– Allocation of two-thirds of innovation budget to
sustainable solutions.
– Reduction in Group carbon footprint through new facilities,
more efficient production processes and using green
energy sources.
– Comprehensive business continuity plans across the
Group, supported by an insurance programme subject to
annual renewal.
– Long-term weather considerations as part of site footprint
strategy.
These are considered further as part of the TCFD disclosures
on page 71.
Operational risks
Risk
Description
Impact
How we manage it
Quality escape /
equipment failure
3
H
KPIs:
• Financial performance
Business
interruption
3 H
KPIs:
• Financial performance
Project /
programme
management
3
M
KPIs:
• Financial performance
• R&D investment
Customer
satisfaction
2
M
KPIs:
• Financial performance
• Inventory turns
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Defective product leading to
in-service failure, accidents,
the grounding of aircraft or
prolonged production shut-
downs for the Group and its
customers.
Decreased revenue
and profit, damage
to operational
performance and
reputation.
– System safety analysis, verification and validation policy
and processes, combined with quality and customer audits
and industry certifications.
– Meggitt Production System (MPS).
– Supplier quality assurance process.
A catastrophic event such as
natural disasters (including
earthquake – the Group has a
significant operational presence
in Southern California); civil
unrest, military conflict or terrorist
activity; or a pandemic (including
further impacts from COVID-19)
could lead to infrastructure
disruption and/or property
damage which prevents the
Group from fulfilling its
contractual obligations.
Failure to meet new product
development programme
milestones and certification
requirements and successfully
transition new products into
manufacturing as production
rates increase. This also covers
lower than expected production
volumes, including programme
cancellations or delays, notably
the 737 MAX.
Failure to meet customers’ cost,
quality and delivery standards or
qualify as preferred suppliers.
Decreased revenue
and profit, damage
to operational
performance and
reputation.
– Group-wide business continuity and crisis management
plans, subject to regular testing and also invoked during
2020 in response to COVID-19.
– Comprehensive insurance programme, renewed annually
and subject to property risk assessment visits.
Failure to deliver
financial returns
against investment
and/or significant
financial penalties
leading to
decreased profit
and damage to
reputation.
– Rigorous commercial and technological reviews of bids and
contractual terms before entering into programmes.
– Continuous review of programme performance through
the Programme Lifecycle Management (PLM) process
including:
– regular monitoring of the end-market performance of
key OE programmes;
– internal review process, to stress-test readiness to
proceed at each stage of key programmes; and
– regular monitoring of the financial health of customers.
Failure to win future
programmes
resulting in
decreased revenue
and profit.
– Creation of a customer-facing organisational structure
including a dedicated aftermarket division.
– Regular monitoring of customer scorecards and ensuring
responsiveness to issues via Voice of the Customer
process.
– Functional excellence in operations, project management
and engineering.
– Increased utilisation of low-cost manufacturing base.
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IT/Systems failure
1 H
KPIs:
• Financial performance
Supply chain
1
M
KPIs:
• Financial performance
• Inventory turns
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Group change
management
3
M
KPIs:
• Financial performance
• Inventory turns
People
4
H
KPIs:
• Financial performance
• Inventory turns
A breach of IT security due to
increasingly more sophisticated
cyber crime/terrorism resulting in
intellectual property or other
sensitive information being lost,
made inaccessible, corrupted or
accessed by unauthorised users.
This also includes the loss of
critical systems such as SAP due
to poorly executed
implementation or change of
control; poor maintenance,
business continuity or back-up
procedures and the failure of third
parties to meet service level
agreements.
Failure or inability of critical
suppliers to supply unique
products, capabilities or services
preventing the Group from
satisfying customers or meeting
contractual requirements.
Decreased revenue
and profit, damage
to operational
performance and
reputation.
– Information Security infrastructure, policies and
procedures supported by a Group wide security awareness
programme.
– Intelligence sharing on threats with government and
security bodies including the FBI, CPNI and NCSC.
– Group-wide intellectual property protection programme.
– Management of third party service providers and risks,
including resilience and disaster recovery processes.
– Rolling programme of system upgrades (including SAP
implementation) to replace legacy systems.
– Defined vulnerability management policy with monitoring
capability to ensure that vulnerabilities are identified and
appropriately patched.
– Dedicated cyber-security protective monitoring resources,
employing industry-leading technical controls and
procedures.
Decreased revenue
and profit, damage
to operational
performance and
reputation.
– Supplier excellence framework combined with integrated
commercial and procurement approach to contractual
terms and conditions including development of long-term
agreements.
– Local sourcing strategy to improve operational efficiency
and minimise potential impacts and disruption from
cross-border tariffs.
– Maintenance of buffer inventory for critical and sole-source
suppliers.
– Implementation of measures to mitigate counterfeit and
fraudulent parts at high-risk facilities.
Failure to successfully,
simultaneously, deliver the
significant change programmes
currently in process and planned,
including site consolidation
activity such as Ansty Park and
investments in new carbon
manufacturing facilities in the
USA.
Decreased revenue
and profit,
increased costs,
damage to
operational
performance and
reputation.
– PMO oversight of large capital projects.
– Dedicated site consolidation and property management
teams for Ansty Park.
– Regular monitoring by Executive Committee through
operational and project reviews.
– HPS implementation at new/expanded sites.
Failure to attract, retain or
mobilise people due to factors
including industrial action,
workforce demographics, lack of
training, availability of talent and
inadequate compensation.
Decreased revenue
and profit, damage
to operational
performance.
– Embedding of High Performance Culture.
– Action plans to improve employee engagement.
– Graduate and apprentice programmes in partnership with
schools and universities.
– Regular oversight by Executive Committee.
– Creation of Employee Resource Groups to foster diversity,
boost employee engagement and enable global
collaboration.
Corporate risks
Risk
Description
Impact
How we manage it
Legal and
compliance
3
H
KPIs:
• Financial performance
• TRIR
Significant breach of increasingly
complex trade compliance,
bribery and corruption, US
Government contracting, ethics,
intellectual property, data
protection or competition/
antitrust laws and facilitation of
tax evasion.
Damage to
reputation, loss of
supplier
accreditations,
suspension of
activity, fines from
civil and criminal
proceedings.
– Continuing investment in compliance programmes
including Board-approved policies and rollout of training
and IT solutions.
– Regular monitoring of ethics and anti-bribery programme
by Corporate Responsibility Committee.
– On-going trade compliance programme including
third-party audits.
– Comprehensive ethics programme including training,
anti-corruption policy and 'Speak Up' Line.
– Third-party and internal audits including HS&E and
Anti-Bribery & Corruption.
– HPS implementation to enhance safety measures, validated
by third-party audits.
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59
Risk
Description
Impact
How we manage it
Pension funding
3 M
KPIs:
• Financial performance
Liquidity
3 M
KPIs:
• Financial performance
Higher pension
scheme funding
contributions
resulting in
decreased cash and
profit.
– Triennial valuation process and deficit funding agreement
with UK Pension Trustees.
– Continued monitoring of asset allocations and funding
levels for all schemes.
– Closure of UK and US defined benefit schemes to future
accrual.
The Group operates defined
benefit pensions schemes in the
UK, US and Switzerland. The level
of deficits in these schemes may
be affected adversely by
investment returns, interest rates,
increasing life expectancy and
changes in the regulatory
environment. The rates at which
deficits are funded is subject to
agreement with the trustees in
the UK and is dependent on
legislation in the US and
Switzerland.
Financial risk management is
considered in detail on pages 172
to 173.
Inability to access
financing on normal
commercial terms.
– Maintaining sufficient headroom in committed credit
facilities and against covenants in those facilities.
– Arranging funding with maturities spread over several
years or the ability to terminate early at little or no cost to
the Group.
Oversight of risk and internal control
The Board is responsible for risk management and internal control and for maintaining and reviewing its financial and operational
effectiveness. The Board has taken into account the guidance provided by the FRC on risk management and internal control in carrying
out its duties. The system of internal control is designed to manage, but not to eliminate, the risk of failure to achieve business
objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss.
The Group’s functions are responsible for determining Group policies and processes. The businesses are responsible for implementing
them, with internal and/or external audits to confirm business unit compliance. The key features of the risk management and internal
control system are described below, including those relating to the financial reporting process, as required under the Disclosure
Guidance and Transparency Rules (DGTR):
– Group policies – key policies are approved by the Board and other policies are approved by Group functions;
– process controls – for example financial controls including the Group Finance Policies and Procedures Manual, the bid approval
process, programme lifecycle management reviews, IT security framework and risk management; and
– the forecasting, budget and strategic plan processes.
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The Group’s programmes for insurance and business continuity form part of our risk management and internal control framework.
The following features allow the Group to monitor the effective implementation of policies and process controls by business units:
– a business performance review process (including financial, operational and compliance performance);
– semi-annual business unit, product group and divisional sign-off of compliance with Group policies and processes;
– compliance programmes and external audits (including trade compliance, ethics, anti-corruption, health, safety and environmental);
– an effective internal audit function which, primarily, performs business unit reviews by rotation (including finance, programme
management, IT, HR, ethics, anti-bribery & corruption and business continuity); and
– a whistleblowing line to enable employees to raise concerns.
To review the effectiveness of the system of internal controls, the Board and Audit Committee applied the following processes and
activities in 2020 and up to the date of approval of the Annual Report:
– reviews of the risk management process, risk register and risk appetite statement;
– written and verbal reports to the Audit Committee from internal and external audit on progress with internal control activities,
including:
– Reviews of business processes and activities, including action plans to address any identified control weaknesses and
recommendations for improvements to controls or processes;
– The results of internal audits;
– Internal control recommendations made by the external auditors; and
– Follow-up actions from previous internal control recommendations.
– regular compliance reports from the Group General Counsel and Director, Corporate Affairs;
– regular reports on the state of the business from the Chief Executive and Chief Financial Officer;
– presentation on IT security activities and plans from the Chief Information Officer and the Chief Information Security Officer;
– strategy reviews, review of the five-year financial plan and review and approval of the 2021 budget;
– written reports to the Corporate Responsibility Committee on the effectiveness and outcomes of whistleblowing procedures; and
– reports on insurance coverage and uninsured risks.
The risk management and internal control systems have been in place for the year under review and up to the date of approval of the
Annual Report, and are regularly reviewed by the Board. The Board monitors executive management’s action plans to implement
improvements in internal controls that have been identified following the above mentioned reviews and reports. The Board confirms
that it has not identified any significant failings or weaknesses in the Group’s systems of risk management or internal control as a result of
information provided to the Board and resulting discussions.
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Viability statement
In accordance with the provision 31 of the 2018 Code, as part
of their assessment of the Group’s viability, the directors have
assessed the prospects of the Group and its ability to meet its
liabilities as they fall due.
Response to COVID-19 and impact on Meggitt’s
viability
During 2020, along with the rest of the civil aerospace sector,
Meggitt responded to the pressures caused by the COVID-19
pandemic. Year on year, the Group’s revenues fell by £592m (26%)
and as such, the last 12 months have tested the Group’s viability.
The first actions of the Group secured liquidity, and over the year
the Group’s funding structure has proved to be secure and
resilient. In the first half, the Group secured a forward start on its
RCF for one year on $575m to September 2022, and in November
successfully refinanced $300m of debt. The Group also became
an eligible issuer under the Bank of England’s CCFF facility.
However, the Group has not issued commercial paper under this
facility at 31 December 2020 and at no point during 2020 was the
Group viable only through access to these funds.
The Group has also addressed its structural cost base. As at the
end of 2020, our global headcount is 26% or 3,319 lower than at
the end of 2019. Overall, though £592m of revenue have been
lost year on year, the fall in underlying operating profit has been
£212m, meaning for every £3 of revenue lost, just under £2 has
been saved on cost. The Group also generated cash in the year
with free cash flow (after interest and tax) of £32m and net debt
lower by £138m year on year. The Group has received a small
amount of support under government furlough schemes. The
benefit to the income statement has not been critical to viability.
Meggitt’s diversified business model has also proved robust.
Though the Group’s civil aerospace business has come under
pressure, the defence business is up 4% on an organic basis and
defence now represents 46% of the Group’s revenue. In addition,
the Group’s global manufacturing base has proved resilient during
2020, with manufacturing capacity largely maintained through the
pandemic despite significant levels of infection in both the UK and
USA. Meggitt has benefitted from both globally distributed
facilities and diverse end markets.
Overall, though far from over, the Group’s response to COVID-19
has been encouraging. Nearly 12 months into the most severe
crisis to hit aerospace in living memory, Meggitt continues to
be viable.
Assessment of prospects
The Board believes that, despite the impact of COVID-19 in 2020,
the prospects for the Group continue to be favourable in the
medium to long-term.
• We believe that the desire for individuals to travel remains and
that air travel will play a critical part in meeting that demand
• Growth in civil aerospace markets will return despite the near
term impact of COVID-19; we provide equipment to all major
new platforms entering service in the near future
• Meggitt has provided equipment to over 73,000 in service
aircraft, and with an average aircraft lifespan of 25 years,
our aftermarket will be providing meaningful revenues to the
Group for decades to come
• We are diversified by end market and by customer
• We supply into both civil (43% revenue) and defence (46%)
aircraft markets, and into selected energy markets (8%)
• Our revenues are split broadly evenly between equipment
sales and aftermarket
• We work with a diverse group of customers from across the
globe. Our top 10 customers generate less than 50% of our
revenue
• We invest for the long term and protect our know-how
• We invest in market leading technology. We continue to
spend, on average, 5-7% of revenue on R&D through the
cycle
• Our physical capital base is renewed regularly. We have
maintained our investment levels in 2020 (£90m of capital
expenditure vs. £94m in 2019)
• We grow, manage and defend our intellectual property
portfolio robustly
• We continue to invest in next generation technologies to
support a sustainable future for aviation and power
generation
• We seek to attract and retain colleagues who can enable the
extraordinary
• We manufacture based on quality, consistency and value
• We manage our manufacturing facilities using HPS (previously
MPS), a tiered improvement programme, providing a
roadmap to best in class manufacturing.
• We operate a globally distributed manufacturing
infrastructure, producing both in the OECD and in lower cost
locations
• We have robust liquidity and a strong financial base
• The Group has reduced its levels of debt by over £100m to
£773m in spite of the financial pressure of the last 12 months.
The Group generated free cash flow in 2020
• Our gearing ratio at the end of 2020 was 2.2x (net debt /
EBITDA) and interest cover was 9.8x, both well within our
covenant limits
• We have £1.5bn of committed facilities as at 31 December
2020, and a headroom of £908m
Assessment period
The Board considered the Group’s principal risks as detailed in our
risk register, and assessed the impact, likelihood and timeframe
over which the risks might crystallise. It also considered over what
timeframe certain business and sector changes currently
impacting the Group would likely be resolved.
1. Recovery of the civil aerospace market: Many industry
observers including IATA see the civil aerospace market
recovering to 2019 levels by 2024-25.
2. Refinancing: The Group expects to have refinanced a
significant proportion of its debt, including its RCF by 2023-24.
3. Evolution of Meggitt: The Group has a number of projects,
including the completion of the move into Ansty Park and other
footprint reduction efforts, which are expected to complete
within the next five years.
4. Programme investment: The Group typically expects the
investment cycle of five years for engineering development
programmes.
The Board concluded that these four major activities would be
largely resolved in a five-year time frame and as such, five years
continues to be the correct timeframe over which to assess
viability and risk impact.
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Assessment of viability and risk stress tests
The Group is modelling a progressive recovery in activity in the civil
aerospace market from a low point in late 2020 and early 2021.
Though a number of outcomes are possible, the Group believes that
a full recovery in the civil aerospace market is likely by 2024-25 and it
is on this baseline that the Group’s viability has been tested.
Using the output of the Group’s long-term planning activity, the
Group has created two adverse downside scenarios. These are
modelled against a baseline “COVID recovery” scenario detailed in
note 1 of the consolidated financials statements and the financial
impact quantified should a number of risks within those scenarios
crystallise within a five-year period.
1. Loss of a major customer
The aviation sector is reliant on a well-developed system of global
regulations and equipment qualifications to ensure confidence in
the sector’s functioning. In addition, particularly when working with
the defence arms of governments, security of data and adherence
to military protocols is critical.
The Group has modelled the impact of a significant loss of revenue
following a regulatory or compliance failure at Meggitt. Censure
for non-compliance is severe, whether through the loss of access to
government contracts, or the grounding of fleet which are deemed
to be unsafe.
This scenario is modelled to unfold in parallel with the recovery
from COVID-19. Given necessary lead times to find alternative
sources of supply, the full impact of this loss of customer scenario
would take 12 months to be felt, during which time the civil AM
recovery is underway in the underlying base case. The maximum
impact of the scenario would be in 2023, when the Group is
refinancing a number of facilities.
2. Major business disruption event
As the Group is currently experiencing a significant demand-side
business disruption event in COVID-19, in testing the Group’s
viability, a supply-side shock has been considered. Specifically,
manufacturing disruption in California as a result of a natural
disaster.
On the Group’s risk matrix, business disruption continues to be one
of the highest impacting risks on the Group’s financial
performance, disrupting relationships with both major customers
and suppliers.
The Group used knowledge of previous business disruption events
to model the impact on the Group’s future plans. As modelled, the
Group is able to weather the earthquake event without needing to
conclude any additional refinancing.
The Group has modelled the financial impact of the risks articulated
above, together with mitigating actions. Mitigating actions include a
reduction in investment both in PP&E and R&D or curtailment of
indirect expenditure and headcount reduction. Levers such as dividend
suspension or material reduction in discretionary spend are somewhat
reduced in their effectiveness, as these actions have already been
taken in response to COVID-19. However, the Group continues to sell
into diverse end markets and enjoys long dated aftermarket revenue
and technologically differentiated products. The Group would find it
challenging should a second external shock occur before the recovery
from COVID-19 is established. However, the Group continues to
believe that both the scale of the potential mitigating levers available
to it and the favourable outcomes achieved in 2020 against COVID-19
by it provide buffers to mitigate the impact of these scenarios.
Statement of viability
Based on the results of the analysis, the Board has a reasonable
expectation that the Group will continue in operation and be able to
meet its liabilities as they fall due over the five-year period of
assessment.
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Section 172 statement
As set out in Section 172 of the Companies Act 2006, the directors
must act in good faith to promote the success of the Company for
the benefit of its shareholders as a whole. In performing this duty,
they are required to have regard, amongst other things, to the
interests of employees, the impact of our operations on the
communities in which we operate and the environment, and the
need to foster relationships with our suppliers, customers and
other key stakeholders in order to maintain a reputation for high
standards of business conduct and enhance the sustainable
long-term success of the business. The directors give careful
consideration to these matters when discharging their duties and
are supported by:
• An induction programme and ongoing briefings, visits and
discussions to ensure that they understand the business
including our markets and future prospects, and wider
stakeholder impacts;
• A formalised procedure which highlights the impact of
important decisions on key stakeholders to assist the process of
assessment of Section 172 impacts. The draft proposals
received by the Board and its Committees ensure that this
formalised approach embeds the consideration of stakeholder
interests at key decision-making levels and that Board papers
reflect the impact of decision-making on key stakeholders; and
• Carefully planned agendas to ensure the Board and its
Committees have sufficient time to consider and discuss key
matters.
Business conduct
As explained on page 97 the day-to-day management of the
business is delegated to the executive management team. The
Group Corporate Responsibility and Sustainability Policy requires
the Group’s business to be conducted in a manner that achieves
sustainable growth by balancing the interests of all stakeholders.
This Policy prompts consideration of the matters set out in Section
172 during the decision-making process undertaken at all levels of
the business and, by mandating compliance with this Policy, we
ensure that the business is run for the benefit of its shareholders
as a whole.
Our comprehensive ethics programme, which includes an
independently run whistleblowing hotline, promotes high
standards of business conduct across the Group. The programme
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is monitored by the Board on a quarterly basis and by the
Corporate Responsibility Committee at a more detailed level at
each meeting. It is reinforced through our policies, regular ethics
training and our values and High Performance Culture
programme. To date, 6,400 of our current employees have
attended High Performance Culture ‘unfreezing’ sessions
including the Board who participated in sessions in 2019.
Depending on the subject matter, the relevance of each
stakeholder group may differ and decisions will not always result
in a positive outcome for all stakeholders. But by having due
regard to the interests of our key stakeholders at each key
decision-making level of the business we ensure that all decisions
taken promote the long-term sustainable success of the Group.
How we engage with our stakeholders
The Board has identified our key stakeholders as: our workforce,
shareholders, customers, suppliers and the communities within
which we operate. Management conduct much of the primary
engagement activities and present regular updates to the Board
providing critical insights and perspectives to shape Board
decisions and enable effective challenge of decisions taken by
management on behalf of the Board.
COVID-19
2020 represented a period of significant challenge for the
Company as a result of the severe impact of COVID-19 on the
markets in which we serve. During the year the Board have taken a
number of difficult decisions to flex the Company’s cost base and
capacity to align more closely with our lower near market outlook
with the overriding aim of securing the long-term sustainability of
the Company.
These decisions have not been taken lightly and the impact of
each decision on all key stakeholders has been considered
carefully by the Board. A rolling record of all decisions taken in
response to the COVID-19 pandemic has been maintained,
together with assessment of the impact of these decisions on our
key stakeholders. This assessment has been reviewed by the Board
regularly throughout the year to ensure no particular stakeholder
group has been unduly privileged at the expense of others.
Decision-making in practice
COVID-19 has fundamentally changed the aerospace industry
in the short to medium term and the Board has had to make a
number of difficult decisions to ensure the long-term success
of the Company. These decisions included not paying the
2019 final dividend, not declaring any dividends for 2020
and reducing our workforce to reflect lower demand for
our products.
In making these decisions the Board paid due regard to the
material impact on the affected stakeholder groups and the
contribution of each decision to securing the long-term success
of the Company. These decisions played a key role in reducing
our cost base and strengthening our financial position and
liquidity.
Significant effort was made during the year to reduce
employee costs while seeking to minimise the loss of jobs as
far as possible, including the application of temporary furlough
schemes, the reduction of salaries and fees for Board and
Executive Committee members, encouraging senior
management to take voluntary salary reductions and no
payment of any 2020 bonus. However, given the scale
of the COVID-19 impact on our business, job losses were
unfortunately necessary to align our cost base with the
reduction in demand for our products. Where possible,
job losses were tailored to reflect our long-term strategy
and allow us to emerge strongly when the recovery comes.
Job losses were implemented with candid and humane
communication and support.
Our shareholders want us to maximise returns in a
sustainable way. Cancelling dividends has had a significant
positive impact on our liquidity and cash flow. By taking the
short-term decision not to pay dividends during the year we
were able to minimise job losses and continue to support
our customers, suppliers and the communities which will
help generate long-term returns for our shareholders.
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Stakeholder engagement
Stakeholder
How we engaged
in 2020
What they said
in 2020
What we did
in 2020
Workforce
Having an
engaged
workforce that live
our values and
focus on high
performance,
which ultimately
drives results.
To ensure effective
two-way
communication.
Shareholders
Having supportive
shareholders is
vital to the
achievement of
our strategy.
• Nancy Gioia, is Chair of the Corporate
Responsibility Committee and the
Non-Executive Director responsible for
employee engagement. During 2020, Nancy
conducted virtual meetings with sites in the UK,
US and Asia, where she met separately with
employees at all levels of the business. She also
met with apprentices, graduates, our Employee
Resource Groups, High Performance Culture
facilitators and with our HR teams to discuss
specific issues including COVID-19, the
engagement survey results, the transition to
Ansty Park, and diversity and inclusion. These
meetings enabled Nancy to gain a deeper
insight of matters that are of significance to
our workforce and these were reported back
to the Board.
• Annual employee engagement surveys, and
annual ‘pulse’ surveys, are issued to employees
with the results reported to and discussed by
the Board.
• Intranet updates and leadership blogs provide
employees with information on matters of
concern to them and achieve a common
awareness of the financial and economic factors
affecting the Group’s performance.
• An independently run whistleblowing hotline is
in place with regular reports to the Corporate
Responsibility and Sustainability Committee
and the Board.
• Our CEO, CFO and VP Investor Relations meet
regularly with our key shareholders and report
regularly to the Board.
• The Chairman met with some of our key
shareholders during the year on matters related to
governance.
• The Senior Independent Director engaged with
key shareholders regarding the decision for Sir
Nigel Rudd to remain on the Board to ensure
continuity during the COVID-19 pandemic.
• The Company Secretary and VP Investor
Relations engaged with our major shareholders
and proxy advisors ahead of and after the AGM
to answer questions on the resolutions and
report key themes back to the Board.
• In late 2020 and early 2021, the Chair of the
Remuneration Committee engaged with our
major shareholders, and proxy advisors, to
discuss and seek feedback on remuneration
proposals. Further information can be found in
the Directors remuneration report on page 114.
• We set up a dedicated email address for
shareholders to raise questions about the Group
and its governance and operations ahead of
the AGM. Responses to questions received
are included on the shareholder section of
our website.
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• Released COVID-19-
related information
direct to employees
through HR, as well
as making resources
and support
information available
on our intranet,
including advice and
links to our existing
Employee Assistance
Programmes.
• Mental health during
COVID-19 was a key
topic actively
discussed by the
Board and executive
management.
Executive management
worked with SHINE,
our Employee
Resource Group on
mental health and
disabilities.
We answered queries on
our participation in the
Ventilator Challenge
directly and provided
additional information
on our website on this
matter.
We kept our shareholders
updated and informed
through a combination
of scheduled and ad-hoc
market updates and
answered questions
throughout the year on
all aspects of the
COVID-19 crisis and
progress made by the
Company.
The Remuneration
Committee responded to
shareholder and proxy
advisor feedback by
reshaping remuneration
policy proposals: see the
Directors’ Remuneration
Report for more details.
• Stress levels had
increased as
a result of COVID-19,
working from home
and reductions in
workforce.
• Meggitt provides the
opportunity to take
on challenging and
meaningful
assignments. Direct
access to senior
management was seen
as a positive aspect of
the Company’s culture.
• COVID-19 limitations
for in-person High
Performance Culture
sessions raised
concerns for
maintaining the rate of
deployment and
cultural shift progress.
• Improved and
consistent
communication and
collaboration tools
were identified as key
areas for improvement.
• The main area of
interest from retail
shareholders ahead of
the AGM centred on
our participation in the
Ventilator Challenge.
• Institutional
shareholders were
primarily interested in
the impact of COVID-19
on Group revenue and
profitability, steps being
taken to preserve cash
and adjust our cost
base, our liquidity and
headroom, expected
pace of recovery in the
civil aerospace market,
safety of our workforce
and steps taken to
retain talent.
• Shareholder feedback
on the Chairman
continuing on the Board
as a result of the need
for continuity during
COVID-19 was positive.
• Shareholder feedback
and proxy advisor
feedback on our
remuneration proposals
is detailed in the
Directors’ Remuneration
Report.
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Stakeholder
How we engaged
in 2020
Customers
To provide
sustainable
technology
solutions and
anticipate future
demand.
To obtain feedback
on where we are
performing well
and any areas
where we can
improve.
To ensure effective
two-way
communication
and manage
expectations.
Suppliers
Our relationships
with our external
supply base are
a critical element
of our overall
business
effectiveness and
profitability.
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• Continuous engagement by our CEO and
divisional presidents and product group teams
to discuss performance and technologies.
• The Board receives reports on customers,
customer-related key performance indicators,
and actions being undertaken as a result.
• The Board has overseen the implementation of
the Meggitt Production System (MPS) since it
was launched in 2012. MPS provides continuous
improvement to our manufacturing processes
for the benefit of the customer. MPS measures
are included in the Long Term Incentive Plan
and progress with MPS is discussed in detail by
the Board and Remuneration Committee.
• The Board has also overseen the creation and
development of the Services & Support division,
which is entirely focused on civil and defence
aerospace aftermarket customer service. The
Board receives regular updates on progress.
• Our requirements for suppliers to demonstrate
compliance to industry-wide policies regarding
quality, security and a wide range of corporate
social responsibility matters including
environmental, performance, modern slavery
and human trafficking and conflict minerals
are documented and made available to our
suppliers. The requirements are included in
our standard terms and conditions.
• Risk assessments of suppliers have been
undertaken and we have engaged with those
suppliers perceived to be higher risk to seek
confirmation of compliance on certain matters.
• The Corporate Responsibility Committee
receives an annual update on supplier
engagement activities from our Chief
Procurement Officer, which is reported back
to the Board.
• The Corporate Responsibility Committee
monitors the communication channels and
relationships with our suppliers to ensure that
they facilitate open discussion on areas of
concern and support best practice.
• Payment practices are managed by the Chief
Financial Officer and Chief Procurement Officer
who monitor actions to improve payments to
suppliers. The Board and Corporate
Responsibility Committee also receive biannual
updates on payment practices.
• The Procurement team engaged with suppliers
to ensure we fully understood the risks to our
supply chain arising from COVID-19.
What they said in
2020
What we did
in 2020
In 2020 there was
continuous engagement
with our customers to
ensure that production
during COVID-19 was in
line with demand.
Customers also
requested extensions on
payment terms.
Ensure continuous
service to our customers
throughout the year.
A new credit
management committee
was established to review
credit extensions for
customers.
Due to COVID-19 some
suppliers needed
additional support to
remain operational.
Support was provided to
suppliers to assist them
in their efforts to remain
operational, especially
in regions affected by
national/state lockdowns.
However, towards the
latter end of the year
creditor days were
extended slightly,
detracting from the
significant progress
made in 2019 in respect
of our payment practices.
Assisted suppliers with
access to Government
stimulus funds in the
USA, UK, and France,
and re-launched the
Meggitt US ePayables
programme, allowing
suppliers to receive
payment more quickly,
easing pressure on their
cash flow.
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Annual Report & Accounts 2020
65
Stakeholder
How we engaged
in 2020
What they said
in 2020
What we did
in 2020
• Additional support
was needed by local
communities during
the COVID-19
pandemic.
Local
communities
and the
environment
As a global Group
we are members of
a diverse range of
communities and
have a responsibility
to understand and
support our local
communities.
• Board oversight and approval of the Corporate
Responsibility and Sustainability Policy.
• Our approach to local communities and
charities and implementation of the Group
Sponsorship and Charitable Giving Policy is
discussed at each meeting of the Corporate
Responsibility Committee.
• Monitoring the environmental impact of our
facilities and agreeing targets on greenhouse
gas emissions, water and waste.
• Maintain an active external communications
presence, including through social media, to
communicate key messages and monitor
comments about the Company. Regular social
media updates are provided to executive
management.
• Many of our teams and employees engaged
with local communities to provide support
during COVID-19.
Participated in Ventilator
Challenge UK.
Our UK Services &
Support business
produced over 49,000
straps for face visors.
A colleague in the US
produced 2,000 face
masks.
Our Rockmart site
adapted its production
line to package gallons
of hand sanitiser.
Colleagues in Xiamen
collected stationery and
school necessities to
distribute to poorer
communities.
Our California site
collected food to
distribute to 200 local
families.
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Decision-making in practice
One of the major decisions made by the Group this year was the sale of the Meggitt Training Systems business to Pine Island
Capital Partners, LLC. In making this decision the Board considered the interests of and the impact on all relevant stakeholders.
Our shareholders want us to maximise returns in a sustainable way. The sale of Meggitt Training Systems supported our strategy
to focus on the civil and defence aerospace markets where we have strong competitive positions. Increasing our exposure to
these markets will provide better returns for our shareholders in the long term. The sale also bolstered Meggitt’s liquidity during
this challenging period helping to secure our long-term success.
Our workforce rely on us for their livelihood and our customers rely on us to provide quality products at competitive prices.
During the sale process care was taken to select an appropriate buyer who had shown interest in utilising their resources to grow
the business. The buyer was considered a good custodian who would continue to invest in the workforce and in developing
quality products for its customer base.
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Corporate responsibility
Our people deliver solutions
for the most challenging
environments and are critical
to our sustainable future.
We must look after our
planet by harnessing green
energy, alongside driving
operational excellence and
reducing harmful emissions.
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As the world transitions
to a net zero future, our
technology and products play
a key role in making flight
more sustainable and in
enabling low-carbon power
generation.
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Enabling Our Sustainable Future
At Meggitt we are committed
to working in partnership with
our employees, communities,
customers, suppliers, and
shareholders to protect our
people and planet to develop
technologies for the benefit of
future generations.
Our Corporate Responsibility and
Sustainability Policy supports our
strategy for a sustainable future by
concentrating on three core pillars:
People, Planet and Technology. Our
strategy is tied to four of the United
Nations Sustainability Development
Goals, and allows us to strengthen our
relationships with all of our stakeholder
groups.
2020 has seen an expansion of our
corporate responsibility activities.
Our work on our strategic portfolio,
our investment in differentiated
technologies, alongside our
commitment to manufacturing
efficiencies, our values and diversity
and inclusion all contribute to the
sustainable development of our
business and is the key to our
continued long-term success.
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Meggitt PLC
Annual Report & Accounts 2020
02
Our focus areas and stakeholders
People
Health & Safety
Diversity &
Inclusion
C
&
u
s
t
o
s
u
p
m
p
e
li
e
r
s
r
s
E m ployees
Planet
Using low carbon
energy
Reducing our
waste
Stakeholders
Technology
Reducing
aerospace emissions
Supporting green
energy
Share h old ers
c
o
L
m
o
m
c
a
u
n
l
iti
e
s
Ethics and
business conduct
Anti-bribery
Speaking up
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01
Corporate
Responsibility
& Sustainability
Policy
• Addresses our key
stakeholders: employees,
customers, suppliers,
shareholders and the wider
community;
• upholding sound corporate
governance principles and
applying the UK Corporate
Governance Code;
• supporting the Ten Principles
of the United Nations Global
Compact, relating to human
rights, labour, the environment
and anti-corruption;
• upholding our employees’
human rights;
• encouraging dialogue with
employees through engagement
and our Speak Up Line;
• building a more diverse and
inclusive Meggitt, complying
with reporting obligations
including gender pay gap
reporting and reporting
gender ratios for executives
and the Board to the Hampton
Alexander Review;
• minimising the environmental
impact of products and
processes and maintaining
internationally accredited
environmental management
systems, including
ISO 14001 and ISO 9001;
• conducting business
relationships ethically and
responsibly;
• complying with anti-slavery
and human-trafficking
legislation;
• acting as a responsible
supplier and encouraging
all our counterparties to do
the same; and
• supporting our local
communities.
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Annual Report & Accounts 2020
69
03
04
Action
For our stakeholders this means:
• committing to invest over two-thirds of
our innovation budget on technologies
for sustainable aviation and energy;
• improving the environmental
sustainability and resilience of our sites
around the world;
• complying with relevant national laws
and regulations;
• complying with the latest environmental
reporting requirements;
• providing a supportive, rewarding and
safe working environment;
• introducing an employee recognition
scheme, “Extraordinary People”, in a
number of categories which include
community and sustainability;
• delivering training for all employees on
our Code of Conduct, health and safety,
diversity and other areas;
• continuing to develop our approach to
employee communications and
improving our collaboration tools;
• maintaining modern, safe and efficient
operational practices;
• contributing to the social and economic
enrichment of local communities,
focusing particularly on activities related
to STEM, and the work of our Employee
Resource Groups;
• having effective risk identification and
mitigation across all areas of the
business;
• removing all sales agents from our
business and implementing a continuous
improvement plan for all intermediaries;
• rolling out a new and improved Code of
Conduct for our employee base
alongside developing a Code of
Conduct for our suppliers and other
counterparties;
• conducting independent audits in key
compliance areas; and
• adopting robust internal and external
reporting and controls, and ensuring
financial probity.
Governance and compliance
Ultimately, the Board is responsible
for the implementation and
performance of our Corporate
Responsibility and Sustainability
Policy (CR&S Policy).
On-going monitoring of corporate
responsibility (CR) activities has
been delegated by the Board to
the Corporate Responsibility
Committee (CR Committee). The
CR Committee maintains oversight
of ethics and business conduct,
sustainability, charity and
community activities.
The CR Committee also oversees
the Board’s approach to
implementing sections of the UK
Corporate Governance Code 2018
(“the 2018 Code”) and the UK
Companies Act 2006 relevant to
stakeholder engagement.
Nancy Gioia, the Chair of the
CR Committee also performs the
role of Non-Executive Director
responsible for Employee
Engagement. The role and activities
undertaken by Nancy in 2020 are
outlined on page 63.
In 2020, the Board of Directors
continued to receive updates on
diversity and inclusion activities
across the Group, including the
significant progress in 2020 with
our Employee Resource Groups
and the Meggitt Inclusion Week
held in October. Health and safety
reporting is also overseen directly
by the Board with regular reports
from the Chief Executive, and in
2020 the Board reviewed current
health, safety and environmental
performance with the VP Health,
Safety and Environment and the
Group Director of Operations.
Group support is provided to
ensure we fulfil the requirements
outlined in our CR&S Policy, and
our divisional presidents, product
group leaders and site directors
take responsibility for implementing
Group policies and procedures
locally.
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Day-to-day responsibilities of the
Board and the Chief Executive for
overseeing the CR&S Policy in 2020
were delegated as follows:
• the Group Operations Director
had functional responsibility for
health, safety and the
environment, led by our VP
Health, Safety and Environment;
• the Group HR Director led
initiatives focused on culture,
diversity, inclusion and employee
engagement; and
• the Group Company Secretary
had functional responsibility for
ethics and business conduct and
charity and community matters,
working closely with our Group
General Counsel & Director,
Corporate Affairs, and Group
HR Director.
In 2020, health and safety (Total
Recordable Incident Rate) was a
key strategic non-financial KPI
(see page 53). In 2021, we are
introducing carbon emissions
as another non-financial KPI
recognising the key strategic
importance of this area.
Data in other key areas, such as
employees and other environmental
data were monitored and assessed
and our Group progress is reported
in this section and in the
Nominations Committee report
(see page 112). Our non-financial
information statement as required
by sections 414CA and 414CB of
the Companies Act 2006 is set out
on page 89.
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Annual Report & Accounts 2020
Environmental, Social and Governance (ESG) reporting and guidance
In 2020, Meggitt undertook a review of external environmental, social and governance reporting, and we are in the process of
implementing a framework for our sustainability strategy across Meggitt, under the banner of “Enabling our sustainable future”. This
framework captures our commitment to drive our business to be more sustainable across three key pillars: People, Planet and
Technology. Our framework also covers the reporting requirements under the Taskforce on Climate Related Financial Disclosures.
We have reviewed the United Nations Sustainability Development Goals and determined that the following goals are where Meggitt can
make a difference:
Industry, innovation
and infrastructure
UN description:
Inclusive and sustainable
industrialisation, together with
innovation and infrastructure, can
unleash dynamic and competitive
economic forces that generate
employment and income. They play
a key role in introducing and
promoting new technologies,
facilitating international trade and
enabling the efficient use of
resources.
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Reduced inequalities
UN description:
Reducing inequalities and ensuring no
one is left behind are integral to
achieving the Sustainable
Development Goals.
Our approach
Meggitt can contribute to this goal by
encouraging innovation and continuing
our commitment to research and
development on sustainable technologies
for aviation and energy.
Our approach
Meggitt can contribute to this goal by
empowering and promoting the social,
economic and political inclusion of all,
irrespective of age, sex, disability, race,
ethnicity, origin, religion or economic or
other status.
Meggitt is committed to:
• Investing two-thirds of our Applied
Research & Technology spend in
technologies and products needed for
sustainable aviation and low carbon
power generation;
• Membership of the UK Government’s
Jet Zero Council which is a partnership
between industry and Government in
the UK to bring together ministers and
chief executive officer-level
stakeholders to drive the ambitious
delivery of new technologies and
innovative ways to cut aviation
emissions; and
• Working with established and new
companies developing innovative low
carbon solutions.
Meggitt is committed to:
• Continuing commitment to our values
and our High Performance Culture
(HPC) journey;
• Creating and supporting Employee
Resource Groups which sponsor,
promote and challenge our approach
to diversity and inclusion across
Meggitt;
• Increased emphasis on our Speak Up
culture;
• Commitment to Gender Pay Gap and
other diversity related data reporting;
and
• Increased community-based charity
support connected to STEM and our
Employee Resource Groups.
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Responsible
consumption and production
UN description:
Worldwide consumption and
production – a driving force of the
global economy – rest on the use of
the natural environment and resources
in a way that continues to have
destructive impacts on the planet.
Peace, justice and
strong institutions
Promote peaceful and inclusive
societies for sustainable
development.
Our approach
Meggitt can contribute to this goal by
concentrating on:
– achieving the environmentally sound
management of chemicals and all wastes
throughout their life-cycle and
significantly reducing their release to air,
water and soil in order to minimise their
adverse impacts on human health and the
environment;
– substantially reducing waste generation
through prevention, reduction, recycling
and reuse; and
– adopting sustainable practices and to
integrate sustainability information into our
reporting cycle.
Meggitt is committed to:
• Reducing greenhouse gas emissions,
waste to landfill and water consumption,
which are being managed by
opportunities to maximise operational
efficiencies;
• Sourcing green energy;
• harmonising more sustainable practices
across our sites including waste
recycling, minimising plastics, electric
car charging and other facilities;
• Sites maintaining ISO 14001 certification;
• Site-level environmental performance
monitoring and reporting against targets
increased external reporting in the
environmental, social and governance
space including the Taskforce on
Climate Related Financial Disclosures;
and
• Aftermarket business model of reduce,
reuse and recycle.
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Our approach
Meggitt can contribute to this goal by:
– taking action to prevent modern slavery
within Meggitt and our supply chain;
– implementing policies, processes and
awareness training to prevent bribery
and corruption; and
– ensuring effective and accountable
reporting.
Meggitt is committed to:
• Increased transparent reporting in the
environmental, social and governance
space;
• Increased emphasis on creating a sound
Anti-Bribery & Corruption compliance
programme through our annual
continuous improvement plan;
• Driving ethical business conduct through
emphasis on our Speak Up Culture;
• Creation and support for our Employee
Resource Groups;
• Continuing commitment to our High
Performance Culture journey;
• All-employee yearly compliance training
in key areas including our Code of
Conduct, ethical business practices and
health and safety.
Taskforce on Climate-related Financial Disclosures (TCFD)
The TCFD was created to develop consistent climate related financial risk disclosures for use by companies to provide meaningful
information to shareholders. We are required to fully comply with these disclosure requirements in our 2021 Annual Report & Accounts.
During the year we completed a review and gap analysis of the TCFD requirements to identify areas for improvement in our practices
and disclosure. Many of the TCFD requirements were already integrated into our strategy, operations and culture and we have
strengthened our reporting in this Annual Report & Accounts to provide additional disclosure as appropriate in the following key areas:
Governance, Strategy, Risk Management and Metrics & Targets. We are working on an action plan to address areas for improvement to
enable full disclosure with the requirements in 2021.
TCFD
Recommendation
Link to section in
Annual Report
and Accounts
Governance
Strategy
Risk Management
Metrics & Targets
Page 73
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Page 72
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Meggitt PLC
Annual Report & Accounts 2020
Climate-related opportunities and risks
The opportunities and risks that climate change pose are managed as an integral part of our strategic plan for the business (see page
20), both in terms of how demand will change for existing and new products and how our operations will change in terms of energy
usage, greenhouse gas emissions, and resilience to changing climate. The strategic planning process is integrated with our financial
planning processes and includes climate change scenarios with a focus on future air travel, potential launches of new types of aircraft
and engines, and impact on our sites.
Market opportunities and risks
Short term (< 3 years)
Medium term (3 - 10 years)
Long term (>10 years)
Opportunities
Risks
Opportunities
Risks
Opportunities
Risks
Aerospace
markets
Energy
markets
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Production
operations
Increased use of
more modern
and fuel-efficient
aircraft where
Meggitt has a
higher ship-set
content leading
to increased sales
of both original
equipment and
aftermarket
services.
Increased use of
natural gas
driving a growing
market for
Meggitt's heat
exchangers and
products used in
gas-turbine
power
generation.
Use of renewable
electricity,
improved energy
efficiency, and
reductions in
waste and water
use.
Review and
where
appropriate
initiate Scope 3
emissions
management.
Reduced
passenger
demand due to
“flight shaming”
or “carbon taxes”
leading to a
slower growth of
the civil
aerospace
market.
Launch of next
generation
engines and
aircraft where
Meggitt’s
thermal, sensing,
composite, and
flow control
technologies are
well suited.
Reduced
passenger
demand due to
“flight shaming”
or “carbon taxes”
leading to a
slower growth of
the civil
aerospace
market.
Transition to
alternative engine
fuels (hydrogen
or batteries) with
opportunities
for Meggitt’s
technologies.
A new
competitive
environment with
competitors
offering
technologies
from other
sectors.
If solar or wind
power generation
capacity reaches
a scale whereby
the demand for
LNG falls then
there would be a
lower demand for
heat exchangers
in this market.
Over-capacity
due to
dramatically
climate-altered
societies and
markets.
Increased
demand for
hydrogen, carbon
capture
and energy
storage offers
significant
opportunities
for our heat
exchangers and
thermal systems
capabilities.
Changes to
production
facilities to
provide key
technologies for
next generation
green propulsion
and energy
sectors.
Carbon taxes
and impacted
operations from
increased risk of
extreme weather
events.
Increased
demand for
hydrogen, carbon
capture, and
energy storage
offers significant
opportunities
for our heat
exchangers and
thermal systems
capabilities.
Reduced energy
usage and
greenhouse gas
emissions from
our own facilities
through
improved
production
efficiency and
through the
ongoing
consolidation of
our global
facilities into a
smaller number
or larger, more
efficient plants.
Ongoing Scope 3
emissions work
with suppliers to
improve energy
efficiency and
greenhouse gas
emissions
resulting in
higher yields and
lower costs.
Increased risks of
wild fires in areas
we operate (i.e.
California and
Oregon).
Increased
likelihood of
extreme weather
events.
Limited capex
availability
following
COVID-19 crisis
to fund
substantial
greenhouse gas
reduction
projects.
Limited Federal
Regulations in
Sustainable
energy market in
the US.
Meggitt PLC
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Governance of climate-related opportunities and risks
Climate change, with the associated risks and opportunities, has been identified by the Board and Executive Committee as a key
strategic issue and is an integral part of our business planning framework. Our strategy includes how we can position the Company to
offer products that will enable the shift to sustainable aviation and low-carbon energy production, how we can reduce greenhouse
gas emissions from our operations, and how we can ensure our facilities are resilient in the face of a changing climate.
Summary of responsibilities in relation to climate related issues
Board
At a strategic level, the Board consider the impacts of climate change on both our markets and our
operations. The Board continually monitor our performance and progress in both of these areas, receiving
regular updates on UK and international policies to decarbonise the aviation sector, including market-based
measures, technological solutions and demand management and takes these into consideration when
setting the Group’s policies and strategy.
The Board approve the CR&S Policy and the Environmental Policy that sets out the Group’s commitment to
incorporate environmental considerations in all aspects of our business. These policies are reviewed by the
Board on a regular basis to ensure they are appropriate and in line with current best practice. These policies
are available on our website.
CR Committee
The CR Committee has independent oversight of the implementation of the Group’s environmental
performance and receives regular updates on environmental KPIs and environmental audits.
Executive
Committee
The Executive Committee leads the consistent implementation of business and operational processes to
minimise the impact of the Group on the environment and sets targets for improving the Group’s
environmental performance.
Functional responsibility is delegated to the Group Director of Engineering & Strategy (for our response
from a technology and market perspective) and to our Group Operations Director (for our response from an
operational perspective).
Divisions,
product groups
and sites
Our divisions, product groups and sites are responsible for day-to-day performance in these areas.
Each site is required to drive a number of projects locally to support the reduction of carbon emissions,
electricity and water consumption, and landfill wastes disposals. Targets have been deployed at each site
and will be tracked as part of the overall Strategy Deployment Process at site and product group level.
Environmental
Steering
Committee (ESC)
The Environmental Steering Committee, comprised of the Group Company Secretary, Group Director,
Engineering & Strategy, and Group Operations Director deploy the Group’s strategy into the business by
providing direction to the Environmental Working Group on key business plans, such as the procurement of
clean electricity and deployment of site targets.
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Environmental
Working Group
(EWG)
EWG includes members from Finance, Operations, Procurement, Communications, Research and
Technology, Corporate Responsibility and Facilities Management, reporting to the ESC for strategic
guidance.
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Corporate Responsibility Committee
Meggitt PLC
Annual Report & Accounts 2020
As Chair of the Corporate
Responsibility Committee, Nancy
Gioia’s role is to ensure that we
oversee the Group’s activities in the
areas of ethics and business conduct,
environment and charity and
community.
Our values and commitments are set out in our CR&S Policy
to ensure it reflects our strategic goal to conduct business
in a sustainable, long-term manner while demonstrating
a high degree of social responsibility. Our approach and
performance in this area is monitored closely by the CR
Committee and oversight is provided by the Board.
The CR Committee covers ethics and business conduct,
environmental performance, charity and community in detail.
It also ensures that the Board meets its responsibilities under
the 2018 Code and UK Companies Act 2006 on stakeholder
engagement, and other reporting requirements.
COVID-19 brought all matters related to corporate
responsibility and how we treat our stakeholders to the fore
in 2020. During 2020, we received detailed progress reports
on environmental performance and ethics and business
conduct, including trend analysis, detailed Speak Up line
case reports, and updates on training roll out. We also
received reports on supplier engagement and discussed
feedback on employee engagement activities. We also
discussed specifically the impacts of COVID-19 on our
stakeholder groups to ensure our approach was balanced.
Integrity
In 2020, a new Ethics Management Committee was
formed to review Speak Up line investigation reports
to ensure consistent application of the process and
investigation quality. The committee reviewed trend
analysis data to ensure additional training and coaching
is rolled out in the required areas in addition to the all
employee training. The results of the committee’s
findings were also reported to the Corporate
Responsibility Committee.
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Nancy Gioia
Non-Executive Director
Our behaviours with
each other, our customers,
our suppliers and in our
communities must be
exemplary and we
must accept nothing less.
Committee membership
and attendance in 2020
Mrs N L Gioia
(Committee Chairman)
Mr A Wood
Mrs L S Burdett
Mr G S Berruyer
Mr A Garard
Meetings attended
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Shareholders
Customers
The Committee determined that the regular reports to the
Board on shareholder engagement during 2020, in addition
to direct engagement by the Chairman, executive directors
and Chair of the Remuneration Committee were appropriate
and gave the Board a good level of oversight and
understanding of shareholder views. Our shareholder
engagement activities are described in more detail on
page 63.
The Board discussed engagement with customers at every
meeting during 2020. The Committee determined that the
regular reports to the Board and customer updates were
appropriate and gave the Board a good understanding of
customer views. Our markets and key customer activities
are outlined in our Strategic Report (page 64).
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Suppliers
Employees
The Chief Procurement Officer presented an update
on the implementation of our supply chain strategy to
the Board and detailed written reports on supplier
engagement were provided direct to the Committee in
2020. This highlighted that Meggitt’s approach to supply
chain management is evolving, with a targeted reduction
in the cost and complexity of our supply chain, but a
deeper level of engagement with retained suppliers.
The Board reviewed reports from executive management
on employee engagement and culture on a regular basis.
The Committee reviewed the activities of the Non-Executive
Director for Employee Engagement in detail. The results
of the employee engagement survey as well as the
whistleblowing hotline and ethics programme were also
reviewed by the Board and CR Committee (see page 63).
2020 Highlights
A focus on the impacts of COVID-19 on our stakeholder groups,
particularly in relation to actions taken by management to
control cost.
Creation of an Environmental Steering Committee to support the
implementation of our strategy on climate change.
Creation of an Ethics Management Committee to provide
direction on our ethics programme, including approving processes
and oversight of case management and ethical training.
Reducing sales agents in our business to zero.
Refreshing our Code of Conduct for all Employees.
Relaunching our new and improved independent Speak Up Line.
Launching our employee recognition scheme “Extraordinary
People”.
Launching three new Employee Resource Groups supporting
Black, Asian & minority ethnic (BAME), Latinos and Hispanics, and
our Veteran communities (adding to the five existing groups which
cover gender, mental health, STEM, young professionals and the
LGBTQI+ communities) whilst also reviewing our talent pipeline,
reflecting our commitment to diversity and inclusion.
Implementing site-level key performance indicators and targets
for environmental measures such as energy and water
consumption and waste to landfill.
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Our people are at
the centre of our
sustainable future
Our values and culture
Our values reflect how we should work
together and the behaviours that are
integral to our drive for success. Our work
on culture continues to be a key part of our
overall Group strategy.
To accelerate our progress towards
becoming a truly integrated global
business, we launched our High
Performance Culture (HPC) initiative across
the Group in 2017, with the first wave of
HPC sessions targeted at the senior
leadership teams across the organisation.
6,400 of our current colleagues have
attended unfreezing sessions and 1,100
colleagues have received reinforcement
training. Our original goal was for all
employees to have attended a session by
the end of 2020, however, due to the
COVID-19 pandemic, progress has been
slower than planned. In 2020, we focussed
our activities on reinforcement with virtual
monthly sessions on HPC for leaders and
managers across the business, to enable
them to deploy activities at a local level.
In 2020 we also trained facilitators to
deliver HPC virtually in 2021, which will
ensure that we sustain momentum as we
continue to build our High Performance
Culture.
Meggitt PLC
Annual Report & Accounts 2020
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Living our values
Teamwork
At Meggitt, we support each other
and recognise outstanding
contributions. By working together,
we bring extraordinary technology
to our customers. We build great
relationships with all of our
stakeholders, providing the support
they need to succeed. We build
highly skilled teams passionate
about what we do and how we do it.
Integrity
At Meggitt we do the right thing, in
the right way wherever we operate.
Our colleagues, customers and the
communities we are part of can
count on us to act with integrity,
honesty and respect. We form
lasting positive relationships built on
open communication, understanding,
fairness and impartiality. We
conduct ourselves with integrity
and the highest standards of ethical
behaviour across the business.
Excellence
We enable the extraordinary at
Meggitt. We’re good at what we do
and that’s why customers come back
to us. We are constantly working to
improve our processes and attention
to detail. As a result, we deliver the
most ambitious technologies,
products and services safely,
efficiently and cost effectively
to our customers.
Group Board
Senior managers*
Wider employees
5
56%
4
44%
92
82%
20
18%
6,490
70%
2,790
30%
*
includes members of the Executive Committee, direct reports of the Executive Committee and,
as required by s414C of the Companies Act 2006, subsidiary directors.
Diversity and Inclusion
Our Diversity and Inclusion Policy (available
on our website) sets out our commitments at
Board level to making Meggitt a diverse and
inclusive organisation. The Policy reinforces
that we should employ a diverse workforce
that reflects the diverse communities within
which we operate and always foster an
inclusive culture where people are valued,
respected and supported.
Alongside our Policy and embedded within
our culture and values are diversity and
inclusion. The Board, executive management,
and leaders across the Group recognise that a
diverse and inclusive workforce is critical to
running a sustainable and successful business.
To reinforce our commitment to creating a
diverse and inclusive environment, we have
created divisional-level diversity plans, and
established a Group-wide Diversity & Inclusion
Council which drives the aims of the Policy.
During 2020 we saw substantial progress,
with the launch of three new Employee
Resource Groups. We also continued to
deploy inclusion and unconscious bias
training in 2020.
We hosted numerous events throughout
the year which increased awareness and
visibility of our efforts including Women’s
History Month and International Women’s
Day in March, Mental Health Awareness
Week in May, Hispanic Heritage Month in
September, Black History Month (UK) in
October and Remembrance/Armistice Day
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in November. In October we launched
our first ‘Inclusion Week’ showcasing the
work of all of our Employee Resource
Groups. Over 1,000 participants attended
live sessions and activities deployed to
colleagues across the business.
We continue to make good strides in
diversity in our talent pipeline where
female promotions have increased to
36% in 2020 (2019: 32%); a testament
to the work done on facilitating growth
and development of our female
population. Our UK gender pay gap
reduced from 14.9% to 9.3% in 2020, with
progress driven by several senior executive
changes and our increased focus on
diversity and inclusion. Our full UK gender
pay gap statement will be available on our
website by April 2021. We are committed
to building a more diverse and inclusive
Meggitt and complying with reporting
obligations including gender pay gap
reporting and the Hampton Alexander
Review, as well as equal pay and fostering
a fair and transparent environment where
employees are rewarded based on their
position, competencies, performance
and contribution.
Our Employee Engagement Survey
showed a year over year improvement
in our diversity and inclusion index. Our
people are in favour of efforts to promote
diversity and inclusion and most feel that
differing viewpoints are sought out and
valued.
Meggitt does not discriminate on the
grounds of age, colour, disability, ethnic or
national origin, gender, gender expression,
gender identity, marital status, pregnancy,
race, religion or belief, or sexual orientation
and new hires are offered positions based
on merit, taking account of their specific
skills, experience and knowledge. All
individuals are supported during their
employment through training, career
development and awareness of diversity
and inclusion groups are promoted to all
employees through our Employee
Resource Groups.
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6,399
employees who have
attended unfreezing
1,125
employees who have had
reinforcement training
Employee recognition
Having a high performance culture and
great values are at the heart of how we
work at Meggitt. Colleagues believe in the
value of great Teamwork, always acting
with Integrity – doing the right things, in
the right way, and staying focussed on
Excellence for our customers. A culture
of appreciation and recognition is an
important building block for our values
– being able to say thank you or well done
to a colleague is easy. Our engagement
survey data told us how much people value
being recognised for great work and in
response to this feedback we introduced
our Extraordinary People recognition
programme in 2020.
This programme is a way of recognising
the special efforts and commitment of
individual colleagues and teams across
the whole of Meggitt. Open to all, this
programme, together with local recognition
schemes already running at local sites, is
motivational and rewarding, helping to
create a culture of customer service and
appreciation. Nominations are accepted for
individuals and teams in seven categories:
Operational Excellence, Innovation,
Teamwork, Safety, Sustainability, Customer
Service and Community. The level of
uptake of this recognition scheme has been
very well received by staff, having received
over 2,000 nominations in 2020.
Employee engagement
and feedback
We recognise that our future success
depends upon our shared sense of
purpose and it is important that we find
out from our employees what they think
about Meggitt and how they feel about
the work that they do.
The results of our 2020 annual Employee
Engagement survey had an excellent 80%
participation rate. 71% of employees were
favourable on the overall engagement
index, only 1% less than 2019 which was
considered a positive outcome given the
impact of COVID-19 on our business and
our people during 2020. Our scores in
alignment (connecting an employee’s own
goals with the goals of the Group) and
agility (the organisations ability to respond
to change) improved by 2% and 4%
respectively. The feedback shows strong
improvement in a number of areas:
• We saw big improvements in respect
and trust, openness, and teamwork.
• It showed that improvements in
efficiency and performance
management have been made and we
have further opportunities to improve
our execution by refreshing the Meggitt
Production System and simplifying
processes.
• Our High Performance Culture initiative
scored well and highlighted the need to
ensure HPC is fully embedded in all
areas of the business.
As well as asking for employee feedback
and engagement, in the UK we encourage
investment in Meggitt through
participation in the UK employee share
ownership schemes.
Meggitt PLC
Annual Report & Accounts 2020
Investment in employees through
training and development
We invest time and energy into ensuring
we attract, develop and retain the best
talent to ensure people succeed based on
their skills, behaviours, knowledge and
experience. We recognise that a skilled
workforce will help Meggitt achieve better
results. During 2020, our training and
development programmes were impacted
by COVID-19, the need to preserve cash
and the inability to attend physical training
sessions. The following are highlights from
2020:
• All-employee compliance training was
rolled out in H2 2020;
• We developed internally the Spitfire
Academy for operations leadership
which was launched in Autumn 2020;
and
• We developed LeadX, a new leadership
programme for aspiring leaders (below
executive level) and this programme
launched in January 2021.
We continue to develop employees’
leadership capabilities and during the year
implemented formal programmes to raise
capability in functional teams, including
procurement, project and programme
management.
Graduate programme members and
apprenticeships were protected from the
necessary reductions in force which took
place as a result of COVID-19 during 2020.
In 2020, our graduate programme received
over 1,000 applications for 15 places
(40% of those places were filled by
females). We also confirmed 10 graduates
into permanent roles within Meggitt and in
total, currently have 45 graduates on our
Global Rotational Graduate Programme.
In 2020, we have continued our efforts
with the Meggitt Corporate Apprenticeship
Programme in the UK. This includes
confirming eleven apprentices into
permanent roles within Meggitt and
recruiting another cohort of seven onto the
Manufacturing Engineering Apprenticeship,
alongside an additional four joining our new
Procurement Apprenticeship in January
2021. This brings our total apprentices in
the UK to 60 and globally to 111.
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Annual Report & Accounts 2020
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Community and charities
The Sponsorship & Charitable Giving Policy
contains guidance about the types of
organisations (charitable and non-charitable)
that we will consider funding, the criteria are
aligned to our Values. It is the responsibility
of our Group Director of Ethics and
Corporate Responsibility to ensure the policy
is followed across the Group including
providing guidance on charitable giving,
and communicating this policy across
the business.
Each site is ultimately responsible for
agreeing and administering its own budget
for charitable donations and sponsorships
to ensure they have a positive impact on
the local community that they support and
in which their business operates.
In 2020 Meggitt donated to a number of
charities aligned to the goals set out by our
Employee Resource Groups and foodbanks
in the UK and USA which are linked to the
local communities we share. Our plan for
work with charities in 2021 will continue to
be aligned to the work our Employee
Resource Groups do.
Throughout 2020 our employees
volunteered their time generously to support
their colleagues and local communities
coping with COVID-19. Our employees in
Coventry, UK, repurposed our restraints
product line to stitch straps for full-face
acetate masks, essential PPE for health care
workers and first responders. Well over
49,000 straps were produced.
Our Rockmart site in Georgia, USA, teamed
up with GEO Specialty Chemicals to jointly
produce, package and distribute 1,200
gallons of hand sanitiser, enough to protect
the employees of both companies with
additional supplies sent to local hospitals
and offices in need.
Many employees and their family members
devoted their free time to making fabric face
masks. Thousands of masks were donated to
colleagues and local communities.
Employees used their personal 3D printers to
produce headband brackets, face shields
and ‘ear savers’ at home and donated the
items to community medical centres.
Disability
Meggitt’s policy in relation to the
employment of disabled persons is to
give full consideration to job applications
received from disabled persons.
Candidates are selected and appointed
on the basis of their ability to perform the
duties of the job. Where appropriate,
special training is given to facilitate
engagement of the disabled and
modifications to the job are considered.
Where an employee becomes disabled
whilst in our employment and is unable to
perform their existing role, arrangements
will be made where possible for retraining
in order that a different job may be
performed.
Headcount by division
Number of employees and contractors
Airframe Systems
Engine Systems
Energy & Equipment
Services & Support
Central
Total
4,876
1,886
1,299
505
714
9,280
Headcount by region
Number of employees and contractors
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UK
Rest of World
Rest of Europe
Total
4,871
2,305
1,111
993
9,280
Headcount by length of service
Number of employees and contractors
Less than 5 years
Between 5 and 10 years
Between 10 and 15 years
Between 15 and 20 years
Between 20 and 25 years
Over 25 years
Total
4,337
1,856
1,090
665
656
676
9,280
Meggitt PLC
Annual Report & Accounts 2020
We continue to measure our effectiveness
in health and safety through the use of the
Meggitt Safety Star Programme which
incorporates many leading indicators of
health and safety performance. In 2020,
26 of our sites achieved Platinum level
within the Programme which is the highest
level of recognition in regards to health
and safety performance that our sites can
achieve. The Safety Star Programme is also
a key element in determining if a site has
achieved a level of operational excellence
within our High Performance System which
closely ties health and safety performance
to operational performance as a measure
of overall business performance.
In 2021 we will be incorporating the”Safety
Leadership Index” metric into the business
which consists of leadership leading
indicators such as safety leadership walks,
safe observation days conducted by site
Safety Champions and the number of
safety stand downs conducted each month
as a mandatory metric in our Safety Star
Programme that will require sites to
achieve certain levels in the metric to
achieve Platinum Safety Star status.
In addition, we are targeting all of our sites
to implement and obtain an occupational
health and safety management system
certified to the ISO 45001 standard by
2022. In 2020, 30% of sites had achieved
this target.
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requirements, decreased and limited
face-to-face meetings, staggered work
shifts, telecommuting, and increased
cleaning and disinfection regimes among
other actions. These actions, combined
with the resilience and cooperation of our
employees during unprecedented times,
allowed most of our operations to safely
remain open throughout the pandemic.
Throughout the pandemic our employees
continued to follow our core values of
always placing safety first, and to always
do the right thing by our people, our
customers and our communities in
which we operate. Our added focus of
addressing COVID-19 risks in the
workplace did not detract from our drive
to reduce health- and safety-related risks
that can arise within our operations.
With consistent communication of safety
matters occurring daily through our
Meggitt Production System’s daily layered
accountability process, we continued to
keep our employees engaged throughout
2020 by encouraging employees to identify
any perceived opportunities for improving
safety in the work environment on a
day-to-day basis. Across our business,
site leaders continued to conduct regular
Leadership Safety Walks on the production
floors with a sole focus of observing how
health and safety is embedded into daily
operations, and emphasising the
importance of positive safe behaviours
with each task performed.
Sites also continued to conduct Safety
Stand Downs in areas or topics of concern
specific to their operations. Across all of
our sites over 1,000 Safety Stand Downs
were conducted in 2020. A Safety Stand
Down occurs when operations are paused
for a period of time and the whole site
focuses on specific risk areas; interactive
discussions are held with all managers and
employees to review ways to minimise or
eliminate the specific risk.
In 2020, we continued to report record
lows in our Total Recordable Incident Rate
(TRIR). Our TRIR improved in 2020 to 0.70
(0.74 in 2019), representing a 5% reduction
year on year as a result of a decade of
continuous improvement activities.
Our commitment to health and safety was
reinforced in 2020 with the review and
revision of our Group Health and Safety
Policy which was approved by the Board of
Directors in October 2020.
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Our Health & Safety Policy sets outs
responsibilities at all levels towards health
and safety and the prevention of injury
to our employees, visitors, contractors,
customers and others who may be
affected by our activities.
At Meggitt, we have continuously placed
the health and safety of our employees,
contractors, customers and visitors at the
forefront of everything we do. This
approach was more important than ever
as the COVID-19 virus spread in the
global communities in which we operate.
The Group Crisis Management Team
formed early in 2020 to oversee our
response to COVID-19 and ensure a clear
and consistent approach across the Group.
Our sites activated the pandemic response
supplement of our business continuity plan
and a Group-wide policy and procedure
for managing the work environment during
the COVID-19 outbreak was developed
and deployed by our HSE function. The
procedure required all of our sites to
undertake detailed and specific risk
assessments in their operations to identify
risk reduction measures needed to control
or reduce the spread of the virus in the
workplace.
Additional controls and policies were put
into place including increased awareness
campaigns, health screening of employees
and visitors, social distancing
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Our Extraordinary
People
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2020 will go down in the history books as the
year that united communities worldwide in
the fight against a global pandemic. We are
so proud of our teams worldwide who continue
to give their time to support colleagues,
communities and those in need to ensure they
have the right tools and support to make a
difference, our teams worldwide continued
to deliver when it mattered most.
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Our planet, our home
Our commitment
Our Corporate Responsibility &
Sustainability (CR&S) Policy and our
Environmental Policy set out our
commitments to incorporate environmental
considerations, sustainability and
responsibility in all aspects of our business
by including environmental protection,
resource conservation and waste reduction
in our strategic planning. Our policies
require all of our sites to comply with
relevant legislation, promote environmental
stewardship and achieve recognised
ISO14001 certification of their
environmental management systems and
commits us to work with our suppliers to
minimise any adverse impact of their
products and operations on the
environment.
Performance
Our overall strategy requires all of our
sites to implement and maintain an
environmental management system
certified to ISO 14001. Those sites which
had not yet achieved certification as at the
start of the year had to delay their plans to
2021 because of the impact of COVID-19 on
travel restrictions, availability of auditors
and their inability to certify virtually. As part
of maintaining an ISO 14001 certified
management system, sites need to identify
all aspects of their business that may impact
the environment and to set strategies to
mitigate, control or reduce those impacts.
Many of our sites have completed projects
that contribute to our overall strategic goal
of reducing our environmental impact on
the planet.
The solar panel project at our Ansty Park,
UK, site was completed in 2020 and the
solar array generated 86,000 KWh of
renewable energy last year.
Our Rockmart, US, site completed the
replacement of an autoclave in late 2019
and a second one in 2020 with higher
efficiency models which resulted in an
approximate 30% decrease in water
consumption at the site. In addition, the site
has plans to replace a third autoclave and
their two large boilers with five smaller,
energy efficient boilers in 2021. The
replacement of the boilers will allow the
site to better control their natural resource
consumption as they will be able to tailor
their consumption based upon demand as
opposed to running the larger boilers 24/7.
Our Portland, US, site achieved the
following in 2020:
• Reduced electricity consumption
by 16% by installing LED lighting;
• Reduced natural gas consumption
by 12%;
• Reduced water usage by 47% with the
installation of inline chillers to recycle
and reuse water in their cooling towers;
and
• Moved 80% of what was previously
landfilled to recyclables (77% decrease
in landfill, 80% increase in recyclables).
The energy storage system that was
installed at our MDS Irvine, US, site in 2019
which allowed the site to purchase and store
electricity purchased during off peak hours
for use during peak hours, resulted in cost
savings for the site. The site in turn utilised
the cost savings to purchase Renewable
Energy Credits (RECs) that offset 100% of
their greenhouse gas emissions from
electricity purchased from the grid.
In Autumn 2020 we signed a UK-wide
energy contract to source 100% of our UK
electricity from renewable energy sources
from March 2021 onwards. There are further
plans being implemented for the rest of our
sites globally outside of the UK to transition
as much of our energy as possible to
renewable sources in 2021, or where this is
not possible (such as in some locations in
the US) to adopt other strategies to offset
our energy usage.
These actions are being taken as a part
of reaching our goal of reducing our
greenhouse gas emissions relative to
revenue by 50% by 2025, using 2015 as
a baseline year.
During 2021 we are committed to
developing a plan for Meggitt to reach net
zero on our Scope 1 and 2 emissions.
Meggitt PLC
Annual Report & Accounts 2020
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Case study
Ansty Park –
sustainable by design
Performance Certificate rating A+,
and a BREEAM audit ranking of ‘Very
Good’, meaning we are in the top 25%
of international new construction
projects for sustainability.
Several features have helped us to
achieve this recognition, we have a
rainwater harvesting system that
incorporates a 90,000 litre collection
tank which supplies recycled and
filtered water for use in toilets and
production. We have in-built insulation
with localised air extraction and
heating systems to optimize
climatisation, and 20 electric vehicle
charging points with ducts installed to
accommodate an additional 130 cars.
In addition, we have installed a state
of the art wet processing line with an
integrated filtration system, meaning
nothing goes to drain except clean
water, protecting the environment and
reducing our levels of hazardous waste.
Perhaps the most striking
environmental feature is our roof-top
solar farm, It is one of the biggest
roof mounted solar Photovoltaic
installations in the UK. This 2,600kW
system will produce around 2 million
kW’s of electricity a year. It took
three months to build, covers 167,000
square feet (around five football
pitches), has over 9,500 solar panels
and 20km of cable. We estimate that
our solar farm will account for more
than 25% of our annual Ansty power
requirement.
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Annual Report & Accounts 2020
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Table 1 shows our performance for key
environmental metrics and Table 2 shows
our progress on achieving internally set
targets.
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We currently disclose gross Scope 1 and
Scope 2 greenhouse gas emissions. From
2021 we will disclose our net as well as gross
emissions for Scope 1 and Scope 2, and in
2022 we will review the disclosure of Scope
3 emissions.
COVID-19 had a significant impact on our
overall performance in 2020. As expected,
all of our environmental metrics decreased
year-on-year on an absolute basis due to
the associated impacts on our operations
in terms of production, employees
telecommuting and site furloughs.
As a result, our absolute greenhouse gas
emissions decreased by 21% year-on-year
but increased by 6% when normalised to
revenue and our performance against our
2025 target deteriorated slightly. Our
carbon brake manufacturing operations
continue to drive our overall performance
on greenhouse gas emissions and those
sites were significantly impacted by the
pandemic in 2020. As discussed above,
however, our sites continue to develop
renewable energy projects and our
strategy to procure greener energy will
lead the way in helping us to achieve our
target on net emissions by 2025.
It has been agreed for 2021 to implement
Group wide site targets for a 3% reduction
in electricity, natural gas, water and waste
to landfill in 2021. Each site will be
required to build a strategic improvement
plan that will drive concrete actions to
support these targets.
Water consumption decreased significantly
on an absolute basis (-30%) which also
resulted in a 6% decrease when normalised
to revenue. Although the pandemic had an
impact on this metric for most of our sites,
the improvement at our Rockmart, Georgia,
facility (the largest water consumer in
Meggitt) was due to the autoclave
replacement projects listed on page 82
as well as the site identifying and fixing
significant leaks in their systems. In total,
the site improved their year-on-year water
consumption by 46%.
Our Environmental Working Group (EWG)
has been working on plans to increase
energy efficiency across the Group as a
principal measure of our commitment to
climate related action in our operations.
Projects are underway in line with ISO
14001 site led continuous improvement
plans, as well as improving employee
engagement on sustainability and
corporate responsibility more widely,
including the launch of a community of
interest for sustainability in 2021.
Our absolute waste generated decreased
on an absolute basis by 52% and by 35%
when normalised to revenue; the decrease
was due to decreases in production in 2020.
Looking forward, the Environmental
Steering Committee tasked the EWG with
increasing the Group’s energy efficiency
as a principal measure of our Group’s
commitment to climate-related action.
Projects on this are underway in line with
ISO 14001 site-led continuous improvement
plans alongside moving to the procurement
of greener energy globally where possible.
During 2020 it was agreed to include
carbon emissions as a Group KPI, and this
will be included in the KPI section of the
Annual Report from 2021 onwards. It was
also agreed during 2020 that sustainable
technology programmes should be
specifically measured under the Long
Term Incentive Plan award for 2021
(see page 129), and that we will
consider the implementation of further
environmental measures in our incentive
plans during 2021.
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Meggitt PLC
Annual Report & Accounts 2020
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Environmental metrics1 (Table 1)
Utilities
Electricity – gWh
MWh per £m revenue
Natural gas – gWh
MWh per £m revenue
Greenhouse gas emissions1 (CO2e) (gross, Scope 1 & 2) – tonnes
Tonnes per £m revenue
Waste – tonnes
Tonnes per £m revenue
Water – cubic metres
Cubic metres per £m revenue
2020
Change
2019
170
101
158
94
87,062
51.7
8,604
5.1
637,546
379
-19%
9%
-21%
7%
-21%
6%
-52%
-35%
-30%
-6%
210
93
199
88
110,075
48.6
17,785
7.9
913,584
404
Targets (Table 2)
GHG emissions1
– relative to revenue
Water consumption
Waste to landfill
27%
reduction in GHG
emissions4 since 2015
Baseline year
Five year performance
period (financial years)
Target improvement over
performance period
Achieved
as at 31.12.2020
2015
2016
2016
To 31 December 2025
To 31 December 2021
To 31 December 2021
-50%
-10%
-10%
-27%
+10%
+3%
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GHG emissions1 data (Table 3)
Combustion of fuel and operation of facilities2
Electricity, heat, steam and cooling purchased for own use
Intensity measurement:
Emissions reported above, normalised to tonnes
per £m revenue
Proportion of emissions and energy usage for UK sites (Table 4)
Electricity useage
Natural gas usage
Greenhouse gas emissions
2020 Tonnes of CO2e
2019 Tonnes of CO2e
29,145
57,917
87,062
36,733
73,342
110,075
51.7
48.6
UK %
Non-UK %
23
39
23
77
61
77
1 Metrics per £m are calculated using revenue converted at constant exchange rates. Greenhouse gas emissions (GHG) are calculated using conversion factors
published in the 2019 and 2020 Guidelines to DEFRA/DECC’s GHG Conversion Factors for Company Reporting for UK locations. Emissions from overseas
electricity are calculated using conversion factors published in the IEA Emission factors 2020.
2 Table 3 shows the GHG emissions data for the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulation 2013 (the Regulations).
The sites reporting GHG data are the same as those consolidated in the Group’s financial statements.
3 Global GHG emissions were calculated using conversion factors published in the Guidelines to DEFRA/DECC’s GHG Conversion Factors for Company
Reporting and the WRI/WBCSD Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard. Emissions from overseas electricity are
calculated using conversion factors published in the IEA Emission factors 2020.
4 Relative to revenue.
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Meggitt PLC
Annual Report & Accounts 2020
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In pursuit of
sustainable
aviation and
clean energy
Meggitt has committed to spending
two-thirds of investment in Research
and Technology on developing the
products and capabilities needed
to support a net-zero future with
technologies that support the
aviation industry drive to become
more sustainable and technologies
that enable renewable energy
production.
Meggitt has a strong portfolio of existing
products that already help towards these
goals, as well as numerous emerging
projects. In 2020, a newly compiled
sustainable technologies catalogue was
created covering all of these technologies
across our diverse Group product
portfolio. The catalogue will support our
objective to deliver consistent internal and
external narrative to illustrate how our
products benefit the environment, for use
in all stakeholder communications.
Details of our three-, five- and ten-year
risks and opportunities from a market and
technology perspective can be found on
page 72.
Case studies on our technologies can be
seen on pages 24-27.
Designed for next generation UHBR engines,
our innovative air-oil mini system provides an
integrated solution, saving space and weight,
resulting in improved operating efficiency
and reduced emissions.
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Innovation investment in sustainable
technologies
Lighter, more
efficient aircraft
Next-generation
engines
Sustainable aviation
fuels (e-fuels, hydrogen)
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Thermal systems
Safety systems
Fuel systems
Optical sensing
Engine composites
Braking systems
High temperature systems
Electrical systems
Additive/digital manufacturing
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Enabling sustainable aviation
Improve propulsion system efficiency –
burn less fuel per unit of thrust or power delivered
Reduce aircraft weight – less units of thrust
required to carry payload
Reduce aircraft drag – less units of thrust required
to carry payload
Use of sustainable aviation fuels – new fuels with lower
greenhouse gas emissions
Enabling sustainable
energy production
Enable renewable power generation
Enabling zero carbon power generation
Enabling green hydrogen production and/or operation
Reducing emissions though improved gas turbine
combustion efficiency and/or turbine performance
optimisation
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Meggitt PLC
Annual Report & Accounts 2020
Business conduct
Our CR&S Policy sets out our position
in relation to conducting all business
in a manner that achieves sustainable
growth whilst demonstrating a high
degree of social responsibility. It aims
to balance the interests of all our
stakeholders including shareholders,
employees, customers, suppliers and
the wider community in matters of
law and governance, ethics, diversity
and the environment.
At Meggitt, we commit to conducting
business fairly, impartially, and in
compliance with all applicable laws and
regulations. Our Values of Teamwork,
Integrity and Excellence are at the heart
of how we do things and underpin our
policies which are reinforced by applying
our High Performance Culture concepts
throughout the working day.
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To accompany our standards on conducting
business fairly and ethically, we relaunched
our Code of Conduct in 2020, which is
accompanied by training courses for all
employees. The Code has been developed
to be used by employees as a handbook in
the workplace, offering links to additional
policies for more detail and contact details
for the relevant subject matter experts to
provide support and guidance, alongside
short explanations of every employees
responsibility in each area. Every employee
receives an Ethics Guide and Code of
Conduct upon joining the Group.
Speak Up Line
We operate an independently run Speak
Up Line that enables employees to raise
questions or concerns anonymously and
confidentially, 24 hours a day, 7 days a
week from anywhere in the world.
During 2020 the Ethics Line was renamed
as the Speak Up Line. This name change
was accompanied by additional all-
employee communications on how the line
works and supporting employees to use
the line as appropriate.
Our independent helpline was also
transferred to a new provider during the
year. This new provider has enabled a more
streamlined end-to-end process for ethics
investigations across the business and
consistent categorisation of cases, from
employee relations concerns to raising
quality and manufacturing issues. This has
supported better case management and
trend analysis.
reviewed trend analysis data to ensure
additional training and coaching was being
rolled out in the required areas in addition
to any all employee training. The results of
the Committee’s findings were also
reported to the CR Committee.
The investigation process was also
reviewed and improved to ensure all
internal investigators use the same process
and the the new investigation tool which
was adopted alongside the helpline in 2020.
Our process is available on the intranet to
all employees so that they are aware of our
procedures when speaking up and how
confidential ethics cases and whistleblowing
are dealt with.
All employees are entitled to a thorough
investigation of concerns raised and
receive feedback whether the issues are
substantiated or not. Our values and our
High Performance Culture concepts
underpin our ethics programme with their
focus on how we treat each other (which is
the main area for calls received on our
Speak Up Line).
Contact information of people who can
help employees if there are any concerns is
available on our intranet, in all of our ethics
policies and on posters at all of our sites.
Our programme was enhanced during 2020
with the creation of an Ethics Management
Committee to review Speak Up Line
investigations reports and to ensure
consistent application of the process and
investigation quality. The Committee
Each Meggitt site has a designated
Ethics Champion who is available to assist
employees with questions or concerns,
and who also attend quarterly workshops
to share best practice, develop skills and
identify issues and the need for additional
training at their site. Alongside these
practices ethical behaviour is also drawn
out in our Employee Engagement surveys
which are monitored and impact future
strategy decisions with our stakeholders.
01
02
03
Case raised
Cases raised via independent and
confidential third-party service
which is input into our case
management tool accessed by
Group Director, Ethics & CR
Triage
Cases will be reviewed
confidentially and an appropriate
investigator will be appointed
depending on the subject matter
Investigate
The appointed investigator will
conduct the investigation under
Meggitt guidelines developing a
report based on evidence found
and witness interviews
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Remediate
After actions are closed out, trend
analysis and lessons learnt will be
reviewed to prevent future issues
reoccurring. Redacted information
will be circulated around the
business to illustrate positive actions
arising from Speaking Up
Resolve
Actions will be placed on teams for
resolution of substantial issues and
monitored by Group Director,
Ethics & CR
Report and review
The report will be reviewed by the
Ethics Management Committee
where a decision will be made
as to whether the claims are
substantiated or unsubstantiated.
Recommendations will be made as
to whether further investigations
are needed or actions taken by the
appropriate teams
Meggitt PLC
Annual Report & Accounts 2020
89
Compliance training
In addition to the updated Ethics & Business
Conduct Policy and the relaunched Code
of Conduct, we continued to promote our
ethical business conduct through training
issued to all employees, more targeted
training delivered at specific sites, video
messaging to all employees through our
intranet and also briefings delivered to our
Ethics Champions who are located at every
site. Our training reminds employees about
ethical business conduct, and we provide
examples of how to apply the principles laid
out in our policies in the training and
reminders of help, support and our
responsibility in the Code itself.
In 2020, we held virtual training sessions on
data protection, cyber security and health
and safety practices for the awareness of
all our employees.
Anti-bribery and corruption
Our Anti-corruption Policy covers bribery,
gifts and entertainment, conflicts of
interest, competition and anti-trust,
operating with intermediaries such as sales
representatives and distributors, offset
contracting, political contributions and
lobbying activities and breaches of this
policy and reporting obligations. In
addition to the Anti-corruption Policy, we
also have a Financial Crime Policy covering
anti-money laundering, fraud prevention
and corporate tax evasion. Both policies
set out clear escalation procedures to raise
concerns through management or via the
independently run Speak Up hotline.
2020 saw us build on the Continuous
Improvement Plan for Commercial
Intermediaries which was introduced in
2019. The plan not only looks at potential
corruption and bribery risks across our
business but also how we can work better
with such appointed parties.
We continued to take steps to reduce the
number of our commercial intermediaries,
being able to remove all sales agents from
our business dealings in 2020. In 2021 we
will broaden this remit to review all types
of counterparties within our business
dealings. Our continuous improvement
plan has strengthened our work with
independent organisations assessing
potential country corruption risk, leading
to enhanced due diligence and alerts in
our customer relationship management
tool, all of which is reviewed by internal
and external auditors.
strengthened recruitment processes and
high level engagement with our suppliers
incorporating clear communication of our
expectations and regular site visits. Taking
into account the output from our diligence
and assurance processes and the absence
of any concerns highlighted in this area the
Group considers the risk of forced labour
in its business and supply chain to be low.
Further information can be found in our
Modern Slavery Statement on our website.
Non-financial information statement
The table below summarises where to find
non-financial information required by
section 414C of the Companies Act 2006.
Our business model on page 22
summarises the key resources and
relationships we leverage to generate
and preserve value. Non-financial key
performance indicators on page 53 allow
us to assess progress against objectives
and monitor the development and
performance of specific areas of the
business
Further information on Group policies can
be found on our website.
Strategic report
This 2020 Strategic Report on pages 4 to
89 is hereby agreed on behalf of the Board.
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Chief Executive Officer
Human rights
Our CR&S Policy covers Human Rights,
setting out our position in relation to
conducting our business in the right way.
We recognise that as a large international
business, our business operations can
impact the lives and rights of other people
(not just our employees). As such, we
support the Ten Principles of the United
Nations Global Compact, relating to
human rights, labour, the environment
and anti-corruption.
Our Code of Conduct training also
reinforces the behaviour that we expect
from our employees as well as suppliers
and contractors. We encourage suppliers
and contractors to be responsible and
adhere to our values and principles to
ensure our business relationships are
responsible and ethical. We are committed
to complying with anti-slavery and
human-trafficking legislation and we will
continue to work with our suppliers to
engage on this topic.
Modern slavery
As part of our commitment to acting as
a responsible supplier, we commit to
abstaining from practices such as slavery,
human trafficking, forced labour and child
labour and reduce offset contracting. We
also commit to take all reasonable
measures to ensure that our suppliers and
other entities acting on our behalf do not
engage in practices that violate applicable
laws and regulations relating to slavery,
human trafficking, forced labour and child
labour. As such, we ask our suppliers to
comply with our Code of Conduct or
similar standards. Steps that we are taking
to combat anti-slavery and human
trafficking in our supply chain are set out
in our Modern Slavery Act statement
available on our website.
The Company has implemented a
framework to mitigate against the risk of
modern slavery and human trafficking in
our business and supply chain, including
annual confirmations of compliance with
Group policies and procedures,
Related Group policies
Environmental matters
Pages 82 to 97
Environmental Policy
Related principal risks
(pages 56 to 59)
Industry change
Technology strategy
Employees
Pages 76 to 80
Social matters
Page 79
Human rights
Page 89
Diversity & Inclusion Policy
Health & safety Policy
Technology strategy
People
Group Sponsorship and
Charitable Giving Policy
CRS Policy
Business Interruption
Industry change
People
Supply Chain
Legal and compliance
Anti-bribery and corruption
Page 89
Anti-corruption Policy
Financial Crime Policy
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Meggitt PLC
Annual Report & Accounts 2020
Chairman’s introduction
We strive to uphold the highest standards
of corporate governance and business
conduct that underpin successful and
sustainable long-term businesses. We
remain accountable to our shareholders,
and we recognise the value of strong
relationships with our workforce and
wider stakeholders built on a culture
of openness and trust.
Strong governance
The unprecedented levels of disruption and uncertainty
faced during the year have highlighted the importance of
strong leadership and a robust corporate governance
framework to enable us to respond quickly and effectively to
developing risks whilst maintaining focus on our overriding
purpose.
This report explains how the Group has applied the
principles of the UK Corporate Governance Code (the 2018
Code) and how our governance framework supports delivery
of our strategy as set out on pages 20 and 21.
Governance highlights in 2020
–
Strong attendance at additional Board meetings
throughout the year to direct and oversee
management’s response to the COVID-19 pandemic.
Details of the key focus areas of the Board in 2020
can be found on pages 97 and 98.
– Notwithstanding the announcement in February
2020 of my intention to step down as Chairman, the
Board recognises the significant benefit of continuity
in these uncertain times and as a result it was agreed
that I should remain as Chairman until further notice.
Information on our succession planning activities can
be found on pages 112 and 113.
–
In light of the volatility and rapidly changing markets
in 2020, we implemented a process of additional
review and challenge on the going concern
assessment, prior to the final review and challenge
conducted by the Board. Further details of our going
concern assessment can be found on pages 107 and
162 to 164.
– We scheduled additional Remuneration Committee
meetings to consider the impact of COVID-19 on
the Group and ensure that executive pay remained
socially responsible taking into consideration
shareholder interests and consistency with the wider
workforce. More details on actions taken by the
Remuneration Committee can be found on pages
114 to 141.
– We maintained a robust schedule of employee
engagement activities to better understand and
address key issues raised by employees and the
impact of COVID-19 on the workforce. More details
on employee engagement activities can be found
on page 63.
– We refreshed our Code of Conduct to further clarify
and articulate how employees should conduct
themselves in daily business interactions.
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Chairman
2020 Board attendance1
7 Scheduled meetings
9 Additional meetings
Sir Nigel Rudd2
Chairman
Mr A Wood
Chief Executive
Mr G S Berruyer3
Non-executive director
Mrs L S Burdett
Chief Financial Officer
Mr C R Day
Non-executive director
Mrs N L Gioia3
Non-executive director
Ms A J P Goligher
Non-executive director
Mr G C Hachey3
Non-executive director
Mrs C L Silver3
Non-executive director
1 Due to COVID-19, meetings from March 2020 were conducted
remotely
2 Met the independence criteria on appointment as Chairman
on 23 April 2015.
3 Unable to attend additional meetings due to prior commitments.
/ Meetings attended Non attendence
Meggitt PLC
Annual Report & Accounts 2020
91
Senior Independent Director
Guy Berruyer is reaching the conclusion of his nine-year term
in October 2021. The Board consider that Guy’s knowledge
of Meggitt and his prior experience bring significant value to
Board discussions, and that he continues to bring independent
challenge to this role. The Board are also keen to ensure
continuity on the Board in light of the COVID-19 pandemic and
as the Group’s key aerospace market recovers. In light of this,
Guy Berruyer will continue to serve as a non-executive director
on the Board. However, in light of Guy’s length of service, the
Nominations Committee has agreed that Alison Goligher will
succeed Guy as Senior Independent Director from the date of
the AGM in 2021. Alison has nearly six years’ experience on
the Board and has, as a result, built good relationships
with the non-executives and executive management, has
relevant experience of Board dynamics, and has a detailed
understanding of the Group, which makes her well qualified
to succeed Guy in the role of Senior Independent Director.
Corporate culture
We monitor the corporate culture to ensure that it remains
aligned with our purpose and values. Details of how we monitor
culture can be found on page 99.
I am proud that Meggitt’s first priority throughout the COVID-19
pandemic has been prioritising the continued safety and
well-being of our employees and ensuring business continuity
and safe operations across our global manufacturing sites.
During the year particular focus has also been given to meeting
commitments to customers and supporting our suppliers to
mitigate any disruption across the supply chain, clearly
demonstrating our commitment as an organisation to build
strong relationships with our wider stakeholders.
The regions where we operate have been impacted by
COVID-19 and I am pleased that our employees have continued
to support their local communities. In the UK we were part of
the Ventilator Challenge with responsibility for programme
management of the consortium’s production of an additional
13,000 ventilators to help patients hospitalised with COVID-19
fight the virus and our harness team in Coventry sewed over
49,000 straps for face visors to support the NHS and care home
workers in the local area. These achievements, together with
other activities undertaken by our workforce around the world
to support local communities during these challenging times
demonstrate our key values of teamwork and excellence in
practice.
Diversity and inclusion are embedded within our culture and we
have made good progress in this area in recent years. During
the year we continued our diversity and inclusion activities, with
our inaugural Inclusion Week in October 2020, and the launch of
three new Employee Resource Groups taking our total to eight.
More details of their activities can be found in the Corporate
Responsibility Report on page 77.
Sir Nigel Rudd
Chairman of the Board of Directors
3 March 2021
In this section
Board of Directors
This introduces our individual Board members by providing
details of the skills and experience they bring to the Board
and the Committees on which they serve.
page 92
Corporate governance report
The Corporate governance report analyses the leadership
provided by the Board, the steps taken to ensure that the
Board is effective and the frameworks by which the Board
manages relationships with shareholders.
page 96
Audit Committee report
Introduced by its Chair, Colin Day, this report describes the
Audit Committee’s work during the year by reference to the
principal responsibilities of the Committee for financial
reporting, external audit, the risk management process,
internal controls and internal audit.
page 105
Nominations Committee report
Introduced by its Chair, Sir Nigel Rudd, this report outlines
the Committee’s philosophy on appointments and
diversity and describes the activities of the Committee
during the year.
page 112
Directors’ remuneration report
Introduced by its Chair, Alison Goligher, this report
summarises the Committee’s approach to remuneration
and its link with our strategy. It also includes the revised
remuneration policy which is being submitted to
shareholders for approval at the Annual General Meeting
in April 2021 and describes how the previous policy was
applied in 2020.
page 114
Directors’ report
The Directors’ report is prepared in accordance with
Section 415 of the Companies Act 2006, and sets out
information that the directors are required to present in
accordance with the Act.
page 142
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Board of Directors
Committee membership
Audit
Nominations
Remuneration
Corporate Responsibility
Finance
Disclosure
Denotes Chairman
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Meggitt PLC
Annual Report & Accounts 2020
Tony Wood
Chief Executive
Appointed as CEO: 2018 | Nationality: British
Skills and experience
Extensive aerospace industry experience
gained with Rolls-Royce plc where he held a
number of senior management positions,
latterly as President, Aerospace. Previously
spent 16 years at Messier-Dowty, now part of
Safran Group.
Tony’s significant operational experience both
in aerospace and defence and other industrial
sectors, strong customer relationships and
strategic oversight of the Group are critical to
the Board as the business benefits from the
recovery in the civil aerospace market. Tony’s
experience of leading cultural change in
previous roles has also brought the Group’s
culture into focus just as the expectations of
the Board are being raised in these areas.
Organisations
President of ADS, the UK trade organisation
representing the aerospace, defence, security
and space sectors.
Committee membership
Sir Nigel Rudd DL
Non-Executive Chairman
Appointed: 2015 | Nationality: British
On 25 March 2020, we announced that in light
of the outbreak of the COVID-19 pandemic
and its impact on the global economy, the
wider aerospace sector and the Group, the
Succession Committee led by Guy Berruyer
has agreed with Sir Nigel and the Board that
he will stay on as Chairman until further
notice. The Board believes that there is
significant benefit in continuity of
chairmanship at this time.
Skills and experience
Chartered accountant with extensive board
experience spanning multiple sectors
including aerospace, retail and financial
services.
Sir Nigel plays a critical role in managing the
Board and the Nominations Committee, and
brings decades of executive leadership and
chairmanship experience across many
industrial companies including aerospace
and defence and other complex sectors. His
commercial, financial and general business
acumen and shareholder focus are extremely
valuable to the Board.
Current appointments
Non-Executive Chairman of Signature
Aviatian plc and Sappi Limited.
The Board of Signature Aviation plc has
recommended an offer from a consortium
comprising (i) Blackstone Infrastructure and
Blackstone Core Equity (ii) Global
Infrastructure Partners; and (iii) Cascade
Investment, L.L.C. to shareholders and
assuming the proposal is approved by
shareholders and the regulatory clearances
are obtained, it is expected that
Sir Nigel Rudd will retire as Chairman of
Signature Aviation plc when that transaction
completes.
Previous appointments
Chairman of Williams Holdings plc, Destiny
Pharma PLC, Kidde plc, Heathrow Airport
Holdings Limited (formerly BAA Limited), The
Boots Company, Pilkington PLC, Pendragon
PLC, Invensys plc, Aquarius Platinum Limited
and BGF PLC. Deputy Chairman of Barclays
PLC and Non-Executive Director of BAE
Systems plc.
Committee membership
Providing
expert
skills and
experience.
Meggitt PLC
Annual Report & Accounts 2020
93
Guy Berruyer
Senior Independent Director
Appointed: 2012 | Nationality: French
Louisa Burdett
Chief Financial Officer
Appointed: 2019 | Nationality: British
Colin Day
Non-Executive Director
Appointed: 2015 | Nationality: British
Skills and experience
Trained as an electrical engineer at the École
Polytechnique Fédérale de Lausanne and
holds a Harvard Business School MBA.
Guy brings significant experience to the
Board as a former Chief Executive of a FTSE
100 multinational enterprise software
company.
Appointments in unlisted companies
Non-Executive Chairman of Brandwatch,
a digital consumer intelligence company.
Non-Executive Director of Berger Levrault,
a French software and services company,
and Non-Executive Director of Civica Group.
Senior adviser to the European software team
at Warburg Pincus.
Previous appointments
Group Chief Executive of The Sage Group plc
and Chief Executive of Sage Group plc’s
Europe and Asia division. Non-Executive
Chairman of Softomotive Holding Limited.
Early career spent with software and hardware
vendors in France and other European
management roles.
Notes
Alison Goligher will succeed Guy Berruyer as
Senior Independent Director from the date of
the AGM. Guy Berruyer will continue to serve
as an independent non-executive director.
Committee membership
Skills and experience
Chartered accountant who has held senior
financial positions in industrial,
manufacturing, publishing and
pharmaceutical companies.
Louisa brings solid financial, commercial and
M&A experience across a broad range of
sectors, including aerospace, to the Board.
Current appointments
Non-Executive Director and Chair of the
Audit Committee of Electrocomponents plc,
a global distributor of industrial and
electronic products.
Organisations
Member of the Institute of Chartered
Accountants in England and Wales.
Previous appointments
Chief Financial Officer of Victrex plc, a
FTSE-250 industrial polymers group. CFO
roles with Optos plc, the Financial Times
Group, GE Healthcare and Chep Europe.
She also spent time in various roles at
GlaxoSmithKline, including Finance
Integration Director.
Committee membership
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Skills and experience
Chartered certified accountant who makes
a significant contribution as Chairman of the
Audit Committee, responsible for the
interface between the Committee and the
external and internal auditors. He has more
than 25 years’ experience in senior roles and
non-executive positions at blue-chip
companies across a wide range of industries,
including engineering and technology,
pharmaceuticals, oil and gas and aerospace.
He brings significant commercial and financial
expertise to the Board.
Current appointments
Non-Executive Chairman of Premier Foods
plc. Non-Executive Director of Euromoney
Institutional Investor PLC and Chair of the
Audit Committee.
Appointments in unlisted companies
Non-Executive Director for the UK
Government’s Department for Environment,
Food & Rural Affairs and Chair of the
Audit and Risk Assurance Committee.
Non-Executive Director of FM Global Inc.
Non-Executive Chairman of MK:U Limited.
Organisations
Independent member of the Council of
Cranfield University.
Previous appointments
Chief Executive of Essentra PLC, Chief
Financial Officer of Reckitt Benckiser Group
plc, Group Finance Director of Aegis Group
plc, Non-Executive Director of WPP plc,
Easyjet plc, Imperial Tobacco Group plc,
Cadbury plc, and Senior Independent
Director of Amec Foster Wheeler plc.
Committee membership
94
Board of Directors
Committee membership
Non-Executive
Meggitt PLC
Annual Report & Accounts 2020
Audit
Nominations
Remuneration
Corporate Responsibility
Finance
Disclosure
Denotes Chairman
5
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Nancy Gioia
Non-Executive Director
Appointed: 2017 | Nationality: American
Alison Goligher OBE
Non-Executive Director
Appointed: 2014 | Nationality: British
Skills and experience
Electrical engineer, who brings extensive
engineering and operational experience in
manufacturing to the Board. Her role in the
fast-paced automotive manufacturing area
gives important perspective in Board
discussions about strategic initiatives, and
she also has a keen interest in cyber security.
Nancy’s prior roles also mean that she brings
an understanding of the value of culture,
diversity and inclusion to her role as Chair of
the Corporate Responsibility Committee and
as Non-Executive Director responsible for
employee engagement.
Current appointments
Non-Executive Director of Brady Corporation,
Chair of the Technology Committee and
member of the Management Development
and Compensation Committee.
Appointments in unlisted companies
Executive Chair of Blue Current Inc., a
privately held start-up company focused on
battery technologies. Member of the Board
of advisors of KPIT Technologies Limited.
Principal of Gioia Consulting Services, LLC,
a strategic business advisory company.
Organisations
Member of the University of Michigan-
Dearborn Electrical and Computer
Engineering Advisory Council and
Engineering Dean’s Advisory Board.
Previous appointments
Held several key executive positions at
Ford Motor Company during a 33- year
career. Non-Executive Director of
Exelon Corporation, former Chair of
AutomotiveNEXT and Stanford University
Alliance for Integrated Manufacturing.
Skills and experience
Trained engineer and holds a MEng in
Petroleum Engineering from Heriot-Watt
University.
Alison brings important energy sector
experience. She has a strong operations
focus and makes an excellent contribution
to strategic discussions. As Remuneration
Committee Chair, a role which she also holds
on two other Boards, Alison has experience of
overseeing two remuneration policy reviews
and successfully led the Committee through
complex remuneration matters arising in 2020
from COVID-19.
Current appointments
Non-Executive Director of United Utilities
Group PLC and Chair of the Remuneration
Committee. Non-Executive Director of
Technip Energies N.V. and Chair of the
Compensation Committee.
Appointments in unlisted companies
Executive Chair of Silixa Limited, a provider of
distributed fibre optic monitoring solutions.
Previous Appointments
Various roles at Royal Dutch Shell from 2006
to 2015, most recently as Executive Vice
President, Upstream International
Unconventionals. Previously spent 17 years
at Schlumberger, a supplier of technology,
integrated project management and
information solutions to oil and gas
customers worldwide.
Notes
Alison Goligher will succeed Guy Berruyer as
Senior Independent Director from the date of
the AGM.
Committee membership
Committee membership
Meggitt PLC
Annual Report & Accounts 2020
95
Guy Hachey
Non-Executive Director
Appointed: 2019 | Nationality: Canadian
Caroline Silver
Non-Executive Director
Appointed: 2019 | Nationality: British
Skills and experience
Guy was President and Chief Operating
Officer of Bombardier Aerospace from April
2008 to his retirement in 2014.
Current appointments
Non-Executive Director of Hexcel
Corporation and Chair of the Compensation
Committee.
Appointments in unlisted companies
Operating partner at Advent International.
Previous appointments
Prior to his retirement from Bombardier,
Guy had significant operational roles at
Delphi Corporation and General Motors
Corporation.
Committee membership
Skills and experience
Chartered accountant with significant global
investment banking experience specialising in
financial institutions, financial technology and
market infrastructure, and capital raising.
Current appointments
Non-Executive Chair of FTSE 250 consumer
products group, PZ Cussons plc, and Chair of
the Nominations Committee. Non-Executive
Director of Intercontinental Exchange, Inc.
Appointments in unlisted companies
Non-Executive Director of BUPA, Chair of
the Risk Committee and member of the
Audit and Remuneration Committees.
Part-time Advisory Partner at Moelis &
Company, a leading global investment bank.
Organisations
Trustee of the Victoria & Albert Museum,
Chair of the Finance Committee and
Investment Committee and member of the
Audit Committee.
Previous appointments
Caroline was Vice Chair of EMEA Investment
Banking at Bank of America Merrill Lynch and
spent 14 years at Morgan Stanley where she
held a number of senior positions including
Global Vice Chair of Investment Banking and
European Head of Financial Institutions. She
started her career as a chartered accountant
with PricewaterhouseCoopers LLP.
Committee membership
Gender Diversity
Female
Male
44%
56%
Independence
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Independent1
Non Independent
1 Excluding the Chairman
67%
33%
Non-Executive Director Tenure
0 – 2 years
3 – 4 years
5 – 6 years
7 – 8 years
29%
14%
43%
14%
96
Meggitt PLC
Annual Report & Accounts 2020
Corporate Governance report
Our governance framework
Board of Directors
Membership: Sir Nigel Rudd (Chairman), Executive and Independent Non-Executive Directors
Creating and delivering sustainable value
• Collectively setting the strategy and directing the Group, while meeting the appropriate interests of its shareholders and relevant
stakeholders;
• Sets the Group’s values and standards; and
• Ensures obligations to shareholders, employees and other stakeholders are met.
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Remuneration
The Independent
Non-Executive Directors
Determines the reward strategy
for the executive directors
and senior management, taking
into consideration shareholder
interests and the wider
workforce.
Audit
The Independent
Non-Executive Directors
Monitors the integrity of the
Group’s financial statements,
the effectiveness of the
external and internal auditors,
risk and internal control
processes, tax and treasury.
Finance
Executive Directors and
Group General Counsel
& Director, Corporate
Affairs
Approves treasury-related
activity, insurance and
other matters delegated
by the Board.
Board Committees
Nominations
Chairman and
Independent
Non-Executive Directors
Ensures the Board and senior
management team have the
appropriate skills, knowledge
and experience to operate
effectively and to deliver
the Group’s strategy.
Corporate
Responsibility
Two Independent
Non-Executive Directors
and the Executive Directors
Stakeholder engagement, including but
not limited to employees, and oversees
the implementation of the Group’s
strategy and programmes in the areas
of corporate responsibility, charity
and community, ethics and
business conduct (including
anti-corruption) and
environment.
Disclosure
Executive Directors,
Company Secretary, VP
Investor Relations and
Group General Counsel
Discusses and approves all
matters related to inside
information under the
market abuse regime.
Management
Committees
Executive Committee
Chief Executive and his direct reports
Responsible for overall management of the
Group, driving its vision and strategy and
ensuring the organisational culture leverages
diversity, industry knowledge, global perspective
and customer insight.
Commercial Committee
Executive Directors, Group General
Counsel and Director, Corporate Affairs,
Group Director, Engineering & Strategy
and Group Operations Director
Reviews and approves bids and proposals of
Group significance and any other significant
commercial activity.
Technology Advisory Board
Group Director, Engineering &
Strategy, Chief Technology Officer,
between two and four external
members with backgrounds in
technology or academia, Meggitt
engineering fellows and other
appropriate employees.
Provides advice on the direction and
pace of technology road maps, increases
awareness of disruptive technologies,
business models or business trends and
provides guidance on new areas and
opportunities.
Meggitt PLC
Annual Report & Accounts 2020
97
Leadership and purpose
Our purpose at Meggitt is to design and manufacture world-class
systems and products for the aerospace, defence and selected
energy markets to enable the extraordinary and deliver
sustainable solutions for the most challenging environments by
working closely with our customers and focusing on engineering
and operational excellence.
The role of the Board
Our role as a Board is to promote the long-term success of the
Group by establishing its purpose. We do this by implementing
and overseeing frameworks for governance and risk management
and receiving regular updates on governance, stakeholder
engagement activities, risk, strategy and culture.
Whilst day-to-day responsibility for the business lies with the executive
management team, we maintain a Schedule of Matters Reserved for
the Board which we review regularly and against the latest guidance
and best practice to ensure that key decisions which affect the Group
and are of the upmost importance to our shareholders and wider
stakeholders are taken by the Board as a whole.
Key Matters Reserved for the Board:
• Approval of the Group’s strategic aims, objectives, purpose and values
• Approval of significant changes in accounting policies
• Approval of the Group’s risk appetite statement
• Approval of the viability statement
• Approval of capital projects or treasury activities over pre-determined amounts
• Appointment and removal of Board members
• Approval of significant Group policies
• Reviewing the Group’s culture and corporate governance arrangements
• Appointment and removal of the Company Secretary
Area of Focus in 2020
Key Matters considered
Outcome
Strategy
The Group’s strategy and sale of
non-core businesses
The Board receives regular updates on business strategy throughout the
year and held a strategy session in October where it approved the
five-year strategic plan for the Group.
Culture
Code of Conduct and Group
policies
The Board approved the sale of the Training Systems business and high
pressure metallic ducting and clamps business in June 2020 and January
2021 respectively, delivering on the Group’s strategy to focus on its core
business.
The Board approved a refreshed Code of Conduct which reflects our
commitment to ethical business conduct and to comply with laws and
regulations. The new Code demonstrates the conduct that is a
fundamental part of our values and culture.
During the year the Board has also approved updated Group policies on
health and safety and trade compliance.
Monitor culture
The Board receives numerous updates throughout the year to monitor
culture and how well policies have been embedded. Further details on
how we monitor culture can be found on page 99.
Risk
Risk appetite and principal risks
The Board:
–
–
–
–
conducted a robust assessment of the emerging and principal risks
facing the Group and determined the nature and extent of the
principal risks the Group is willing to take in order to achieve its
long-term strategic objectives;
received an update on the effectiveness of risk management from
the Audit Committee;
reviewed and approved the risk appetite statement and Group Risk
Register; and
approved the long-term viability statement.
Long-term viability
Reviewed models of a number of scenarios including a base case and
severe but plausible downside scenario for both planning and going
concern purposes which underlie the long term viability of the Group.
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98
Meggitt PLC
Annual Report & Accounts 2020
Corporate Governance report
continued
Area of Focus in 2020
Key Matters considered
Outcome
Operational performance
Performance of the four divisions
against strategic objectives
The Chief Executive provided updates on divisional performance at
every meeting.
Financial performance
Payment to shareholders
Reduce cost base
Capital allocation
Going concern
Budget
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Governance
Stakeholder engagement
The Board received regular updates from the Group Crisis Management
Team on the impact of COVID-19 on our people and how business
continuity was being managed.
The Divisional Presidents attended a Board meeting during the year to
provide detailed updates on divisional performance, with a particular
focus on the impacts of COVID-19 on their business areas.
In March 2020, the Board withdrew the recommendation to pay a 2019
final dividend and did not approve an interim dividend in order to retain
cash within the Group, manage net debt levels and preserve flexibility.
The Board reviewed and agreed management actions on cost reduction
initiatives. These included reducing headcount by approximately 20%
and applying furlough schemes to align capacity with workload. The
Board including the executive directors agreed a 20% reduction in
directors salaries and fees for H2 2020 and a 10% reduction in H1 2021.
In H2 2020, Executive Committee salaries were reduced by 10%, and
deferred by 10%, and salaries were reduced by 10% again in H1 2021.
The Board approved the application for a Bank of England Covid
Corporate Financing Facility (£600m), a $300 million private placement
and a one year $575m multi-currency facility.
Held a special meeting in August to review the models underlying the
appropriateness of adopting the going concern basis in the interim
financial results.
The Board reviewed performance against 2020 budget and approved
the budget for 2021.
The Board continued with its stakeholder engagement programmes as
detailed on pages 63 to 65 and took the interests of all stakeholders into
consideration when making its decisions through the review of detailed
stakeholder analysis provided with each Board proposal.
Governance framework
The Board reviewed and updated the terms of reference for its principal
committees to complete alignment with the 2018 Code.
Succession planning
The Board considered the risk relating to talent and capability and
reviewed succession plans at the most senior level of the business.
Effectiveness
An internal evaluation was conducted at the end of 2020 for the Board
and its Committees to reflect on their own performance and recommend
areas for improvement.
Meggitt PLC
Annual Report & Accounts 2020
99
The Audit Committee plays a key role in ensuring that our values
are embedded in our financial reporting process and risk
management framework by monitoring the integrity of the
financial statements and reviewing the adequacy and
effectiveness of the Group’s internal controls, risk management
systems and processes. The Corporate Responsibility Committee
monitors culture by overseeing the implementation of the Group’s
strategy and corporate responsibility programmes. The Chair of
the Corporate Responsibility Committee is also the Non-Executive
Director responsible for Employee Engagement and undertakes a
range of activities alongside other non-executive directors each
year to assess how well our values are embedded within the
organisation, better understand the challenges faced by our
workforce, share feedback with senior management and the
Board, and make recommendations based on the output from
the engagement.
Purpose, strategy and values
To perform our role effectively, it is essential that we have a good
understanding of the views of our shareholders and other key
stakeholders. Details of shareholder and other stakeholder
engagement activities can be found on pages 63 to 65. Output
from these activities are reported to the Board and its Committees
as appropriate to shape the decisions that we make.
We hold an annual strategy day where we receive a detailed
report on the markets in which Meggitt operates, agree the
strategic objectives to achieve our purpose and approve the
financial plan to implement them. We receive updates from the
businesses and functions throughout the year to assess
performance against the strategy and provide additional direction
if needed. Our values are supported by our High Performance
Culture initiative and embedded in our Code of Conduct and
Group policies which we review and approve on a rolling basis to
ensure that our values remain appropriate and clearly articulate
the behaviours expected of employees and management.
Key activities undertaken by the Remuneration and Nominations
Committees promote our values by ensuring that we have the
right people in the organisation who respect our values and
purpose and structuring remuneration schemes to reward the
right behaviours as well as strategic achievements.
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How we monitor culture
1. Health and safety – Reports are provided to the Board at every meeting through the Chief Executive, with detailed reports
every six months and regular presentations from the Vice President of Health and Safety on our safety culture and leading and
lagging indicators.
2. Reports to the Board on culture, diversity and inclusion and engagement – There is a regular commentary provided in the
Chief Executive’s Report at every meeting. We also have a standalone annual session with the Group HR Director focussed on
our culture, diversity and inclusion and engagement.
3. Annual employee engagement survey feedback – A summary of the results of the annual engagement survey was shared with
the Board in December 2020, with a detailed review taking place with the Non-Executive Director for Employee Engagement
beforehand.
4. Reports from the Non-Executive Director for Employee Engagement – Are provided to the Board. See page 63 for further
details on engagement activities and key themes in 2020.
5. Whistleblowing and ethics reports – Provided quarterly to the Board to monitor if there are any systemic issues and how they
are being addressed. More detailed reports are provided to the Corporate Responsibility Committee at each meeting. The
Corporate Responsibility Committee Chair has separate meetings with the Group Director, Ethics and Corporate Responsibility.
6. Internal audit reports – Provided to the Audit Committee at each meeting and identify areas of non-compliance to help us
assess effectiveness of the policies and processes implemented to embed our values and shape our culture. We also monitor
management’s response to audit findings and time taken to address audit actions.
7. UK Gender pay gap – Receive an update on the UK gender pay gap report, including an explanation of the factors that have
impacted data and processes implemented to close the gap.
8. Modern slavery – Receive an update on the approach to modern slavery and approve the modern slavery statement.
This includes details of processes and activities that have been implemented to reduce the risk of slavery and human trafficking
in our organisation and supply chain.
9. Prompt payment reporting – Review performance on supplier payment practices and discuss improvements to processes.
10. Training completion rates – Robust and regular training is essential to ensure our workforce understands policies and
regulations that apply to them. During 2020, we moved to a new training platform which will continue to deliver virtual training
on key governance and regulatory matters and track completion rates. Employees without regular access to remote training
undertake it in a classroom environment. We maintain an annual schedule of mandatory training for both new starters and
existing employees with training completion rates reported to the Board and the Corporate Responsibility Committee.
100
Meggitt PLC
Annual Report & Accounts 2020
Corporate Governance report
continued
How we ensure our culture aligns with our values and strategy
Shareholders and other stakeholders
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Workforce/culture/performance
Governance
A fundamental principle of our governance framework is the
division of responsibilities. The roles of the Chairman and
Chief Executive are clearly defined and the Board supports the
separation of the roles to increase the Board’s independence
from management and enable better monitoring and oversight.
All of our non-executive directors are considered independent
under the 2018 Code, with the breadth of skills, knowledge and
experience to constructively challenge management and hold
them to account. The variety of backgrounds and perspectives
on the Board also strengthens the strategic guidance provided
to management and ensures robust deliberation during the
decision-making process which leads to better decisions.
As set out on page 96, we have established a number of
Board Committees to assist in the fulfilment of our oversight
responsibilities. Each Committee is governed by clearly defined
terms of reference which are reviewed annually by the Board
to ensure that they remain relevant and aligned with current
best practice. Membership of the Audit, Remuneration and
Nominations Committees is restricted to the non-executive
directors to ensure independent oversight of the key governance
matters over which these committees preside. Only Committee
chairs and members are entitled to attend the meetings,
although others may attend by invitation. All Committee chairs
report verbally on the proceedings of their Committee at the
next meeting of the Board when members of the Board were
not in attendance at the Committee meetings, and make
recommendations to the Board when appropriate. The
management committees are responsible for matters of strategic
importance and report to the Board when appropriate.
Further details of the composition and activities of the Board
Committees are set out in the separate Committee reports.
Risk management framework
A significant part of governing how Meggitt conducts its business
is approving the risk appetite i.e. the amount and type of risk that
Meggitt is prepared to retain. We review periodic updates on the
principal and emerging risks throughout the year and approve
the risk appetite on an annual basis. Further details on our risk
management framework can be found on pages 56 to 61.
Meggitt PLC
Annual Report & Accounts 2020
Roles and
responsibilities
Chairman
Sir Nigel Rudd
• Leads the Board and sets the agenda;
• Promotes culture of openness and debate;
• Ensures the Board is effective;
• Facilitates the contribution of non-executive directors and oversees the
relationship between them and the executive directors; and
• Ensures there is an effective system for communication with shareholders.
Senior Independent Director
Guy Berruyer
• Makes himself available to shareholders if they have concerns which cannot
be resolved through the normal channels;
• Chair of the Nominations Committee when it is considering the Chairman of
the Board’s succession;
• Appraises the Chairman’s performance annually with the non-executive
directors; and
• Acts, if necessary, as a focal point and intermediary for the other directors.
Chief Executive
Tony Wood
• Leads executive directors and the senior executive team in the day-to-day
running of the Group’s business;
• Ensures effective implementation of Board decisions;
• Regularly reviews the strategic direction and operational performance of
the Group’s business; and
• Keeps the Chairman informed on all important matters.
Executive Directors
Tony Wood and Louisa Burdett
• Responsible for successful delivery of the Group’s objectives and strategy;
and
• Manage various functions and operations across the Group.
Independent Non-Executive Directors
Guy Berruyer, Colin Day, Nancy Gioia,
Alison Goligher, Guy Hachey and
Caroline Silver
• Constructively challenge management and scrutinise their performance;
• Contribute to the development of the Group’s strategy;
• Monitor the Group’s performance;
• Satisfy themselves on the integrity of financial information and the
effectiveness of financial controls and risk management; and
• Determine appropriate levels of remuneration for executive directors and
participate in the selection and recruitment of new directors and succession
planning.
Non-Executive Director for Employee Engagement
Nancy Gioia
• Engage with employees through a range of formal and informal initiatives;
• Ensure that employee policies and practices are in line with the Group’s
purpose and values and support the desired culture; and
• Regularly review Speak Up Line reports.
Company Secretary
Marina Thomas
• Acts as secretary to the Board and its Committees;
• Ensures compliance with Board procedures and advises on
governance issues;
• Facilitates the induction process for new directors; and
• Ensures good information flow within the Board and between
non-executive directors and senior management.
101
Board effectiveness
Composition
The composition of the Board is closely monitored by the
Nominations Committee to ensure that it remains appropriately
balanced and is regularly refreshed to safeguard its independence
and ensure that the skills, knowledge and experience of Board
members align with those needed to deliver against the
business strategy.
Appointments, induction and training
We have a formal, rigorous and transparent procedure for the
appointment of new directors. On appointment, directors are
provided with a comprehensive induction programme tailored to
their needs based on their experience and background and the
requirements of the role.
The Chairman agrees a personalised approach to the training
and development of each director and reviews this regularly.
The Company Secretary assists with professional development
where required and directors are encouraged to update their
skills regularly. Training needs are assessed as part of the Board
evaluation process described below. The non-executive directors’
knowledge and familiarity with the Group is facilitated by access
to senior management, reports on the business and site visits.
Resources are available to all directors to develop and update
their knowledge and capabilities.
Conflicts
Our directors hold appointments in other listed and non-listed
companies as shown on pages 92 to 95. We recognise the value
derived from these appointments particularly with regard to board
discussions and the sharing of best practice where appropriate.
We maintain a register of all external appointments and interests
of our Board members which is reviewed regularly to ensure that it
is accurate and up to date. Directors notify the Board of any actual
or potential conflicts arising from these external appointments or
other matters, which are duly considered by the Board and, if
thought appropriate, approved together with relevant conditions
to ensure that the conflict is appropriately managed.
As Meggitt’s business is diverse and operates across multiple
markets, a list of our competitors by division is included in our
Group Strategy review and assists non-executive directors in
identifying actual or potential conflicts arising out of current or
prospective external appointments.
Time commitment
The minimum time commitment expected from the non-executive
directors is set out in their letters of appointment. We monitor
the external time commitments of our directors closely to ensure
that they have the capacity to discharge their responsibilities
to Meggitt effectively. Prior to appointment, all existing
commitments are considered against the overboarding guidance
issued by the institutional shareholder advisory organisations,
and all additional appointments are subject to Board approval
following consideration of the additional time commitment
and the overboarding risk.
In February 2020, Sir Nigel confirmed his intention to retire from
the Board. However, on 25 March 2020, we announced that in light
of the outbreak of the COVID-19 pandemic and its impact on the
global economy, the wider aerospace sector and the Group, the
Succession Committee led by Guy Berruyer has agreed with Sir
Nigel and the Board that he will stay on as Chairman until further
notice. The Board believes that there is significant benefit in
continuity of chairmanship at this time.
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Meggitt PLC
Annual Report & Accounts 2020
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Corporate Governance report
continued
Additionally, it should be noted that the Board of Signature
Aviation plc has recommended an offer from a consortium
comprising (i) Blackstone Infrastructure and Blackstone Core
Equity (ii) Global Infrastructure Partners; and (iii) Cascade
Investment, L.L.C. to shareholders and assuming the proposal
is approved by shareholders and the regulatory clearances are
obtained, it is expected that Sir Nigel Rudd will retire as Chairman
of Signature Aviation plc when that transaction completes.
Throughout the year Sir Nigel has demonstrated a strong level of
commitment to Meggitt and has led all meetings of the Board and
Nominations Committee, including a large number of additional
meetings to provide oversight and direction in respect of
COVID-19 and the Board strongly believes that Sir Nigel’s other
external appointments have not affected his ability to discharge
his responsibilities effectively during this period.
In August 2020, Caroline Silver was appointed as Non-Executive
Director of Intercontinental Exchange Inc., and in December 2020,
Colin Day was appointed as Non-Executive Director of FM
Global Inc.. In February 2021 Alison Goligher was appointed
as Non-Executive Director of Technip Energies N.V.. The Board
considered each of these appointments on its own merit, taking
into consideration the nature, expectation and requisite time
commitment of each new role together with a holistic view of the
directors’ existing appointments and responsibilities and their
strong attendance at scheduled and additional Board and
Committee meetings in 2020 during the COVID-19 pandemic.
Additionally, as part of the year end process, each non-executive
director confirmed that, taking into consideration all of their
external appointments and commitments, they continued to have
sufficient time to effectively discharge their duties to Meggitt.
Following such consideration the Board was satisfied that these
directors would continue to have sufficient time to effectively
discharge their duties to Meggitt following the above
appointments.
Information and support
The Chairman is responsible for ensuring directors receive
accurate, timely and clear information and is satisfied that
effective communication, principally by the Chief Executive
and Chief Financial Officer, is undertaken with shareholders.
The Board is supplied with the information it needs to discharge
its duties. The Company Secretary is responsible for ensuring
good information flows within the Board and Committees and
between senior management and non-executive directors. The
Board members have regular discussions about their information
and support requirements and discuss the effectiveness of the
annual Board schedule during the Board evaluation.
All directors have had access to the advice and services of the
Company Secretary, who is responsible to the Board for advising
on all governance matters.
The Board allows all directors to take external independent
professional advice at the Group’s expense.
Board evaluation
The Board undertakes an annual review of its own effectiveness
using a combination of independent externally facilitated and
internally run evaluations over a three-year cycle. In 2019, Clare
Chalmers Limited was appointed to undertake our externally
facilitated review which focused on key governance areas agreed
with the Chairman and Company Secretary. The Board reviewed
the suggestions made following the evaluation and agreed the
actions shown on the following page. Clare Chalmers Limited does
not have any connection to Meggitt or any of the directors.
Board and committee evaluation
process
In order to evaluate its own effectiveness, the Board
undertakes annual effectiveness reviews using a
combination of independent externally facilitated
and internally run evaluations over a three-year cycle.
November 2020
Internal Board evaluation planning by the
Chairman and Company Secretary.
December 2020 to January 2021
Questionnaires issued to the Board,
Committees and other attendees.
The Board effectiveness questionnaire posed questions in
the following areas ranked on a scale of 1 to 3 (with space
for comments):
• How well the strategy process works and the Board’s
understanding of the core business and markets.
• To what extent Board meetings are engaging with
high quality discussion and open debate and whether
all Board members contribute to discussions and work
together well.
• How well the Board had managed the challenges
brought about by COVID-19.
• Whether the skills and experience on the Board are
appropriate.
• How the Board responds to challenges.
• Whether the Chairman’s leadership style and tone is
effective and how he works with the Chief Executive.
• Whether the Company Secretary is performing
effectively. Whether the Board schedule and papers are
appropriate.
• Whether risk management is undertaken appropriately.
•
If succession planning is working well.
March 2021
A detailed discussion is held by the Board
on their responses to the questionnaire and
resulting actions are agreed.
The Senior Independent Director met with the
non-executive directors remotely to assess the performance
of the Chairman and the Chairman held remote meetings
with non-executive directors without the executive directors
present where the performance of executive management
was discussed.
Meggitt PLC
Annual Report & Accounts 2020
103
2020 Evaluation
A more targeted, internally run evaluation was conducted via an
online questionnaire at the end of 2020 and focused on similar
areas as the 2019 review. The Board has reviewed and discussed
the output from the evaluation and has agreed the following
three actions.
Board papers – streamline papers with a focus on enhancing
readability, avoiding duplication and making better use of
executive summaries.
Meetings – integrate some all-virtual meetings into future
Board schedules.
Engagement – schedule more virtual engagements with senior
executives in 2021.
Progress against these actions will be reported in the 2021 Annual
Report & Accounts.
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2019 Evaluation results
Agreed Actions
Progress
Start succession planning
well in advance of vacancies
arising. Ensure short-term
plans are in place to cover
top executive posts and
ensure opportunities for the
Board to spend time with
top talent.
Increase Board focus on
resilience around processes
and people.
Ensure the Board understand
the plan for nurturing and
developing talent.
Continue momentum with
High Performance Culture.
No Board appointments were
made in 2020.
Succession planning for all
executives was discussed in detail
in 2020, including emergency
replacements.
The Board focus in 2020 has
largely been around the
effectiveness and resilience of the
Group’s strategies for managing
COVID-19.
The Board has received updates in
2020 on the talent management
process and this will continue
in 2021.
Since COVID-19, High
Performance Culture sessions
have been put on hold for safety
reasons. However work to
reinforce the culture has continued
internally, particularly through
monthly “culture moments”,
and the Board has continued to
receive regular reports on culture.
Ensure strategy and risk
management discussions
have appropriate capacity for
horizon scanning to identify
opportunities and threats
which are further ahead.
Owing to the impacts of
COVID-19, the Board has spent a
significant amount of time horizon
scanning for opportunities and
threats in 2020, and this will
continue into 2021.
Ways to modernise systems
and processes around internal
audits should be reviewed,
including better use of
technology.
Review the remit of the
Non-Executive Director for
Employee Engagement and
Corporate Responsibility
Committee to ensure it is
appropriate one year on.
Consideration given to utilising
technology used in other Group
projects which were delayed due
to COVID-19. Audit processes
modernised to enhance agility
of the internal audit function and
better incorporate technology
to overcome travel restrictions
imposed during the year.
The Board conducted a detailed
review of the activities of the
Non-Executive Director for
Employee Engagement in
December 2020 and determined
that the role was functioning
effectively, and had continued to
do so in the virtual environment
during COVID-19.
The effectiveness of the Corporate
Responsibility Committee was
covered in the 2020 evaluation
process. The Committee was
found to be effective and its remit
appropriate.
104
Meggitt PLC
Annual Report & Accounts 2020
Corporate Governance report
continued
Shareholder documents
We provide annual reports and other documents to shareholders
in their elected format under the electronic communications
provisions approved by shareholders at our AGM in 2007.
Electronic copies of this Annual Report & Accounts and the
Notice of AGM will be posted on our website, together with
announcements, press releases and other investor information,
including an analysis of ordinary shareholders by size of holdings
and shareholder type.
Annual General Meeting
2020 AGM
In line with UK Government lockdown restrictions resulting
from the COVID-19 pandemic and the need to protect the health
and well-being of our employees, shareholders and the wider
community the Board decided to hold the 2020 AGM as a closed
meeting at our registered office in Ansty Park. Consideration was
given to the use of technology to enable shareholders to attend,
vote and speak at the AGM remotely, however due to the
proximity of the lockdown announcement to the mailing date of
our Notice of Meeting we had insufficient time to fully investigate
technological options to facilitate a hybrid meeting in 2020.
Shareholders were therefore encouraged to appoint the Chairman
of the Meeting as their proxy to vote on their behalf and were able
to submit questions by email in advance which were raised at the
meeting and a response posted on our website.
We received 19% of votes against the resolution to authorise the
directors to allot shares in the Company representing up to 33%
of the issued share capital and a further 33% of the issued share
capital in connection with a rights issue. Our Vice President,
Investor Relations engaged with our largest shareholder who
voted against this resolution to understand their lack of support
for this proposal. Whilst seeking authority to allot shares up to
66% of the company’s issued share capital in connection with a
rights issue is standard practice for many listed companies and
fell within the guidelines of the Investor Association, the investor
explained that granting a board such authority fell outside their
internal guidelines which limited board authority to allot shares
to 33% of the issued share capital. The Board considered this
investor’s position when proposing the resolutions for the 2021
AGM, and whilst noting their stance on the matter, considered it
appropriate to maintain the flexibility these authorities provide to
enable the Company to respond quickly to market developments
and enable allotments to take place to finance business
opportunities. The directors confirm that they have no current
intention of exercising this authority.
2021 AGM
We recognise the importance of the AGM for shareholders and,
for the AGM to be held on 29 April 2021, we intend to hold a
hybrid meeting to enhance engagement and participation
channels. Further detail will be included in the Notice of Meeting.
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• Convene general meetings on 14 clear days’ notice. The shorter
notice period would not be used as a matter of routine for
such meetings, but only where time-sensitive matters are to be
discussed and where merited in the interests of shareholders as
a whole. The directors also intend to follow other best practice
recommendations as regards this authority’s use.
• To dis-apply pre-emption rights for up to 10% of issued share
capital in accordance with the latest guidance from the UK
Pre-Emption Group. The first resolution will seek authorisation
for 5% of the issued share capital to be issued without
application of pre-emption rights. The second resolution seeks
authority for an additional 5% of the issued share capital to be
used for an acquisition or a specified capital investment of a
kind contemplated by the Statement of Principles most recently
published by the UK Pre-Emption Group. The Board has
considered shareholder feedback on this topic but continues
to believe that, in order for the Board to have full strategic
flexibility where acquisitions and capital investments are
concerned, it continues to be appropriate to request this
authority from shareholders. In asking shareholders to approve
this additional authority, the directors confirm that they intend
to adhere to the requirements set out in the Statement of
Principles.
All directors are subject to election by shareholders at the first
AGM after their appointment. After that, all directors are subject
to annual re-election to comply with the 2018 Code. All directors
in office at the date of the AGM will be subject to re-election.
Statement of compliance
Throughout the financial year ended 31 December 2020 and to the
date of this Annual Report, we have complied with the provisions
set out in the 2018 Code published by the Financial Reporting
Council, with the exception of Provision 38. Provision 38 requires
the alignment of executive director pension contributions with the
wider workforce. As set out in the Directors’ Remuneration Report,
pension allowances for incumbent executive directors will be
reduced to 15% by the end of 2022. Pension allowances for new
executive directors will be in alignment with the wider workforce
on appointment. Further information on executive director pension
allowances is set out on pages 124 and 134.
A copy of the 2018 Code can be found on the Financial Reporting
Council’s website: https://www.frc.org.uk. Details of how the
Group has applied the principles set out in the 2018 Code are
included in this report and in the Audit Committee, Nominations
Committee and the Directors’ Remuneration Reports. The
information required under Rule 7.2.6 of the Disclosure Guidance
and Transparency Rules is disclosed in the Directors’ report.
By order of the Board
At the 2021 AGM, in addition to the routine business, shareholder
consent will be sought for resolutions which give the Company
authority to:
M L Thomas
Company Secretary
3 March 2021
• Approve a revised Remuneration Policy which includes
four changes from the Remuneration Policy approved by
shareholders at the 2020 Annual General Meeting: (i) increasing
the normal eligibility level in LTIP for executive directors to
250% salary; (ii) permitting awards under the LTIP to be granted
as Restricted Share Awards (RSAs) with vesting subject to
continued employment and an underpin based on Committee
discretion from 2021; (iii) reducing the vesting level at threshold
performance from 30% to 25% of maximum for Performance
Share Awards (PSAs); and (iv) clarifying that the Company has
the ability to settle any bonuses paid to executive directors
in shares.
Meggitt PLC
Annual Report & Accounts 2020
105
Audit Committee report
Chairman’s introduction
I am pleased to present the report of the Audit Committee
for 2020.
I chair the Audit Committee and as a Fellow of the
Association of Chartered Certified Accountants, and
previous Chief Executive Officer of Essentra plc and Chief
Financial Officer of Reckitt Benckiser Group plc, I can confirm
that I, together with Caroline Silver, a chartered accountant
with significant global investment banking experience, bring
recent and relevant financial experience to the Committee.
Committee members throughout 2020 were Guy Berruyer,
Nancy Gioia, Alison Goligher, Guy Hachey and Caroline
Silver. As a whole, we bring skills, knowledge and experience
relevant to the aerospace, defence and selected energy
markets in which the Group operates. Further details are
included in our profiles on pages 92 to 95.
By invitation, there were a number of other regular attendees
including the Chairman of the Board, Chief Executive Officer,
Chief Financial Officer, the Group Financial Controller, and
the internal and external auditors. The Head of Treasury,
Head of Tax and a representative of Grant Thornton, who
provide co-sourced audits for the internal audit function,
also attended meetings by invitation.
During the year, the Committee focused on the financial
effects of the COVID-19 pandemic and the significant
challenges it posed to the preparation of IFRS financial
statements. The Committee also considered and discussed
the challenges to the control environment resulting from
remote working.
Responsibilities
The Committee’s key role is to protect shareholders’
interests in relation to the Group’s financial reporting and
internal control arrangements. The Committee is responsible
for ensuring the integrity of the processes and procedures
relating to corporate reporting and the effectiveness of the
internal controls and risk management systems. The Board
relies on the Committee to ensure appropriate disclosures
are made in the financial reports and oversee the work of the
internal and external auditors.
Specific responsibilities include:
Financial reporting:
• Focusing on accounting policies, judgements and
estimates, challenging the decisions and approach taken
by management to ensure appropriate disclosures and
compliance with relevant regulations.
• Challenging and scrutinising the work taken to support the
long-term viability and going concern statements.
• Reviewing the content of the Annual Report & Accounts
and advising the Board whether the Annual Report &
Accounts is fair, balanced and understandable.
Risk and control:
• Monitoring the effectiveness of risk management and
internal control systems.
• Reviewing the effectiveness of the risk management
processes, including those used to determine risk
appetite, tolerance and strategy and advising the Board
of the appropriateness of those processes.
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Protecting shareholders’
interests through
financial reporting
and internal control.
Committee membership and attendance
in 20201
3 Scheduled meetings
1 Additional meeting
Mr C R Day
Committee Chairman
Mr G S Berruyer2
Non-executive director
Mrs N L Gioia2
Non-executive director
Ms A J P Goligher
Non-executive director
Mr G Hachey
Non-executive director
Mrs C L Silver
Non-executive director
1 Due to COVID-19, meetings from March 2020
were conducted remotely
2 Unable to attend additional meetings due to prior
commitments.
/ Meetings attended Non attendence
106
Meggitt PLC
Annual Report & Accounts 2020
Audit Committee report
continued
Internal audit:
• Reviewing the resources and scope of the internal audit function
and approving the internal audit charter.
• Approving annual internal audit plans and reviewing the results
and effectiveness of internal audits.
External audit:
• Monitoring independence and effectiveness of the external
auditors and approving the terms of engagement and audit
fees.
• Recommending to the Board the appointment, reappointment
or removal of the auditors.
• Reviewing and approving the annual external audit plan and
ensuring that it is consistent with the scope of the audit
engagement and coordinated with the activities of Internal
Audit.
Effectiveness
The Committee has a carefully planned agenda of items of
business to ensure that high standards of financial governance and
risk management are maintained. There were three scheduled
meetings during the year, with an additional meeting held in
September for the Committee to scrutinise the significant
accounting judgements and estimates and review and recommend
the interim financial statements to the Board. The Committee
Chair is fully engaged with management and the internal and
external auditors and is available beyond regularly scheduled
meetings to provide guidance as appropriate. Prior to each
scheduled meeting, the Committee Chair meets with the Chief
Financial Officer, Group Financial Controller, Head of Audit & Risk
and the external auditors, to share views and consider key issues,
particularly regarding significant estimates and judgements, to be
highlighted to the Committee for discussion to ensure appropriate
time is allocated for each item.
The Committee reviewed its own effectiveness via the process
described on page 103. Overall the results were positive with the
Chair’s effectiveness and the Committee’s ability to avoid minutiae
and focus on important matters highlighted. Actions for 2021
include ensuring key personnel in the finance team have
appropriate exposure to the Committee in the virtual
environment.
Committee activities in 2020
Approved
• The 2020 external audit fees
• The internal audit plan for 2021
• The Internal Audit Charter
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• The terms of engagement for the external auditors
• Updated Committee Terms of Reference
Reviewed
• The financial information contained in the 2019 Annual
Report & Accounts, 2019 full year and 2020 interim results
announcements and recommended them to the Board
for approval.
• The external auditors’ strategy memorandum, including level
of materiality applied by PwC, and interim audit clearance
report for 2020.
• Terms of Reference for the Committee, which were
• Significant estimates and judgements in respect of the
recommended to the Board for approval.
Group’s financial statements (page 107 and 108).
• The independence and effectiveness of the external auditors,
and agreed their terms of engagement.
• The adequacy and effectiveness of: (i) the systems of internal
control; (ii) the risk management process; and (iii) the process
executive management used to enable the Board to make the
viability statement.
• The effectiveness of the Committee and external audit using
the process described on page 102.
• The outcome of the internally facilitated internal audit review
(see page 110).
• The reporting processes applied in the production of the
2019 Annual Report & Accounts and the output of these
processes to determine that the 2019 Annual Report &
Accounts was fair, balanced and understandable and advised
the Board as such.
• The basis of preparation of the financial statements as a
going concern and scrutinised the work undertaken by
management.
• Issues and findings of the internal audit function and satisfied
itself that management had resolved or was in the process of
resolving any outstanding issues.
Since the year end, the Committee has discussed the external auditors’ final audit clearance report for 2020, reviewed the financial
information contained in the 2020 Annual Report & Accounts and full year results announcement and recommended them to the Board
for approval. The Committee also provided advice to the Board that the 2020 Annual Report & Accounts, taken as a whole, are fair,
balanced and understandable. The Committee provided this advice having reviewed management’s process and confirmed its output,
and provided confirmation to the Board that this process was effective. The Committee also recommended that the Board approve the
viability and going concern statements.
Updates and reports
• Received at every meeting from the Head of Audit & Risk a report on
findings from internal audits and progress with the internal audit plan
and internal controls across the Group.
• Received an update on the results of the viability statement stress
testing scenarios.
• Received updates on the risk management process.
• Received an update from the Head of Treasury.
• Received an update from the Head of Tax.
• Received technical accounting and governance updates provided
by the Group Financial Controller, Company Secretary and the
external auditor.
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Significant estimates, judgements and disclosures relating to the financial statements
The table below summarises the significant estimates, judgements and disclosures reviewed by the Committee in respect of the Group’s
financial statements.
Critical accounting estimates and judgements:
Area
Action
Going concern
The Committee reviewed the work performed by management in assessing the Group’s ability to continue as
a going concern, noting that in their role as members of the Board they had reviewed and challenged the cash
flow forecasts prepared by management in both the base case and downside scenarios. The Committee was
also able to confirm that the process for ensuring the Group’s principal risks were reflected in the downside
scenario was appropriate. The Committee considered the outputs from management’s work, noting the level
of committed credit facility headroom that existed throughout the going concern assessment period and the
covenant headroom at the twice yearly testing dates of 30 June 2021 and 31 December 2021.
The Committee concluded there was no material uncertainty around the Group’s ability to continue as a going
concern and that the disclosures in the Annual Report were appropriate.
Goodwill
A key area of focus for the Committee during the period was the extent to which the carrying value of the
Group’s goodwill was impaired following the COVID-19 outbreak. The Committee considered this across
three separate meetings:
July 2020 meeting
The Committee discussed and agreed with management a trigger event had occurred in March 2020 and
the approach to be used to perform the impairment testing. In light of the increased level of current market
uncertainty, the Committee concluded reliable estimates of fair values for the CGUs did not in their opinion
exist and agreed a value-in-use approach should be adopted. The Committee also agreed with management
that given the range of potential trajectories for recovery of the civil aerospace sector was significant, it was
appropriate to develop a number of potential scenarios that should be probability weighted to generate the
cash flow estimates to be used. The Committee recommended that management ensured long term growth
rates appropriately reflected the potential impacts of climate change on the civil aerospace sector.
September 2020 meeting
A separate meeting was held in September to focus on the results of the impairment testing performed by
management. The Committee reviewed the assumptions made by management and the conclusions reached,
noting that the cash flow estimates used were derived from base case and downside scenario models, which
in their role as members of the Board, Committee members had previously reviewed. Particular attention
was given to the probabilities applied to the base case and downside scenarios and the discount rates and
long term growth rates used, together with the sensitivities of the impairment recorded to changes in these
assumptions. The Committee also discussed the results of management’s impairment testing with PwC and
reviewed the draft disclosures for the interim financial statements. The Committee concluded that the
assumptions used, impairment charge recognised and disclosures were appropriate.
March 2021 meeting
The Committee reviewed a paper prepared by management setting out the reasons why they did not
consider any additional impairment trigger event had occurred between the September meeting and the
balance sheet date and agreed with management’s conclusions. They reviewed the disclosures for inclusion in
the Annual Report and agreed these were appropriate.
The Committee considered a report from management setting out the basis on which assumptions on
mortality, inflation and the rates at which scheme liabilities are discounted had been determined; how the
Group’s assumptions used in its 2019 financial statements benchmarked against those disclosed by other
large corporate entities in the UK and US; and the sensitivity of amounts recorded in the balance sheet to
changes in assumptions. The Committee concluded the assumptions used, which were supported by
third-party actuarial advice, were appropriate.
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Retirement benefit
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Audit Committee report
continued
Other significant areas of Committee focus:
Area
Action
Meggitt PLC
Annual Report & Accounts 2020
Development costs
Provision for
environmental matters
relating to historic sites
and related insurance
receivables
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Liabilities for uncertain
tax positions
The Committee discussed a report from management analysing amounts capitalised across different aircraft
platforms and manufacturers, including a sensitivity analysis for specific programmes. This analysis set out
the extent to which estimates of the revised fleet volumes, issued since the COVID-19 outbreak and used by
management for impairment testing, would need to fall before any further impairment would be triggered.
The Committee focused in particular on technology development for the Airbus A220, Bombardier Global
7500/8000, Embraer 450/500, Irkut MC 21 and Gulfstream G500/G600 in light of the material values
capitalised on these platforms, and additionally in the case of the MC-21, delays to its entry to service
following the introduction of US sanctions. The Committee concluded assumptions made by management
were reasonable and the carrying values and estimated useful lives of the assets were appropriate, with no
significant risk that estimated fleet volumes would fall further in 2021 such that an additional material
impairment loss would be required. In light of the current uncertainty in the aerospace industry, the
Committee also discussed the risk of any programme cancellations or OEM bankruptcies which would lead
to a material impairment and concluded that the risk of such an event in the next financial year was
not significant.
The Committee discussed a report from management setting out the basis for estimates made and the extent
to which these were supported by third-party specialist advice. The Committee focused on the sensitivity of
amounts recorded to increases in cost estimates, particularly those arising from extended periods of
operations and maintenance activities (O&M), and agreed with management that the increases to O&M
periods recognised in the year were appropriate and supported by third party estimates. Given the recent
increases in O&M periods reflected in the provisions recognised, the Committee concluded that it did not
consider there to be a significant risk of cost estimates changing by material amounts in the next 12 months
and this should no longer be considered a critical accounting estimate. The Committee also held a discussion
with management regarding the ongoing litigation with historic insurers to recover additional amounts, not
currently recognised in the financial statements, and whether there was a significant probability of recognising
material amounts in 2021. Based on the current status of the litigation, the Committee agreed with
management that the likelihood was not significant.
In assessing the appropriateness of the provision recognised in respect of uncertain tax positions, the
Committee considered a report from management setting out the basis for the assumptions made for each
significant area of tax exposure. It discussed the assumptions in light of the current tax environment and the
status of tax audits in the main jurisdictions in which the Group operates. A separate presentation from the
Group’s new Head of Tax on each of the major areas of exposure was also received and discussed. The
Committee’s principal focus was the Group’s potential liability under the UK CFC regime and they agreed with
management that full liability for the exposure remained the most likely outcome for the Group. The
Committee also concluded there was not a significant risk of any material adjustment to the estimates made in
2021.
Treatment of items
excluded from
underlying profit
measures
The Committee discussed the treatment and disclosure of amounts included within exceptional operating
items. The Committee agreed that the recognition of impairment losses and other asset write-downs as
exceptional operating items was consistent with the Group’s accounting policy, given their significance and
that they each arose following the impact on the aerospace sector of the global lockdowns and travel bans
introduced in response to the COVID-19 outbreak.
Whilst the amounts recognised as asset write downs of inventory, trade receivables and contract assets were
not individually material, the Committee agreed they should be considered in aggregate with the impairment
losses on goodwill and development costs as in their opinion they all arose from the unprecedented shock to
the industry from events in the year. The Committee agreed that separate disclosure of the aggregate impact
of these items on the face of the income statement was appropriate given their significance.
The Committee reviewed the nature of items included within COVID-19 incremental non-recurring costs and
agreed this was appropriate and excluded costs of a recurring nature.
It noted other items classified as exceptional operating items continued to reflect the way in which they, as
members of the Board, reviewed the underlying performance of the Group, were treated consistently year on
year and disclosed appropriately.
Meggitt PLC
Annual Report & Accounts 2020
109
Key areas of oversight
Financial reporting
The Committee’s role is to ensure that disclosures in the financial
statements are appropriate given the data available and, if not,
challenge management to explain and justify their interpretation
and, if necessary, update the disclosure.
Significant estimates and judgements reviewed by the Committee
in respect of the 2020 financial statements are set out on pages
107 and 108. When considering these matters we sought the
opinion of the external auditors as to whether the estimates and
judgements made were appropriate taking into consideration
information available and agreed accounting practices.
The Committee reviews the content of the Annual Report &
Accounts and advises the Board whether, taken as a whole, it is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance,
business model and strategy. To assist with this assessment, the
Committee reviews questions completed by management to
illustrate the fair, balanced and understandable aspects of the
Annual Report & Accounts and a summary of the financial
reporting process. Following consideration of these items
together with the Annual Report & Accounts, the Committee is
satisfied that the key events and issues impacting the Group
during the year, both positive and negative, have been adequately
reflected and referenced in the Annual Report & Accounts.
External audit
The external auditors are PricewaterhouseCoopers LLP (PwC) who
were first appointed for the financial year commencing 1 January
2003 after a competitive tender. The Committee undertook a
further competitive tender in 2017 (described in our 2017 Audit
Committee report) as a result of which it was agreed that PwC
should be reappointed. There are no contractual obligations
restricting the Committee’s choice of external auditors.
The Committee maintains oversight of the Group’s relationship
with the external auditors, and is responsible for reviewing the
effectiveness of the audit process, including an assessment of the
quality of audit, and assessing annually their independence and
objectivity taking into account relevant UK professional and
regulatory requirements and the Group’s relationship with the
auditors as a whole.
Quality
In July 2020, the Financial Reporting Council (FRC) published the
2019/2020 Audit Quality Inspection Reports (AQIR) for each of the
‘big four’ audit firms, including PwC.
The AQIRs identified areas of improvement for all four firms and
PwC was asked to make improvements in several areas. The
Committee reviewed a summary of PwCs AQIR and received
assurance from the audit partner on the steps being taken by PwC
to address the findings.
PwC presented the audit strategy for the 2020 financial year at the
meeting in July 2020, including their application of materiality and
the scope to be able to provide an opinion on the Group financial
statements as a whole. PwC highlighted the expected impact of
COVID-19 on the audit and areas that would be given special
consideration. Following discussion the Committee approved the
scope of the audit and the threshold for materiality. PwC reported
on the progress made against the audit plan at subsequent
meetings to enable the Committee to monitor progress. The
Committee monitored the impact of COVID-19 on the
effectiveness of the external audit and was satisfied that the audit
was conducted effectively through site visits when appropriate,
increased use of technology and enhanced oversight of
component audit teams to ensure the appropriateness of audit
work performed at significant and material components.
Access to management and information
The Committee routinely meets PwC without executive
management present to encourage open and honest feedback.
No concerns have been raised by PwC who confirmed that the
external auditors had been able to offer rigorous and constructive
challenge to executive management during the year.
Evaluation
During the year, all members of the Committee, as well as key
members of the senior management team and those who regularly
provide input into the Committee or have regular contact with the
external auditors, completed a feedback questionnaire seeking
their views on the effectiveness of the external audit. Views of the
respondents were sought in terms of:
• the independence and objectivity of the external auditors;
• the external auditors understanding of the business and risks
material to the audit including those resulting from COVID-19;
• the robustness of the external audit process and degree of
challenge to matters of significant audit risk and areas of
management subjectivity;
• whether the scope of the audit and the planning process were
appropriate for the delivery of an effective and efficient audit;
• the expertise of the audit team conducting the audit;
• the degree of professional scepticism applied by the external
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auditors;
• the appropriateness of the communication between the
Committee and the external auditors in terms of technical
issues; and
• the quality of the audit and service provided by the external
auditors.
The feedback was collated and presented to the meeting of the
Committee held in March 2021, at which the conclusions were
discussed. The Committee is satisfied with PwC’s performance
and that PwC have employed an appropriate level of professional
challenge in fulfilling their role. Whilst no significant findings were
identified, several suggestions to strengthen the external audit
process were recommended to PwC.
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Meggitt PLC
Annual Report & Accounts 2020
Audit Committee report
continued
Independence
In assessing PwCs independence, the Committee takes into
consideration information and assurances provided by the
external auditors confirming that the partner and staff involved in
the audit are independent of any connection to Meggitt. PwC also
confirmed that its partner and staff complied with their ethics and
independence policies and procedures which are fully consistent
with the FRC’s Ethical Standard. PwC is also required to provide
written disclosure at the planning stage of the audit about any
significant relationships and matters that may reasonably be
thought to have an impact on its objectivity and independence
and that of the lead partner and the audit team. The lead audit
partner must change every five years and other senior audit staff
rotate at regular intervals. The lead audit partner is Mr J Ellis
whose appointment in this role commenced with the audit for
the financial year ended 31 December 2018. Mr Ellis has had
no previous involvement with the Group in any capacity.
The mandatory rotation of auditors under EU rules will take place
in 2023.
The Committee is responsible for the development and
implementation of the non-audit services policy which was
updated in 2019 to reflect the latest FRC Guidance on Audit
Committees and Ethical Standard and caps non-audit services at
70% of the average annual statutory audit fee. The policy covers
a short list of permitted non-audit services and applies a limit of
£100,000 for individual items that the CFO can approve with
individual items in excess of this amount requiring approval from
the Committee.
The Committee agrees fees paid to the external auditors for their
services as auditors. Details of fees paid for audit services,
audit-related services and non-audit services can be found in note
6 to the Group’s consolidated financial statements. Fees paid for
non-audit services in 2020 were less than £0.1 million (0.1% of the
total audit fee) and average fees paid for non-audit services for the
last three years to 2020 were less than £0.1 million (2.4% of the
total audit fee over that period). Fees paid for non-audit services
related to services allowed to be provided by PwC under the
Group’s policy on non-audit services.
The Committee is satisfied that the overall levels of audit-related
and non-audit fees are not material to the PwC office conducting
the audit, or PwC as a whole, and therefore the objectivity and
independence of the external auditors was not compromised.
On the basis of the information above, the Committee have
determined that the audit process is effective and that PwC are
appropriately objective and independent and have recommended
that the Board submit the reappointment of PwC to shareholders
for approval at the AGM in 2021 for the 2021 financial year.
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Internal audit
The internal audit function is a key element of the Group’s
corporate governance framework. Its role is to provide
independent and objective assurance, advice and insight on
governance, risk management and internal control to the
Committee, the Board and to senior management. Internal audit
makes recommendations to improve processes and address key
issues identified through their audit programme.
The Committee agrees the annual internal audit plan which is
developed according to a risk assessment process and ensures
adequate resources are available to execute the plan. The risk
assessment process initially divides our business units into three
tiers determined by financial measures. Tier 1 businesses are
visited annually, with Tier 2 businesses visited every other year and
Tier 3 businesses every third year. This is then subject to a further
discretionary risk-based adjustment if there are circumstances
which suggest a business unit should have an audit accelerated.
Reasons for this can include adverse prior audit findings, a change
in IT system, site location moves, substantiated issues reported by
whistleblowers, senior leadership changes or operational
performance issues.
The business unit audit programme’s scope includes finance,
programme management, HR/payroll, sales agents/distributors,
commercial bid and proposal activity and business continuity. In
2020, internal audits were carried out for 24 Group locations as
part of the rotational audit cycle, including shared service
functions. During the year the Committee monitored the impact of
COVID-19 on delivery of the audit plan and effectiveness of the
internal audit process. The plan was broadly delivered as originally
committed and processes were updated to conduct site audits
remotely. This required increased use of technology, including
utilisation of applications such as WebEx and file sharing and other
innovative solutions such as using cameras on shopfloors to
validate tests. In July, the Committee agreed proposed changes
to the plan for H2 2020 to reflect changes in business needs.
The scope of internal audit continues to expand and develop with
the business and in December 2020 the Committee reviewed and
approved an Internal Audit Charter that clearly defines the scope
and responsibilities of the function. During the same meeting the
Committee also considered the level of internal audit resource and
agreed that it remained appropriately resourced.
In addition to the site-based business unit reviews, internal audit
has a co-source arrangement with Grant Thornton UK LLP to assist
with resourcing specialist audits for areas such as IT, treasury and
complex legislation such as the Defense Federal Acquisition
Relation Supplement (DFARS) and the General Data Protection
Regulation (GDPR). During the year, Grant Thornton conducted
audits on Information Security, GDPR, Procurement and HR
systems and reported its findings back to the Committee in
December 2020. The approach for 2021 will continue to rely on
Grant Thornton’s subject matter experts to deliver specialist
audits, including IT Strategy and readiness for Cyber Security
Model Certification.
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Annual Report & Accounts 2020
111
The results of the audits are regularly discussed with the Group
Head of Audit & Risk by the Chair of the Committee between
Committee meetings. At each meeting, the Committee receives
a status update on the internal audit programme, discusses and
challenges any significant issues arising and monitors
implementation by the business of any recommendations made.
The Committee routinely meets internal audit without executive
management present. No concerns have been raised and it was
confirmed that the internal auditors had been able to carry out
their work and offer constructive challenge to executive
management during the year. The Committee considered the
effectiveness of internal audit in 2020 and confirmed that they
continue to be satisfied.
Communications with the FRC
During the year there was no interaction with the FRC’s Corporate
Reporting Review team.
Whistleblowing
The Corporate Responsibility Committee is responsible for
oversight and review of the process for handling allegations
from whistleblowers. Whistleblowing is included in our
Ethics & Business Conduct Policy and Code of Conduct,
which are available on our website. The Group sponsors an
independently operated and monitored Speak Up Line, enabling
employees to report concerns about possible misconduct, with
proportionate and independent investigation and appropriate
follow-up action. During the year the Group relaunched the
Code of Conduct and Speak Up Line, more detail is included in
the Corporate Responsibility report on page 88.
Compliance with Audit Services Order
We comply with the Competition and Market Authority Order
2014 relating to audit tendering and the provision of non-audit
services, as discussed further above.
On behalf of the Audit Committee
Colin Day
Chairman of the Audit Committee
3 March 2021
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Meggitt PLC
Annual Report & Accounts 2020
Nominations Committee report
The Nominations Committee plays a leading role in
assessing the balance of skills, knowledge, experience
and diversity on the Board and its Committees.
The Committee is comprised of the Non-Executive Chairman
and the non-executive directors. During the year, the
Committee had a detailed session on succession planning
for executive management and reviewed and discussed
the Board skills matrix.
Responsibilities
The Committee reviews the structure, size and composition
(including the skills, knowledge, experience and diversity)
of the Board and, in consultation with the directors, makes
recommendations to the Board on any proposed changes.
Decisions on Board changes are taken by the Board as a
whole. In performing its duties, the Committee has access
to the services of the Group HR Director and the Company
Secretary and may seek external professional advice at the
Group’s expense.
Effectiveness
In 2020 the Committee reviewed its own effectiveness by way
of a questionnaire, with follow up questions asked for clarity
if needed. Overall the evaluation was positive, noting good
progress on executive succession planning. The Committee
noted the importance of continued focus on diversity,
particularly ethnic diversity, for Board appointments.
Board composition
Each year the Committee considers a comprehensive skills
matrix that sets out the experience and background of each
director and reviews it against the Group’s strategic
objectives to ensure the Board comprises the skills and
capabilities required to meet the demands of the business.
The matrix also includes the tenure of the Chairman and
non-executive directors to ensure that succession for the
Chairman and non-executive directors is regularly discussed
by the Committee and planned accordingly to ensure
membership of the Board is refreshed regularly.
Guy Berruyer was appointed on 2 October 2012 and his
third three-year term will expire on 1 October 2021. The
Committee considered his independence during the year
and was satisfied that he remains independent. The
Committee consider that Guy’s knowledge of Meggitt
and his prior experience bring significant value to Board
discussions. The Committee are also keen to ensure
continuity on the Board in light of the COVID-19 pandemic
and as the Group’s key aerospace market recovers. In light of
this, it recommended that Guy Berruyer should continue to
serve as a non-executive director on the Board. However, in
light of Guy’s length of service, the Nominations Committee
agreed that Alison Goligher should succeed Guy as Senior
Independent Director from the date of the AGM in 2021.
Alison has nearly six years experience on the Board and has,
as a result, built good relationships with the non-executives
and executive management, has relevant experience of
Board dynamics, and has a detailed understanding of the
Group, which makes her well qualified to succeed Guy in the
role of Senior Independent Director.
In February 2020, I confirmed my intention to retire from the
Board and a succession process commenced, led by our
Senior Independent Director, Guy Berruyer. However, on
25 March 2020, we announced that in light of the outbreak
of the COVID-19 pandemic and its impact on the global
economy, the wider aerospace sector and the Group, the
Succession Committee led by Guy Berruyer and the Board
agreed that I will stay on as Chairman until further notice.
The Board believes that there is significant benefit in
continuity of chairmanship at this time.
Overseeing the
structure, size
and composition
of the Board.
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Committee membership and attendance
in 2020
Sir Nigel Rudd
Committee Chairman
Mr G S Berruyer
Non-executive director
Mr C R Day
Non-executive director
Mrs N L Gioia
Non-executive director
Ms A J P Goligher
Non-executive director
Mr G Hachey
Non-executive director
Mrs C L Silver
Non-executive director
Meetings attended Non attendence
113
Meggitt PLC
Annual Report & Accounts 2020
Board Skills and Experience
Australia
Africa
Asia
S America
N America
Europe (Inc UK)
Engineering
Industrial
Aerospace aftermarket/Customer Services
Aerospace/Defence/Energy
Mergers & Acquisitions
Risk/Legal/Regulatory (Inc Cyber)
Financial
Operations
Senior Independent Director
Remuneration Committee Chair
Audit Committee Chair
Chief Executive Officer
Listed company Chair
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Succession planning
The Group operates a succession planning process which enables
the identification and development of employees with the
potential to fill key business leadership positions in the Group.
The succession plans for the executive team, including the
executive directors are reviewed at least annually by the
Committee to ensure that they are effective, based on merit and
objective criteria, promote a diverse talent pool and take into
account the challenges and opportunities facing the Group as well
as the Group’s strategic priorities. The plan identifies emergency
replacements, those who are ready now, those that will be ready
in the short term following further development and those that will
be ready in the longer term.
Diversity and inclusion
The Board places great emphasis on ensuring that its own
membership reflects diversity in its broadest sense. A combination
of demographics, skills, experience, race, age, gender, educational
and professional background and other relevant personal
attributes on the Board is important in providing a range of
perspectives, insights and challenge needed to support good
decision making.
Whilst we do not currently have an ethnic minority director on our
Board, the Board remains diverse in terms of demographics, skills,
experience, age, gender and professional background. Further
details on the diverse attributes of Board members can be found
in the pie charts on page 95 and in the Board skills and experience
chart above.
It is our policy that Board appointments are made on merit,
taking account of the specific skills and experience, independence
and knowledge needed to ensure a rounded Board and the
diversity benefits each candidate can bring to the overall Board
composition. The policy aims for all appointments to diversify and
strengthen the overall composition of the Board by contributing
something new to the overall board dynamic, be it in terms of
experience, skills, perspective, interests or other attributes.
Our Board diversity policy is brought to the attention of any
executive search firm used as part of the selection and appointment
process for a Board position and we request that they be proactive
in marketing to a truly diverse range of candidates.
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Hampton-Alexander gender diversity rankings. Our high position
is due to the main rankings table being determined by the number
of females on our Board. The combined data for Executive
Committee and their direct reports show that Meggitt can
improve further.
The Board has discussed the suggested target set out in the
Parker Review of having “at least one director of colour on the
Board by the end of 2021” and will take this into account,
alongside diversity of gender, nationality, skills and experience, in
filling Board positions when they arise. As no Board appointments
were made in 2020 there was no opportunity to strengthen the
ethnic diversity of our Board during the year.
The Board, our executive leadership team, and management at
all levels recognise that a diverse and inclusive workforce is critical
to running a sustainable and successful business. Our Diversity
and Inclusion Policy seeks to increase and leverage diversity by
employing a diverse workforce that reflects the communities
within which we operate and fostering an inclusive culture where
people are valued, respected and supported. The Board and
Executive Committee remain focused on this area and details on
progress made against the Group Diversity and Inclusion policy to
strengthen the diversity in our talent pipeline can be found in the
Corporate Responsibility Report on pages 75 and 77.
Candidate selection
When recruitment is undertaken, an independent external search
consultancy is used for the appointment of the Chairman and
non-executive directors with guidance provided by the
Committee on the requisite skills, knowledge, and experience to
fill any gaps identified by the Board skills matrix and complement
those of existing Board members. Instruction is also given to
provide long and short lists, with a diverse range of candidates.
On behalf of the Nominations Committee
On gender diversity, the Board currently has four female Board
members representing 44% of the Board. This year, Meggitt
appeared 32nd in the list of FTSE 250 companies on the
Sir Nigel Rudd
Chairman of the Nominations Committee
3 March 2021
114
Directors’ remuneration
report
Chair’s introduction and annual statement
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Our decision making
has continued to
be framed by the
experience of our
stakeholders.
Committee membership and attendance
in 20201
3 Scheduled meetings
4 Additional meetings
Ms A J P Goligher
Chair, Non-executive director
Mrs C L Silver2
Non-executive director
Mr C R Day2
Non-executive director
Mrs N L Gioia2
Non-executive director
Mr G C Hachey
Non-executive director
Mr G S Berruyer
Non-executive director
1 Due to COVID-19, meetings from March 2020 were
conducted remotely
2 Unable to attend meetings due to prior commitments
/ Meetings attended Non attendence
Meggitt PLC
Annual Report & Accounts 2020
This has been a challenging year for the business
and our industry as a whole. The onset of the
COVID-19 pandemic (and particularly its effect
on employment, employees and society globally)
has further heightened the focus on executive
remuneration, not only from the perspective of
shareholders and proxy agencies, but also that of
public interest. There has been an increased focus
on how businesses have been run during the
pandemic, including the treatment and experience
of all relevant stakeholder groups, and the need
for pay decisions to be demonstrably appropriate
in the wider social context. The Committee has
been mindful of this context as it has worked
through decisions in this extraordinary year.
I am pleased to present the Directors’ Remuneration
Report for the year ended 31 December 2020. This
report includes: an “At a Glance” summary; the
Annual Report on Remuneration for the year; and
an amended Directors’ Remuneration Policy. The
Directors’ Remuneration Report will be put to an
advisory vote, and the proposed Policy put forward
for approval by shareholders, at our 2021 AGM.
Looking back… remuneration outcomes
in 2020
The impact of COVID-19 on Meggitt’s civil
aerospace business has been significant. The
outbreak, and subsequent lockdowns across the
globe, caused an unprecedented reduction in
commercial air traffic in H1 2020, particularly in
Q2 when global air traffic was down 90%, with
up to 60% of the global fleet grounded in April.
IATA’s latest forecast shows expected 2021
Revenue Passenger Kilometres (RPK) about 48%
lower than 2019, reflecting a gradual recovery as
lockdowns are eased, vaccine programmes are
implemented and passengers return to flying.
The executive team, led by the Chief Executive
and Chief Financial Officer, took a series of swift
and decisive actions in areas within Meggitt’s
control in response to the pandemic, focused on
reducing costs, protecting cash and resizing the
business. As a result, Meggitt is now positioned to
take advantage of the recovery in the aerospace
industry in the coming years.
While the Committee has worked throughout
2020 to ensure that remuneration continues to
reflect both our strong focus on governance and
alignment of outcomes to business strategy and
performance, our decision making has also been
framed by the experience of our stakeholders. In
addition to regrettably reducing the size of the
global workforce by around 20%, the Board
decided to cancel the final dividend for 2019 and
not to pay an interim dividend in 2020. Meggitt
also accessed Government support schemes
around the world (including the Coronavirus Job
Retention Scheme and CCFF in the UK).
In this context, and despite the strong
performance by the executive directors, the
Committee felt it was appropriate to reflect, in our
decision making, the impact of the pandemic on
many of our employees and the shareholder
experience over the past 12 months. The impact
of making these decisions in relation to 2020 are
set out below.
2020 Implementation of Policy
The Committee has continued to evaluate the fixed
and variable remuneration packages of the executive
directors across the year in the context of industry
and business performance along with the experience
of the wider workforce and shareholders.
Meggitt PLC
Annual Report & Accounts 2020
Salary
In April 2020, Meggitt announced that
salary increases for all employees, where
legally possible, would be cancelled for
2020, including the approved increases for
executive and non-executive directors.
In addition to this, the entire Board
volunteered to take a 20% reduction in
base salary and fees for the second half of
2020. Our Executive Committee also took
a 10% pay reduction along with a 10%
deferral of pay in H2.
Around 650 of our senior leaders (excluding
executive directors and our Executive
Committee) were invited to reduce their
base salary by 10%, in return for which they
would be awarded Meggitt shares of
equivalent value, deferred over two years.
I’m pleased to say that there was over 80%
take-up of the scheme by senior managers.
All of these actions on salary deferral and
reductions saved over £3m cash in 2020.
STIP
2020 performance was below the threshold
for the financial measures set at the start of
the year, resulting in nil payout under these
elements. Despite some of the objectives
related to the strategic element of the STIP
being met, the Committee discussed and
agreed, with the full support of the
executive directors, that, in light of the
experiences of employees across Meggitt
and shareholders in the year, downwards
discretion should be exercised to lapse this
element of the STIP.
LTIP
Although Meggitt’s performance in 2018
and 2019 was strong, the outturn for the
financial metrics in the 2018 LTIP award
(based on three-year performance to
31 December 2020) was below the
threshold vesting level, with 2020
performance impacted significantly by
COVID-19. Progress against the long-term
strategic measures warranted overall
vesting of 10.1% of awards. The Committee
considered this outcome in the wider
context of the Group’s performance.
We recognised that although the overall
outturn was low when considering the two
years of very strong performance, it was in
line with the employee and shareholder
experience in 2020 and no adjustments
were made.
Proposed changes from 2021
During 2020, the Committee reviewed our
Remuneration Policy against the emerging
global context. Although the Policy was put
to shareholders for approval in 2020, the
Committee felt that, in order to address
retention, motivation and alignment of
interests in this exceptional time and as the
aerospace industry recovers over the next
few years, some adjustments to the Policy
are necessary for 2021.
In Autumn 2020, we consulted
shareholders and proxy agencies on
proposals for a revised Policy. I am pleased
to say we had excellent engagement
during this exercise in the final quarter of
2020 with continued dialogue in Q1 2021.
The conversations were extremely helpful
and, in particular, it was encouraging to
hear the level of support from our
shareholders for our Chief Executive and
Chief Financial Officer who are recognised
as key to Meggitt’s recovery from the
COVID-19 pandemic and to our future
growth prospects. We also kept under full
consideration the experience of employees,
shareholders and other stakeholder groups.
I am grateful for the feedback provided
which has enabled us to adjust our
proposals in response.
2021 Remuneration Policy updates
The Committee considered various
approaches to address concerns about
motivation and retention of the executive
directors and senior leadership team in
the months and years ahead, given the
ongoing uncertainty around the impact
and timescales of the pandemic and a
subsequent recovery. Following feedback
from shareholders, the Committee
proposes the following revisions to our
Policy to meet this objective:
1) An increase in the total long-term
incentive opportunity from 220% to
250% of salary.
The Committee reviewed the
competitiveness and mix of the overall
package for the executive directors and
considered it appropriate to increase the
LTIP opportunity. This level will help ensure
the remuneration package is competitive
with companies of similar scale and
complexity, and to support the continued
motivation and retention of the executive
directors as our recovery builds over the
period of this new Policy.
2) Introduction of restricted share awards
(RSA) to complement the existing
performance share awards (PSA)
awarded under the LTIP.
RSAs are common elements of
compensation in Meggitt’s global market
for talent and the Committee considered
that introducing them to the Policy at
Meggitt for executive directors will support
our ability to attract and retain talent.
Around 50% of our senior operations
leaders are in the US and having an element
of restricted share awards in their incentives
will align better with the US market. It will
also help mitigate some of the retention
risk we face in the US. In addition, we
recognise that many of our UK shareholders
prefer to retain a performance-based award
for senior managers, and the hybrid plan
seeks to address both of these valid, and
equally weighted, perspectives. Hybrid
LTIP RSA/PSA awards have already been
introduced for our senior executives and so
this proposal will ensure alignment of the
executive directors with senior executives.
It is proposed that the overall long-term
incentive opportunity be split 50/50
between the RSA and PSA, with RSA face
values discounted by 50% compared to
the PSA, to maintain the fair value of the
long-term incentive opportunity. This
results in awards worth 125% of salary
under the PSA and 62.5% of salary under
the RSA for the executive directors. The
115
combined impact of these changes on the
executive director remuneration package is
to reduce the overall opportunity by 7%.
RSAs will be granted under the LTIP and
will ordinarily be subject to all the same
rules as the current LTIP approved in 2020,
i.e. a three-year vesting period, the same
malus/clawback provisions, post-vesting
holding period and post cessation
shareholding requirements. However, it is
proposed that the first RSA (to be granted
in 2021) vests on a phased basis over the
three-year period, i.e. a third annually, but
with release of the vested shares to remain
at five years following grant. This is to
address immediate issues of incentive and
retention during the recovery period.
The vesting of RSAs will be subject to a
discretionary assessment by the
Committee of a basket of measures, the
balance of which may be varied to reflect
the evolution of Meggitt’s medium-term
financial and strategic priorities over time.
3) Reduction of vesting threshold for PSAs
under the LTIP from 30% to 25% of
maximum.
Meggitt recognises that market practice
has evolved over time with respect to the
level of long-term incentive vesting for
threshold performance. The Committee
felt it was an appropriate time to align with
market practice. In all other respects the
STIP and LTIP (PSA) remain the same.
Concluding comments
We recognise that there is a significant
focus among stakeholders on executive
pay levels and on maintaining an
appropriate relationship between pay and
performance during the unprecedented
global crisis in which we continue to
operate. This has been a key priority for
the Committee this year in its deliberations
around 2020 outcomes.
Considering the potential ongoing impact
of the pandemic in the years ahead, we
have thought deeply about the balance of
motivating our executive directors during
the recovery and addressing retention risks
across our senior management team. We
also wish to ensure that interests are
aligned between the executive directors
and wider management team, for whom a
hybrid approach to long-term incentives
(combining restricted and performance-
based shares) has already been introduced
in early 2021.
We have worked hard to gather and
incorporate feedback from shareholders in
an open and transparent manner, and we
have considered market sentiment, market
practices and market competitiveness in
refining our proposals for 2021. We are
confident that the changes proposed
increase the alignment between
shareholders and executives, provide a fair
and motivational remuneration package to
executive directors and ensure alignment
between the executive directors and the
wider management team.
Alison Goligher
Chair of the Remuneration Committee
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Annual Report & Accounts 2020
Directors’ remuneration report
continued
Chair’s introduction and annual statement continued
2020 activity
Approved
• The 2019 STIP vesting and deferred bonus awards and 2017 LTIP vesting;
• The 2020 STIP and LTIP performance targets;
• 2020 LTIP awards together with the application of a holding period for the 2020 LTIP awards to executive directors;
• Increases to salaries for executive directors and other senior executives and the Chairman’s fee. Discretion was
applied to later cancel these as a result of COVID-19 (see 115 for more details);
• The 2019 Directors’ remuneration report and Policy were approved by shareholders at the 2020 AGM;
• The appointment of Ellason LLP as remuneration adviser to the Committee from 1 January 2021;
• Revised Terms of Reference for the Committee to align with current best practice. These are available on our
website; and
• Since the year end, we have approved the structure of the 2021 STIP and LTIP awards and confirmed the vesting
outcome of the 2020 STIP (and applied appropriate downward discretion) and 2018 LTIP awards.
Discretion exercised
• Cancellation of the 2020 salary and fee increases;
• Agreed that the 2021 STIP financial targets for all senior executives below the Board be based on Group
performance, consistent with the targets used for executive directors;
• Since the year end, we have agreed that strategic objectives targets which had been met under the 2020 STIP for
the executive directors should not vest owing to the overall financial performance of the Group and to reflect the
wider stakeholder impact of COVID-19. This means that no STIP payment will be made for the 2020 year.
Policy review
• Reviewed the Policy in light of the impacts of COVID-19 on the Group; and
• Proposed a revised Policy, including the following elements:
– a hybrid LTIP including Restricted and Performance share awards for executive directors
– Performance share awards (PSA) structured as previously; Restricted share awards (RSA) to vest subject to a
discretionary assessment of corporate health across a range of measures
– for the 2021 RSA to vest annually over a three-year period, but with leaver conditions attached between the
vesting date and the third anniversary from grant (and a holding period for the fourth and fifth year after grant)
– for RSA awards from 2022 onwards to have a three-year vesting period
– to increase the total LTIP award opportunity for executive directors from 220% to 250% of salary
– to reduce vesting at threshold under the PSA from 30% to 25% of maximum.
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Annual Report & Accounts 2020
117
Remuneration at a glance
Remuneration principles
Our Remuneration Policy is designed to deliver against these key remuneration principles for the long-term growth of the business:
Attract
Align
competitive in the global markets where Meggitt competes for talent;
with shareholders through a strong weighting on shares in remuneration packages, but also alignment between our
executive directors and other senior managers who work as one team towards the same goals;
Incentivise
incentive plans provide an opportunity for management to meet and exceed targets whilst outcomes are appropriately
aligned with financial performance; and
Retain
the remuneration structure and opportunity supports retention in an increasingly competitive international setting.
Linking our remuneration to our strategy
Strategic Portfolio
Investing in differentiated technologies
Delivering sustainability goals
Enhancing our business portfolio
LTIP: Innovation targets and ROCE in the LTIP.
Sustainability has been introduced to the LTIP.
STIP: Strategic objectives for executive directors include
portfolio-related activity and sustainability goals.
KPIs:
Growth,
ROCE
Competitiveness
Enhancing manufacturing capability
Optimising our global footprint
LTIP: quality and delivery targets, programme management,
ROCE and inventory improvement targets are measures in
the LTIP.
STIP: Strategic objectives for executive directors include
operational performance, footprint consolidation and net
purchasing costs.
Customers
Maximising our share of
the aftermarket
Growing our defence business
LTIP: Quality and delivery targets are included in the LTIP
STIP: Strategic objectives for executive directors
include growth in aftermarket and defence
Culture
Attracting and developing
diverse talent
High performance culture
STIP: Strategic objectives for executive directors
include measures to improve employee engagement
and embed our high performance culture.
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KPI’s
2020 STIP
Financial Measures
Underlying
Operating Profit
Free Cash Flow
Strategic Measures
Culture –
Engagement
189m 101m
Customer –
Operational
Improvements
Portfolio
2018-2020 LTIP
Financial Measures
Strategic Measures
Earnings Per Share
ROCE
Inventory
Programmes
MPS
90.8p 8.6% 2.1
2.9
44.6%
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Annual Report & Accounts 2020
Directors’ remuneration report
continued
2020 Outcomes
Outcomes versus pay scenarios
Mr A Wood (£’000)
Mr A Wood (£’000)
Mrs L Burdett (£’000)
Mrs L Burdett (£’000)
100%
100%
Minimum
Minimum
£820
£820
100%
100%
Minimum
Minimum
£518
£518
43%
43%
34%
34%
23%
23%
43%
43%
34%
23%
34%
23%
On-target
On-target
£1,921
£1,921
25%
25%
30%
30%
45%
45%
On-target
On-target
25%
25%
30%
30%
Maximum
Maximum
£3,274
£3,274
Maximum
Maximum
20%
20%
25%
25%
55%
55%
20%
20%
25%
25%
£1,215
£1,215
45%
45%
£2,072
£2,072
55%
55%
Max+50% share price increase
Max+50% share price increase
£4,003
£4,003
Max+50% share price increase
Max+50% share price increase
£2,534
£2,534
85%
85%
15%
15%
Single Figure 2020
Single Figure 2020
£885
£885
Salary and benefits
Salary and benefits
Pension
Pension
STIP
STIP
LTIP
LTIP
Single Figure 2020
Single Figure 2020
£476
£476
100%
100%
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Incentive outcomes
2020 STIP Outcome
Maximum
Actual
Actual
Adjusted Outcome
CEO
CFO
0.00%
38.5%
41.5%
50.0%
50.0%
50.0%
Strategic UOP FCF
2018 LTIP Outcome (% Vesting)
Maximum
73.3%
73.3%
73.3%
Outcome
22.2%
EPS 0.0%
ROCE 0.0%
Strategic EPS ROCE
Pay for performance history
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Annual Report & Accounts 2020
119
2021 Remuneration
Components of executive directors’ remuneration 2021
Base salary
Pension
Benefits
Annual bonus (STIP)
LTIP (PSA and RSA)
Sharesave Scheme
and Share Incentive
Plan (SIP)
Set at a competitive level to attract and retain high calibre directors in the relevant talent market.
To provide post-retirement benefits for executive directors in a cost-efficient manner. New directors are
eligible for a pension allowance at the same level as the wider workforce. Pension allowances for incumbent
executive directors are being reduced to 15% of salary by the end of 2022.
Provides non-cash benefits which are competitive in the market where the director is employed.
Incentivises executive directors on delivering annual financial and strategic targets set at the start of each
year. There is a maximum award opportunity of up to 150% of salary.
Aligns the interests of executive directors with shareholders in growing the value of the Group over the long
term. Awards vest after three years and are subject to a two-year holding period. Executive directors are
currently eligible for annual awards of up to 220% of salary (proposed to be increased to 250% at the 2021
AGM). If shareholders approve, awards would consist of Performance Share Awards (125%) and Restricted
Share Awards (62.5%). The executive directors are subject to post-cessation shareholding requirements,
along with malus and clawback provisions.
To align the interests of UK employees and shareholders by encouraging all UK employees to own
Meggitt shares.
2021 remuneration time horizons
2021
Year 1
2022
Year 2
2023
Year 3
2024
Year 4
2025
Year 5
2026
Year 6
2027
Year 7
STIP
PSA
RSA
Performance
Period
Deferral Period1
Performance Period
Vesting Period2
Holding Period
Holding Period
1 STIP deferral of 25% of the outcome into shares for 2 years
2 First RSA grant vests in thirds at the end of years 1-3 but a total holding period of 5 years from grant will apply
2021 pay scenario summaries
Mr A Wood (£’000)
66% 34%
Minimum
£1,210
Mrs L Burdett (£’000)
100% 34%
Minimum
£771
38%
34%
23% 20%
43%
34%
23% 20%
On-target
£2,080
On-target
£1,322
26%
30%
45% 14%
25%
30%
45% 14%
Maximum
£3,034
Maximum
£1,926
22%
25%
55%
17%
20%
25%
55%
17%
Max+50% share
price increase
£3,656
Max+50% share
price increase
£2,320
Salary and benefits
Pension
STIP
PSA
RSA
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2021 Incentive Plans
Short-Term Incentive Plan (STIP)
Long-Term Incentive Plan (LTIP) – Performance Share Awards
Underlying
operating profit
Free cash flow
Strategic and financial
objectives
Total STIP
33.3%
33.3%
33.3%
100.0%
Underlying EPS
33.3%
ROCE
33.3%
Strategic measures:
HPS / Inventory /
Programmes
33.3%
Total PSA
100.0%
120
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
Annual report on remuneration
Executive Directors
Single total figure of remuneration for executive directors (audited)
The table below sets out a single figure for the total remuneration received by each executive director for the year ended
31 December 2020 and the prior year:
Salary1
Taxable benefits2
Pension Allowance3
Total fixed
Annual bonus4
Deferred bonus4
LTIP5
Other
Total variable
Total remuneration
Mr A Wood
Mrs L S Burdett
2020
£’000
597
14
143
754
–
–
131
–
131
885
2019
£’000
660
14
165
839
507
169
4346
–
1,110
1,949
2020
£’000
378
14
84
476
–
–
–
–
–
476
2019
£’000
420
14
84
518
321
107
–
–
428
946
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1 Salary for both executive directors is reported with the COVID-19 reduction of 20% in the second half of the year. For the CEO the annual salary of £663k reduced
by £66.3k from July to December, and for the CFO the annual salary of £420k reduced by £42k from July to December. The CEOs salary was set at £663k from
1 April 2019, previously £650k, giving a single figure for Salary of £660k for 2019. The COVID reduction was based on the Annual Salary of £663k.
2 Taxable benefits consist primarily of company car or car allowance, fuel allowance and private health care insurance. In addition to this figure, Mr Wood also
received £1,526 in the year relating to his relocation agreement which ended 31 March 2020. Mrs Burdett received a relocation allowance as part of the transition
of the head office to Ansty Park. Because of COVID-19 restrictions, only £4,800 was paid under this agreement in 2020.
3 Pension figure was calculated on the unreduced salary for 2020 at 21.5% of salary for the CEO and 20% of salary for the CFO
4 STIP paid for performance over the relevant financial year. As no bonus was payable, no payout was deferred into shares. Further details of the 2020 STIP,
including performance measures, actual performance and bonus payouts, can be found on pages 121 to 122.
5 LTIP is calculated as the number of shares vesting based on certain performance measures and valued at the market value of the shares on the vesting date.
The value includes distribution payments. For 2020, the figure represents the actual vesting outcome of the 2018 award. Based on performance to 31 December
2020 the 2018 LTIP award will vest at 10.1%. The market value of vested shares has been estimated using the average share price over the last quarter of 2020 of
366.85p. None of the value of the LTIP is attributable to share price appreciation as the share price declined by 15% since the grant date. This value will be trued
up in next year’s report to reflect the actual share price on the vesting date. Further details on performance criteria, achievement and resulting vesting levels can
be found on page 123.
6 For 2019, the figure represents the actual vesting of the 2017 award which has been trued up, compared to that reported last year, to reflect the share price on the
date of vesting. The value of the 2019 LTIP vesting has been updated from the 2019 report from £975k to £434k due to fall in share price since the figures were
estimated in February 2020.
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Annual Report & Accounts 2020
121
Incentive outcomes for the year ended 31 December 2020 (audited)
STIP in respect of 2020 performance
The Board set stretching financial and strategic targets for the STIP at the start of the 2020 financial year. These targets, and the
performance against these, are summarised in the table below.
Executive directors
Measure
Financial Underlying operating profit
Free cash flow
Strategic See below
Weighting
(as a percentage
of target)
33.3%
33.3%
33.3%
Threshold for
2020
£407.0m
£257.9m
Target for 2020
Stretch for 2020
£452.2m
£286.6m
£497.4m
£315.3m
Actual1
£196.4m
£102.7m
Percentage of
maximum
opportunity
0%
0%
See tables below
1 For the purpose of STIP, targets and actual performance for both underlying operating profit and free cash flow are measured on a constant currency basis,
adjusted where appropriate for any M&A activity and, in the case of free cash flow, excludes interest and tax. The STIP targets and actual performance for
underlying operating profit are measured before the impact of any share based payment expense. Other adjustments are also made at the discretion of the
Committee to ensure the outcome is a fair reflection of the underlying performance of the Group for the year. These are described on page 116 of this report.
A summary of the strategic objectives applying to each executive director and the outcome is provided below:
Tony Wood
Chief Executive
Strategic Objectives
Strategy
Deliver sustainability goals and enhance portfolio
Performance against objectives
• Absolute reductions in all major sustainability KPIs (electricity,
Customer
Deliver on-time to quality
Competitiveness
Increase margin and efficiency
Culture
Improve employee engagement and safety
gas, GHG emissions, water).
• Two key divestitures.
• On time delivery had an improving trend April to November but
fell in December due to significant COVID-19 disruption.
• Delivered very significant reduction in escapes following the
introduction of enhanced processes.
• Reduction in purchase costs.
• Project Conquer launched in March targeting a £450m reduction in
cash costs in year – this was fully and successfully implemented by
year end without disruption to customers.
• Stable employee engagement levels despite the impact of the
pandemic and our global restructuring actions across all facilities
worldwide.
• Delivered our best safety (TRIR) performance to date.
Payout based on assessment of objectives (% of maximum):
77% (see note overleaf)
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Annual Report & Accounts 2020
Directors’ remuneration report
continued
Louisa Burdett
Chief Financial Officer
Strategic Objectives
Strategy
Refinancing
Customer
Develop Meggitt’s shareholder engagement
Competitiveness
Improve operational performance
Culture
Improvement in the overall Finance employee engagement
score
Performance against objectives
• Secured various sources of external liquidity for the company
during the COVID-19 pandemic.
• Securing internal liquidity through Project Conquer to save £450m
of cash.
• Extensive scenario planning and cash forecasting throughout the
year, remaining agile within changing market conditions.
• Adapted IR processes, using technology and increased contact
with shareholders, sell-side analysts, employees and the Board.
• Consultation to close UK defined benefit pension scheme to future
accrual.
• Finance and IT engagement scores improved year on year.
Payout based on assesment of objectives (% of maximum):
83% (see note below)
Although the outcome of the strategic objectives element of STIP would have generated a pay-out to executives of £254,000 (CEO) and
£175,000 (CFO) under the rules of the scheme, the Committee exercised discretion to reduce this payment to zero for 2020.
The following STIP awards were therefore received by executive directors in respect of 2020 performance:
5
4
1
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9
–
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c
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Executive
Mr A Wood
Mrs L S Burdett
STIP – deferral into shares (audited)
There will be no deferral of STIP into shares in 2021 as no STIP was paid.
% salary
£’000
0%
0%
–
–
In 2020, as a result of the 2019 STIP vesting, the share awards were made under the Share Incentive and Retention Plan and are outlined
in the table below. In line with the Remuneration Policy, 25% of the 2019 payout was deferred into shares, to be released (with no further
performance conditions attached) after two years. Deferred STIP awards may lapse in certain leaver circumstances.
Executive
Mr A Wood
Mrs L S Burdett
Conditional Share Award
Conditional Share Award
28.02.2020
28.02.2020
Form
of award
Date
of grant
Shares over
which awards
granted
29,146
18,463
Award
price1
579.64p
579.64p
£’000
% of bonus
Date
of vesting
169
107
25
25
28.02.2022
28.02.2022
1 The award price is the average close price for the five days prior to the award date.
Meggitt PLC
Annual Report & Accounts 2020
123
LTIP 2018 outcome
The LTIP award granted in April 2018 was subject to performance measures comprising three-year cumulative underlying EPS, three-year
average ROCE and a scorecard of strategic measures. The outcome of the EPS measure has been adjusted for disposals. Performance
against each of these measures over the completed performance period is summarised in the table below:
Element
2018
2019
2020 Weighting
Threshold Mid-point
Stretch
Performance period
Targets
Actual
performance
% vesting
(of LTIP)
Underlying EPS (pence)
three-year aggregate
33.33%
101.6p
107.7p
114.0p
90.8p
0.0%
ROCE % average over three years
33.33%
11.1%
11.5%
11.9%
8.6%
0.0%
Strategic measures1
Organic revenue growth
Programme management 2
Gross margin
Inventory
MPS gate exits3
Innovation4
Programme excellence5
5.56%
4.00%
5.50%
7.00%
-1.7%
0.0%
1.85%
2.0
3.0
4.0
2018: 2.5
1.85%
38.0%
38.8%
39.6% 2018: 37.2%
451.4
421.4
401.4
2018: 473.1
1.85%
1.85%
1.85%
6.17%
2.0
2.0
2.0
3.0
3.0
3.0
4.0
4.0
4.0
0.9%
0.0%
0.0%
0.0%
2018: 0.1
2018:4.0
1.9%
2019: 3.1
2020: 2.9
2019: 50.0%
2020: 44.6%
2019: 2.7
2020: 2.1
3.9%
3.4%
0.0%
10.1%
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9
0
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1
4
5
MPS (Quality and Delivery)6
6.17%
40%
50%
60%
Inventory Turns
Overall outcome
6.17%
3.0
3.2
3.4
1 Progress against the targets for all strategic measures, other than revenue growth, are assessed annually and the final vesting outcome based on performance in
each period.
2 Performance score out of 5. Programme management vesting is an assessment of programme performance and is based on independent assessments of the
performance of our largest programmes (approximately 100 in total) at formal programme gate reviews against standard gate exit criteria.
3 Vesting is based on the number of our sites that have progressed up one stage of MPS in the year.
4 Vesting is determined based on progress with certain important innovation projects against detailed milestone criteria, as assessed by our Chief Technology
Officer.
5 Programme excellence is the combined score of programmes and AR&T programmes (previously “Innovation”) weighted 50/50.
6 MPS (Quality and Delivery) vesting is based on progress against specific targets in each of these areas. For each of these measures, vesting criteria were set at the
start of the year and assessed at the end of the year and reviewed by internal audit.
Based on these performance outcomes, 10.1% of the 2018 LTIP award will vest. Details of the awards vesting for executive directors are
set out in the table below.
Executive3
Mr A Wood
Interests
held
332,852
Vesting
%
10.1
Interests
vesting
Date
of vesting
Share price
at vesting1
33,618
03.04.2021
366.85p
Value
£’0002
131
1 The market value of vested stock is based on the average share price over the last quarter of 2020.
2 The value includes the accrued distribution payable on the shares that vest (equivalent to a dividend, paid as income).
3 Mrs Burdett did not receive a 2018 LTIP award as she joined the Group on 22 October 2018, after the LTIP award date (becoming Chief Financial Officer on
1 January 2019).
Based on the market value estimated from Q4 2020 share price, none of the value of the award is attributable to share price
appreciation. The value of the award has decreased due to fall in share price since award.
124
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
Scheme interests awarded in the year ended 31 December 2020 (audited)
The executive directors were granted LTIP awards in 2020. Vesting is dependent on the achievement of three-year targets ending
31 December 2022 that were set in February 2020, based on the following performance measures:
Weighting Measure
33.3%
33.3%
Underlying EPS (pence) three-year aggregate
ROCE average over three years
33.3%
Strategic measures
1 Vesting at threshold is 30%, and at stretch is 100%
HPS (Prev MPS)
Site targets on Quality
and Delivery
Inventory
Inventory turns
Programme
excellence
Average status of
programmes and
AR&T programmes
Threshold1
Mid-point
Stretch1
112.8
11.0%
40%
3.0
125.4
11.5%
50%
3.3
137.9
12.0%
60%
3.6
2.0
3.0
4.0
2020 LTIP
Executive
Form
of award
Date
of award
Shares over
which awards
granted
Award
price1
Face value
£’000
% of salary2
Date
of vesting
Mr A Wood
Mrs L S Burdett
Conditional Award
Conditional Award
28.02.2020
28.02.2020
251,638
159,409
579.64p
579.64p
1,459
924
220
220
28.02.2023
28.02.2023
1 The award price is the average close price for the five days prior to the award date. The face value has been calculated using the award price for each award.
2 Based on salary at the date of award.
Total pension entitlements (audited)
Mr Wood and Mrs Burdett received pensions allowances in 2020 of 21.5% and 20% of salary respectively. The pension allowance
payments made in 2020 are included in the single total figure of remuneration table, and calculated on the unreduced salary (per the
method of operation for all UK employees).
In 2021, Mr Wood and Mrs Burdett’s pension allowances are being reduced to 18% and 17.5% of salary respectively. Both will reduce to
15% of salary by the end of 2022. Neither executive director participates in a Defined Benefit pension.
5
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Share ownership guidelines (audited)
The minimum shareholding guideline for executive directors is 300% of base salary for the Chief Executive and 200% of base salary for
the Chief Financial Officer. There is no set time frame within which executive directors have to meet the guideline, however, until they
meet the guideline they are not permitted to sell more than 50% of the after-tax value of a vested share award.
Post-cessation shareholding guidelines of two years from vesting now apply to the executive directors. Further information on how the
executive directors currently meet the shareholding guideline is in the annual report on remuneration on page 125. The executive
directors have each executed a deed under which they acknowledge and agree to the Company’s post-employment shareholding
requirements and acknowledge that Meggitt reserves the right to take action to enforce compliance with the requirements. In the event
of a breach of the post-employment shareholding obligations, Meggitt reserves the right to require the individual to revoke any
assignment, transfer or charge, or acquire shares to replace disposed shares. Meggitt may also apply malus against unvested awards. To
date, no executive directors have left office following the introduction of our post-employment shareholding requirements.
As at 31 December 2020, the Chief Executive’s shareholding was 151% of base salary and the Chief Financial Officer’s shareholding was
20% of base salary.
Executive director
Mr A Wood
Mrs L S Burdett
Shareholding
Guideline
(% 2020 salary)
Shareholding
Current
Shareholding
(% 2020 salary)
Guideline Met?
300%
200%
214,291
18,419
151%
20%
Building
Building
Meggitt PLC
Annual Report & Accounts 2020
125
Executive Directors’ beneficial interests (audited)
The beneficial interests of the executive directors and their connected persons in the ordinary shares of the Group at 31 December
2020, as notified under the Disclosure Guidance and Transparency Rules (DTR) of the Financial Conduct Authority (FCA) (including
shares held beneficially in the SIP by executive directors), were as follows:
Mr A Wood
Mrs L S Burdett
Shareholding
Ordinary shares of 5p each
2020
43,291
5,500
2019
12,056
–
Between 1 January 2021 and 24 February 2021, the only changes to the beneficial interests of the directors in the ordinary shares of the
Company are that Mr Wood acquired 68 shares through the Meggitt PLC Share Incentive Plan.
Executive Directors’ shareholding requirements (audited)
Shares which are included within the shareholding requirement are:
Source of shares
LTIP
Deferred Bonus
Ordinary shares
Dividend reinvestment plan
SIP
Sharesave Scheme
Description
Shares awards that have vested but not been exercised on a net of tax basis and share awards
that have been exercised and retained
Share awards that have not vested on a net of tax basis and shares released after the two-year
deferral period
Shares purchased directly in the market.
Shares acquired through the dividend reinvestment plan.
Shares acquired under the SIP (including those held in trust).
Shares exercised and retained.
Executive Directors’ interests in share schemes (audited)
All outstanding LTIP awards have performance conditions attached (as detailed in the Directors’ remuneration report in the year of grant
and in this report for those awards made in 2020). The awards made up to and including 2017 have already vested to the extent detailed
in this and previous reports and the figures shown in the table below for those years are the vested share award amounts. The awards
made in 2018 and later years were unvested as at 31 December 2020. Sharesave awards are not subject to performance conditions.
Number of shares under award
Date of
award
At 1
January
2020
Awarded/
(exercised/
lapsed)
At 31
December
2020
Exercise
price
Market price
at date of
exercise
Date
exercisable
from
Expiry
date
G
o
v
e
r
n
a
n
c
e
–
9
0
-
1
4
5
LTIP (nil cost options – unvested)
Mr A Wood
LTIP (nil cost options – vested unexcercised)
01.12.16
07.04.17
03.04.18
08.04.19
28.02.20
LTIP (conditional award – unvested)
Share Incentive and Retention Plan (awards) 27.03.18
08.04.19
28.02.20
13.09.18
17.09.19
Sharesave (options)
Total
112,506
228,907
332,852
278,443
–
26,884
38,155
–
847
1,826
–
(86,070)
–
–
251,638
(26,884)
–
29,146
–
–
112,506
142,837
332,852
278,443
251,638
–
38,155
29,146
847
1,826
1,020,420
167,830 1,188,250
Number of shares under award
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
307.28p
–
–
425.02p
492.80p
01.12.19
07.04.20
03.04.21
08.04.22
28.02.23
27.03.20
08.04.21
28.02.22
01.11.21
01.11.24
01.12.21
07.04.22
03.04.23
08.04.24
28.02.23
27.03.20
08.04.21
28.02.22
01.05.22
01.05.25
Date of
award
At 1
January
2020
Awarded/
(exercised/
lapsed)
At 31
December
2020
Exercise
price
Market price
at date of
exercise
Date
exercisable
from
Expiry
date
Mrs L S Burdett
LTIP (nil cost options – unvested)
LTIP (conditional award – unvested)
Share Incentive and Retention (awards)
Sharesave (option)
Total
08.04.19
28.02.20
08.04.19
28.02.20
17.09.19
176,389
–
5,913
–
1,826
–
159,409
–
18,463
–
176,389
159,409
5,913
18,463
1,826
184,128
177,872
362,000
–
–
–
–
–
–
–
–
–
492.80p
08.04.22
28.02.23
08.04.21
28.02.22
01.11.22
08.04.24
28.02.23
08.04.21
28.02.22
01.05.23
126
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
External appointments held by executive directors as at 31 December 2020
Executive director
Company
Role
Mrs L S Burdett
Electrocomponents plc
Non-executive director
Chair of Audit Committee
Total
Fees retained
2020
£’000
60
10
70
Exit payments made in the year (audited)
No exit payments have been made in 2020.
Payments to past directors (audited)
There were no payments to past directors in 2020. A de minimis of £10,000 applies to all disclosures under this note.
Review of past performance
The remuneration package is structured to help ensure alignment with shareholders. However, there may be no direct correlation
between share price movement and the change in the value of the pay package in any one year (as the remuneration package comprises
several components, some fixed and others based on non-financial measures).
The graph below illustrates the Group’s performance compared to the FTSE 100 Index, which is considered an appropriate broad equity
market index against which the Group’s performance should be measured, and reflects Meggitt’s ambition to be a FTSE100 company.
Performance, as required by legislation, is measured by TSR over the ten year period from 31 December 2010 to 31 December 2020.
5
4
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9
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Pay for performance history
Meggitt
FTSE 100
l
a
t
o
t
l
e
g
n
i
s
s
’
e
v
i
t
u
c
e
x
E
i
f
e
h
C
p
u
o
r
G
0
0
0
£
)
m
£
(
e
r
u
g
i
f
n
o
i
t
a
r
e
n
u
m
e
r
5000
4000
3000
2000
1000
0
31/12/2011
31/12/2012
31/12/20131
31/12/2014
31/12/2015
31/12/2016
31/12/2017
31/12/2018
31/12/2019
31/12/2020
Mr T Twigger
Mr S G Young
Mr A Wood
1 combination of Mr T Twigger and Mr S G Young
£
250
225
200
175
150
125
100
75
50
25
0
0
1
0
2
r
e
b
m
e
c
e
D
1
3
n
o
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
a
V
l
The table below details the CEO’s single total figure of remuneration over the same period:
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Mr A Wood1
Single total figure of remuneration £’000)
STIP outcome2
LTIP vesting2
Mr S G Young1
Single total figure of remuneration (£’000)
STIP outcome2
EPP vesting2
ESOS vesting2
LTIP vesting2
Mr T Twigger1
Single total figure of remuneration (£’000)
STIP outcome2
EPP vesting2
ESOS vesting2
1,296
39%
38%
76%
–
1,845
35%
56%
98%
4,252
100%
69%
100%
3,812
80%
88%
100%
2,334
82%
1,949
68%
52.1% 62.4%
885
0%
10.1%
1,232
23%
0%
0%
–
1,347
31%
0%
0%
–
1,969
60%
N/A
N/A
2,040
68%
N/A
N/A
17.3% 18.9%
1 Figures are provided for Mr T Twigger for the period up to 1 May 2013, for Mr S G Young for the period up to 31 December 2017 and for Mr A Wood from his
appointment as CEO on 1 January 2018.
2 The outcomes are for those awards which are included in the single figure of remuneration for that year. For 2020, this represents the outcome of the 2018 LTIP
and the 2020 STIP. Outcomes are expressed as a percentage of maximum.
Meggitt PLC
Annual Report & Accounts 2020
127
Change in Executive Directors’ pay for the year in comparison to that of Meggitt employees
The table below shows the year-on-year percentage change in salary, benefits and annual bonus earned between the year ended
31 December 2019 and 31 December 2020 for all executive directors compared to the change in earnings for employees of Meggitt
PLC, and UK employees.
CEO
CFO
Meggitt PLC Employees
UK Meggitt Employees
Salary
Benefits
-9.5%1
-10%
-3.2%
-0.5%
0.0%
0.0%
0.0%2
0.0%2
Annual
Bonus
-100%
-100%
-100%
-100%
1 The CEOs salary was set at £663k from 1 April 2019, previously £650k, giving a single figure for Salary of £660k for 2019. The COVID reduction was based on the
annual salary of £663k, leading to a -9.5% reduction on the single figure salary.
2 Benefits changes for the PLC and All UK populations are based on value of entitlement, and exclude, for example, the change in Benefit in Kind value created by a
change in company car.
A similar analysis is provided for the non-executive directors on 131.
CEO pay ratio
The lower quartile, median and upper quartile employees were determined using Calculation Method A, which involved calculating
the actual full-time equivalent remuneration for all UK employees for the year ending 31 December 2020. Where variable pay data was
available for the 2020 financial year outturn (to be paid in March 2021 in respect of executive and senior management annual bonus and
LTIP), actual amounts were used. Where the outturn of variable pay for 2020 was unknown at the date of calculation (for managerial,
professional and direct workforce), the amount to be paid in March 2021 was estimated.
From this analysis, three employees were then identified as representing the 25th, 50th and 75th percentile of the UK employee
population. The Committee chose this method as it is the preferred approach of the Government and that of institutional shareholders,
and Meggitt has the systems in place to undertake this method.
The three individuals identified were full-time employees during the year and did not receive any exceptional incentive award which
would otherwise inflate their pay figures. No adjustments or assumptions were made by the Committee, with the total remuneration of
these employees calculated in accordance with the methodology used to calculate the single figure of the Chief Executive. The
Committee considered the median pay ratio in the context of the ratio reported in prior years as well as the figures produced by sector
comparators and across the FTSE more generally.
The CEO pay ratio is based on comparing the Chief Executive’s pay to that of the Group’s UK-based workforce, a large proportion of
whom are production workers. The Committee expects that the ratios will be largely driven by the Chief Executive’s incentive pay
outcomes, which will likely lead to greater variability in his pay than that observed at lower levels who, consistent with market practices,
have a greater proportion of their pay linked to fixed components. This expectation has been realised in the change between 2019 and
2020 ratios.
G
o
v
e
r
n
a
n
c
e
–
9
0
-
1
4
5
The Committee takes into account these ratios when making decisions around the executive director pay packages, and the Group takes
seriously the need to ensure competitive pay packages across the organisation.
Lower quartile (25th percentile)
Median
Upper quartile (75th percentile)
(£)
2020
2019
Method
Total Pay & Benefits
Total Salary
Total Pay & Benefits
Total Salary
Total Pay & Benefits
Total Salary
A
A
34,019
32,879
31,788
27,986
43,831
42,861
40,584
41,317
59,994
58,479
55,550
52,776
(£)
Method
Pay Ratio 25th Percentile
Pay Ratio 50th Percentile
Pay Ratio 75th Percentile
2020
20191
A
A
26:1
59:1
20:1
45:1
15:1
33:1
1 2019 Ratio has been updated due to the true up of the value at vesting of the 2019 LTIP. Prior reported ratio at median was 58:1.
128
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
Relative importance of spend on pay
The chart below shows shareholder distributions (i.e. dividends) and total employee expenditure for 2020 and the prior year, along with
the percentage change in both.
800
700
600
500
400
300
200
100
0
-20.1%
£707.7m
£565.4m
-100%
£42.9m
£0.0m
Dividends1
Employee costs2
2020
2019
1 See note 15 to the Group’s consolidated financial statements.
2 Comprises wages and salaries and retirement benefit costs. See note 8 to the Group’s consolidated financial statements.
Shareholder distributions
5
4
1
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9
–
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2020 Committee evaluation
The Committee reviewed its own effectiveness and the effectiveness of their advisers using a detailed questionnaire and follow up
discussion. Overall, the results of the review were positive for both the Committee and their advisers, in what was a particularly
challenging year. The Committee’s meetings were well run, with papers of the right length, and holding virtual meetings during 2020
had not caused issues in the way the Committee interacted.
The response to the pandemic was viewed as proactive and appropriate, with a detailed shareholder consultation exercise being viewed
as extremely helpful in gaining insight to shareholders views in this area. There was a wider concern from the Committee about the
appropriateness of the remuneration structure and retention concerns across senior executives post-COVID which would continue to be
discussed by the Committee throughout the year.
Specific actions arising were about increasing Committee understanding of wider remuneration structures across the Group as well as
gaining more sector specific and US remuneration trends from advisers.
Context for the Committee’s decisions in 2020
The Committee included regular updates from executive management on the impact of COVID-19 environment on key stakeholders in
Meggitt to ensure that this context was front of mind as the Committee discussed executive pay. Each meeting held in the year started with
an update of stakeholder impacts. The main themes considered were:
Stakeholder impacts
Senior leaders
The Executive Committee took a 10% salary reduction plus a 10% salary deferral in the second half
of 2020.
All STIP and LTIP participants (c. 200 globally) shared the same outcomes as the executive directors
reported here.
Around 650 of our senior management (excluding Executive Committee) were invited to reduce their
base pay by 10%, in return for which they would be awarded Meggitt shares deferred over two years.
80% of the population took this opportunity and the first tranche of shares were delivered in January
2021. The second tranche vests in January 2022.
Wider workforce
Various actions were taken, where possible, across the wider workforce including:
– cancellation of the 2020 annual pay review
– suspension of company contributions to 401(k) in the US
– beginning consultation to close the UK Defined Benefit pension plan to new accruals
– cancellation of the UK Free Share Award.
We utilised furlough and voluntary unpaid leave arrangements globally in line with a reduction of
production activity due to COVID-19 impact. Regrettably, we also reduced the workforce by over 20%
globally.
Shareholders
Final dividend for 2019 was cancelled. No dividends have been paid or declared for 2020.
Meggitt PLC
Annual Report & Accounts 2020
129
2021 Policy implementation
Base salary, pension and benefits
For 2021, no salary increases are currently proposed for implementation in April 2021. In agreeing this position, the Committee has
taken into account that salary increases for the wider employee population will not be reviewed until October 2021. Additionally, the
executive and non-executive directors have agreed a 10% reduction in salary for the first half of 2021. For the wider workforce Meggitt
continues to utilise furlough and voluntary unpaid leave programmes in H1 2021.
The following table shows the base salaries for the executive directors (not including COVID-19 reductions):
Mr A Wood
Mrs L S Burdett
2021
£’000
663
420
% change
+0%
+0%
2020
£’000
663
420
The Committee periodically benchmarks executive director salaries against other FTSE companies of similar size, as well as a defined
group of UK-listed industry comparators, comprising: BAE Systems, Signature Aviation, Halma, IMI, Melrose Industries, Rolls-Royce,
Rotork, Senior, Spectris, Spirax-Sarco, Ultra Electronics and Weir Group.
From 1 January 2021, the Committee agreed a reduced pensions allowance for the Chief Executive to 18% of salary and Chief Financial
Officer to 17.5% of salary. There are no other changes to benefit provisions for 2021.
2021 Incentives
The proposed 2021 Policy introduces a hybrid approach to share based remuneration including Performance Share Awards (PSA) and
Restricted Share Awards (RSA) under the LTIP. Awards worth 125% of salary under the PSA and 62.5% of salary under the RSA for the
executive directors are proposed. In 2021 100 STIP and LTIP-eligible leaders have been moved to the revised ‘hybrid’ scheme consisting
of PSA and RSA proposed for the executive directors at the AGM. 100 have been moved to a pure RSA grant moving forward.
2021 Incentive Plan Measures
Targets for 2021 STIP and 2021 PSA grants will be set following the usual methodology.
In 2021, the Committee has considered the increasing importance of ESG-related factors and has agreed to incorporate a new
sustainability measure into the LTIP. The 2021 goal is to direct two-thirds of Meggitt’s research and technology expenditure towards
developing sustainable technology. In this context “sustainable technologies” are those that will enable our customers to operate with
lower greenhouse gas emissions and more efficiently. Strategic measures under the short term incentive plan for the Chief Executive
also include sustainability goals. The Committee will further consider ESG measures when looking at 2022 plan measures. The
Committee is satisfied that the current and proposed incentive structures for senior executives do not raise ESG risks by inadvertently
motivating irresponsible behaviour.
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Directors’ remuneration report
continued
STIP
STIP measures for 2021 are unchanged from 2020, as follows:
2021 STIP measures
Underlying operating profit
Free cash flow
Strategic Objectives
33.3%
33.3%
33.3%
The STIP targets for 2021, together with details of whether they have been met, will be disclosed (subject to commercial sensitivity) in
the 2021 Directors’ remuneration report. STIP award opportunities will be in line with the Policy disclosed on page 135.
LTIP – Performance Share Awards
The measures for 2021 performance share awards are 33% earnings per share, 33% ROCE and 33% based on three strategic measures,
which are our High Performance System (previously known as the Meggitt Production System), inventory and programme excellence:
• HPS (previously known as the Meggitt Production System): site specific Quality and Delivery targets measure two of the key outputs of
HPS.
• Programme excellence: this measure scores the health of all of the Group’s programmes, including specific sustainability programmes.
• Inventory: based on inventory turns.
Due to the impact of the continuing COVID-19 pandemic, the Committee has decided to delay setting the targets for the PSAs for 2021
until such time as it believes that it can finalise appropriate performance ranges. Any award will be consistent with the Policy. The targets
– which would normally be disclosed prospectively in this report – will be disclosed in an RNS statement.
LTIP - Restricted Share Awards
Although not subject to any formal performance measures, the Committee will assess RSAs vesting based on a basket of measures,
adjusting these measures to be appropriate for the position in the recovery period. A wide range of business factors is expected to be
considered including, free cash flow, balance sheet health, adherence to dividend policy and overall cash returns to shareholders,
customer service, health and safety performance, ESG performance and corporate culture. The balance and weighting of the factors
may be adjusted as priorities for the Group develop over time to align with the anticipated recovery, and the Committee will consider
performance in the round. The factors considered in the application of discretion used will be fully disclosed in the relevant Annual
Report.
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131
Non-executive directors
Chairman and non-executive director fee structure for 2020 and 2021
In February 2020, and as reported in the 2019 Directors’ Remuneration Report, it had been agreed that the fees for non-executive
directors and the Chairman should increase at a level of above 2% since the fees were generally below the median levels of our industry
peers and companies of a similar size. In April 2020, as a result of COVID-19, the Board agreed to freeze their fees at 2019 levels, and in
May 2020, it was agreed that the non-executive directors and the Chairman would reduce their fees by 20% for H2 2020 alongside the
executive directors.
For 2021, it has been agreed to continue to freeze fees at 2020 levels, and a 10% fee reduction has also been agreed from 1 January
2021 to 30 June 2021, alongside the 10% salary reduction for executive directors.
The remuneration of the Chairman and non-executive directors in 2021 (not including COVID-19 reductions) are as follows:
Chairman fee2
Non-executive director base fee3
Additional fee for chairing Audit or Remuneration Committee
Additional fee for chairing Corporate Responsibility Committee and
Non-Executive Director responsible for Employee Engagement
Additional fee for Senior Independent Director
1 Fees shown are effective for a year from 1 April.
2 Sir Nigel Rudd receives additional benefits of £20,000 per annum for secretarial and car services required for business purposes.
3 A fee of £4,000 is paid per meeting to non-UK directors when travelling to meetings outside of their home continent.
Single total figure of remuneration for non-executive directors (audited)
The table below sets out a single figure for the total remuneration received by each non-executive director:
Sir Nigel Rudd
Mr G S Berruyer
Mr C R Day
Mrs N L Gioia1
Ms A J P Goligher
Mr G Hachey1
Mrs C L Silver
20211
£’000
364
60
11
11
11
2020
£’000
328
65
65
62
65
58
54
20201
£’000
364
60
11
11
11
2019
£’000
362
68
71
84
68
88
41
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Includes fees to cover the cost of attendance at meetings that took place outside continent of residence.
Change in non-executive directors’ pay for the year in comparison to that of Meggitt employees
The table below shows the year-on-year percentage change in fees earned between the year ended 31 December 2019 and
31 December 2020 for all non-executive directors compared to the change in salary, benefits and annual bonus for Meggitt PLC
employees, and all Meggitt UK employees.
Sir Nigel Rudd
Mr G S Berruyer
Mr C R Day
Mrs N L Gioia1
Ms A J P Goligher
Mr G Hachey1
Mrs C L Silver
Meggitt PLC Employees
UK Meggitt Employees
Salary/Fees
Benefits
Annual
Bonus
-9%
-4%
-8%
-26%
-4%
-34%
32%
-3.2%
-0.5%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.0%1
0.0%1
-100%
-100%
1
2
Mr G S Hachey and Mrs N L Gioia’s figures were reduced due to meetings being conducted remotely.
Mrs C L Silver’s fees show an increase on 2019 rates as she became a director during 2019. The annualised figure would be -9%.
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Annual Report & Accounts 2020
Directors’ remuneration report
continued
Non-executive directors’ beneficial interests (audited)
The beneficial interests of the non-executive directors and their connected persons in the ordinary shares of the Group at 31 December
2020, as notified under the Disclosure Guidance and Transparency Rules (DTR) of the Financial Conduct Authority (FCA), were as follows:
Sir Nigel Rudd
Mr G S Berruyer
Mr C R Day
Mrs N L Gioia
Ms A J P Goligher
Mr G Hachey
Mrs C L Silver
Shareholding
Ordinary shares of 5p each
2020
250,000
38,000
76,937
3,188
6,000
3,000
5,000
2019
150,000
13,000
76,937
3,188
3,000
3,000
–
Between 1 January 2021 and 24 February 2021, there were no changes in the beneficial interests of the non-executive directors in the
ordinary shares of the Company.
Other Disclosures
Advisors to the Committee
During the year, the Committee’s independent remuneration advisors were Mercer (part of Marsh & McLennan Companies, Inc.) who
were appointed in 2010 and 2019 as a result of a competitive tender processes.
In late 2020, it was agreed that remuneration advisory services for the Committee would transfer to Ellason LLP from 1 January 2021 as a
result of our lead advisors leaving to establish Ellason.
During the year, the Committee confirmed it was satisfied with the independence of Mercer, and have also confirmed the same for
Ellason LLP since the year end.
Neither Mercer nor Ellason have any direct individual relationships with any of our directors. Mercer and Ellason’s fees are determined
on an hourly rate basis, and monitored against an agreed scope of work and fee estimate during the year.
Mercer, and now Ellason, provide guidance on remuneration matters at Board level and below. Mercer, and now Ellason, do not have any
other connection with the Group other than for Mercer, through their parent company, Marsh & McLennan Companies, Inc., which is also
the parent company of the Group’s primary advisors on insurance (Marsh) and UK pensions and benefits (Mercer). Mercer and Ellason
are members of the Remuneration Consultants Group and adhere to its code of conduct (www.remunerationconsultantsgroup.com).
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The total fees in 2020 for remuneration advice to the Committee were £81,117 (2019: £72,608). The increased fees were as a result of
their additional work advising on COVID-19 impacts and the Remuneration Policy review.
AGM voting
The following table shows the results of the advisory vote on the 2019 Directors’ remuneration report at the 2020 AGM:
Resolution text
Votes
for
% of votes
cast for
Votes
against
% of votes
cast against
Total
votes cast
Votes withheld1
(abstentions)
Approval of Directors’ remuneration report
580,686,499
94.65
32,817,185
5.35
613,503,684
5,824,350
1 A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
The following table shows the results of the binding vote on the current Directors’ remuneration policy at the 2020 AGM:
Resolution text
Votes
for
% of votes
cast for
Votes
against
% of votes cast
against
Total
votes cast
Votes withheld1
(abstentions)
Approval of Directors’ remuneration policy
582,387,803
94.96
30,925,843
5.04
613,313,646
6,014,417
1 A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
Meggitt PLC
Annual Report & Accounts 2020
133
Remuneration Policy
2021 Changes to Remuneration Policy
Although the Committee put forward a revised Remuneration Policy in 2020, in keeping with the requirement to submit the Policy to a
binding vote at least every three years, 2020 has bought about significant changes in our industry and across the globe. The Committee
met in May 2020 to discuss the immediate actions for remuneration as a result of COVID-19 and whether our Policy was still fit for
purpose in the context of the ongoing impact of the pandemic and likely recovery trajectory of the aerospace industry over a period of
years, and that our business would likely be affected for a number of years to come.
The Committee undertook a review of the 2020 Policy in the summer and considered changes in the external market. In particular, the
Committee considered retention risks for all senior management particularly in the US, where 50% of senior leaders are based. With this
in mind, the company have already introduced Restricted Stock Awards to complement the Performance Stock Awards for all Meggitt
senior leaders to enhance the competitiveness of Meggitt in all our global markets. The Committee considered the importance of
transparency, fairness and alignment between executive directors and senior leaders, to reinforce our shift from a portfolio of individual
businesses to a truly integrated and effective global company, which is critical for our long-term success. Providing a motivating
incentive for all Meggitt senior management in the US, UK and elsewhere is a fundamental element of this, and having the whole team
on the same incentive schedule is an important driver for assuring collaborative teamwork, alignment of long-term strategy decision
making and consistent delivery for customers by the senior team.
As a result of these deliberations, the Committee has determined that changes were necessary to ensure the Policy continues to
appropriately incentivise, retain and reward our executive directors over the next three years, and aligns with revisions being cascaded
into the wider organisation from 2021. A new Remuneration Policy is being put to shareholders at the 2021 Annual General Meeting
which includes four changes from that approved by shareholders at the 2020 Annual General Meeting:
• Increasing the normal eligibility level in LTIP for executive directors to 250% salary;
• Permitting awards under the LTIP to be granted as Restricted Share Awards (RSAs) with vesting subject to continued employment and
an underpin based on Committee discretion from 2021;
• Reducing the vesting level at threshold performance from 30% to 25% of maximum for Performance Share Awards (PSAs); and
• Clarifying that the Company has the ability to settle any bonuses paid to executive directors in shares.
• Under the new Remuneration Policy, RSAs will be granted to executive directors in addition to the awards which have performance
conditions (PSAs) which have been granted to date under the LTIP. This hybrid PSA/RSA structure for executive Directors aligns with
senior management across the company. The key terms of the RSAs are:
• a three-year vesting period and two-year holding period for RSAs (meaning a total of five years between grant and full ownership);
• vesting being subject to a holistic assessment by the Committee of overall performance of the business over the vesting period,
rather than any specific performance targets;
• granted under the current Meggitt 2014 Long Term Incentive Plan and subject to the same leaver rules and aggregate plan limits as
other grants under this plan; and
• application of post-cessation shareholding requirements and malus and clawback provisions.
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Remuneration Policy review process
In order to determine appropriate revisions to the Policy to achieve its objectives, the Committee considered: shareholder sentiment in
the UK listed company environment; shareholder sentiment in the US market in particular with respect to remuneration practices;
specific feedback from our shareholders; competitive practices at our peers and sector more generally; and the alignment of the Policy
with Meggitt’s culture and remuneration arrangements for the rest of our employees. We also considered whether the current Policy’s
implementation fairly reflected performance and was adequately aligned with shareholder interests.
Consideration of shareholder views
The Committee Chair is available to discuss remuneration matters with the Group’s major shareholders and is also regularly updated on
feedback on remuneration received by the Chairman of the Board and executive directors directly from shareholders. The Committee
Chair ensures the Committee is kept informed of shareholder views.
In Q4 2020, the Committee Chair consulted shareholders and engaged with their proxy agencies on our draft proposals. The Committee
was pleased with the good level of engagement and the feedback we received. The Committee has listened carefully to this feedback
and considered in depth in its decision-making the experience of employees, shareholders and other stakeholder groups. Recognising
that some elements of our original proposal were unusual, the original proposals were modified to address the points raised by
shareholders, while still aspiring to achieve our objective of supporting retention, motivation and alignment. The Committee feels this
robust review process has helped shape an appropriate remuneration package for our executive directors for the next Policy period,
which will now run from 2021 to 2023 (inclusive), subject to our modified proposals being approved by shareholders at the AGM in 2021.
Revised Policy and the 2018 Code
In developing the proposed 2021 Remuneration Policy, the Committee has continued to take into account the provisions of the Code.
We set out below our assessment of how we believe the proposed Policy complies with Provision 40 of the Code.
Clarity: Our approach to remuneration disclosure and decision making is transparent and supported by clear rationale. We remain
committed to consulting shareholders on the Policy (and any changes to it), as well as our approach – and material revisions – to how it is
implemented.
Simplicity: The proposed Remuneration Policy and our approach to implementation is logical and well understood internally, as well as
externally. The performance measures used in the STIP and LTIP are well aligned to the Group’s strategy, as illustrated on page 138.
Risk: The Committee regularly reviews remuneration arrangements to ensure that these continue to drive an appropriate focus on
performance (through short- and long-term performance-based incentives), without encouraging and rewarding excessive risk taking
(for example, by having an element of longer term variable remuneration – restricted shares – linked to continued employment only).
We set incentive targets to be stretching and achievable, while retaining appropriate discretion to adjust formulaic bonus and LTIP
outcomes to ensure that pay reflects underlying performance.
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Directors’ remuneration report
continued
Predictability: Incentive opportunities are capped, with clearly defined payout schedules aiding participants’ understanding of how
incentives operate and the performance expectations attaching to these. By replacing some of the LTIP Award opportunity with
restricted share awards, we are proposing to further enhance the predictability of pay outcomes.
Proportionality: Performance ranges are calibrated to ensure that incentive outcomes do not reward poor performance. The use of
sliding scales helps ensure that incremental performance is incentivised and rewarded by incremental reward, while discretion helps
safeguard against the possibility that pay outcomes are disproportionate to performance outcomes.
Culture: The proposed Policy remains consistent with Meggitt’s culture and strategy, and it reflects our approach to remuneration
across the Group more widely. This consistency of approach aligns the focus of our employees and drives collective behaviours that
promote the long-term success of the Company for the benefit of all stakeholders.
2021 Revised Remuneration Policy – Executive Directors’ Policy Table
Base salary
Function
To attract and retain talent by ensuring base salaries are competitive in the relevant talent market.
Operation
Salary will be reviewed by the Committee annually, in February, with changes effective from 1 April of that year. Salaries
for the year under review are disclosed in the annual report on remuneration.
In deciding salary levels, the Committee considers personal performance including how the individual has helped to
support the strategic objectives of the Group. The Committee will also consider employment conditions and salary levels
across the Group, prevailing market conditions, and market data for FTSE companies in similar industries and those with
similar market capitalisation.
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Salaries are paid to existing executive directors in GBP, however the Committee reserves the right to pay future and
existing executive directors in any other currency (converted at the prevailing market rate when a change is agreed).
Opportunity The percentage salary increases for executive directors will not exceed those of the wider workforce over the life of this
Remuneration Policy in the normal course of business. Higher increases may be awarded (i.e. in excess of the wider
employee population) in instances where, for example, there is a material change in the responsibility, size or complexity
of the role, or if a new executive director was intentionally appointed on a below-market salary. The Committee will
provide the rationale for any such higher increases in the relevant year’s annual report on remuneration.
Performance
metrics
None explicitly, but salaries are independently benchmarked periodically against FTSE companies in similar industries
and those with similar market capitalisation. Personal performance is also taken into account when considering salary
increases.
Pension
Function
To provide post-retirement benefits for executive directors in a cost-efficient manner.
Operation
The pension plans operated by the Group, of which executive directors are or could be members, are:
• Meggitt Pension Plan (defined benefit pension plan, closed to new members).
• Meggitt Workplace Savings Plan (defined contribution personal pension scheme, open to new members).
Salary is the only element of remuneration that is pensionable. There are no unfunded pension promises or similar
arrangements for directors.
Opportunity New directors are eligible for a pension allowance at the same level as the wider workforce. In 2021, for incumbent
executive directors, the CEO pension allowance will be 18% of salary, and 17.5% of salary for the CFO. (The basis of
pensionable salary being the unreduced salary is consistent with policy applied to all UK employees). These rates will be
aligned to 15% of pensionable salary by the end of 2022. A review of UK pension provision is currently taking place, and
so the Committee will review executive director pension allowances again once this is complete.
Performance
metrics
None.
Benefits
Function
To provide market-competitive benefits for executive directors.
Operation
The Group may provide benefits including, but not limited to, a company car or car allowance, private medical insurance,
permanent health insurance, life assurance, a fuel allowance, a mobile phone, relocation costs and any other future
benefits made available either to all employees globally or all employees in the region in which the executive director is
employed.
Opportunity Benefits vary by role and individual circumstances; eligibility and cost is reviewed periodically. Benefits in respect of the
year under review are disclosed in the annual report on remuneration. It is not anticipated that the costs of benefits
provided will increase significantly in the financial years over which this Remuneration Policy will apply, although the
Committee retains discretion to approve a higher cost in exceptional circumstances (e.g. to facilitate recruitment,
relocation, expatriation, etc.) or in circumstances where factors outside the Group’s control have changed materially (e.g.
market increases in insurance costs).
Performance
metrics
None.
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Annual Report & Accounts 2020
135
Annual bonus – Short Term Incentive Plan (STIP)
Function
To incentivise executive directors to deliver annual financial and strategic objectives.
Operation
Performance measures, targets and weightings are set at the start of the year.
The performance period of the STIP is a financial year. After the end of the financial year, to the extent that the
performance criteria have been met, 75% of the STIP Award is paid in cash to the director (or at the discretion of the
Committee, in shares). The remaining 25% of the award will be deferred into shares and released (with no further
performance conditions attached and no matching shares provided) after a further period of two years.
Under the STIP, the Committee may decide to apply malus and/or clawback to STIP Awards and deferred STIP Awards to
reduce the vesting of awards and/or require repayment of awards in the event of:
(a) The participant leaves employment and facts emerge which, if known earlier, would have caused the award to lapse or
caused the Committee to exercise discretion differently;
(b) Any error in the assessment of a performance condition or vesting calculation that resulted in an overpayment;
(c) The Group being the subject of a regulatory investigation or in breach of any applicable laws, rules or codes of conduct
or the standards reasonably expected of it;
(d) A material failure of risk management for any period which caused serious harm to the reputation of the Group and/or
significant financial loss to the Group;
(e) A serious breach of health and safety which caused serious harm to the reputation of the Group and/or significant
financial loss to the Group;
(f) The Committee determines that the underlying financial health of the Group has significantly deteriorated such that
there are severe financial constraints on payment of awards; and
(g) The participant, after having left employment, is found to be in breach of any restrictive covenant, non-solicitation,
anti-disparagement or confidentiality undertakings.
Deferred STIP Awards may lapse in certain leaver circumstances.
Opportunity The STIP provides for a maximum award opportunity of up to 150% of salary in normal circumstances, with an on-target
opportunity of 100% of salary and an opportunity of 50% of salary at threshold performance.
The Committee has discretion to make a STIP award of up to 200% of salary in exceptional circumstances (e.g. a
substantial contract win which has a significant positive financial impact in the long term but which has no, or negative,
short-term financial impact).
Dividends accrue on unvested deferred STIP awards over the vesting period and are released on the vesting date.
Performance
metrics
STIP awards are based on the achievement of financial and strategic performance targets. For executive directors, the
STIP will be based on a combination of the financial performance of the Group and strategic performance. The relative
weightings of the financial and strategic elements for any STIP period, and the measures used to assess financial and
non-financial performance, will be set by the Committee in its absolute discretion to align with the Group’s operating and
strategic priorities for that year. However, the weighting for strategic performance will not exceed one-third of the
maximum STIP opportunity in any year.
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The award for performance under each element of the STIP will be calculated independently. The Committee has discretion
to review the consistency of the pay-out of the financial and strategic elements and adjust the total up or down (within the
levels specified above) if it does not consider this to be a fair reflection of the underlying performance of the Group or the
individual.
The strategic performance element will typically be based on three to five objectives, both financial and strategic,
relevant to the executive director’s role cascaded from the Group’s strategy.
Details of the measures, weightings and targets applicable to the STIP for each year, including a description of how they
were chosen and whether they were met, will be disclosed retrospectively in the annual report on remuneration for the
following year (subject to commercial sensitivity).
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Directors’ remuneration report
continued
Long Term Incentive Plan (LTIP)
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Function
To align the interests of executive directors with shareholders in growing the value of the Group over the long term.
Operation
Under the LTIP, executive directors are eligible to receive annual awards over the Company’s shares normally vesting after
three years.
Two different types of awards can be granted:
1.
2.
as to overall performance and any other wider considerations. The Committee has discretion to apply additional
conditions to some or all of an RSA.
Performance Share Awards (PSAs) which are subject to the achievement of stretching performance targets; and
Restricted Share Awards (RSAs) for which vesting levels are subject to a general assessment by the Committee
Under the LTIP rules, the Committee may decide to apply malus and/or clawback to awards to reduce the vesting of
awards and/or require repayment of awards in the event of:
(a) The participant leaves employment and facts emerge which, if known earlier, would have caused the award to lapse or
caused the Committee to exercise discretion differently;
(b) Any error in the assessment of a performance condition or vesting calculation that resulted in an overpayment;
(c) The Group being the subject of a regulatory investigation or in breach of any applicable laws, rules or codes of conduct
or the standards reasonably expected of it;
(d) A material failure of risk management for any period which caused serious harm to the reputation of the Group and/or
significant financial loss to the Group;
(e) A serious breach of health and safety which caused serious harm to the reputation of the Group and/or significant
financial loss to the Group;
(f) The Committee determines that the underlying financial health of the Group has significantly deteriorated such that
there are severe financial constraints on payment of awards; and
(g) The participant, after having left employment, is found to be in breach of any restrictive covenant, non-solicitation,
anti-disparagement or confidentiality undertakings.
PSAs and RSAs made to executive directors are subject to a holding period after the vesting period, normally a two-year
period after a three-year vesting period but, in any case, the vesting plus holding period will always be no shorter than
five years from grant.
Opportunity Executive directors will normally be eligible for annual LTIP awards of 250% of salary. RSAs will be granted at a discount of
50% of the regular PSA, i.e. a regular award of 250% value would be made up of 125% of salary PSA and 62.5% of salary
RSA. Awards (PSA and RSA combined) up to a maximum of 300% of salary may be granted in exceptional circumstances
(e.g. to support the recruitment of a key executive or to recognise exceptional individual performance).
25% of a PSA will vest if performance against each performance condition is at threshold and 100% if each is at maximum,
with straight line vesting in between.
Dividends accrue on unvested awards granted under the LTIP (i.e. PSA and RSA) over the vesting period and are released,
to the extent the award vests, on the vesting/exercise date.
Performance
metrics
Vesting of PSAs is subject to continued employment and performance against corporate measures, which are intended to
be as follows for awards made over the life of the Remuneration Policy but are subject to change at the discretion of the
Committee:
• Earnings per Share (EPS);
• Return on Capital Employed (ROCE); and
• Strategic goals (typically but not always to be based on strategic priorities around execution, growth and innovation),
which will be explained in the relevant annual report on remuneration.
It is the intention that the weighting of the measures will be equal (e.g. one-third each if three measures are used) but that
the Committee will consider, and adjust if deemed appropriate, the weighting at the start of each LTIP cycle.
PSAs made under the LTIP have a performance period of three financial years, starting from 1 January of the year in which
the award is made and ending on 31 December of the third year. If conditions are not met at the end of the relevant
performance period, awards will lapse.
Vesting of the strategic objectives element will also be subject to a discretionary assessment by the Committee of the
extent to which achievement is consistent with the Group’s underlying financial performance over the three-year period.
The measures and targets in operation for the PSAs, and which are not deemed commercially sensitive, are normally
disclosed in the annual report on remuneration for the relevant year of grant. Any commercially sensitive information on
measures, targets and performance will be disclosed retrospectively.
Vesting of RSAs is subject to a general underpin allowing the Committee to adjust vesting if business performance,
individual performance or wider considerations mean, in its view, that an adjustment is required. Any vesting is also
subject to any other conditions set by the Committee at grant.
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Sharesave Scheme and Share Incentive Plan (SIP)
Function
To align the interests of employees and shareholders by encouraging all employees to own the Company’s shares.
Operation
Sharesave Scheme—All employee scheme under which all UK employees (including UK executive directors) may save up
to a maximum monthly savings limit over a period of three or five years. Options under the Sharesave Scheme are granted
up to a discount of up to 20% to the market value of shares at the date of grant.
SIP—All-employee scheme under which (i) all UK employees (including UK executive directors) may contribute up to a
monthly maximum to purchase shares monthly from pre-tax pay; and (ii) all UK employees (including UK executive
directors) may receive free shares up to an annual maximum value.
Opportunity Savings, contributions and free shares are capped at or below the legislative maximum for tax-qualifying approved share
plans at the time UK employees are invited to participate.
Performance
metrics
None.
Notes to the Policy table
The Committee is satisfied that the above Remuneration Policy is in the best interests of shareholders and does not promote excessive
risk-taking. The Committee retains discretion to make minor, non-significant changes to the Policy without reverting to shareholders.
Recruitment
External appointments
In cases of hiring or appointing a new executive director from outside the Group, the Committee may make use of all existing
components of remuneration, as follows:
Component
Approach
Base salary
The base salaries of new appointees will be determined based on the experience and skills of
the individual, internal comparisons, employment conditions and salary levels across the Group
and prevailing market conditions. Initial salaries may be set below market conditions and
consideration given to phasing any increases over two or three years subject to development in
the role.
Pension
In line with the Remuneration Policy, new appointees will be entitled to become members of
the Meggitt Workplace Savings Plan (defined contribution plan) or receive a cash pension
allowance at the same level as the wider workforce in lieu of salary.
Maximum annual
grant value
N/A
N/A
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Benefits/
Sharesave/SIP
New appointees will be eligible to receive benefits in line with the Remuneration Policy and any
applicable UK all-employee share plans.
N/A
STIP
LTIP
The structure described in the Remuneration Policy table will apply to new appointees with the
relevant maximum being pro-rated to reflect the proportion of the year worked. Targets for the
strategic element will be tailored to the appointee.
150% of salary
(200% in exceptional
circumstances)
New appointees will be granted awards under the LTIP on similar terms as other executive
directors, as described in the Remuneration Policy table.
250% of salary (300%,
combined, in
exceptional
circumstances)
In determining the appropriate remuneration structure and levels, the Committee will take into consideration all relevant factors to
ensure that arrangements are in the best interests of shareholders and employees. The Committee may make an award in respect of a
new appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer, i.e. over and above the approach
outlined in the table above. Any such compensatory awards will be made under the Group’s existing share plans, where appropriate,
and will be subject to the normal rules and performance conditions of those schemes.
The Committee may also consider it appropriate to structure ‘buy-out’ awards differently to the structure described in the Remuneration
Policy table, exercising the discretion available under UKLA Listing Rule 9.4.2 R where necessary to make a one-off award to an executive
director in the context of recruitment. In doing so, the Committee will consider relevant factors including any performance conditions
attached to these awards, the likelihood of those conditions being met and the proportion of the vesting period remaining. The value of
any such ‘buy-out’ will be fully disclosed.
Internal promotion
Where a new executive director is appointed by way of internal promotion, the Remuneration Policy will be consistent with that for
external appointees as detailed above. Any commitments made prior to an individual’s promotion will continue to be honoured even if
they would not otherwise be consistent with the Remuneration Policy prevailing when the commitment is fulfilled although the Group
may, where appropriate, seek to revise an individual’s existing service contract on promotion to ensure it aligns with other executive
directors and prevailing market best practice.
Disclosure of the remuneration structure of any new executive director, including details of any exceptional payments, will be disclosed
either in the RNS notification made at the time of appointment or in the annual report on remuneration for the year in which the
recruitment occurred.
138
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
Approach to performance measure selection and target setting
Performance measures have been selected to closely align with and reinforce our strategic priorities (see pages 20 to 21).
Targets applying to the STIP and PSAs are reviewed annually, based on a number of internal and external reference points, including the
Group’s strategic plan, analyst forecasts for the Group and its sector comparators, historical growth achieved by the Group and its
sector comparators, market practice and external expectations for growth in our markets.
STIP
The performance measures used in the STIP reflect financial targets for the year and non-financial performance objectives. The
Remuneration Policy provides the Committee with flexibility to select appropriate measures on an annual basis. STIP performance
targets are set to be stretching but achievable, with regard to the particular strategic performance objectives and the economic
environment in a given year. For financial measures, ‘target’ is based around the annual budget approved by the Board. Prior to the start
of the financial year, the Committee sets an appropriate performance range around target, which it considers provides an appropriate
degree of ‘stretch’ challenge and an incentive to outperform.
STIP strategic measures are set each year under the themes of our four strategic blue chips: Strategy, Customer, Competitiveness and
Culture. Each year every executive director is assigned measures against these themes which will drive the long-term success of the
Group. These measures are then cascaded through the Executive Committee and beyond using a policy deployment matrix to ensure
alignment across the entire organisation to the Group’s strategic priorities. Strategic measures are disclosed retrospectively when they
are considered not to be commercially sensitive.
LTIP – PSA
It is intended that the vesting of PSAs made during the life of this Remuneration Policy will be linked to EPS, ROCE and the achievement
of long-term strategic goals, but may also include other measures to enable the PSA to reinforce appropriate financial and non-financial
objectives aligned with our strategy. EPS is considered by the Board to be the most important measure of our financial performance. It is
highly visible internally, is regularly monitored and reported and is strongly motivational for participants. EPS targets will continue to be
set on a nominal cumulative (pence) basis to incentivise consistent performance and reflect the fact that our profits are generated to a
large degree outside the UK and not significantly influenced by UK retail price inflation. ROCE helps to balance the achievement of
growth and returns. The Committee believes ROCE is a good proxy for total shareholder return (TSR) which focuses executives on
managing the balance sheet and the Group’s operational performance. For executive directors, the use of ROCE targets reflects the
fact that acquisition decisions come within the collective responsibility of the Board.
The Committee believes that the strategic goals component helps reinforce the realisation of the Group’s strategy and the achievement
of key non-financial and strategic goals over long product cycles which drive long-term value for the Group. This element will typically
comprise a scorecard of three-year targets across a maximum of three core strategic areas for the Group. The Committee believes that
this approach enables it to reflect the Group’s long-term nature and shifting strategic priorities in the PSA to ensure executives’ interests
remain closely aligned with those of our shareholders over time. Specific measures and targets for each area will be developed and
clearly defined at the start of each three-year cycle to balance leading and lagging indicators of performance. Vesting of this element is
subject to a discretionary assessment by the Committee of the extent to which achievement of the strategic objectives is consistent with
the Group’s underlying financial performance over the performance period.
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LTIP – RSA
The vesting of the RSAs is subject to a discretionary assessment of ‘corporate health’ by the Committee, taking into account a wide
range of business factors including, but not limited to, free cash flow, balance sheet health, adherence to dividend policy and overall
cash returns to shareholders, customer service, health and safety performance, ESG performance and corporate culture. The balance
and weighting of the factors may be adjusted as priorities for the Group develop over time, and the Committee will consider
performance in the round.
Meggitt PLC
Annual Report & Accounts 2020
139
Pay-for-performance: scenario analysis
The charts below provide an estimate of the potential future reward opportunities for the executive directors and the potential split
between the different elements of remuneration under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’.
This chart also shows the effect of future share price increases on executive pay outcomes under The Companies (Miscellaneous
Reporting) Regulations 2018. Potential reward opportunities are based on the Policy, applied to 2021 base salaries. Note that the awards
granted under the LTIP in a year will not normally vest until the third anniversary of the date of grant and the projected value excludes
the impact of dividend accrual.
Mr A Wood (£’000)
66% 34%
Minimum
£1,210
Mrs L Burdett (£’000)
100% 34%
Minimum
£771
38%
34%
23% 20%
43%
34%
23% 20%
On-target
£2,080
On-target
£1,322
26%
30%
45% 14%
25%
30%
45% 14%
Maximum
£3,034
Maximum
£1,926
22%
25%
55%
17%
20%
25%
55%
17%
Max+50% share
price increase
£3,656
Max+50% share
price increase
£2,320
Salary and benefits
Pension
STIP
PSA
RSA
The following assumptions have been made in compiling the above charts:
Scenario Minimum
On-target
Maximum
Maximum +50%
share price increase
Fixed pay
Latest known base salary,
pension and value of benefits
Latest known base salary,
pension and value of benefits
Latest known base salary,
pension and value of benefits
Latest known base salary,
pension and value of benefits
STIP
No STIP payable
On-target STIP payable
(67% of maximum)
Maximum STIP payable
Maximum STIP payable
LTIP
PSA – Threshold not achieved
(0% vesting)
PSA – Performance warrants
threshold vesting (25%)
PSA – Performance warrants
full vesting (100%)
PSA and RSA warrants full
vesting plus 50% share price
appreciation on all awards.
RSA – it is assumed that the
Committee did not exercise
its discretion to adjust
vesting levels.
RSA – it is assumed that the
Committee did not exercise
its discretion to adjust
vesting levels.
RSA – it is assumed that the
Committee did not exercise
its discretion to adjust
vesting levels.
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Exercise of discretion
The Committee will operate the Group’s incentive plans according to their respective rules and the Remuneration Policy set out above, and in
accordance with the Listing Rules and HMRC rules, where relevant. The Group’s incentive plans enable the use of discretionary override and
the directors to exercise independent judgement and discretion when authorising remuneration outcomes, taking account of Group and
individual performance, and wider circumstances. In line with common market practice, the Committee retains discretion as to the
operation and administration of these incentive plans, including routine administration matters such as the participating employees, timing
of awards and the manner in which they are settled. The Committee also retains discretion over the choice of performance measures and
targets in accordance with the Remuneration Policy set out above and the rules of each plan and the measurement of performance in the
event of a variation of share capital, change of control, special dividend, distribution or any other corporate event which may affect the
current or future value of an award.
The Committee also has discretion over determination of a ‘good leaver’ (in addition to any specified categories) for incentive plan
purposes, based on the rules of each plan and the circumstances of the individual leaving and adjustments required in certain
circumstances (e.g. rights issues, share buybacks, special dividends, other corporate events, etc.).
Any use of the above discretion in relation to the executive directors would, where relevant, be explained in the annual report on
remuneration for the year in which the discretion was exercised. As appropriate, it might also be the subject of consultation with the
Group’s major shareholders.
Minor changes
The Committee may make minor amendments to the rules of the Group’s incentive plans (for regulatory, exchange control, tax or
administrative purposes or to take account of a change in legislation) without requiring prior shareholder approval for that amendment.
140
Meggitt PLC
Annual Report & Accounts 2020
Directors’ remuneration report
continued
Service contracts and exit payment policy
Executive director service contracts, including arrangements for early termination, are carefully considered by the Committee and are
designed to recruit, retain and motivate directors of the quality required to manage the Group.
The Committee’s policy is that executive directors’ service contracts should be terminable on no more than 12 months’ notice.
The Committee’s approach to payments in the event of termination of employment of an executive director is to take account of the
particular circumstances, including the reasons for termination, individual performance, contractual obligations and the rules of the
Group’s applicable incentive plans which apply to awards held by the executive directors:
• Compensation for loss of office in service contracts
Except as set out in the table below, under the terms of their service contracts, the executive directors may be required to work
during their notice period or may, if the Group decides, be paid in lieu of notice if not required to work the full notice period. Payment
in lieu of notice will be equal to base salary plus the cost to the Group of providing the contractual benefits (pensions allowance,
health insurance and company car or car allowance) that would otherwise have been paid or provided during the notice period.
Payments will be in equal monthly instalments and will be subject to mitigation such that payments will either reduce, or stop
completely, if the executive director obtains alternative employment. An executive director’s employment can be terminated by the
Group without notice or payment in lieu of notice in specific circumstances including summary dismissal, bankruptcy or resignation.
• Treatment of STIP
Executive directors have no automatic entitlement to any bonus on termination of employment under the STIP, but the Committee
may use its discretion to award a bonus (normally pro-rated). Where any bonus is deferred into shares, the award will normally lapse
if an executive director’s employment terminates unless the executive director leaves for specified reasons. The ‘good leaver’ reasons
are death, redundancy, retirement, injury, disability, the business or company which employs the executive director ceasing to be part
of the Group or any other circumstances in which the Committee exercises discretion to treat the executive director as a ‘good leaver’.
If the executive director is a ‘good leaver’, their award will vest on the normal vesting date and will not be subject to pro-rating.
Awards normally vest early on a change of control of the Company.
• Treatment of long-term incentive plan awards
The treatment of awards under the LTIP (both PSA and RSA) is governed by the rules of the plan which have been approved by
shareholders and are described below. Awards will normally lapse if an executive director’s employment terminates, unless the
executive director leaves for specified ‘good leaver’ reasons. The ‘good leaver’ reasons are the same as described above. If the
executive director is a ‘good leaver’, awards will vest to the extent that the attached performance conditions are met, but on a time
pro-rated basis, with Committee discretion to allow early vesting. Under the LTIP, awards vest on the normal vesting date subject to
performance over the normal performance period, unless the Committee decides otherwise. Awards normally vest early on a change
of control of the Company, subject to performance conditions and time pro-rating.
A summary of the key terms of the executive directors’ service contracts on termination of employment or change of control is set out
below.
Name
Position
Notice period
from employer
Notice period
from employee
Compensation payable on termination of employment or
change of control
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Mr A Wood
Service contract dated
13 November 2017
Mrs L S Burdett
Service contract dated
17 September 2018
Chief Executive
Officer
Chief Financial
Officer
12 months
6 months
As set out in the Remuneration Policy.
12 months
6 months
As set out in the Remuneration Policy.
No change of control provisions.
No change of control provisions.
Remuneration policy for other employees
The Committee has ensured “workforce remuneration and related policies and the alignment of incentives and rewards with culture” has
been considered when making decisions regarding executive director remuneration in 2020.
In setting the Remuneration Policy, the Committee reviewed:
• Our Global Compensation Policy – it noted alignment between pay for performance provisions for executive directors and the wider
workforce, along with an alignment of historic average pay increases;
• Our incentive plans (STIP and LTIP) – it noted alignment between the plans for the top 200 senior managers and the executive
directors and that work is underway to align other short-term incentive plans lower down the organisation; and
• Alignment of reward with Culture, Values and long-term success – it noted the successful implementation of our High Performance
Culture programme (which is linked to our culture strategic priority) which is embedded in performance and talent processes across
the Group. The success of our High Performance Culture is enhanced by the increase in employee engagement.
• Other key metrics such as our Gender Pay Gap (full report available on our website).
A report will be provided each year to the Committee, ensuring it is updated on remuneration of the wider workforce and ensuring
context as it makes remuneration decisions related to the executive directors. Employee opinion has not been directly sought.
The remuneration policy for other employees is based on broadly consistent principles as that for executive directors. Annual salary
reviews take into account personal performance, Group performance, local pay and market conditions, and salary levels for similar roles
in comparable companies. Some employees below executive level are eligible to participate in annual bonus schemes; opportunities
and performance measures vary by organisational level, geographical region and an individual’s role. Senior executives are eligible for
Meggitt PLC
Annual Report & Accounts 2020
141
LTIP (PSA and RSA) on similar terms to the executive directors (except some of the performance conditions may vary), although award
opportunities are lower and vary by organisational level. All UK employees are eligible to participate in the Sharesave Scheme and SIP
on identical terms.
Pay ratios and pay gaps
Conscious of the increasing focus on the context of the wider stakeholder experience, the Committee also kept front of mind other
remuneration metrics such as the CEO Pay Ratio and Gender Pay Gap. The Gender Pay Gap reduced from 14.9% to 9.3% in 2020. Our
progress was driven by several senior executive changes and our increased focus on diversity and inclusion. The CEO Pay Ratio reduced
from 45x to 20x, driven by a reduced incentive outcome for the CEO.
Non-executive directors – Remuneration Policy table
Non-executive directors stand for re-election annually, do not have a contract of service and are not eligible to join the Group’s pension
or share schemes.
Fees
Function
Operation
To attract and retain non-executive directors of the highest calibre with broad commercial and other experience relevant
to the Group.
Fee levels are reviewed annually, with any adjustments effective 1 April each year. The fees paid to the Chairman of the
Board are determined by the Committee, while the fees for all other non-executive directors are reviewed by a
committee of the Board formed of the executive directors. Fees for the year under review and for the current year are
disclosed in the annual report on remuneration on page 120.
Additional fees are paid to the Chair of the Remuneration Committee; Chair of the Audit Committee; Chair of the
Corporate Responsibility Committee and non-executive director responsible for employee engagement; and to the
Senior Independent Director, to reflect the additional time commitment of these roles. Additional fees may also be paid
to non-executive directors to cover the cost of attendance at meetings which take place outside their continent of
residence. In addition, non-executive directors are reimbursed for reasonable business-related expenses. The Group may
pay any tax due on these expenses on behalf of non-executive directors.
In deciding fee increases, the Committee considers external market benchmarks as well as salary increases across the
Group and prevailing market conditions. Currently, all fees are paid in GBP, however the Committee reserves the right to
pay future and existing non-executive directors in any other currency (converted at the prevailing market rate when a
change is agreed).
Opportunity
Fee increases will be applied taking into account the outcome of the annual review. The maximum aggregate annual fee
for all non-executive directors (including the Chairman) as provided in the Company’s Articles of Association is
£1,000,000.
Performance
metrics
None.
Non-executive director expenses
Non-executive directors are already reimbursed for reasonable business-related expenses. The Group may decide to pay any tax that is
due on such expenses on behalf of the non-executive director.
Non-executive director recruitment
In recruiting a new non-executive director, the Committee will use the Remuneration Policy as set out in the table on page 115.
By order of the Board
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Alison Goligher
Chair of the Remuneration Committee
3 March 2021
142
Directors’ report
Meggitt PLC
Annual Report & Accounts 2020
The directors present their report with the Group’s audited consolidated financial statements (prepared in accordance with both
international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting
standards pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union) and the Company’s audited financial
statements (prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and the
Companies Act 2006 ) for the year ended 31 December 2020.
Incorporation by reference
Certain laws and regulations require that specific information should be included in the Directors’ report. The table below shows the
items which are incorporated into this Directors’ report by reference:
Information incorporated into the Directors’ report by
reference
Important events and likely future developments in the Group’s
business
Location and page
Strategic report (pages 4 to 89)
Post balance sheet events
Employee information
Employee engagement
Employment of disabled persons
Engagement with stakeholders
Greenhouse gas emissions
The Corporate governance report
Note 22 (page 193) and Note 36 (page 207) to the Group’s
consolidated financial statements
Stakeholder engagement (page 63)
Corporate responsibility report (page 79)
Stakeholder engagement (pages 63 to 65)
Corporate responsibility report (page 85)
Board of Directors and Corporate governance report (pages 90 to
104)
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Details of long-term incentive plans
Directors’ remuneration report (pages 114 to 141)
Research and development
Policies on financial risk management, including the extent to
which financial instruments are utilised to mitigate any significant
risks to which the Group is exposed
Statement of the amount of interest capitalised by the Group
during the year with an indication of the amount and treatment of
any related tax relief
Note 7 to the Group’s consolidated financial statements (page
179) and Chief Financial Officer’s review (page 46)
Note 3 to the Group’s consolidated financial statements (pages
172 and 173)
Note 18 to the Group’s consolidated financial statements (page
189)
Directors’ agreement to waive part of their salaries and fees
Directors’ remuneration report (page 115)
Overseas branches
Note 45 to the Group’s consolidated financial statements (page
216 and 217)
Dividends
In 2019 the Board recommended a final dividend of 11.95p per ordinary 5p share which was subsequently withdrawn in March 2020 to
strengthen the Group’s financial position and liquidity as the COVID-19 pandemic unfolded. The Board recognises the importance of the
dividend to its shareholders, but due to the ongoing financial impacts of the COVID-19 pandemic on the Group, the Board has taken
the prudent decision not to recommend a final dividend per ordinary 5p share for 2020 in order to retain cash within the Group, manage
net debt levels and preserve flexibility. The Board announced on 8 September 2020 that an interim dividend would not be paid (2019
interim dividend: 5.55p ) and therefore there will be no dividend paid for 2020 (total dividend 2019: 17.50p). The Board is very aware of
the importance of dividends to our shareholders and looks forward to restoring dividend payments as soon as possible as the recovery
in civil aerospace gains momentum.
Dividend reinvestment plan
The Company operates a Dividend Reinvestment Plan (DRIP) which enables shareholders to buy the Company’s shares on the London
Stock Exchange with their cash dividend. Further information about the DRIP is available from Computershare, the Company’s registrars.
During 2020, no dividends were paid. The Board currently intends to continue to make the DRIP available to shareholders in relation to
future dividends and the date by which relevant DRIP elections must be received will be disclosed on the financial calendar page on our
website if a dividend is declared.
Directors
The directors of the Company in office during the year and up to the date of signing the financial statements were:
Sir Nigel Rudd (Chairman), Mr A Wood, Mr G S Berruyer, Mrs L S Burdett, Mr C R Day, Mrs N L Gioia, Ms A J P Goligher, Mr G C Hachey
and Mrs C L Silver.
All directors listed above will be submitted for re-election at the Annual General Meeting (AGM).
Details of any unexpired terms of the directors’ service contracts are in the Directors’ Remuneration Report. Membership of committees
and biographical information is disclosed on pages 92 to 95 and in the AGM notice. Succession activities are highlighted in the
Nominations Committee report on pages 112 and 113.
Meggitt PLC
Annual Report & Accounts 2020
143
The directors benefit from qualifying third-party indemnity
provisions for the purposes of Section 236 of the Companies
Act 2006 pursuant to the Articles in effect throughout the
financial year and up to the date of this Directors’ report. The
Company also purchased and maintained throughout the year
Directors’ and Officers’ liability insurance. No indemnity is
provided for the Company’s auditors.
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. In deciding whether to
authorise a conflict or potential conflicts, 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 regularly reviewed by the Board. Further
details can be found on page 101.
Political donations
Neither the Group nor the Company made any political
donations or incurred any political expenditure during the year
(2019: None).
Share capital and control
As at 31 December 2020, the Company held 9,859 treasury
shares with a nominal value of 5p each and the Company’s
issued share capital (excluding shares held in treasury) consisted
of 781,233,667 shares with a nominal value of 5p each. As at
2 March 2021, the Company held 9,859 treasury shares with
a nominal value of 5p each and the Company’s issued share
capital (excluding shares held in treasury) consisted of
781,272,284 shares with a nominal value of 5p each. The issued
share capital of the Company at 31 December 2020 and details
of shares issued during the financial year are shown in note 37
to the Group’s consolidated financial statements.
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. A copy of the Articles is available
for inspection at the Company’s registered office. The holders of
ordinary shares are entitled to receive the Company’s Annual
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 or 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.
Meggitt operates an Employee Share Ownership Plan Trust (the
“Trust”) that was formed to acquire shares to satisfy the vesting
and exercise of awards under the Group’s share based incentive
arrangements. The trustees do not exercise any voting rights on
shares held by the Trust and a dividend waiver operates in
respect of these shares. Once shares are transferred from the
Trust to participants the participants are entitled to receive
dividends and exercise voting rights attached to the shares.
Rules about the appointment and replacement of directors are
contained in the Articles which provide that a director may be
appointed by ordinary resolution of the shareholders or by the
existing directors, either to fill a vacancy or as an additional
director. Changes to the Articles must be submitted to the
shareholders for approval by way of special resolution. The
directors may exercise all the powers of the Company subject
to the provisions of relevant legislation, the Articles and any
directions given by the Company in general meeting.
At the 2020 AGM, the Company was granted authority by
shareholders to purchase up to 77,756,798 ordinary shares, being
10% of the Company’s issued share capital, in accordance with the
Articles. No shares were bought back under this authority during
the year ended 31 December 2020. Shares purchased under this
authority would have been cancelled or held as treasury shares to
be sold at a later date or used to satisfy awards under the
Company’s share plans as the Board saw fit.
The directors were also granted authority by shareholders to
allot securities in the Company up to a maximum nominal amount
of £25,918,932, of this amount £12,959,466 can only be allotted
pursuant to a rights issue. The directors were also authorised to
allot securities, without the application of pre-emption rights, up
to a nominal amount of £1,943,919 and a further £1,943,919 in
connection with an acquisition or other capital investment of a
kind contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights. No such transaction is contemplated at
present.
These authorities apply until the conclusion of the 2021 AGM or,
if earlier, 30 June 2021. The Company will seek shareholder
approval to renew these authorities at the 2021 AGM. Detailed
explanatory notes are set out in the AGM notice.
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 USD125m note purchase agreement dated June 2010,
a USD750m syndicated revolving credit agreement dated
September 2014, a USD600m note purchase agreement dated
May 2016, two term loan facility agreements in the amounts of
GBP45m and USD125m dated December 2019, a USD575m
syndicated revolving credit agreement dated May 2020,
a GBP100m term loan facility agreement dated June 2020
and a USD300m note purchase agreement dated November 2020.
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. These arrangements
are commercially sensitive and their disclosure could be seriously
prejudicial to the Company.
Agreements with the Company’s directors or employees providing
compensation in the event of a takeover bid:
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Director
Mr A Wood
Mrs L S Burdett
Contractual entitlement
None 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.
None 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.
Non-executive directors
None.
All other employees
There are no agreements that
would provide compensation for
loss of 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.
144
Directors’ report
continued
Meggitt PLC
Annual Report & Accounts 2020
Substantial shareholdings
At 31 December 2020, the Company had been notified under
the Disclosure Guidance and Transparency Rules (DTR) of the
following substantial interests in the issued ordinary shares of the
Company requiring disclosure:
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and
Company will continue in business.
Direct
voting
rights
Indirect
voting
rights
(m)*
(m)*
Other
financial
instruments
with voting
rights (m)*
Total
voting
rights
(m)*
Percentage
of total
voting
rights**
–
–
133.3
–
133.3
17.06%
43.2
0.4
43.6
5.60%
22.2
3.8
23.7
–
–
38.8
–
–
–
–
26.0
3.96%
23.7
3.01%
38.8
23.7
5.00%
3.03%
The
Capital Group
Companies, Inc.
FMR LLC (FIL
Limited)
Standard Life
Investments Ltd
Legal & General
Group plc
T. Rowe Price
Associates, Inc
Norges Bank
23.7
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* One voting right per ordinary share.
** Percentage of the Company’s issued share capital when the Company was
notified of the change in holding.
These holdings are published on a regulatory information service
and on the Company’s website. As at 2 March 2021 no further
changes had been notified to the company.
Statement of directors’ responsibilities in respect of
the financial statements
The directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the Group financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. Additionally, the
Financial Conduct Authority’s Disclosure Guidance and
Transparency Rules require the directors to prepare the Group
financial statements in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union. The directors have
prepared the Company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 “Reduced
Disclosure Framework”, and applicable law).
Under company law, 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 Company and of the
profit or loss of the Group for that period. In preparing the
financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• state whether international accounting standards in conformity
with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS
101 have been followed for the Company financial statements,
subject to any material departures disclosed and explained in
the financial statements;
The directors are also responsible for safeguarding the assets of
the Group and Company and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company and
enable them to ensure that the financial statements and the
Directors’ Remuneration Report comply with the Companies
Act 2006.
The Board 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.
Directors’ confirmations
The Board consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group
and Company’s position and performance, business model
and strategy.
Each of the directors, whose names and functions are listed in the
Board of Directors confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006
and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets,
liabilities, financial position and loss of the Group;
• the Company financial statements, which have been prepared
in accordance with United Kingdom Accounting Standards,
comprising FRS 101, give a true and fair view of the assets,
liabilities, financial position and profit of the Company; and
• the Strategic report and this Directors’ Report includes a fair
review of the development and performance of the business
and the position of the Group and Company, together with a
description of the principal risks and uncertainties that it faces.
In the case of each director in office at the date the Directors’
Report is approved:
• so far as the director is aware, there is no relevant audit
information of which the Group’s and Company’s auditors are
unaware; and
• they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit
information and to establish that the Group’s and Company’s
auditors are aware of that information.
Fair, balanced and understandable
The Board of directors as at the date of this report consider that
the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s position, performance,
business model and strategy. The Board has made this assessment
on the basis of a review of the accounts process, a discussion on
the content of the Annual Report assessing its fairness, balance
and understandability, together with the confirmation from
executive management that the Annual Report is fair, balanced
and understandable.
Meggitt PLC
Annual Report & Accounts 2020
145
Going concern
The directors have formed a judgement, at the time of approving
the financial statements, that there is a reasonable expectation
that the Group and the Company have adequate resources to
continue in operational existence for a period of at least 12
months from the date of this report. For this reason, the directors
continue to adopt the going concern basis in preparing the Group
and Company financial statements. Details on how the directors
reached this judgement are set out in note 1 to the Group’s
consolidated financial statements on pages 162 to 164.
By order of the Board
M L Thomas
Company Secretary
3 March 2021
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Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
Other than those disclosed in note 6 to the financial statements,
we have provided no non-audit services to the Group in the
period under audit.
Our audit approach
Overview
Audit scope
• We identified 12 reporting units which, in our view, required
a full scope audit based on their size or risk. In addition, we
determined that specified audit procedures were required at a
further 2 reporting units to address specific risk characteristics
and provide sufficient overall Group coverage of particular
revenue streams, cost of sales and/or working capital balances.
• We used component teams in 4 countries to perform a
combination of full scope audits and specified procedures at
14 reporting units.
• The Group team performed procedures over several different
financial statement line items, including complex areas prepared
by the head office finance function, to provide sufficient overall
Group coverage.
• The consolidation and financial statement disclosures were
audited by the Group team.
• Reporting units where we performed audit procedures
accounted for 73% of Group loss before tax; 62% of Group
underlying profit before tax; and 78% of Group total assets.
Our audit scope provided sufficient appropriate audit evidence
as a basis for our opinion on the Group financial statements
as a whole.
Key audit matters
• COVID-19 (Group and Company)
• Going concern (Group and Company)
• Goodwill impairment assessment (Group)
• Company’s investments in subsidiary undertakings impairment
assessment (Company)
• Development costs impairment assessments (Group)
• Environmental provisions (Group)
• Retirement benefit obligation liabilities (Group and Company)
• Provisions for uncertain tax positions (Group)
Materiality
• Overall Group materiality: £15.2m (2019: £17.0m) based on a
5 year average of 5% of underlying profit before tax.
• Overall Company materiality: £35.0m (2019: £34.0m) based on
1% of total assets.
• Performance materiality: £11.4m (Group) and £26.25m
(Company).
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Report on the audit of the financial statements
Opinion
In our opinion:
• Meggitt PLC’s Group financial statements and Company
financial statements (the “financial statements”) give a true and
fair view of the state of the Group’s and of the Company’s affairs
as at 31 December 2020 and of the Group’s loss and the Group’s
cash flows for the year then ended;
• the Group financial statements have been properly prepared in
accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006;
• the Company financial statements have been properly prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
• the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report & Accounts 2020 (the “Annual Report”), which
comprise: the Consolidated and Company balance sheets as
at 31 December 2020; the Consolidated income statement,
the Consolidated statement of comprehensive income, the
Consolidated cash flow statement, and the Consolidated and
Company statements of changes in equity for the year then
ended; and the notes to the financial statements, which include
a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
Separate opinion in relation to international financial
reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in note 1 to the Group financial statements, the
Group, in addition to applying international accounting standards
in conformity with the requirements of the Companies Act 2006,
has also applied international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies
in the European Union.
In our opinion, the Group financial statements have been properly
prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial statements
section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We remained independent of the Group in accordance with the
ethical requirements that are relevant to our audit of the financial
statements in the UK, which includes the FRC’s Ethical Standard,
as applicable to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group.
Meggitt PLC
Annual Report & Accounts 2020
147
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the
most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those
which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on
the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate
opinion on these matters.
This is not a complete list of all risks identified by our audit.
COVID-19, going concern and Company’s investments in
subsidiary undertakings impairment assessment are new key audit
matters this year. Otherwise, the key audit matters below are
consistent with last year.
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The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
Capability of the audit in detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined in the Auditors’ responsibilities for the
audit of the financial statements section, to detect material
misstatements in respect of irregularities, including fraud. The
extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to breaches of trade compliance, bribery and
corruption, US Government contracting, US environmental
regulations, aviation regulation including the Federal Aviation
Agency and Civil Aviation Authority, data protection, competition/
antitrust laws and international tax legislation, and we considered
the extent to which non-compliance might have a material effect
on the financial statements. We also considered those laws and
regulations that have a direct impact on the preparation of the
financial statements such as the Companies Act 2006. We
evaluated management’s incentives and opportunities for
fraudulent manipulation of the financial statements (including the
risk of override of controls), and determined that the principal risks
were related to posting inappropriate journal entries, omitting,
advancing or delaying recognition of events and transactions that
have occurred during the reporting period and management bias
in accounting estimates or judgements to manipulate results. The
Group engagement team shared this risk assessment with the
component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit
procedures performed by the Group engagement team and/or
component auditors included:
• Held discussions with Meggitt PLC’s Group management,
Head of Internal Audit, legal and tax advisors, including
consideration of known or suspected instances of non-
compliance with laws and regulation and fraud.
• Evaluated management’s controls designed to prevent and
detect irregularities.
• Reviewed meeting minutes of the Board, Audit, Nominations,
Remuneration, Corporate Responsibility and Finance
Committees.
• Assessed matters reported on the Group’s Speak Up Line and
the results of management’s investigation of such matters.
• Challenged assumptions and judgements made by
management in their significant accounting estimates and
judgements, particularly in relation to the key audit matters
below.
• Identified and tested journal entries based on our risk
assessment and evaluating whether there was evidence of
management bias that represents a risk of material
misstatement due to fraud.
• Incorporated elements of unpredictability into the audit
procedures performed.
148
Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
continued
Key audit matter
How our audit addressed the key audit matter
COVID-19 (Group and Company)
The COVID-19 pandemic, and measures taken by governments
in order to contain COVID-19 has had a significant impact on
the commercial aerospace industry in particular, affecting many
areas of the Group’s business including its employees, supply
chain, customer base and shareholders. The impact on the
Group’s and Company’s financial statements is wide ranging
and so our audit devoted significant time to assessing whether
all impacts had been properly considered by the directors and
in obtaining evidence to inform our view as to the
reasonableness of the significant judgements that the directors
had made.
The main considerations in respect of the impact of COVID-19
on the Group’s and Company’s financial statements are as
follows:
• Going concern – see specific key audit relevant matter
below;
• Asset impairment assessments – The areas materially
impacted by estimation uncertainty are:
– Goodwill impairment assessment – see specific key
audit matter below;
– Development costs impairment assessments – see
specific key audit matter below; and
– Company’s investment in subsidiary undertakings
impairment assessment – see specific key audit matter
below.
• COVID-19 incremental non-recurring costs – The Group has
excluded income and expenditure determined to be directly
attributable to the pandemic, and which is not expected to
recur in future periods, from its underlying profits,
amounting to £22.0m; and
• Management’s way of working, including the operation of
controls, has been impacted as a result of a large number of
staff working remotely. This has resulted in an increase in risk
due to the remote accessing of IT systems and a potentially
heightened cyber risk.
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For our audit response to the impact of COVID-19 on the
following areas, see the specific key audit matters:
• Going concern;
• Goodwill impairment assessment;
• Development costs impairment assessments; and
• Company’s investment in subsidiary undertakings impairment
assessment.
In respect of the other areas of consideration, we have
performed the following audit procedures:
• COVID-19 incremental non-recurring costs
– We tested a sample of these costs in order to confirm
that they were non-recurring and directly attributable to
the pandemic. The costs primarily related to severance
costs and were consistent with the headcount reduction
announced by the Group in April 2020 in response to
COVID-19; and
– We considered whether the exclusion of these items from
the Group’s underlying results was consistent with the
Group’s accounting policy for exceptional items,
considering the nature and value of those items. We did
not identify any material discrepancies through these
procedures and were therefore satisfied that the
presentation of these costs was acceptable and
explained the results for the current year.
We have assessed the appropriateness of management’s
disclosures in the financial statements in respect of the impact of
COVID-19 and the increased uncertainty on certain accounting
estimates and consider these to be appropriate.
We have also performed the following additional procedures:
• Considered the impacts of the pandemic, and specifically the
increased level of remote working, on the Group’s internal control
environment, including fraud risk, business process control
activities, IT general controls and cyber risk. We performed all of
our standard walkthrough procedures via video conference.
Based on the inquiries performed and the results of our audit
procedures, we did not identify any evidence of a significant
deterioration of the control environment;
• Ensured that we adequately directed, supervised and reviewed
the audit work undertaken by our significant and material
component audit teams in a remote working environment, we
increased the frequency and extent of our oversight, using video
conferencing and remote working paper reviews. We were
satisfied that the audit work performed by these audit teams was
sufficient, appropriate and in accordance with our issued
instructions; and
• Considered all potential impacts of the pandemic on the Group’s
financial statements, based on our understanding of the Group’s
operations, to ascertain whether all items had been properly
considered by the directors. We found no instances where such
matters had not been considered appropriately.
Meggitt PLC
Annual Report & Accounts 2020
149
Key audit matter
How our audit addressed the key audit matter
Going concern (Group and Company)
The directors have formed a judgement, at the time of
approving the consolidated and Company financial statements,
that there is a reasonable expectation that the Group and
Company (hereinafter, the ‘Group’) have adequate resources to
continue in operational existence for a period of at least 12
months from the date of approval. For this reason, the directors
continue to adopt the going concern basis in preparing these
financial statements.
In making an assessment as to whether the going concern
principle should be adopted, the directors have considered the
period to 31 March 2022 (the ‘assessment period’). The
directors have concluded that there are no material
uncertainties around the Group’s ability to continue as a going
concern.
In forming this assessment the directors considered its liquidity
requirements and compliance with its loan covenants based
upon its plans, as approved by the Board in October 2020 and
updated through to the date of these financial statements.
Further the directors modelled a severe but plausible downside
scenario and concluded that, even in this scenario, the Group
retained sufficient liquidity and complied with all relevant
covenants.
The current trading environment created by the COVID-19
pandemic has resulted in unprecedented levels of uncertainty
in respect of future results and cash flows. Consequently, our
audit devoted a significant amount of resource to assessing the
directors’ projections, under both scenarios modelled, and
obtaining sufficient appropriate evidence to inform our view as
to the reasonableness of the assumptions that the directors
had made.
In both scenarios, the Group maintains sufficient liquidity to be
able to meet its obligations as they fall due in the assessment
period. It also demonstrates sufficient headroom against each
of the covenant ratios, throughout the assessment period.
Refer also to the Audit Committee report and note 1 to the
consolidated financial statements (page 107 and pages
162 to 164).
For our audit response and conclusions in respect of going
concern, see the ‘Conclusions relating to going concern’ section
below.
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Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
continued
Key audit matter
How our audit addressed the key audit matter
Goodwill impairment assessment (Group)
The Group holds significant amounts of goodwill (£1,519.5m) on
the balance sheet.
As noted in the COVID-19 key audit matter, the impact of the
pandemic on the Group has been significant and the
announcement of the first lockdown in March 2020 was
determined to be a trigger for a goodwill impairment
assessment to be performed at the end of that month.
An impairment charge of £335.7m has been recorded against
goodwill in the current year.
The impairment assessment includes the following estimates:
• The forecast cash flows in the five-year plan;
• The probability weighting factors applied to each of the
potential scenarios used to derive an expected value for the
cash flow projections;
• The growth rate applied to extrapolate forecasts beyond the
plan; and
• The discount rate applied to future cash flows.
The challenging economic conditions caused by COVID-19
means the future performance of the business could vary
significantly, resulting in a materially different impairment than
that recognised. Our audit focused on the accuracy of the
impairment charge recorded, whilst also considering the risk
that the carrying value of goodwill could be overstated post
the impairment being recorded.
The Group has also assessed whether, on 31 December 2020,
there are indicators that an additional impairment charge
would be required and concluded that such indicators do not
exist.
These matters are complex and involve a high degree of
estimation uncertainty and judgement. Accordingly our audit
devoted significant resources to assessing the validity of the
models used by the directors and obtaining evidence to inform
our view on the reasonableness of the assumptions that the
directors had made.
Refer also to note 4 and 17 to the consolidated financial
statements (page 174 and pages 185 to 188).
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Management determined that the impairment assessment would
be performed at the operating segment level, with the exception
of the CGUs within Energy & Equipment (‘E&E’), which operate
independently of one another. No changes were made to the
level at which impairment testing was performed compared to
2019. We consider management’s assessment to be appropriate
and we have not identified any indication of management bias.
We have performed the following procedures over the value in
use model which supports the impairment assessment:
• Evaluated management’s future cash flow forecasts by
obtaining the scenarios modelled by management and:
–
Tested the mathematical accuracy and integrity of the
models;
– Agreed the 2020 forecast used in the base scenario
five-year plan to the latest board approved budget;
–
– Assessed the reliability of cash flow forecasts by
comparing actual past performance to previous
forecasts;
Identified the key assumptions applied in the base case
scenario, which we determined to be revenue growth
and margins, particularly in civil aerospace, taking
account of the impact of COVID-19 and the pace of
anticipated recovery to return to 2019 levels:
–
Revenue – We compared management’s assumptions
to external industry benchmarks, including forecasts
for civil OE fleet sizes, civil aerospace passenger
traffic measured using RPKs, territory defence spend
budgets and territory inflation projection; and
– Margin – We compared this assumption to historical
margins and consideration of specific margin
recovery actions to supporting evidence.
– Assessed, for the alternative scenarios, whether these
were reasonable and appropriate scenarios, particularly in
light of the risk of further waves of COVID-19 infection
globally, impacting consumers’ ability and confidence to
resume travelling, with an effective vaccine not widely
available during the period. The downside case included
reasonable assumptions to adjust the extent and pace of
the anticipated recovery in civil aerospace revenue and a
reasonable assumption to slow the level of gross margin
improvement over the five-year plan. The impacts of the
economic uncertainty arising from COVID-19 on the
Group’s other markets were also sufficiently considered;
and
– Assessed whether the weighting applied to each
scenario was reasonable.
We did not identify any material exceptions in these tests.
• Compared the long-term growth rate used for each territory
to long term inflation projections for the countries in which the
CGUs operate. We did not identify any differences;
• Tested the discount rates used in management’s impairment
assessment by comparing key inputs, where relevant, to
externally derived data or data for comparable listed
organisations. Our specialists reviewed the discount rates and
management’s estimates were within our expected range;
• Performed sensitivity analyses to ascertain the extent of which
changes in key assumptions would impact the amount of
impairment recognised; and
• Considered whether any additional impairment triggers
existed at year end that would require an updated impairment
assessment and concluded that there were none.
Based on the procedures described above, we consider the
impairment charge recognised to be materially accurate. We
have assessed the related disclosures in the consolidated
financial statements, including significant estimates and the
sensitivities provided and consider them to be appropriate.
Meggitt PLC
Annual Report & Accounts 2020
151
Key audit matter
How our audit addressed the key audit matter
Company’s investments in subsidiary undertakings
impairment assessment (Company)
The Company holds a significant investment in its subsidiary
undertakings (£2,078.8m) on the balance sheet. This asset is
subject to impairment testing at least annually, or when a
triggering event or change in circumstances indicates the
carrying value may not be recoverable.
For the reasons set out in the goodwill impairment assessment
key audit matter above, we determined there to be a
heightened risk in respect of the impairment assessment of this
balance. Management used the same value in use model to
perform an impairment assessment of this balance.
No impairment charge has been recorded against the
Company’s investment in subsidiary undertakings in the current
year.
Our audit focused on the risk that the carrying value of
investment in subsidiaries could be overstated.
Refer also to note 6 to the Company financial statements
(page 224).
Development costs impairment assessments (Group)
The Group holds significant amounts of development costs
(£531.9m) on the balance sheet. These intangible assets are
subject to impairment testing at the individual asset
(“programme”) level, at least annually. Where headroom is
limited, when comparing its value in use to its carrying value, or
if events or changes in circumstances indicate the carrying
value may not be recoverable, an impairment test is performed
more frequently.
An impairment charge of £25.6m has been recorded against
development costs in the current year.
This matter involves a high degree of estimation and
judgement which necessitated us devoting significant time to
this area.
Our audit focused on the accuracy of the impairment charge
recorded, whilst also considering the risk that the carrying
value of development costs could be overstated post the
impairment being recorded, particularly in light of the
COVID-19 outbreak, which has resulted in OE customers
significantly reducing production levels, together with
uncertainty over the extent and pace of recovery in the civil
aerospace industry.
We focused our audit procedures on those programmes
against which management hold an impairment provision,
those with limited headroom and those with a significant
carrying value. The key estimates and assumptions assessed
were:
• The estimated aircraft or engine volumes (‘fleet forecasts’)
and the period over which future cash flows are forecast
(‘fleet lives’);
• The sales price per part where a purchase price has not yet
been agreed;
• The cost per part where the programme is still in
development; and
• The discount rate applied to future cash flows.
Refer also to note 18 to the consolidated financial statements
(page 189).
We have performed the following procedures to test the
impairment assessment:
• We evaluated management’s assessment whether any
indicators of impairment existed by comparing:
–
–
The carrying value of investments in subsidiary
undertakings to the market capitalisation of the Group
at 31 December 2020 and post year-end; and
The net asset value of the investment entity to the
investment value recognised by the Company.
• To determine the recoverable value, management prepared a
valuation based on the discounted future cash flows (‘value in
use’) of the Group. We have tested the reasonableness of key
assumptions, including cash flow growth rates, long term
growth rates and the discount rate management has applied.
Our audit procedures performed on the value in use model
which supports the impairment assessment are described in
the ‘Goodwill impairment assessment’ key audit matter above.
We have concluded that the carrying value of the Company’s
investments in subsidiaries is supported by the net assets and/or
value in use of those subsidiaries.
We have performed the following procedures over the value in
use models which support management’s impairment
assessment:
• Tested the mathematical integrity of the model;
• Tested the discount rates used in management’s impairment
assessment by comparing key inputs, where relevant, to
externally derived data or data for comparable listed
organisations. Our specialists reviewed the discount rates and
management’s estimates were within our expected range; and
• Agreed fleet forecast data used in calculating the programme
forecast cash flow up to 2034 to external market forecasts for
all heightened risk programmes (defined below) and on a
sample basis over the remaining programme population.
We corroborated any significant deviations applied by
management to supporting evidence. We assessed fleet
forecasts used beyond the period covered by the external
market forecasts, considering average aircraft lives and trend
analysis and considered them to be supported by the
evidence we obtained.
We identified those programmes which we considered to be of
heightened risk based on their value or potential for the carrying
amount not being recovered. For these models we performed
the following additional audit procedures:
• Agreed the sales price per part to customer contract or
alternative supporting evidence;
• Agreed cost per part to inventory historic cost per unit,
including bill of materials, or alternative supporting evidence;
and
• Performed a sensitivity analysis over the discount rates and
fleet forecasts.
We did not identify any material exceptions in these tests.
Based on the procedures described above, we consider the
impairment charge recognised to be materially accurate. We
have assessed the related disclosures in the consolidated
financial statements. Given the level of exposure on at-risk
programmes and the provision recorded by management, we
concur with management’s conclusion that there are no
significant accounting estimates to disclose in relation to
development costs.
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Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
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Key audit matter
How our audit addressed the key audit matter
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Environmental provisions (Group)
The Group has liabilities of £72.7m relating to environmental
matters.
The environmental matters primarily relate to known exposures
arising from environmental investigation and remediation of
certain sites in the US for which the Group has been identified
as a potentially responsible party under US law. The liabilities
are based on subjective estimates of the level and timing of
remediation costs, including the period of operating and
monitoring activities required. Our audit procedures focused
on the risk that the provisions in relation to these matters could
be understated.
The Group has separately recognised insurance and other
receivables of £18.8m. We focused on the required asset
recognition criteria being met and recoverability of these
receivables.
Refer also to note 34 of the consolidated financial statements
(page 204).
Retirement benefit obligation liabilities (Group
and Company)
The Group has retirement benefit obligations with gross
liabilities of £1,463.9m, of which £961.1m is recognised by the
Company. The liabilities are significant in the context of the
overall Group and Company balance sheets.
The valuation of retirement benefit obligations requires
significant levels of estimation and technical expertise,
including the use of actuarial experts to support management
in selecting appropriate assumptions. Small changes in a
number of the key financial and demographic assumptions
used to value the Group’s retirement benefit obligation could
have a material impact on the calculation of the liability. These
include:
• Discount rates;
• Inflation rates;
• Salary increases; and
• Mortality.
Our audit procedures focused on the risk that the assumptions
used result in an understatement of the retirement benefit
obligation.
Refer also to note 36 of the consolidated financial statements
(pages 207 to 211) and note 12 of the Company financial
statements (page 227).
Our work on the valuation of environmental liabilities comprised
the following:
• Confirmed that the Group’s external environmental
consultants and legal advisors have sufficient expertise, are
qualified and affiliated with the appropriate industry bodies in
the respective local territory, and are independent of the
Group;
• Obtained the cost estimates and reports prepared by the
Group’s external environmental consultants and legal advisors
for the most significant sites. We assessed the consistency of
the cost estimates year on year and the level of costs incurred
compared to the prior year estimates to assess the historical
accuracy of the estimates and understand significant changes
to the scope of remediation plans. We confirmed that the
changes in scope have been appropriately reflected in the
provision;
• Reconciled the cost estimates and reports to the provision
recorded and gained an understanding of all significant
adjustments applied, such as differences in the period over
which operating and monitoring activities are conducted and
the application of additional provisions for incremental costs.
We assessed the reasonableness of these, including reviewing
historical data where appropriate and consider the provision
to be supported by reasonable assumptions; and
• We obtained evidence of the settlements and claims which
resulted in the recognition of receivables and found that the
evidence obtained supported asset recognition.
We evaluated and concluded that the liabilities, related assets
and potential exposures, were appropriately disclosed in the
consolidated financial statements.
We evaluated the assumptions made in relation to the valuation of
the liabilities, with input from our actuarial experts. In particular we:
• Confirmed that the Group’s external experts are qualified and
affiliated with the appropriate industry bodies in the
respective local territory and are independent of the Group. In
addition, we have held discussions with managements external
expert for the UK, US and Swiss pension schemes to further
understand the key assumptions;
• Tested the completeness and accuracy of participant
employee data used by the actuary in the liability calculation
to underlying records;
• Tested the discount and inflation rate assumptions used by
comparing them to our internally developed benchmarks,
which are based on externally derived data, and to
comparable organisations. We observed the assumptions to
be within our expected range;
• Compared assumed mortality rates to national and industry
averages. From the evidence obtained we found the
assumptions to be within our expected range and
methodology used to be appropriate;
• Assessed the assumption for salary increases against the
Group’s historical trend and expected future outlook. The
assumption used was supported by the evidence we obtained;
and
• Considered the appropriateness of the methodology used to
update estimates from the latest actuarial valuation and
assessed changes in assumptions in aggregate from the prior
year to assess the consistency of approach overall. From the
evidence obtained we found the assumptions and
methodology used to be appropriate.
We evaluated and concluded that the liabilities and potential
exposures were appropriately disclosed in the consolidated and
Company financial statements.
Meggitt PLC
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153
Key audit matter
How our audit addressed the key audit matter
Provisions for uncertain tax positions (Group)
The Group has a provision for uncertain tax positions of £49.1m.
Judgements and estimates have to be made by management
on the tax treatment of a number of transactions in advance of
the ultimate tax determination being certain.
This is due to the complexity of the Group’s legal structure
(including multiple legal entities), the number of tax
jurisdictions in which the Group operates, the complexity of
international tax legislation and the changing tax environment.
In addition, uncertainty arises from intergroup transactions
relating to goods, services and internal financing.
Where the amount of tax payable or recoverable is uncertain,
the Group establishes provisions based on managements’
judgement of the probable amount of the liability or expected
amounts recoverable.
Our audit procedures focused on the risk that the conclusion of
the ultimate tax determination by tax authorities is at an
amount materially different to the amount recorded.
Refer also to note 29 of the consolidated financial statements
(page 196).
In conjunction with our internal UK and international tax
specialists we:
• Evaluated the process by which management, in conjunction
with their advisors, calculated each tax exposure and assessed
the appropriateness of assumptions made. From the evidence
obtained we found the assumptions and methodology used to
be appropriate;
• Considered any tax opinions or other tax advice the Group
had received from its tax advisors in relation to the exposures
identified to determine whether management’s treatment is
consistent with the advice obtained. We also considered the
evidence of changing tax practices, recent tax audits and
external tax cases which may have an impact on existing tax
exposures. Based on the work performed we found that these
factors had been appropriately considered in determining
management’s provision;
• Assessed and formed our own views on the key judgements
with respect to open and uncertain tax positions and
concluded that the judgements made by management were
materially consistent with our own views in respect of the tax
exposures.
We evaluated and concluded that the liabilities and potential
exposures were appropriately disclosed in the consolidated
financial statements.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements
as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in
which they operate.
The Group’s accounting process is structured around a local finance function in each of the Group’s reporting units. These functions
maintain their own accounting records and controls (although transactional processing and certain controls for some reporting units are
performed at the Group’s shared service centres) and report to the head office finance team through an integrated consolidation
system.
In establishing the overall Group audit strategy and plan, we determined the type of work that needed to be performed at the reporting
units by the Group engagement team and by component auditors from other PwC network firms. Where the work was performed by
component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to
conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements
as a whole.
For each reporting unit we determined whether we required an audit of their complete financial information (‘full scope’) or whether
specified audit procedures addressing a specific risk characteristic or financial statement line item would be sufficient. Those where
a full scope audit was required included 6 reporting units considered to be individually financially significant (Airframe Systems based
in Akron (US), Fareham (UK) and Coventry (UK), Defense Systems based in Irvine (US), Airframe Systems and Services & Support
based in Ventura County (US) and Airframe Systems, Engine Systems, Energy & Equipment and Services & Support based in Fribourg
(Switzerland)). We performed a full scope audit at a further 6 reporting units selected by their size or risk and reviewed certain working
papers for those contributing material amounts to Group underlying profit before tax. We determined that specified audit procedures
were required at a further 2 reporting units to address specific risk characteristics or to provide sufficient overall Group coverage of
revenue streams, cost of sales and/or working capital balances.
In addition to the work performed at the in-scope reporting units, there is a substantial amount of work performed at head office by
the Group audit engagement team. The Group team performs audit procedures over the Company’s financial position and results and
several financial statement line items, including complex areas prepared by the head office finance function, to provide sufficient overall
Group coverage. These include goodwill, development costs, other intangible assets, investments, derivative financial instruments and
related hedge accounting, cash and cash equivalents, bank and other borrowings and related finance costs, certain IFRS 16 leases,
environmental provisions and related receivables, certain onerous contracts and other provisions, retirement benefit obligations, certain
current tax charges, deferred tax, share-based payments and amounts arising on the acquisition, disposal and closure of businesses.
The Group team also performs procedures over the consolidation and financial statement disclosures.
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Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
continued
These audit procedures covered 73% of Group loss before tax; 62% of Group underlying profit before tax; and 78% of Group total
assets (“key coverage metrics”). As a result of its structure and size, the Group also has a large number of small reporting units that, in
aggregate, make up a material portion of the key coverage metrics. The Group engagement team perform analytical review procedures
over a significant proportion of these with the remaining population of reporting units contributing insignificant underlying profit before
tax individually and in aggregate. These procedures include an analysis of year on year movements, at a level of disaggregation to
enable a focus on higher risk balances and unusual movements. This gave us the evidence we needed for our opinion on the financial
statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – Group
Financial statements – Company
Overall materiality
£15.2m (2019: £17.0m).
£35.0m (2019: £34.0m).
How we determined it
A 5 year average of 5% of underlying profit
before tax.
1% of total assets.
Rationale for benchmark applied
We believe that total assets is the primary
measure used by the shareholders in
assessing the performance and position
of the entity and reflects the Company’s
principal activity as a holding Company.
Based on the benchmarks used in the Annual
Report, underlying profit before tax is the
primary measure used by the shareholders
in assessing the performance of the Group.
Further, we consider it appropriate to
eliminate volatility and to preserve the link
between materiality and the performance
of the underlying business. As a result of
significant volatility in 2020 performance,
primarily due to COVID-19, we have used a
5 year average benchmark compared to a
single year benchmark in 2019.
For each component in the scope of our Group audit, we allocated
a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between
£1.3m and £13.68m. Certain components were audited to a local
statutory audit materiality that was also less than our overall Group
materiality.
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% of overall
materiality, amounting to £11.4m for the Group financial
statements and £26.25m for the Company financial statements.
In determining the performance materiality, we considered a
number of factors – the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls – and
concluded that an amount at the upper end of our normal range
was appropriate.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £0.8m
(Group audit) (2019: £0.85m) and £1.75m (Company audit) (2019:
£1.7m) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the
Company’s ability to continue to adopt the going concern basis of
accounting included:
• Testing the mathematical integrity of the cash flow forecasts
and the models and reconciled these to Board approved
budgets;
• Identifying the key assumptions applied, which we determined
to be revenue growth and margins, particularly in civil
aerospace, taking account of the impact of COVID-19 and the
pace of anticipated recovery. We evaluated these key
assumptions by:
–
Revenue – We compared these assumptions to external
industry benchmarks, including forecasts for civil OE fleet
sizes, civil aerospace passenger traffic measured using
RPKs, territory defence spend budgets and territory
inflation projections;
– Margin – We compared this assumption to historical
margins and considered the feasibility of specific margin
recovery actions to supporting evidence;
– Downside scenario – In light of the risk of delays in the
global vaccine roll-out programme and the emergence of
new COVID-19 variants adversely impacting consumers’
ability and confidence to resume travelling as quickly as
anticipated in the base case, as well as constrained growth
in defence spending due to a weaker economic
environment, we assessed the plausible severity of the
downside assumptions to stress test the model. The
downside scenario was considered to be sufficiently
severe, but plausible, based on the audit evidence
obtained; and
– Mitigating actions – We assessed the reasonableness of
management’s planned or potential mitigating actions
based on historical execution and feasibility.
Meggitt PLC
Annual Report & Accounts 2020
155
• Reviewing the debt agreements to confirm the terms and
conditions, including covenants. The covenants were consistent
with those used in management’s going concern assessment;
• Agreeing all borrowings as at 31 December 2020 to third-party
confirmations and considered the Group’s available financing
and maturity profile. This supported the directors’ conclusion
that sufficient liquidity headroom remained throughout the
assessment period;
• Testing the mathematical accuracy of the covenant calculations,
including confirming that the adjustments recorded to
determine underlying EBITDA agreed to the terms of the
covenant. We concluded that covenant compliance remained
throughout the assessment period; and
• Assessing management’s reverse stress test and the extent to
which such a scenario is plausible, specifically to understand the
change in forecast net debt or underlying EBITDA required to
breach the financial covenant ratio in June 2021, being the
covenant with the least headroom. We concurred with the
directors’ conclusion that such a scenario, based on the current
evidence, is not considered to be plausible.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s and
the Company’s ability to continue as a going concern.
In relation to the Company’s reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to
add or draw attention to in relation to the directors’ statement in
the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with
respect to going concern are described in the relevant sections of
this report.
Reporting on other information
The other information comprises all of the information in the
Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the
other information. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we identify
an apparent material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there is a
material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report,
we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the
Companies Act 2006 requires us also to report certain opinions
and matters as described below.
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the
audit, the information given in the Strategic report and Directors’
report for the year ended 31 December 2020 is consistent with the
financial statements and has been prepared in accordance with
applicable legal requirements.
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in
relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities
with respect to the corporate governance statement as other
information are described in the Reporting on other information
section of this report.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement, included within the Corporate governance
report is materially consistent with the financial statements and
our knowledge obtained during the audit, and we have nothing
material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust
assessment of the emerging and principal risks;
• The disclosures in the Annual Report & Accounts 2020 that
describe those principal risks, what procedures are in place to
identify emerging risks and an explanation of how these are
being managed or mitigated;
• The directors’ statement in the financial statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the Group’s and
Company’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the Group’s
and Company’s prospects, the period this assessment covers
and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable
expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
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Meggitt PLC
Annual Report & Accounts 2020
Independent auditors’ report to the members of Meggitt PLC
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Our review of the directors’ statement regarding the longer-term
viability of the Group was substantially less in scope than an audit
and only consisted of making inquiries and considering the
directors’ process supporting their statement; checking that the
statement is in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our
knowledge and understanding of the Group and Company and
their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
• The directors’ statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess
the Group’s and Company’s position, performance, business
model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
• The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to
report when the directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Responsibilities for the financial statements
and the audit
Responsibilities of the directors for the financial
statements
As explained more fully in the Statement of directors’
responsibilities in respect of the financial statements, the directors
are responsible for the preparation of the financial statements
in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The directors are
also responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible
for assessing the Group’s and the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the Group or the
Company or to cease operations, or have no realistic alternative
but to do so.
Auditors’ responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these
financial statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• we have not obtained all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law
are not made; or
• the Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the directors on 2 October 2003 to audit the
financial statements for the year ended 31 December 2003 and
subsequent financial periods. The period of total uninterrupted
engagement is 18 years, covering the years ended 31 December
2003 to 31 December 2020.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
3 March 2021
Meggitt PLC
Annual Report & Accounts 2020
157
Consolidated income statement
For the year ended 31 December 2020
Revenue
Non-GAAP measures
Exceptional impairment losses and other asset write-downs
Other cost of sales
Cost of sales
Gross profit
Non-GAAP measures
Exceptional impairment losses and other asset write-downs
Other operating costs
Operating costs
Operating income
Net operating costs
Operating (loss)/profit1
Finance income
Finance costs
Net finance costs
(Loss)/profit before tax2
Tax credit/(charge)
(Loss)/profit for the year attributable to equity owners of the Company
(Loss)/earnings per share:
Basic3
Diluted4
Non-GAAP measures
1 Underlying operating profit
2 Underlying profit before tax
3 Underlying basic earnings per share
4 Underlying diluted earnings per share
Notes
2020
£’m
2019
£’m
5
1,684.1
2,276.2
10
(8.6)
(1,192.0)
–
(1,458.0)
7
(1,200.6)
(1,458.0)
483.5
818.2
10
7
7
(365.6)
(452.7)
(818.3)
37.5
–
(541.9)
(541.9)
49.0
(780.8)
(492.9)
5,7
(297.3)
325.3
11
12
0.5
(37.2)
(36.7)
2.2
(40.8)
(38.6)
(334.0)
286.7
13
19.8
(64.1)
(314.2)
222.6
14
14
9
9
14
14
(40.4)p
(40.4)p
28.8p
28.3p
190.5
159.5
16.5p
16.2p
402.8
370.3
37.3p
36.7p
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Meggitt PLC
Annual Report & Accounts 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2020
(Loss)/profit for the year attributable to equity owners of the Company
Items that may be reclassified to the income statement in subsequent periods:
Currency translation movements
Movements in fair value of financial liabilities arising from changes in credit risk
Tax effect
Items that will not be reclassified to the income statement in subsequent periods:
Remeasurement of retirement benefit obligations
Tax effect
Notes
2020
£’m
2019
£’m
(314.2)
222.6
32
13
36
13
(79.9)
1.8
1.6
(76.5)
(42.6)
10.8
(31.8)
(68.7)
–
0.3
(68.4)
(89.2)
11.9
(77.3)
Other comprehensive expense for the year
(108.3)
(145.7)
Total comprehensive (expense)/income for the year attributable to equity owners of the Company
(422.5)
76.9
8
2
2
-
6
4
1
–
s
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m
e
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Meggitt PLC
Annual Report & Accounts 2020
159
Consolidated balance sheet
At 31 December 2020
Non-current assets
Goodwill
Development costs
Programme participation costs
Other intangible assets
Property, plant and equipment
Investments
Other receivables
Contract assets
Derivative financial instruments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Contract assets
Derivative financial instruments
Current tax recoverable
Cash and cash equivalents
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Contract liabilities
Derivative financial instruments
Current tax liabilities
Lease liabilities
Bank and other borrowings
Provisions
Liabilities directly associated with assets classified as held for sale
Net current assets
Non-current liabilities
Other payables
Contract liabilities
Derivative financial instruments
Deferred tax liabilities
Lease liabilities
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 Company
The financial statements on pages 157 to 217 were approved by the Board of Directors on 3 March 2021 and signed on its behalf by:
A Wood
Director
L Burdett
Director
Notes
2020
£’m
2019
£’m
17
18
18
19
20
21
24
25
33
35
23
24
25
33
26
22
1,519.5
531.9
18.7
401.1
458.8
20.8
16.5
59.6
15.0
19.2
1,966.6
575.9
18.0
503.6
449.4
14.1
17.0
55.2
14.6
23.3
3,061.1
3,637.7
426.9
251.1
48.8
5.4
11.5
178.6
14.7
937.0
489.8
379.9
66.3
3.8
11.1
155.3
–
1,106.2
5
3,998.1
4,743.9
27
28
33
29
30
31
34
22
27
28
33
35
30
31
34
36
37
(296.5)
(50.8)
(21.6)
(56.9)
(14.7)
(10.5)
(32.6)
(3.7)
(464.5)
(50.5)
(16.5)
(81.6)
(16.4)
(219.4)
(36.2)
–
(487.3)
(885.1)
449.7
221.1
(8.5)
(73.9)
(0.3)
(93.4)
(129.6)
(796.8)
(80.3)
(295.4)
(2.1)
(77.0)
(4.6)
(155.3)
(136.2)
(694.5)
(64.4)
(267.9)
(1,478.2)
(1,402.0)
(1,965.5)
(2,287.1)
2,032.6
2,456.8
39.0
1,226.6
15.7
348.9
402.4
38.8
1,226.5
15.7
425.4
750.4
2,032.6
2,456.8
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2
8
160
Meggitt PLC
Annual Report & Accounts 2020
Consolidated statement of changes in equity
For the year ended 31 December 2020
Equity attributable to owners of the Company
At 1 January 2019
Profit for the year
Other comprehensive expense for the year:
Currency translation movements:
Arising in the year
Remeasurement of retirement benefit obligations
Other comprehensive expense before tax
Tax
Other comprehensive expense for the year
Total comprehensive (expense)/income for the year
Employee share schemes:
Value of services provided
Issue of equity share capital
Dividends
At 31 December 2019
Loss for the year
Other comprehensive expense for the year:
Currency translation movements:
Arising in the year
Currency translation gain transferred from equity
Movements in fair value of financial liabilities arising
from changes in credit risk
Remeasurement of retirement benefit obligations
Other comprehensive expense before tax
Tax
Other comprehensive expense for the year
Total comprehensive expense for the year
Employee share schemes:
Value of services provided
Issue of equity share capital
At 31 December 2020
8
2
2
-
6
4
1
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Share
capital
Share
premium
Other
reserves*
Notes
£’m
38.8
£’m
1,223.9
£’m
15.7
Hedging and
translation
reserves**
£’m
Retained
earnings
Total
equity
£’m
£’m
493.8
720.2
2,492.4
–
222.6
222.6
(68.7)
–
(68.7)
0.3
(68.4)
–
(89.2)
(89.2)
11.9
(77.3)
(68.7)
(89.2)
(157.9)
12.2
(145.7)
(68.4)
145.3
76.9
–
–
–
17.9
(2.6)
(130.4)
17.9
–
(130.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.6
–
–
–
–
–
–
–
–
–
–
–
38.8
1,226.5
15.7
425.4
750.4
2,456.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
(314.2)
(314.2)
(35.9)
(44.0)
1.8
–
(78.1)
1.6
(76.5)
–
–
–
(42.6)
(42.6)
10.8
(35.9)
(44.0)
1.8
(42.6)
(120.7)
12.4
(31.8)
(108.3)
(76.5)
(346.0)
(422.5)
–
–
(1.7)
(0.3)
(1.7)
–
39.0
1,226.6
15.7
348.9
402.4
2,032.6
36
13
15
44
36
13
*
Other reserves relate to capital reserves of £14.1m (2019: £14.1m) arising on the acquisition of businesses in 1985 and 1986 where merger accounting was applied
and a capital redemption reserve of £1.6m (2019: £1.6m) created as a result of the share buyback programme in 2014 and 2015.
** Hedging and translation reserves comprise a credit balance on the hedging reserve of £2.9m (2019: £1.1m) and a credit balance on the translation reserve of
£346.0m (2019: £424.3m). Amounts recycled from the translation reserve to the income statement, in respect of the disposal of foreign subsidiaries, are
recognised in net operating costs.
Meggitt PLC
Annual Report & Accounts 2020
161
Consolidated cash flow statement
For the year ended 31 December 2020
Non-GAAP measures
Cash inflow from operations before business disposal expenses and exceptional operating items
Cash outflow from business disposal expenses
Cash outflow from exceptional operating items
Cash inflow from operations
Interest received
Interest paid
Tax paid
Cash inflow from operating activities
Investment acquired
Businesses disposed
Capitalised development costs
Capitalised programme participation costs
Purchase of intangible assets
Purchase of property, plant and equipment
Government grants received in respect of 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 bank and other borrowings
Repayments of bank and other borrowings
Debt issue costs paid
Reverse lease premium received
Repayments of lease liabilities
Cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at start of the year
Exchange losses on cash and cash equivalents
Cash and cash equivalents at end of the year
Notes
2020
£’m
2019
£’m
282.9
(5.2)
(49.3)
228.4
0.1
(32.2)
(42.1)
154.2
(7.6)
117.0
(41.4)
(1.6)
(11.0)
(80.8)
2.1
1.3
(22.0)
–
0.3
618.6
(705.8)
(2.4)
3.5
(15.4)
451.1
(9.4)
(27.3)
414.4
1.8
(34.9)
(14.4)
366.9
–
78.3
(54.7)
(2.0)
(17.2)
(77.2)
–
23.1
(49.7)
(130.4)
–
0.4
(213.0)
–
18.9
(16.2)
(101.2)
(340.3)
31.0
155.3
(7.7)
178.6
(23.1)
181.9
(3.5)
155.3
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4
6
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2
8
44
10
42
21
44
18
15
42
30
26
162
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
1. General information and basis of preparation
Meggitt PLC is a public limited company listed on the London Stock Exchange, domiciled and incorporated in the United Kingdom with
the registered number 432989. Its registered office is Pilot Way, Ansty Business Park, Coventry, England, CV7 9JU.
Meggitt PLC is the parent company of a Group whose principal activities during the year were the design and manufacture of high
performance components and sub-systems for aerospace, defence and other specialist markets, including energy, medical, industrial and test.
The consolidated financial statements of the Group have been prepared in accordance with both international accounting standards in
conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union. The consolidated financial statements have been prepared on a
going concern basis and under the historical cost convention, as modified by the revaluation of certain financial assets and financial
liabilities (including derivative financial instruments) at fair value.
Going concern
The directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that
the Group and the Company have adequate resources to continue in operational existence for a period of at least 12 months from the
date of approval of this Annual Report. For this reason, the directors continue to adopt the going concern basis in preparing the Group’s
consolidated financial statements and the Company’s financial statements. In making a judgement as to whether the going concern
principle should be adopted, the directors have considered the period starting with the date these financial statements were approved
by the Board and ending on 31 March 2022.
Actions taken to preserve cash and liquidity
In response to the COVID-19 pandemic, the Group implemented a number of actions to reduce costs, preserve cash and resize the
business. These actions are described on page 15 of the Strategic report. Additionally, to preserve liquidity, during 2020 the Group:
• arranged a forward start on its revolving USD 750m revolving credit facility, due to mature in September 2021, by the signing of a new
one-year USD 575m revolving credit facility maturing in September 2022; and
• issued USD 300m loan notes to private placement investors which mature in 2023 and 2025.
Current liquidity
At 31 December 2020, the Group had the following committed credit facilities with its relationship banks and private placement
investors:
During assessment period
Later
Total
Maturity date
H1 2021
£’m
H2 2021
£’m
Q1 2022
£’m
Subtotal
£’m
USD 750m multi currency syndicated revolving credit facility*
USD loan notes issued to private placement investors in 2010
USD bilateral facility
Sterling bilateral facilities
USD loan notes issued to private placement investors in 2016
USD loan notes issued to private placement investors in 2020
Total committed credit facilities (see note 31)
–
–
–
–
–
–
–
128.2
–
–
–
–
–
128.2
–
–
–
–
–
–
–
128.2
–
–
–
–
–
£’m
421.2
91.6
91.5
145.0
439.5
219.8
£’m
549.4
91.6
91.5
145.0
439.5
219.8
128.2
1,408.6
1,536.8
* Comprises USD 175m maturing in September 2021, with the balance of USD 575m covered by the additional forward start facility that matures in September 2022.
Additionally, the Group has been confirmed as an eligible issuer under the Bank of England’s and HM Treasury’s Covid Corporate
Financing Facility (‘CCFF’), under which the Group can draw up to £600m. The Group is eligible to issue commercial paper under this
facility (subject to certain terms and restrictions) up to and including 22 March 2021, with a maturity period of up to 12 months. The
Group has no commercial paper issued under this facility at 31 December 2020 or at the date these consolidated financial statements
were approved by the Board.
At 31 December 2020, the Group had the following headroom against its committed credit facilities:
Committed credit facilities
Bank and other borrowings (see note 31)
Less: cash (see note 26)
Net borrowings excluding lease liabilities
Headroom
Total
£’m
1,536.8
807.3
(178.6)
628.7
908.1
8
2
2
-
6
4
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Meggitt PLC
Annual Report & Accounts 2020
163
1. General information and basis of preparation continued
Going concern continued
Covenants
The committed credit facilities set out above contain two financial ratio covenants – net debt/EBITDA and interest cover. The covenant
calculations are drafted to protect the Group from potential volatility caused by accounting standard changes, sudden movements in
exchange rates and exceptional items. This is achieved by measuring EBITDA on a frozen GAAP basis, excluding exceptional operating
items and retranslating net debt and EBITDA at similar average exchange rates. Covenant ratios are required to be measured on a
trailing 12 month basis twice a year (at 30 June and 31 December), with net debt/EBITDA not to exceed 3.5x and interest cover to be not
less than 3.0x. At 31 December 2020, net debt/EBITDA was 2.2x and interest cover was 9.8x. The covenant with the least headroom
during the assessment period is net debt/EBITDA at 30 June 2021, which will reflect a full trailing 12 months performance post
COVID-19, before an anticipated recovery in H2 2021. No covenant waivers have been sought by the Group.
Base case scenario
The impact on the commercial aerospace segment following the outbreak of COVID-19 is substantial and unprecedented, affecting
many areas of the Group’s business including its employees, supply chain, customer base and shareholders. To model the expected
impact on the Group, a base case model was developed in Q2 2020, which has been regularly updated subsequently to reflect the
Group’s current view of the most likely impact on its revenues and how this impacts profit and cash flows over the next five years. The
current model was prepared for, and reviewed by, the Board in October 2020. In assessing whether the going concern principle remains
appropriate, the Group has used the outputs from this model covering the period to 31 March 2022. Where appropriate, the outputs
have been adjusted to reflect market dynamics between October 2020 and the date of approval of the Annual Report – these
adjustments were also reviewed by the Board. Over the period covered by the going concern assessment, the key assumptions within
the base case scenario are:
• For civil AM, ASKs in 2021 are assumed to be approximately 60% of 2019 levels, with recovery weighted towards H2 2021 as the
vaccine roll-out enables the easing of lock down restrictions and consumer demand for flights progressively increases. The
progressive recovery is assumed to continue into Q1 2022. The Group’s civil AM revenue reflects these market factors, its exposure to
specific platforms/customers and an assumed spares/MRO mix similar to prior periods.
• For civil OE, aircraft production rates increase modestly in 2021, reflecting emerging build rates from the Group’s customer base and
the extent to which 2021 aircraft deliveries will be met from existing inventory held by OEMs, particularly on the 737 MAX. Aircraft
production rates increase further in 2022, but remain significantly below 2019 levels.
• US defence spending in 2021 remains broadly flat, consistent with the US DOD budget approved in January 2021. No significant
changes in levels of US defence spending in 2022 are assumed.
• A modest improvement in the Group’s overall gross margin percentage in H1 2021, driven by the full period impact of the cost saving
initiatives actioned in 2020, price increases and savings from the Group’s footprint initiatives. The Group’s gross margin percentage
increases progressively over the remainder of the assessment period driven principally by the assumed increase in civil aftermarket
volumes, as ASKs start to recover, with a similar civil AM mix assumed to prior periods.
• At a free cash flow level, capital expenditure in 2021 remains at similar levels to 2020, before reducing modestly in 2022 following
completion of the Antsy Park facility; UK pension deficit payments continue to be made in accordance with the existing 2018 recovery
plan agreed with UK trustees, including certain 2020 deferred payments; and tax payments reflect the payment in H1 2021,
notwithstanding the ongoing appeals, of the liability recognised in respect of the Controlled Foreign Company regime (see note 29).
F
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2
8
Under the base case scenario, the Group has sufficient existing committed credit facilities to meet its obligations as they fall due and
does not breach either of the financial covenant ratios.
Downside scenario (“severe but plausible scenario”)
Due to inherent uncertainty over the extent and pace of recovery in the Group’s commercial aerospace markets in particular, the Group
also developed a downside scenario in Q2 2020 covering the same period as the base case scenario, and has subsequently updated this
regularly as its view of a severe but plausible scenario has evolved. The current model was also prepared for, and reviewed by, the Board
in October 2020. To stress test the assumption that the going concern principle remains appropriate under a severe but plausible
scenario, the Group has used the outputs from this model covering the period to 31 March 2022. Where appropriate, outputs have been
adjusted to reflect market dynamics between October 2020 and the date of approval of the Annual Report – these adjustments were
also reviewed by the Board. The downside scenario assumes:
• For civil AM, delays in the global vaccine roll-out programme and the emergence of new COVID-19 variants adversely impact
consumers’ ability and confidence to resume travelling as quickly as anticipated in the base case. Under this scenario, civil AM
revenues are around 8% lower than the base case for 2021. This approximates to a decline in ASKs of 7-10 percentage points
compared to the base case, with the reduction significantly weighted towards H2. However, as noted above, the Group’s civil AM
revenue reflects its exposure to specific platforms/customers and an assumed spares/MRO mix, and does not correlate perfectly to
macro ASK drivers.
• For civil OE, weaker customer demand causes airlines to further defer purchases, resulting in reduced production build rates for OEM
deliveries, which remain broadly flat over the assessment period.
• Additionally, as a result of the wider impact of a more prolonged pandemic, higher levels of government borrowing lead to defence
spending falling modestly from 2020 levels in the assessment period.
• Reduced volumes have a consequential adverse impact on gross margin in the assessment period.
• The Group takes further appropriate mitigating actions to reduce its cost base and to preserve cash flows.
Under the downside scenario, the Group has sufficient financing to be able to meet its obligations as they fall due in the period under
assessment. The continued availability of the CCFF during the period has not been assumed. During the assessment period, the Group
does not breach either of the financial covenant ratios.
164
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
1. General information and basis of preparation continued
Going concern continued
Principal risks
The Group has also considered whether its principal risks (as described on pages 56 to 59 of the Strategic Report) have been
appropriately reflected in the downside scenario. In making this assessment, the Group has considered the likelihood of the risks taking
place during the going concern assessment period and, were they to occur, the extent to which the impacts would be experienced
during this period and the timing of mitigation actions available to the Group. The Group has not assumed that any of the catastrophic
events described within its business interruption risk (see page 57 of the Strategic Report) occur during the going concern assessment
period. The Board has regularly reviewed these risks throughout the period since the start of the COVID-19 outbreak and up to the date
of the financial statements, and has approved an updated Group risk appetite statement with associated risk tolerances to ensure that
risks are managed within acceptable limits. The Group has concluded that the downside scenario has been appropriately adjusted to
reflect these risks.
Conclusion
Based on the above, the directors have therefore concluded there are no material uncertainties around the Group’s or Company’s ability
to continue as a going concern and it is appropriate to adopt the going concern principle in these financial statements.
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’s consolidated financial statements consolidate the financial statements of the Company, all of its subsidiaries and the
Group’s share of the results of its joint ventures.
8
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A subsidiary is an entity over which the Group has control. The Group has control over an entity where the Group is exposed to,
or has the rights to, variable returns from its involvement with the entity and has the power over the entity to affect those returns. The
results of subsidiaries acquired are consolidated from the date on which control transfers to the Group. The results of subsidiaries
disposed are consolidated up to the date on which control transfers from the Group. Transactions between, and balances with,
subsidiary companies are eliminated together with unrealised gains on intra-Group transactions. Unrealised losses are eliminated to the
extent the asset transferred is not impaired.
A joint venture is a contractual arrangement between the Group and one or more other parties, under which control is shared between
the parties and the Group and other parties have rights to the net assets of the arrangement. A joint venture is accounted for using the
equity method whereby the Group’s share of profits and losses of the joint venture is recognised in the income statement within net
operating costs and its share of net assets and goodwill of the joint venture is recognised as an investment. Unrealised gains and losses
on transactions with the joint ventures are eliminated to the extent of the Group’s interest in the arrangements.
The cost of an acquisition is the fair value of consideration provided, including the fair value of contingent consideration, measured at
the acquisition date. Contingent consideration payable is measured at fair value at each subsequent balance sheet date, with changes in
fair value recorded in the income statement within net operating costs. Identifiable assets and liabilities of an acquired business,
meeting the conditions for recognition under IFRS 3, are recognised at fair value at the date of acquisition. The extent to which the cost
of an acquisition exceeds the fair value of net assets acquired is recorded as goodwill. Costs directly attributable to an acquisition are
recognised in the income statement within net operating costs as incurred.
When a business is acquired, the fair value of its identifiable assets and liabilities are finalised within 12 months of the acquisition date.
All fair value adjustments are recognised with effect from the date of acquisition and consequently may result in the restatement of
previously reported financial results. The accounting policies of acquired businesses are changed, where necessary, to be consistent
with those of the Group.
When a business is disposed, the difference between the fair value of consideration receivable and the value at which the net assets of
the business were recognised, immediately prior to disposal, is recognised in the income statement within net operating costs.
Contingent consideration receivable is measured at fair value at the date of disposal in determining the gain or loss recognised. It is
subsequently measured at fair value at each balance sheet date, with any changes in fair value recognised in the income statement within
net operating costs.
When a foreign subsidiary is disposed, 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 recognised 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’).
Amounts arising on the acquisition, disposal and closure of businesses are excluded from the underlying profit measures used
by the Board to monitor and measure the underlying performance of the Group (see note 9). They comprise gains or losses made on the
disposal or closure of businesses, adjustments to the fair value of contingent consideration payable in respect of acquired businesses
or receivable in respect of disposed businesses and costs directly attributable to the acquisition or disposal of businesses. Amounts arising on
the acquisition, disposal and closure of businesses are included within the appropriate consolidated income statement category, but are
highlighted separately in the notes to the consolidated financial statements.
Meggitt PLC
Annual Report & Accounts 2020
165
2. Summary of significant accounting policies continued
Foreign currencies
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 recognised at exchange rates prevailing on the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are reported at exchange rates prevailing at the balance sheet date. Exchange differences
on retranslating monetary assets and liabilities are recognised in the income statement within net operating costs, except where they
relate to qualifying net investment hedges in which case exchange differences are recognised in hedging and translation reserves within
other comprehensive income.
Foreign subsidiaries
The results of foreign subsidiaries are translated at average exchange rates for the period. Assets and liabilities of foreign subsidiaries
are translated at exchange rates prevailing at the balance sheet date. Exchange differences arising from the retranslation of the results
and net assets of foreign subsidiaries are recognised in hedging and translation reserves within other comprehensive income. Goodwill
and fair value adjustments arising from the acquisition of foreign subsidiaries are treated as assets and liabilities of those subsidiaries
and retranslated at exchange rates prevailing at the balance sheet date.
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 (see page 96 of
the Corporate governance report). The Group has determined that its segments for the year ended 31 December 2020 are Airframe
Systems, Engine Systems, Energy & Equipment and Services & Support.
The principal profit measure reviewed by the CODM is ‘underlying operating profit’ as defined in note 9. A segmental analysis of
underlying operating profit is accordingly provided in the notes to the consolidated financial statements (see note 5).
Segmental information on assets is provided in the notes to the consolidated financial statements in respect of ‘trading assets’, which
are defined to exclude from total assets, amounts which the CODM does not regularly review at a segmental level (see note 5). Excluded
assets comprise centrally managed trading assets, goodwill, other intangible assets (excluding software assets), investments, derivative
financial instruments, deferred tax assets, current tax recoverable, cash and cash equivalents and assets classified as held for sale.
No segmental information on liabilities is provided in the notes to the consolidated financial statements, as no such measure is reviewed
by the CODM.
Revenue from external customers
Revenue is recognised when control of goods or services provided by the Group is transferred to the customer at an amount reflecting
the consideration the Group expects to receive from the customer in exchange for those goods and services.
There are no significant judgements required in either determining the Group’s performance obligations or, because the majority of the
Group’s revenue is recognised when goods or services are delivered to the customer, the timing of revenue recognition. As revenue is
typically recognised at amounts agreed in advance with customers, no significant estimates are required in determining transaction
prices.
Transfer of control – At a point in time
For the majority of goods and services provided by the Group, transfer of control occurs when delivery to the customer takes place
which, depending on the specific terms agreed with the customer, may be when goods are collected from the Group’s facilities or when
they are delivered either to the customer’s facilities or to a third party transport agent. The more common exceptions to this assessment
for when control passes are:
• Bill and hold arrangements. Where, under the terms of a contract, a customer agrees to accept title to goods which remain at the
Group’s facility, and normal credit terms apply, transfer of control occurs when contractual terms have been met, which will typically
be when goods are completed, packaged and segregated at the Group’s facility;
• Goods and services are not distinct performance obligations. Where a contract involves the supply of multiple goods and services, the
Group has concluded that typically each good and service supplied is a distinct performance obligation. However, contracts may require
the Group to provide installation and other services specific to the goods but subsequent to their delivery. Where installation and other
services are specialised, significant and not capable of being performed by another party, control of the goods transfers when installation
and other services are completed by the Group and not when delivery of the goods to the customer takes place;
• Goods are delivered subject to consignment arrangements. Where the Group delivers goods to a customer facility, such as an airline
operator, but retains control of the goods until they are used by the customer, control transfers when the Group is notified by the
customer of their use; and
• Goods supplied subject to customer acceptance. Within the aerospace industry, goods are frequently subject to customer acceptance
testing on delivery, or at the Group’s facilities. Normally the Group is able, through its own testing procedures, to predict with
reasonable certainty that customer acceptance testing will be successful and accordingly customer acceptance testing will not affect
the determination of when control passes. However, where the Group cannot predict the outcome with reasonable certainty, control is
not considered to transfer until the goods have been accepted by the customer.
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Notes to the consolidated financial statements
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2. Summary of significant accounting policies continued
Revenue from external customers continued
Transfer of control – Over time
The principal circumstances in which control transfers over time are where the Group provides goods or services for which it has no
alternative use and has the enforceable right to payment, plus a reasonable profit margin, throughout the life of the contract. An
alternative use exists where there are multiple potential OEMs and/or aftermarket customers to whom the Group could provide those
goods or services.
Certain defence contracts include clauses entitling the Group to be awarded a reasonable profit margin in the event the customer
cancels for convenience. Where the Group considers such rights to be enforceable; is confident that a reasonable profit margin would
be awarded regardless of the stage of contract completion and would apply to all costs incurred by the Group; and the goods and
services have no alternative use, control will transfer over time.
Where a contract is structured such that non-refundable milestone payments are receivable from a customer in advance of work being
performed, and the Group is reasonably certain at contract inception that the cumulative value of such milestone payments will exceed
cumulative costs incurred throughout the duration of the contract, control will transfer over time.
Where control transfers over time, the Group considers costs incurred, as a proportion of total expected contract costs, to be the most
appropriate measure of contract completion. For power-by-the-hour and cost-per-brake-landing contracts this results in revenue being
recognised when maintenance events are performed. Estimates of total contract costs are required to determine the extent to which
revenue is recognised in a period. The Group does not consider that any reasonably foreseeable changes in these estimates could give
rise to a significant impact on revenue recognised in the current period.
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Consideration expected to be received from the customer
The majority of the Group’s contracts provide that consideration is receivable by the Group within a short period after control of goods and
services is transferred to the customer, typically up to three months, and accordingly no significant financing component to the consideration
receivable exists.
Where a contract includes variable consideration, the Group estimates the variable consideration to which it will be entitled at contract
inception and revises the estimate throughout the life of the contract. Estimates are constrained until it is highly probable that the
uncertainty affecting the level of variable consideration has been resolved and a significant reversal of cumulative revenue recognised
will not arise. For power-by-the-hour and cost-per-brake-landing contracts, this requires the Group to estimate the number of aircraft
flying hours or landings expected over the contract.
In certain instances the Group will receive contributions from customers during the development phase of an aerospace programme,
and where the Group expects to retain the intellectual property of the developed technology throughout the programme life. Such
contributions, typically in the form of cash, are treated as customer consideration and initially recognised as a contract liability when
receivable. Contributions are subsequently included in the transaction price attributable to goods and services provided to the
customer during the production phase of the programme. Where the contribution is received more than 12 months in advance of goods
and services being provided to the customer, the financing element of the contribution, if significant, is separately identified and
recognised within finance costs over the period beginning with the receipt of the contribution and ending when the goods and services
are provided by the Group to the customer.
Where the Group makes contributions to customers to participate in aerospace programmes, typically in the form of cash, such
contributions are initially recognised as a contract asset provided the Group has received, or it is highly probable that it will receive,
contracts from the same customer relating to the same aerospace programme (see ‘Programme participation costs’ policy). Where the
contribution is made more than 12 months in advance of goods and services being provided to the customer, the financing element of
the contribution, if significant, is separately identified and recognised within finance income over the period beginning with the payment
of the contribution and ending when the goods and services are provided by the Group to the customer. Other than such contributions,
the Group does not typically incur significant incremental costs to obtain contracts.
Exceptional operating items
Items which are significant by virtue of their size or nature, are considered non-recurring, and which are excluded from the underlying
profit measures used by the Board to monitor and measure the underlying performance of the Group (see note 9), are classified as
exceptional operating items. They include, for instance, costs directly attributable to the integration of acquired businesses, significant
site consolidations and other restructuring costs. In 2020, given their significance, impairment losses and other asset write-downs arising
from the current uncertainty facing the commercial aerospace industry have been treated as exceptional operating items.
Exceptional operating items are presented separately on the face of the income statement, where the Group considers it relevant to an
understanding of the Group’s financial performance. This separate presentation has been adopted for the first time in 2020 in respect of
the impairment losses and other asset write-downs as they are in aggregate of such a significance, that the Group considers separate
presentation is appropriate (see note 10). Exceptional operating items which are not presented separately on the face of the income
statement are included within the appropriate consolidated income statement category, but are highlighted separately in the notes to
the consolidated financial statements.
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2. Summary of significant accounting policies continued
Intangible assets
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of identifiable assets acquired and
liabilities and contingent liabilities assumed. Goodwill is tested annually for impairment and also whenever events or changes in
circumstances indicate the carrying value may not be recoverable. Goodwill is held at cost less amortisation charged prior to
1 January 2004 and accumulated impairment losses.
In the event a business to which goodwill relates is disposed, its attributable goodwill is included in the determination of the gain or loss
on disposal. Where the Group restructures or reorganises its operations, goodwill relating to affected businesses is reallocated using a
relative fair value basis.
Research and development
Research expenditure is recognised as an expense in the income statement as incurred. Development costs incurred on projects where
the Group retains ownership of intellectual property; the related expenditure is separately identifiable and measurable; and
management are satisfied as to the ultimate technical and commercial viability of the project and that the asset will generate future
economic benefits based on all relevant available information, are recognised as an intangible asset. Capitalised development costs are
subsequently held at cost less accumulated amortisation and impairment losses. Amortisation is charged to net operating costs over the
periods expected to benefit, typically up to 15 years, commencing with launch of the product. Development costs not meeting the
criteria for capitalisation are expensed as incurred.
Programme participation costs
Programme participation costs are contributions made to OEMs, typically in the form of cash, in connection with their selection of the
Group’s products for installation onto new aircraft where the Group has obtained principal supplier status. The recognition of
programme participation costs depends on the contractual relationship between the Group and the third party to whom the
contribution is made:
• Where the contribution is made to a third party under a revenue contract (as defined by IFRS 15), or the award of future IFRS 15
revenue contracts on the same aerospace programme from the same customer is highly probable, contributions are initially
recognised as contract assets (see ‘Revenue from external customers’ policy).
• Other contributions are initially recognised as intangible assets and subsequently held at cost less accumulated amortisation and
impairment losses. Amortisation is charged to net operating costs over periods expected to benefit from receiving the status of
principal supplier, through the sale of replacement parts, typically up to 15 years.
Other intangible assets – Assets acquired as part of a business combination
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. Intangible assets are initially recognised at fair value, which is regarded as their cost.
Intangible assets are subsequently held at cost less accumulated amortisation and impairment losses. Amortisation is charged on a
straight-line basis to net operating costs over the estimated useful economic lives of the assets. The nature of intangible assets
recognised and their estimated useful lives are as follows:
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Customer relationships
Technology
Trade names and trademarks
Up to 20 years
Up to 20 years
Up to 15 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 9).
Other intangible assets – Software and other intangible assets
Software and purchased licences, trademarks and patents are held at cost less accumulated amortisation and impairment losses.
Amortisation is charged on a straight-line basis over the estimated useful economic lives of the assets, commencing with the date the
assets are available for use, typically over periods up to 10 years. Residual values and useful lives are reviewed annually and adjusted if
appropriate.
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Notes to the consolidated financial statements
continued
2. Summary of significant accounting policies continued
Property, plant and equipment
Property, plant and equipment are held at cost less accumulated depreciation and impairment losses. Cost includes expenditure directly
attributable to the acquisition of the asset. For right-of-use assets, cost comprises an amount equal to the initial lease liability
recognised, adjusted to include any payments made for the right to use the asset, initial direct costs incurred and estimated costs for
dismantling, removing and restoring the asset at the end of the lease term. Depreciation is charged on a straight-line basis over the
estimated useful economic lives of the assets, commencing with the date the assets are available for use, as follows:
Freehold buildings
Right-of-use assets
Plant and machinery
Furnaces
Fixtures and fittings
Motor vehicles
Up to 50 years
Shorter of the useful economic life of the asset and the lease term
3 to 10 years
Up to 20 years
3 to 10 years
4 to 5 years
Residual values and useful lives are reviewed annually and adjusted if appropriate. When property, plant and equipment are disposed,
the difference between sale proceeds, net of related costs, and the carrying value of the asset is recognised in the income statement.
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, typically at least 12 months. All other borrowing costs are recognised in the
income statement within finance costs as incurred.
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Impairment of non-current non-financial assets
Assets are reviewed for impairment annually and also whenever events or changes in circumstances indicate their carrying value may not be
recoverable. To the extent the carrying value of an asset exceeds its recoverable amount, the difference is recognised as an expense in the
income statement. The recoverable amount used for impairment testing is the higher of value in use and fair value less costs of disposal.
For the purpose of impairment testing, assets are generally tested individually or at a CGU level which represents the lowest level for which
there are separately identifiable cash inflows which are largely independent of cash inflows from other assets or groups of assets. Where it
is not possible to allocate goodwill on a non-arbitrary basis to individual CGUs, it is allocated to the group of CGUs which represent the
lowest level within the Group at which goodwill is monitored by management. At each balance sheet date, previously recognised
impairment losses, other than any relating to goodwill, are reviewed and if no longer required reversed with a corresponding credit to the
income statement.
Inventories
Inventories are recognised at the lower of cost and net realisable value. Cost comprises 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.
Abnormal variations between actual/forecasted volumes and normal operating capacity are excluded from the valuation of inventory.
Net realisable value is based on estimated selling price, less further costs expected to be incurred to completion and disposal. Provision
is made for obsolete, slow moving or defective items where appropriate.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less any impairment losses. To the
extent outflows of economic benefits required to settle an obligation recognised as a provision are recoverable from an insurer or other
third party, an other receivable is recognised. Other receivables 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 receivable which have not been reflected in the undiscounted receivable. The impact of the unwinding of discounting is
recognised in the income statement within finance income.
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.
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2. Summary of significant accounting policies continued
Impairment of financial assets
The Group’s financial assets, which are subject to the expected credit loss (ECL) model, are:
• trade receivables;
• other receivables;
• contract assets relating to conditional rights to consideration on over time contracts; and
• cash and cash equivalents.
For trade receivables and contract assets, the simplified method has been applied whereby ECLs are measured using a lifetime
expected loss allowance. Contract assets relating to conditional rights to consideration on over time contracts are subject to
substantially the same risks as trade receivables on the same types of contracts. The Group therefore applies the same loss rates to
these contract assets that it uses for trade receivables. Expected loss rates are based on historical ageing of receivables adjusted for
risk-based estimates of future losses. The historical data is assessed over a period that reflects the current conditions and may change
year on year.
For other receivables, which principally relate to amounts recoverable from insurers, ECLs are measured using those expected to arise in
the 12 months subsequent to the balance sheet date. For cash and cash equivalents, the Group does not currently anticipate any future
credit losses given the high quality credit rating of the financial institutions with which balances are held.
Trade and other payables
Trade payables are initially recognised at fair value and subsequently measured at amortised cost. Trade payables are not interest
bearing.
The Group operates a supplier financing programme whereby suppliers can elect, on an invoice-by-invoice basis, to receive discounted
early payment from a bank, rather than being paid directly by the Group in line with agreed payment terms. In the event the option for
early payment is taken by a supplier, the amount payable by the Group remains unchanged but is assigned by the supplier under the
programme as payable by the Group to the bank. The Group assesses the programme against indicators to assess if liabilities should be
classified as other payables or borrowings. Under the Group’s current supplier financing programme, contractual rights and obligations
of the supplier and Group are not substantively modified when a supplier elects to participate in the programme, credit terms agreed
between the Group and the bank do not differ significantly from those agreed by the Group with suppliers who do not participate in the
programme; no additional security is provided by the Group to the bank; and to the extent the Group has existing committed or
uncommitted facility arrangements with the same bank, the amounts due under the supplier financing programme are not considered
by the bank to represent utilisation of those existing facilities. Accordingly, provided amounts due to the bank do not exceed agreed
credit terms, they are classified as other payables. If the Group exceeds agreed credit terms, amounts that are overdue are classified as
bank borrowings.
Taxation
Current tax is based on taxable profit for the period, calculated using tax rates enacted or substantively 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 recognised in the Group’s consolidated financial statements. It is calculated using tax rates enacted or
substantively enacted at the balance sheet date. Deferred tax is provided on unremitted earnings of foreign subsidiaries, except where the
Group can control the remittance and it is probable that 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. Current tax and deferred tax are recognised in the income statement, other comprehensive income or directly in equity,
depending on where the item to which they relate has been recognised.
Liabilities for uncertain tax positions are recognised when the Group has a present obligation as a result of past events, it is probable an
outflow of economic benefits will be required to settle the obligation and the amount can be reliably estimated. The Group typically uses a
weighted average of outcomes assessed as possible to determine the liabilities required, unless a single best estimate of the outcome is
considered to be more appropriate. Assessments are made at the level of an individual tax uncertainty, unless uncertainties are considered
to be related, in which case they are grouped together. Liabilities, which are not discounted given the short period over which they are
expected to be utilised, are included within current tax liabilities, together with any liability for penalties, which to date have not been
significant. Any liability relating to interest on tax liabilities is included within finance costs.
Bank and other borrowings
Bank and other borrowings are initially recognised at fair value, being proceeds received less directly attributable transaction costs
incurred. Borrowings are generally subsequently held at amortised cost at each balance sheet date, with any transaction costs amortised
to the income statement over the period of the borrowings using the effective interest method. Certain borrowings however are
designated as fair value through profit and loss at inception, where the Group has interest rate derivatives in place which have the
economic effect of converting fixed rate borrowings into floating rate borrowings. Such borrowings are held at fair value at each balance
sheet date, with any movement in fair value attributable to changes in credit risk recognised in other comprehensive income and any
other movements in fair value recognised in the income statement within net operating costs. Movements in fair value recognised in net
operating costs are excluded from the underlying profit measures used by the Board to monitor and measure the underlying
performance of the Group (see note 9).
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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Notes to the consolidated financial statements
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2. Summary of significant accounting policies continued
Leases
The majority of the Group’s leases relate to property. A lease liability is recognised when the Group obtains control of the right-of-use
asset, that is the subject of the lease. The initial lease liability recognised represents the discounted value of payments due under the
lease less any incentives receivable. Where lease payments are variable, often because they are based on future inflation rates or
indices, they are initially measured using the inflation rate or index value at lease inception. Typically the interest rate implicit in the
Group’s leases cannot be easily determined and accordingly the Group’s incremental borrowing rate, for borrowings of similar amounts
and maturity periods, is used to discount amounts due under the lease. The lease liability is subsequently measured using the effective
interest method, with interest recognised within finance costs.
At inception, the Group evaluates whether it is reasonably certain that any option to extend a lease term will be exercised. Typically,
where the initial lease term for a property used for the Group’s manufacturing operations is for at least five years, the option to extend
the lease term is at market rates and the right-of-use asset is not considered specialised, the Group will not assess the likelihood of the
lease being extended at inception as reasonably certain. The Group continues to evaluate the likelihood of exercising such options
however throughout the initial lease term. When the Group is committed to extending the lease, having considered the alternative
options available and where appropriate lessor consent to the extension has been obtained, the Group will consider the option to be
reasonably certain to be exercised. When an option is reasonably certain to be exercised, the right-of-use asset and lease liabilities
recognised are adjusted to reflect the extended term.
Leases, which at inception have a term of less than 12 months or relate to low-value assets, are not recognised on the balance sheet.
Payments made under such leases are charged to the income statement on a straight-line basis over the period of the lease.
Derivative financial instruments and hedging
The Group uses derivative financial instruments to hedge its exposure to interest rate risk and foreign currency transactional risk.
Derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are
subsequently held 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 subsequent measurement at fair value 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 its inception, the economic 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 effective in offsetting changes in fair values or cash flows of hedged items as
outlined in the objectives and strategy for undertaking the hedging transaction and any changes in fair values must not be dominated
by the effect of credit risk.
To the extent the maturity of the derivative financial instruments are more than 12 months from the balance sheet date, they are
classified as non-current assets or non-current liabilities. All other derivative financial instruments are classified as current assets or
current liabilities.
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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 within net operating costs together with changes in fair value of the hedged item not attributable to credit risk.
Changes in the fair value of the hedged item attributable to credit risk are recognised in other comprehensive income. Any difference
recognised in the income statement between movements in the fair value of the derivative and the hedged item is excluded from the
underlying profit measures used by the Board to monitor and measure the underlying performance of the Group (see note 9). The Group
currently applies fair value hedge accounting to the hedging of fixed interest rate risk on bank and other borrowings.
Net investment hedges
Changes in the fair value of the effective portion of any net investment hedge are recognised in other comprehensive income. Changes
in the fair value of any ineffective portion are recognised immediately in the income statement within net operating costs.
Derivatives not meeting 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 within net operating costs. Gains and losses arising from measuring these derivatives 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 9).
Provisions
Provision is made for environmental liabilities, onerous contracts, product warranty claims and other liabilities 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. In determining the estimated costs to fulfil a contract, the Group includes only
incremental direct costs (e.g. direct materials and direct labour). 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 in the income statement within finance costs.
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2. Summary of significant accounting policies continued
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 credits and costs are
recognised immediately in the income statement.
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 measured
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. Where the Group has a statutory or contractual minimum funding requirement to make contributions to a scheme in respect
of past service and any such contributions are not available to the Group once paid (as a reduction in future contributions, or as a refund
to which the Group has an unconditional right either during the life of the scheme or when the scheme liabilities are settled), an
additional liability for such amounts is recognised.
Remeasurement 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. The Group has no further
obligations once the contributions have been paid.
Share-based compensation
The Group operates a number of share-based compensation schemes, which are subject to non-market-based vesting conditions and
are principally equity-settled. For equity-settled schemes, at the date of grant, the Group estimates the number of awards expected to
vest as a result of vesting conditions. 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 and adjusts the amount recognised cumulatively in the income statement to reflect
the revised estimate. When awards are exercised and the Company issues new shares, the proceeds received, net of any directly
attributable transaction costs, are credited to share capital (nominal value) and share premium.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are deducted from the
proceeds recognised in equity.
Own shares represent shares in the Company that are held by an independently managed Employee Share Ownership Plan.
Consideration paid for own shares, including any incremental directly attributable costs, is recognised as a deduction from retained
earnings.
Dividends
Interim dividends are recognised when paid to shareholders. Final dividends are recognised when approved by the shareholders.
Adoption of new and revised accounting standards
During the year, no new accounting standards, amendments or revisions to existing standards, or interpretations have become effective
which had a significant impact on the Group’s consolidated financial statements.
Recent accounting developments
Amendments to IAS 37 “Onerous contracts – costs of fulfilling a contract”
Under IAS 37, a contract is onerous when the unavoidable costs of meeting the contractual obligations exceed the economic benefits
arising from the contract. Prior to the amendments to IAS 37, there was diversity in practice as to whether the costs of meeting
contractual obligations should comprise only incremental costs (e.g. direct materials and direct labour) or also include an allocation of
other direct costs (e.g. factory overheads) which would be incurred regardless of whether the contract was being performed or not.
Under the Group’s current accounting policy, it only includes incremental direct costs in measuring the costs to fulfil a contract under
IAS 37. The IAS 37 amendments clarify however, that the costs of fulfilling a contract should include an allocation of other direct costs.
The Group has yet to assess the impact of these amendments, which may result in the recognition of additional onerous contracts and
will result in the measurement of existing onerous contract provisions increasing. The amendments are effective for accounting periods
beginning on, or after, 1 January 2022 to open contracts at that date, with any additional amounts required to be recognised as an
adjustment to retained earnings at that date. These amendments have not been early adopted.
A number of other additional new standards and amendments and revisions to existing standards have been published and are
mandatory for the Group’s future accounting periods. These have not been early adopted and are not expected to have a significant
impact on the Group’s consolidated financial statements when they are adopted.
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Notes to the consolidated financial statements
continued
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 (see also pages 47 to 49 of the Chief Financial Officer’s review). 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 the retranslation of
the results of, and net investments in, foreign subsidiaries. The principal exposure arises 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
exposures and can hedge expected exposures up to five years. Details of hedges in place are provided in note 33. The Group does not
hedge exposure arising from the retranslation of the results of foreign subsidiaries. The Group uses borrowings denominated in the
relevant currencies to partially hedge its net investments in foreign subsidiaries.
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 borrowings issued at floating rates expose the Group to cash flow interest rate risk. The Group’s
principal exposure is to changes in US interest rates. The Group’s policy is to generally maintain at least 25% of its net borrowings at
fixed rates and mitigates interest rate risks through interest rate derivatives which have the economic effect of converting fixed rate
borrowings into floating rate borrowings and floating rate borrowings into fixed rate borrowings. Details of hedges in place are provided
in note 33.
Sensitivity analysis
The table below illustrates the sensitivity of the Group’s results to changes in the exchange rate between the US dollar and pound
sterling and to changes in US interest rates 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 those dates, assuming no hedge ineffectiveness.
US dollar/Sterling exchange rate +/- 10%
US yield curve +/- 1%
2020
2019
Income
statement
£’m
37.8
6.3
Equity
£’m
80.3
–
Income
statement
£’m
55.5
10.4
Equity
£’m
86.7
–
The impact on equity from movements in the exchange rate comprises £78.3m (2019: £81.5m) in respect of US dollar net borrowings,
and £2.0m (2019: £5.2m) in respect of other financial assets and liabilities. However, as all US dollar net borrowings are designated as a
net investment hedge, or are held by US subsidiaries, this element of the impact is entirely offset by the retranslation of foreign
subsidiaries. The impact of a 1% movement in the US yield curve includes the effect on the Group’s foreign currency forward contracts
and other financial assets and liabilities.
Credit risk
Concentration of credit risk on the Group’s trade receivables and contract assets is 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. Note 32
details the Group’s credit risk exposures in relation to its customers. 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 assets and financial
liabilities which it controls through only dealing with highly rated counterparties and netting transactions on settlement wherever
possible. The credit quality of the Group’s counterparties is set out in notes 32 and 33.
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Annual Report & Accounts 2020
173
3. Financial risk management continued
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 tables
analyse the Group’s derivative financial instruments and other non-derivative financial liabilities at the balance sheet date. The amounts
disclosed in the tables are the contractual undiscounted cash flows:
Trade and other payables*
Contract liabilities (see note 28)
Derivative financial instruments (Inflows)**
Lease liabilities
Bank and other borrowings (see note 31)
Interest payments on borrowings
Total
Trade and other payables*
Contract liabilities (see note 28)
Derivative financial instruments (Inflows)**
Lease liabilities
Bank and other borrowings (see note 31)
Interest payments on borrowings
Total
Less
than
1 year
£’m
285.8
50.8
(3.9)
19.5
2.2
26.7
381.1
Less
than
1 year
£’m
452.0
50.5
(4.9)
22.9
208.2
26.1
754.8
2020
Between 1
and
5 years
£’m
7.7
19.7
(1.7)
61.4
576.1
71.0
Greater
than
5 years
£’m
0.8
54.2
–
112.1
219.8
7.9
Total
£’m
294.3
124.7
(5.6)
193.0
798.1
105.6
734.2
394.8
1,510.1
2019
Between 1
and
5 years
£’m
1.7
20.5
(2.9)
76.9
463.1
62.5
621.8
Greater
than
5 years
£’m
0.4
56.5
–
110.7
227.1
16.4
411.1
Total
£’m
454.1
127.5
(7.8)
210.5
898.4
105.0
1,787.7
* Excludes social security and other taxes of £10.7m (2019: £12.5m) (see note 27).
** Assumes no change in interest rates from those prevailing at the balance sheet date.
Capital risk management
The Group’s objective when managing its capital structure is to minimise the cost of capital whilst maintaining adequate capital to
protect against volatility in earnings and net assets. The strategy is designed to maximise shareholder return over the long term. The
Group’s capital structure is as follows:
Net debt (see note 43)
Total equity
Debt/equity %
2020
£’m
2019
£’m
773.0
2,032.6
911.2
2,456.8
38.0%
37.1%
The Board believes that in maintaining an efficient balance sheet, a net debt:EBITDA ratio of between 1.5x and 2.5x is appropriate,
whilst retaining the flexibility to move outside the range if appropriate. Further details on the Group’s strategy for delivering net
debt:EBITDA in this range can be found on pages 47 to 49 of the Chief Financial Officer’s review, which includes details on how the
Group has complied with the two principal financial covenant requirements contained in its committed credit facilities.
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Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
4. Critical accounting estimates and judgements
In applying the Group’s accounting policies set out in note 2, the Group is required to make certain estimates and judgements
concerning the future. These estimates and judgements are regularly reviewed and revised as necessary. The estimates and judgements
that have the most significant effect on the amounts included in the consolidated financial statements are described below. Further
consideration of these critical estimates and judgements can be found in the Audit Committee report on pages 105 to 111.
Critical accounting estimates
Impairment of goodwill and other assets
The COVID-19 pandemic has had a dramatic impact in the year on the commercial aerospace industry, with significant uncertainty over the
duration of the current disruption to air traffic movements and the eventual pace and extent of the recovery. Forward-looking assessments
of Available Seat Kilometres (ASKs) and new aircraft production build rates, which impact the Group’s civil aftermarket and OE revenues
and hence its cash flows, are therefore subject to significant estimation uncertainty. The area most impacted by this estimation uncertainty
is the assessment by the Group of the extent to which goodwill has become impaired. Details on the estimates made in making this
assessment, the impairment recognised and the sensitivities of the amounts recorded to reasonably foreseeable changes in estimates are
set out in note 17.
Forward-looking assessments have also significantly impacted the Group’s estimates of the recoverable value of development costs, net
realisable value of inventory and expected credit losses on trade receivables. Note 10 sets out the impairment losses and other asset
write-downs recognised by the Group having completed these assessments. Based on available current information, the Group does not
believe any reasonably foreseeable changes in the estimates made would require a material change to the impairment losses or other asset
write-downs recognised in respect of these individual asset classes in the next 12 months and accordingly these areas are not considered to
be critical estimates.
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Retirement benefit obligations
The liability recognised in respect of retirement benefit obligations is dependent on a number of estimates, principally those relating to
mortality, inflation, salary increases and the rate at which liabilities are discounted. External actuarial advice is taken with regard to the
most appropriate assumptions to use. Further details on these estimates and sensitivities of the retirement benefit obligations to these
estimates are provided in note 36.
Areas no longer considered critical accounting estimates
The Group previously disclosed in its 2019 Annual Report critical estimates in respect of uncertain tax positions and environmental
provisions. The Group no longer considers these to be critical estimates as it does not consider there to be a significant risk of a material
change to the carrying value of amounts recognised in respect of these estimates in the next 12 months. Further details on these
estimates are set out in notes 29 and 34 respectively.
Critical accounting judgements
Going concern
The judgement made by the directors that the going concern basis is appropriate in preparing the consolidated financial statements is a
new critical judgement for 2020. The basis for making the judgement, the assumptions made in reaching the judgement and the results
of the stress testing performed are set out in note 1.
Capitalisation of development costs
The Group is required to make judgements as to when development costs meet the criteria to be recognised as intangible assets. The
majority of capitalised development costs relate to technology developed for aerospace programmes. In such cases, costs are typically
not capitalised until a contract to develop the technology is awarded by a customer as, prior to this date, it is generally not possible to
reliably estimate the point at which research activities conclude and development activities commence. Absent a contract to develop
the technology, the Group also does not believe there is generally sufficient certainty over the future economic benefits that will be
generated from the technology, to allow capitalisation of costs. Once such a contract is awarded, the Group capitalises development
costs provided it expects to retain the intellectual property in the technology throughout substantially all of the life of the aircraft or
engine and it is probable that future economic benefits will flow to the Group. In making a judgement as to whether economic benefits
will flow to the Group, the Group makes estimates of aircraft or engine volumes (taking into account the extent to which the Group has a
sole-source position), aftermarket revenues which are dependent on aircraft utilisation, fleet lives and operator service routines, costs of
manufacture and costs to complete the development activity. During 2020, the Group recognised £41.4m (2019: £54.7m) of
development costs as an intangible asset (see note 18).
Areas no longer considered critical accounting judgements
The Group previously disclosed in its 2019 Annual Report critical judgements specifically arising from the change in divisional structure
implemented in that year, how this impacted the level at which goodwill testing should be performed and the reallocation of goodwill to
the new CGUs and groups of CGUs identified. These are no longer critical judgments following completion of this restructuring in 2019.
Meggitt PLC
Annual Report & Accounts 2020
175
5. Segmental analysis
Analysis by operating segment
The Group manages its businesses under four customer-aligned divisions: Airframe Systems, Engine Systems, Energy & Equipment and
Services & Support. Details of the Group’s divisions can be found on pages 36 to 43 of the Strategic report. Transactions between
divisions are reflected in the segmental information below and are measured at arm’s length. The transactions are eliminated on
consolidation.
Year ended 31 December 2020: Analysis of income statement items
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 9.
Gross segment revenue
Inter-segment revenue
Airframe
Systems
£’m
972.7
(179.6)
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
Total
£’m
338.8
(105.2)
358.5
(23.5)
326.6
(4.2)
1,996.6
(312.5)
Revenue from external customers
793.1
233.6
335.0
322.4
1,684.1
At a point in time
Over time: Power by the hour/cost per brake landing
Over time: Other
Revenue from external customers by basis of recognition
Civil OE
Civil aftermarket
Defence
Energy
Other
Revenue from external customers by end market
Underlying operating profit/(loss) (see note 9)*
Items not affecting underlying operating profit (see note 9)
Operating loss (see note 9)
Finance income (see note 11)
Finance costs (see note 12)
Net finance costs
Loss before tax
Tax credit (see note 13)
Loss for the year
754.2
22.2
16.7
793.1
207.8
176.7
377.7
13.9
17.0
793.1
219.9
4.4
9.3
233.6
95.3
3.8
117.3
0.5
16.7
233.6
161.2
–
173.8
335.0
2.9
0.2
190.9
116.1
24.9
335.0
315.2
7.2
–
1,450.5
33.8
199.8
322.4
1,684.1
–
238.9
82.5
0.6
0.4
306.0
419.6
768.4
131.1
59.0
322.4
1,684.1
120.5
(13.2)
42.4
40.8
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6
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2
8
190.5
(487.8)
(297.3)
0.5
(37.2)
(36.7)
(334.0)
19.8
(314.2)
361.3
57.0
140.6
56.7
Impairment losses on goodwill and intangible assets (see notes 17 and 18)**
Other exceptional operating items***
Amortisation of intangible assets (see notes 18 and 19)****
Depreciation (see note 20)
145.5
27.3
104.6
28.6
201.1
13.1
23.5
13.7
14.7
13.2
10.7
11.2
–
3.4
1.8
3.2
*
Central costs are allocated using a variety of bases designed to reflect the beneficial relationship between costs and segments. Bases include headcount,
payroll costs, gross assets and revenue.
** Of the total impairment losses in the year, £1.1m relating to Engine Systems has been charged to underlying operating profit as defined in note 9, with the
balance of £360.2m charged to exceptional operating items (see note 10).
*** Comprises exceptional operating items other than those relating to impairment losses on goodwill and development costs. Of the total exceptional operating
items in the year of £428.7m (see note 10), central items of £11.5m were not included in segmental exceptional operating items reviewed by the CODM.
**** Of the total amortisation in the year, £52.4m has been charged to underlying operating profit as defined in note 9.
176
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
5. Segmental analysis continued
The Group’s largest customer accounts for 8.9% of revenue (£149.5m). Revenue from this customer arises across all segments. Revenue
recognised in the current year relating to performance obligations satisfied or partially satisfied in the prior year was £3.2m.
Year ended 31 December 2020: Analysis of additions to non-current assets*
Development costs (see note 18)
Programme participation costs (see note 18)
Other purchased intangible assets
Property, plant and equipment
Total
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
28.4
2.6
0.7
36.9
68.6
2.9
–
0.3
13.6
16.8
9.9
–
0.6
16.1
26.6
0.2
–
0.9
3.5
4.6
Total
£’m
41.4
2.6
2.5
70.1
116.6
* Relate to those non-current assets included within segmental trading assets reviewed by the CODM.
At 31 December 2020: Analysis of segmental trading assets
Airframe Systems
Engine Systems
Energy & Equipment
Services & Support
Total segmental trading assets
Centrally managed trading assets*
Goodwill (see note 17)
Other intangible assets excluding software assets
Investments (see note 21)
Derivative financial instruments – non-current (see note 33)
Deferred tax assets (see note 35)
Derivative financial instruments – current (see note 33)
Current tax recoverable
Cash and cash equivalents (see note 26)
Assets classified as held for sale (see note 22)
Total assets
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Total
£’m
1,036.5
356.2
234.3
90.4
1,717.4
167.4
1,519.5
328.6
20.8
15.0
19.2
5.4
11.5
178.6
14.7
3,998.1
* Centrally managed trading assets principally include amounts recoverable from insurers and other third parties in respect of environmental issues relating to
former sites, other receivables and property, plant and equipment of central companies.
Analysis by geography
UK
Rest of Europe
United States of America
Rest of World
Revenue
Revenue is based on the location of the customer.
UK
Rest of Europe
United States of America
Rest of World
Non-current assets
2020
£’m
129.7
270.8
1,027.6
256.0
2019
£’m
178.6
414.0
1,342.5
341.1
1,684.1
2,276.2
31
December
2020
£’m
617.6
184.0
2,094.3
34.1
31
December
2019
£’m
668.3
203.2
2,613.5
28.5
2,930.0
3,513.5
Segmental non-current assets are based on the location of the assets. They exclude investments, other receivables, contract assets,
derivative financial instruments and deferred tax assets.
Meggitt PLC
Annual Report & Accounts 2020
177
5. Segmental analysis continued
Year ended 31 December 2019 (Restated): Analysis of income statement items
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 9. Prior year figures have been restated to reflect the transfer of the external customer-
facing relationships for the UK braking systems maintenance, repair and overhaul (MRO) business from Airframe Systems to Services &
Support with effect from 1 January 2020. The restatement comprised external revenue of £27.9m and underlying operating profit of
£2.8m.
Gross segment revenue
Inter-segment revenue
Airframe
Systems
£’m
1,451.7
(422.2)
Engine
Systems
£’m
341.2
(11.7)
Energy &
Equipment
£’m
Services &
Support
£’m
450.3
(37.8)
Other*
Total
Revenue from external customers
1,029.5
329.5
412.5
At a point in time
Over time: Power by the hour/cost per brake landing
Over time: Other
Revenue from external customers by basis of recognition
Civil OE
Civil aftermarket
Defence
Energy
Other
Revenue from external customers by end market
984.3
35.2
10.0
1,029.5
317.6
305.0
379.3
10.8
16.8
1,029.5
312.6
7.2
9.7
329.5
188.5
5.9
109.6
1.0
24.5
329.5
244.3
–
168.2
412.5
10.4
–
239.2
130.9
32.0
412.5
Underlying operating profit (see note 9)**
Items not affecting underlying operating profit (see note 9)
247.7
27.2
53.4
74.0
Operating profit (see note 9)
Finance income (see note 11)
Finance costs (see note 12)
Net finance costs
Profit before tax
Tax charge (see note 13)
Profit for the year
519.0
(19.9)
499.1
487.5
11.6
–
499.1
–
404.7
94.1
–
0.3
499.1
£’m
5.6
–
5.6
5.6
–
–
5.6
2.1
0.3
2.4
–
0.8
5.6
0.5
£’m
2,767.8
(491.6)
2,276.2
2,034.3
54.0
187.9
2,276.2
518.6
715.9
824.6
142.7
74.4
2,276.2
402.8
(77.5)
325.3
2.2
(40.8)
(38.6)
286.7
(64.1)
222.6
11.8
138.4
57.3
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2
8
Exceptional operating items***
Amortisation of intangible assets (see notes 18 and 19)****
Depreciation (see note 20)
3.2
102.9
28.9
5.7
22.1
13.7
1.5
12.0
12.0
1.4
1.3
2.7
–
0.1
–
*
**
Those businesses which were disposed of prior 1 January 2019, the effective date of the new divisional structure, or were classified as held for sale at that date,
are presented separately as ‘Other’.
Central costs are allocated using a variety of bases designed to reflect the beneficial relationship between costs and segments. Bases include headcount,
payroll costs, gross assets and revenue.
*** Of the total exceptional operating items in the year of £26.2m (see note 10), central items of £14.4m were not included in segmental exceptional operating items
reviewed by the CODM.
**** Of the total amortisation in the year, £48.6m has been charged to underlying operating profit as defined in note 9.
The Group’s largest customer accounted for 8.1% of revenue (£184.3m). Revenue from this customer arises across all segments. Revenue
recognised in 2019 relating to performance obligations satisfied or partially satisfied in the prior year was £3.4m.
178
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Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
5. Segmental analysis continued
Year ended 31 December 2019: Analysis of additions to non-current assets*
Development costs (see note 18)
Programme participation costs (see note 18)
Other purchased intangible assets
Property, plant and equipment
Total
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
40.4
1.6
0.6
38.0
80.6
2.5
–
0.7
21.7
24.9
11.7
–
0.5
10.7
22.9
0.1
–
1.8
5.9
7.8
* Relate to those non-current assets included within segmental trading assets reviewed by the CODM.
At 31 December 2019 (Restated): Analysis of segmental trading assets*
Airframe Systems
Engine Systems
Energy & Equipment
Services & Support
Total segmental trading assets
Centrally managed trading assets**
Goodwill (see note 17)
Other intangible assets excluding software assets
Investments (see note 21)
Derivative financial instruments – non-current (see note 33)
Deferred tax assets (see note 35)
Derivative financial instruments – current (see note 33)
Current tax recoverable
Cash and cash equivalents (see note 26)
Total assets
Total
£’m
54.7
1.6
3.6
76.3
136.2
Total
£’m
1,142.0
437.5
306.8
82.7
1,969.0
162.1
1,966.6
424.0
14.1
14.6
23.3
3.8
11.1
155.3
4,743.9
* Prior year figures have been restated to reflect the transfer of the external customer facing relationships for the UK braking systems MRO business from Airframe
Systems to Services & Support with effect from 1 January 2020. The restatement comprised segmental trading assets of £5.4m.
** Centrally managed trading assets principally include amounts recoverable from insurers and other third parties in respect of environmental issues relating to
former sites, other receivables and property, plant and equipment of central companies.
6. Auditor’s remuneration
Payable to PricewaterhouseCoopers LLP and its associates:
For the audit of the Company and consolidated financial statements in respect of the current year
For the audit of the accounts of any subsidiary of the Company in respect of the current year
Auditor’s remuneration
2020
£’m
2.2
0.6
2.8
2019
£’m
1.9
0.8
2.7
Non-audit fees payable to PricewaterhouseCoopers LLP were £0.1m (2019: £0.1m), consisting of other assurance services.
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Annual Report & Accounts 2020
7. Operating profit
Operating profit is stated after charging:
Raw materials and consumables used
Employee costs (see note 8)
Site related costs*
Change in inventories of finished goods and work in progress
Capitalisation of development costs (see note 18)
Free of charge/deeply discounted manufactured parts (‘FOC’)
Amortisation of capitalised development costs (see note 18)
Amortisation of programme participation costs (see note 18)
Amortisation of intangible assets acquired in business combinations (see note 9)
Amortisation of software and other intangible assets (see note 19)
Depreciation (see note 20)
Loss on disposal of property, plant and equipment
Exceptional operating items (see note 10)
Financial instruments – loss (see note 9)
Share of loss after tax of joint ventures (see note 21)
Other costs**
179
2019
£’m
726.5
815.4
153.0
(64.1)
(54.7)
72.7
28.7
1.1
89.8
18.8
57.3
–
26.2
–
–
129.2
2020
£’m
468.0
659.3
118.3
38.5
(41.4)
53.4
31.5
1.2
88.2
19.7
56.7
1.4
428.7
2.9
3.2
89.3
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6
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2
8
Total
2,018.9
1,999.9
* Site related costs comprise business insurance, energy, establishment and other factory costs.
** Other costs principally comprise engineering materials of £16.8m (2019: £27.3m), freight costs of £22.8m (2019: £37.7m) and professional fees of £27.7m
(2019: £39.2m).
Disclosed as:
Cost of sales
Operating costs
Total
2020
£’m
2019
£’m
1,200.6
818.3
1,458.0
541.9
2,018.9
1,999.9
Total research and development expenditure in the year is £97.9m (2019: £118.5m) of which £20.8m (2019: £23.8m) is charged to cost of
sales or manufacturing work in progress, £35.7m (2019: £40.0m) is charged to net operating costs and £41.4m (2019: £54.7m) is
capitalised as development costs (see note 18).
During 2020, the Group recognised in the income statement government grants of £3.8m, principally in the UK and Singapore, under
the respective employee retention schemes of those countries which were launched as a means to support businesses and employees
during the unprecedented global COVID-19 pandemic. Additionally in 2020, the Group received £2.1m in the US under the CARES Act
from the US Department of Defense to sustain critical industrial base capability for military grade fuel bladders at its Rockmart facility.
These amounts have been recognised in property, plant and equipment as a reduction in the cost of the related capital expenditure
additions in the year.
Operating profit is stated after crediting:
Gain on disposal of property, plant and equipment
Amounts arising on the acquisition, disposal and closure of businesses (see note 9)
Financial instruments – gain (see note 9)
Net foreign exchange gains
Share of profit after tax of joint venture (see note 21)
Other income
Operating income
2020
£’m
–
32.0
–
–
–
5.5
37.5
2019
£’m
0.9
23.5
15.0
3.4
1.7
4.5
49.0
180
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
8. Employee information
Wages and salaries
Social security costs
Retirement benefit costs (see note 36)
Share-based payment (credit)/expense (see note 38)
Other benefits including US medical costs
Employee costs including executive directors
Airframe Systems
Engine Systems
Energy & Equipment
Services & Support
Corporate including shared services
Total persons employed including executive directors
Other persons providing similar services
Total
2020
£’m
530.2
53.0
35.2
(2.5)
43.4
659.3
2020
Average
Monthly
Number
5,324
2,013
1,479
543
510
9,869
651
2019
£’m
660.4
59.6
47.3
10.1
38.0
815.4
2019
Average
Monthly
Number
5,935
2,344
1,911
523
546
11,259
965
10,520
12,224
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9. Reconciliations between profit and underlying profit
Underlying profit is used by the Board to monitor and measure the underlying trading performance of the Group. Items excluded from
underlying profit measures are treated consistently with the way performance is measured under the Group’s short-term and long-term
incentive plans and with covenant requirements defined in the Group’s committed credit facilities.
Operating (loss)/profit
Amounts arising on the acquisition, disposal and closure of businesses
Amortisation of intangible assets acquired in business combinations
Financial instruments – loss/(gain)
Exceptional operating items (see note 10)
Adjustments to operating profit*
Underlying operating profit
(Loss)/profit before tax
Adjustments to operating profit per above
Net interest expense on retirement benefit obligations (see note 36)**
Adjustments to profit before tax
Underlying profit before tax
(Loss)/profit for the year
Adjustments to profit before tax per above
Tax effect of adjustments to profit before tax***
Adjustments to profit for the year
Underlying profit for the year
Notes
a
b
c
2020
£’m
(297.3)
(32.0)
88.2
2.9
428.7
487.8
190.5
(334.0)
487.8
5.7
493.5
159.5
2019
£’m
325.3
(23.5)
89.8
(15.0)
26.2
77.5
402.8
286.7
77.5
6.1
83.6
370.3
(314.2)
222.6
493.5
(51.2)
442.3
128.1
83.6
(17.5)
66.1
288.7
* Of the adjustments to operating profit, £39.0m (2019: £8.1m) relating to exceptional operating items has been charged to cost of sales, with the balance of
£448.8m (2019: £69.4m) included within net operating costs.
** The Board considers net interest expense on retirement benefit obligations to be a non-trading item and accordingly excludes it from underlying profit measures.
*** Of the tax effect of adjustments to profit before tax, £32.5m (2019: £5.0m) relates to exceptional operating items (see note 10).
Meggitt PLC
Annual Report & Accounts 2020
181
9. Reconciliations between profit and underlying profit continued
a. Delivery of the Group’s strategy includes investment in acquisitions that enhance its technology portfolio. The exclusion of significant
items arising from M&A activity is designed by the Board to align short-term operational decisions with this longer-term strategy.
Accordingly amounts arising on the acquisition, disposal and closure of businesses are excluded from underlying profit measures.
These include gains or losses made on the disposal or closure of businesses, adjustments to the fair value of contingent consideration
payable in respect of acquired businesses or receivable in respect of disposed businesses and costs directly attributable to the
acquisition and disposal of businesses.
Gain on disposal of businesses in the current year (see note 44)
Amounts recognised in respect of disposals in prior periods
Amounts arising on the acquisition, disposal and closure of businesses
2020
£’m
(33.3)
1.3
(32.0)
b. For the same reasons as described in note 9a, the Group also excludes from its underlying profit figures the amortisation of
intangible assets acquired in business combinations.
Amortisation of other intangible assets (see note 19)
Less: amortisation of software and other intangible assets (see note 19)
Amortisation of intangible assets acquired in business combinations
2020
£’m
107.9
(19.7)
88.2
2019
£’m
(23.5)
–
(23.5)
2019
£’m
108.6
(18.8)
89.8
c. To ensure appropriate and timely commercial decisions are made as to when and how to mitigate the Group’s foreign currency and
interest rate exposures, gains and losses arising from the marking to market of financial instruments that are not hedge accounted are
excluded from underlying profit measures. The Group does not hedge account for foreign currency forward contracts, cross currency
swap contracts or treasury lock derivatives (refer to note 33 for further details).
When interest rate derivatives qualify to be hedge accounted, any difference recognised in the income statement as hedge
ineffectiveness between movements in fair value of the derivatives and fair value of fixed rate borrowings is excluded from underlying
profit measures.
Movement in fair value of foreign currency forward contracts
Impact of retranslating net foreign currency assets and liabilities at spot rate
Movement in fair value of interest rate derivatives
Movement in fair value of fixed rate borrowings due to interest rate risk (see note 32)
Movement in fair value of cross currency derivatives
Movement in fair value of treasury lock derivative
Financial instruments – loss/(gain)
2020
£’m
(15.9)
6.5
1.6
(1.6)
12.8
(0.5)
2.9
2019
£’m
(25.7)
(0.2)
(0.3)
(0.1)
11.8
(0.5)
(15.0)
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Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
10. Exceptional operating items
Delivery of the Group’s strategy includes the restructuring of its cost base to deliver operational improvements. The exclusion from
underlying profit measures of significant items arising from site consolidations, business restructuring and integration of acquired
businesses is designed by the Board to align short-term operational decisions with this longer-term strategy. In addition, the impact of
the global COVID-19 pandemic, and the resulting uncertainty facing the commercial aerospace industry, have given rise to significant
non-recurring impairment losses and asset write-downs which have been treated as exceptional operating items.
Impairment losses and other asset write-downs
COVID-19 incremental non-recurring costs
Site consolidations
Business restructuring costs and other items
Exceptional operating items
Income statement
Cash flow
Note
a
b
c
d
2020
£’m
374.2
22.0
33.5
(1.0)
428.7
2019
£’m
–
–
20.1
6.1
26.2
2020
£’m
–
18.9
31.6
(1.2)
49.3
2019
£’m
–
–
22.4
4.9
27.3
a. The Group has recognised material impairment losses and other reductions in asset values arising from the current uncertainty facing
the commercial aerospace industry. These have been aggregated and classified as an exceptional operating item given their size and
that they all arise from the unprecedented circumstances that the industry has experienced in 2020. This treatment is consistent with
the Group’s policy, with impairment losses and other asset write downs following the cancellation of the Dassault 5X programme,
treated as an exceptional operating item in 2017.
Following the COVID-19 outbreak, governments have imposed strict travel restrictions contributing to a dramatic reduction in flight
numbers and passenger load factors, the parking by operators of record numbers of aircraft, several airlines filing for bankruptcy
and OE customers significantly reducing production levels. These events, together with uncertainty over the extent and pace of
recovery in the sector, have impacted the reliability of forecasts for commercial aerospace more generally and also for specific aircraft
platforms. Whilst management believes the COVID-19 outbreak is directly responsible for substantially all of the amounts recorded,
it recognises the inherent difficulties in making a reliable estimate of the impact directly attributable to the pandemic and accordingly
has not disclosed the amounts as related solely to COVID-19 or attempted to quantify the COVID-19 specific element.
The amounts recognised in the year comprise:
Impairment of goodwill* (see note 17)
Impairment of development costs (see note 18)
Write down of inventory to net realisable value (see note 23)
Expected credit losses on trade receivables and contract assets (see note 32)
Impairment losses and other asset write-downs
Cost of
sales
£m
Operating
costs
£m
–
–
8.6
–
8.6
335.7
24.5
–
5.4
365.6
Total
£m
335.7
24.5
8.6
5.4
374.2
* The goodwill impairment charge is lower than that recognised in the interim condensed consolidated financial statements solely due to retranslation of the
amounts relating to foreign currency denominated goodwill at the average exchange rates for the year.
To the extent any of the impairment losses or asset write-downs recognised in the current year are reversed in a subsequent period,
the reversals will be recognised as exceptional operating items.
The tax credit in respect of these items was £18.8m.
b. In 2020, given its significance, the Group has excluded income and expenditure directly attributable to the global COVID-19
pandemic, and which is not expected to recur in future periods, from its underlying profit measures. This principally relates to
severance costs arising from the Group’s announcement on 23 April 2020 that it would be reducing its global workforce by around
15% in response to the COVID-19 outbreak. Other amounts include additional cleaning costs; the purchase of personal protective
equipment; and shift premiums and other associated costs arising from social distancing measures. Of the amounts classified as
exceptional operating items, £11.5m has been recognised within cost of sales, with the balance of £10.5m recognised within other
operating costs. The tax credit in respect of these items was £4.9m.
c. Amounts principally relate to costs incurred in respect of the Group’s previously announced plans to reduce its footprint by the end
of 2021. Cumulative costs since the announcement are £97.2m. In 2020, costs are principally in respect of the move to the new facility
at Ansty Park in the West Midlands, UK which will enable the Group to consolidate a range of manufacturing, engineering and
support operations into a single centre of excellence and the move of one of its Energy & Equipment businesses following the
disposal of a number of its product lines in 2019. Of the amounts classified as exceptional operating items, £18.9m has been
recognised within cost of sales with the balance of £14.6m recognised within other operating costs. The tax credit in respect of
these items was £8.8m.
d. In 2020, this includes a credit of £1.5m relating to the reversal of amounts previously recognised as exceptional operating items,
following the recovery of costs from a third party.
8
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Meggitt PLC
Annual Report & Accounts 2020
11. Finance income
Interest on bank deposits
Unwinding of interest on other receivables (see note 34)
Other finance income
Finance income
12. Finance costs
Interest on bank borrowings
Interest on senior notes
Interest on lease liabilities
Unwinding of discount on provisions (see note 34)
Net interest expense on retirement benefit obligations (see note 36)
Amortisation of debt issue costs
Less: amounts capitalised in the cost of qualifying assets (see note 18)
Finance costs
13. Tax
Current tax – current year
Current tax – adjustment in respect of prior years
Deferred tax – origination and reversal of temporary differences
Deferred tax – effects of changes in other statutory tax rates
Deferred tax – adjustment in respect of prior years
Tax (credit)/charge
183
2019
£’m
1.4
0.5
0.3
2.2
2019
£’m
1.2
29.4
5.0
1.2
6.1
0.7
(2.8)
40.8
2019
£’m
60.2
(2.2)
6.4
(2.4)
2.1
64.1
2020
£’m
0.1
0.2
0.2
0.5
2020
£’m
1.3
24.5
6.0
0.7
5.7
0.8
(1.8)
37.2
2020
£’m
29.3
(10.5)
(44.6)
–
6.0
(19.8)
The Finance Act 2020 introduced legislation to cancel the planned reduction in the main rate of corporation tax in the UK from 19% to
17%. The legislation which was substantively enacted in the year, has resulted in an increase in the current tax charge of £1.3m.
Reconciliation of tax (credit)/charge
A reconciliation based on the weighted average tax rate applicable to the (loss)/profit of the Group’s consolidated businesses is as
follows:
(Loss)/profit before tax at weighted average tax rate of 24.7%* (2019: 23.0%)
Effects of:
Impact of impairment losses on intangible assets
Deferred tax - effects of changes in other statutory tax rates
Tax effect of share-based payments
Non-taxable gain on disposal of businesses
Tax concessions
Tax credits and incentives
Additional liabilities in respect of uncertain tax positions
Other permanent differences
Current tax – adjustment in respect of prior years
Deferred tax – adjustment in respect of prior years
Tax (credit)/charge
2020
£’m
(82.4)
67.9
0.3
1.5
(4.8)
0.5
(2.7)
1.3
3.1
(10.5)
6.0
(19.8)
2019
£’m
65.9
–
(2.4)
(0.5)
0.1
(3.5)
(6.2)
6.5
4.3
(2.2)
2.1
64.1
* Calculated by applying enacted tax rates applicable to profits and losses of the Group’s businesses in their respective countries in the year. Accordingly it does
not reflect any changes in tax rates that have been substantively enacted, but are not applicable until future periods. The change in the weighted average
applicable tax rate is caused by changes to the geographical balance of the Group’s profits and losses due to the impact of the exceptional operating items.
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
(credit)/charge for 2020 to increase, or reduce respectively, by approximately £9.6m of which £6.3m arises from the impact of the change in tax rate on net
deferred tax liabilities.
The tax reconciliation for 2020 includes £2.7m (2019: £3.5m) in respect of tax credits and incentives in the US for items such as research
& development and certain foreign derived income, and additional liabilities of £1.3m (2019: £6.5m) in respect of various uncertain tax
positions in the Group (see note 29). The tax reconciliation for 2019 includes £3.5m of tax concessions which allow for income to be
taxed at beneficial rates.
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6
-
2
2
8
184
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
13. Tax continued
Tax relating to components of other comprehensive (expense)/income
Deferred tax – currency translation movements
Deferred tax – movements in fair value of financial liabilities arising
from changes in credit risk
Deferred tax – remeasurement of retirement benefit obligations
Other comprehensive (expense)/income
Deferred tax
Total
Tax relating to items recognised directly in equity
Current tax relating to share-based payment expense
Deferred tax relating to share-based payment expense (see note 35)
Total (charge)/credit
Before
tax
£’m
(79.9)
1.8
(42.6)
(120.7)
2020
Tax
(charge)/
credit
£’m
2.0
(0.4)
10.8
12.4
12.4
12.4
After
tax
£’m
(77.9)
1.4
(31.8)
Before
tax
£’m
(68.7)
–
(89.2)
(108.3)
(157.9)
2019
Tax
(charge)/
credit
£’m
0.3
–
11.9
12.2
12.2
12.2
2020
£’m
(0.2)
(2.0)
(2.2)
After
tax
£’m
(68.4)
–
(77.3)
(145.7)
2019
£’m
1.0
2.0
3.0
14. (Loss)/earnings per ordinary share
Earnings per ordinary share (EPS) is calculated by dividing the profit attributable to owners of the Company by the weighted average
number of shares in issue during the year. The weighted average number of shares excludes treasury shares and any shares bought by
the Group and held during the year by an independently managed Employee Share Ownership Plan Trust (see note 39). The weighted
average number of own shares excluded is 3.6m shares (2019: 4.0m shares). The calculation of diluted EPS adjusts the weighted average
number of shares to reflect the assumption that all potentially dilutive ordinary shares convert. For the Group, this means assuming all
share awards in issue are exercised.
Basic EPS
Potential effect of dilutive ordinary shares
Diluted EPS
*
(Loss)/profit for the year attributable to equity owners of the Company.
2020
Loss*
£’m
Shares
Number ’m
(314.2)
–
(314.2)
777.8
11.6
789.4
EPS
Pence
(40.4)
–
(40.4)
Profit*
£’m
222.6
–
222.6
2019
Shares
Number ’m
773.7
12.1
785.8
EPS
Pence
28.8
(0.5)
28.3
Underlying EPS is based on underlying profit for the year (see note 9) and the same number of shares used in the calculation of basic
EPS. It is reconciled to basic EPS below:
8
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Basic EPS
Adjust for effects of:
Amounts arising on the acquisition, disposal and closure of businesses
Amortisation of intangible assets acquired in business combinations
Financial instruments – loss/(gain)
Exceptional operating items
Net interest expense on retirement benefit obligations
Underlying basic EPS
2020
Pence
(40.4)
(4.2)
9.2
0.3
51.0
0.6
16.5
2019
Pence
28.8
(2.0)
8.8
(1.6)
2.7
0.6
37.3
Diluted underlying EPS is based on underlying profit for the year (see note 9) and the same number of shares used in the calculation of
diluted EPS. Diluted underlying EPS for the year is 16.2 pence (2019: 36.7 pence).
Meggitt PLC
Annual Report & Accounts 2020
185
15. Dividends
In respect of earlier years
In respect of 2019:
Interim of 5.55p per share
Final of 11.95p per share
Dividends paid in cash
2020
£’m
–
–
–
–
2019
£’m
87.5
42.9
–
130.4
On 27 March 2020, the Group announced that the Board had decided that it was prudent to withdraw the recommendation to pay the
final dividend in respect of the year ended 31 December 2019 of 11.95 pence per share. That action, together with a series of significant
measures to reduce costs and tightly manage cash flow, was taken to further strengthen the financial position and liquidity of the Group.
The directors did not recommend the payment of an interim dividend in respect of 2020 and no final dividend in respect of 2020 is to be
proposed at the Annual General Meeting on 29 April 2021 for the same reasons.
16. Related party transactions
During the year, the Group made sales to the joint ventures of £0.7m (2019: £2.9m) and purchases from the joint ventures of £0.6m (2019:
£0.1m). Transactions between the Company and its subsidiaries have been eliminated on consolidation.
The remuneration of key management personnel of the Group, which is defined for 2020 as members of the Board and the Group
Executive Committee, is set out below.
Salaries and other short-term employee benefits
Share-based payment (credit)/expense
Total
2020
£’m
4.7
(0.5)
4.2
2019
£’m
10.8
2.5
13.3
Full details of all elements in the remuneration package of each director, together with directors’ share interests and share awards, are
disclosed in the Directors’ remuneration report on pages 114 to 141 which forms part of these consolidated financial statements.
17. Goodwill
At 1 January
Exchange rate adjustments
Businesses disposed (see note 44)
Transferred to assets classified as held for sale (see note 22)
Impairment losses (see note 10)
At 31 December
2020
£’m
1,966.6
(22.9)
(84.8)
(3.7)
(335.7)
2019
£’m
2,035.3
(57.9)
(10.8)
–
–
1,519.5
1,966.6
The net book amount at 31 December 2020 comprises cost of £1,841.4m (2019: £1,966.6m) and accumulated impairment losses of
£321.9m (2019: £Nil).
An analysis of goodwill by CGU or group of CGUs is shown below:
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4
6
-
2
2
8
Airframe Systems
Engine Systems
Services & Support
Training Systems
Defence Systems
Other
Total
2020
£’m
1,105.3
115.3
206.6
–
30.2
62.1
2019
£’m
1,253.2
316.9
209.9
78.8
31.2
76.6
1,519.5
1,966.6
186
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
17. Goodwill continued
Impairment testing – trigger event
On 19 March 2020, the Group released a trading update in response to the COVID-19 pandemic including an announcement that in light
of the highly fluid market and global macro-economic situation, it was too early to provide earnings guidance for the remainder of the
2020. The Group considered this to be the date a trigger event under IAS 36 ‘Impairment of Assets’ occurred and therefore performed
an additional impairment test of its goodwill balances at the end of March, the closest month end date to this announcement.
For the purpose of impairment testing, the Group used value-in-use calculations to determine recoverable amounts as it did not believe
reliable estimates of fair value less costs of disposal existed given the current market uncertainty. No changes were made in 2020 to the
level at which impairment testing was performed. The key assumptions for the value in use calculations for all CGUs and groups of CGUs
were as follows:
Cash flows covered by management estimates
Estimates of cash flows prepared and approved by management subsequent to the COVID-19 outbreak and which were restricted to
cover a five year period from the date of the impairment testing were used. The Group did not believe there was sufficient reliability
over forecasts in excess of five years for longer periods to be used for impairment testing, even though as a result it is possible that
elements of the aerospace recovery were not captured by using this shorter period. Given the uncertainty affecting forecasts for the
markets in which the Group operates, it did not consider the approach adopted in prior periods of using a single set of cash flows as its
best estimate to be appropriate. Accordingly in 2020, the Group prepared cash flow forecasts covering a number of potential scenarios
which were probability weighted to derive an expected value for the cash flows to be used for impairment testing. The three scenarios
modelled reflected different assumptions as to the extent and pace of recovery in the civil aerospace sector in particular, although the
impacts on other markets of the economic uncertainty arising from COVID-19 were also considered.
The base case scenario assumed civil aftermarket and OE levels recovered progressively from a low point expected to take place in Q2/
Q3 2020, with no second wave of global lock down restrictions. An increasing return of passenger flights was anticipated, with ASKs
returning to pre-COVID-19 levels in 2024. Civil OE deliveries, which reflect the emerging build rates from the Group’s customer base,
remained below 2019 levels until the end of the five-year forecast period. The base case assumed continued robust funding of defence
expenditure, particularly by the US government, and that energy and other markets were not largely impacted by COVID-19 over the
five-year forecast period. A variant of the base case was also developed which, whilst assuming revenue levels consistent with those
reflected in the base case, assumed a slower level of gross margin improvement over the five years. In aggregate a 70% probability was
assigned to these two base case scenarios.
The third scenario, to which a 30% probability was assigned, used the downside scenario developed for the period to the end of 2021
as part of the going concern assessment made in the Group’s interim financial statements. Under this downside scenario, waves of
COVID-19 infection occurred globally, impacting consumers’ ability and confidence to resume travelling, with an effective vaccine not
widely available during the period and reduced consumer discretionary spending power. Weakening ASKs were assumed to result in
production build rates for OEM deliveries to airlines being depressed further. Additionally, as a result of the wider impact of a more
prolonged pandemic, higher levels of government borrowing led to defence spending being constrained. These resulted in the Group’s
civil revenues falling by 15% in 2021, when measured against the 2020 base case assumption. Defence markets experienced growth in
2021, but this was constrained to levels of assumed inflation. Energy and other markets remained depressed as the weaker economic
environment resulted in reduced investment in oil and gas markets. The downside scenario assumed the Group took further appropriate
non-restructuring mitigating actions to reduce its cost base and to preserve cash flows. The scenario assumed a gradual recovery from
2022 onwards, with gross margin percentage improvements year on year consistent with the base case variant model. Under this
scenario, revenues in year five were approximately 10% lower than in either of the base case models.
The sensitivity of the amounts recorded as an impairment charge to the probabilities assigned to the three scenarios is such that
increasing to 80% or reducing to 60% the percentage applied to the two base case scenarios would have resulted in a reduction or
increase in the impairment charge of £70.0m respectively.
Growth rates used for periods beyond those covered by management’s detailed budgets and plans
The Group’s assumptions reflected a number of different inputs: its own estimates taking into account the long term nature of the
industry in which the CGUs operate and their sole source positions, industry estimates where available, the impacts of climate change
and other potential structural changes in markets and long term inflation forecasts for the countries in which the CGUs operate. These
different assumptions were probability weighted to derive an expected growth rate and the lower of this value and the long-term
inflation forecasts for the countries in which the CGUs operate was used. The growth rates used for impairment testing were as follows:
8
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Airframe Systems
Engine Systems
Services & Support
Defence Systems
Other
2020
%
2.0
1.3
2.1
2.2
0.7-2.2
2019
%
2.2
2.0
2.1
2.3
1.0-2.3
Meggitt PLC
Annual Report & Accounts 2020
187
17. Goodwill continued
Discount rates applied to future cash flows
The Group’s post-tax weighted average cost of capital (WACC) was used as the foundation for determining the discount rates to be
applied. The WACC was adjusted to a pre-tax rate and to reflect risks specific to the CGU or group of CGUs not already reflected in its
future cash flows. The pre-tax discount rates used were as follows:
2020
%
2019
%
Airframe Systems
Engine Systems
Services & Support
Defence Systems
Other
10.7
9.1
10.4
10.6
8.1-11.0
10.1
9.2
10.2
10.8
5.9-10.8
As a result of the impairment test, impairment losses of £335.7m was recognised as an exceptional operating item (see note 10). The
impairment charge in the year is analysed by CGU or group of CGUs as follows:
Airframe Systems
Engine Systems
Energy & Equipment – Fribourg
Total
2020
£m
122.3
199.7
13.7
335.7
At the date the impairment testing was concluded, it was considered reasonably foreseeable that the adverse changes in assumptions
set out below could arise and would lead to an increased impairment charge in future accounting periods:
• Probability weighted cash flows move adversely by 5% over the five year period reflecting managements’ assessment of reasonably
foreseeable changes in the probability weightings applied to the three scenarios modelled. This would lead to additional impairment
losses of £213.0m, analysed as losses relating to Airframe Systems of £175.2m, Engine Systems of £31.6m and Energy & Equipment
– Fribourg of £6.2m. Goodwill relating to other CGUs and groups of CGUs would not be impacted.
• Long-term growth rates reduce by 25bps reflecting the weighted average movement seen across the CGUs and groups of CGUs for
which an impairment has been recognised, since the date of the last impairment test. This would lead to an additional impairment
charge of £181.8m, analysed as losses relating to Airframe Systems of £142.7m, Engine Systems of £35.1m and Energy & Equipment
– Fribourg of £4.0m. Goodwill relating to other CGUs and groups of CGUs would not be impacted.
• Discount rates applied to future cash flows increase by 50 basis points reflecting the weighted average movement seen across the
CGUs and groups of CGUs for which an impairment has been recognised, since the date of the last impairment test. This would lead
to additional impairment losses of £195.8m, analysed as losses relating to Airframe Systems of £154.9m, Engine Systems of £36.8m
and Energy & Equipment – Fribourg of £4.1m. Goodwill relating to other CGUs and groups of CGUs would not be impacted.
It was also considered reasonably foreseeable that favourable movements in assumptions of similar levels to those adverse movements
described could occur. However, under IFRIC 10 ‘Interim Financial Reporting and Impairment’ impairment losses recognised in interim
financial statements cannot be reversed in subsequent accounting periods.
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8
188
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
17. Goodwill continued
Impairment testing subsequent to the trigger event
Under the Group’s annual impairment testing cycle, goodwill would normally have been tested at 30 June 2020. In light of the proximity
of this date to the trigger date, for which the impairment testing exercise was concluded in Q3 2020, a separate detailed impairment
test was not performed at 30 June 2020. Management concluded this was appropriate given any test at 30 June 2020 would have
used cash flows derived from the same management estimates used as part of the trigger impairment testing; its assessment of the
probability weightings applied to the three scenarios described above had not changed; there had been no change to its assessment
of long-term growth rates for periods not covered by management estimates or long-term inflation forecasts for these periods; and
discount rates had moved modestly lower (i.e. favourably) between 31 March 2020 and 30 June 2020. Accordingly, the Group concluded
that no additional impairment charge would have been recorded as a result of a detailed impairment test at 30 June 2020.
The Group has also assessed whether, at 31 December 2020, there are indicators that an additional impairment charge would be
required and concluded that such indicators do not exist. This was supported by a review of:
• assets allocated to each of the CGUs and groups of CGUs, for which an impairment loss was recognised following the trigger event
impairment testing. These had decreased modestly between the trigger event impairment test date (after recording the impairment
losses) and 31 December 2020;
• cash flow estimates for the periods covered by management estimates. The Group’s current five-year base case and downside
scenarios, the earlier years of which were used in the going concern assessment judgement (see note 1), and the probability
weightings that management would assign to these scenarios, were compared with the equivalent scenarios used for the trigger
event impairment test. Between the trigger event impairment testing date and 31 December 2020, whilst a second wave of global
lock down restrictions has taken place, there were also a number of vaccines announced which were in the process of obtaining
regulatory approval and which, subsequent to the balance sheet date, have received approval and are being rolled out globally.
When comparing the current cash flow estimates, which reflect these events and also capture a greater part of the anticipated
recovery in the aerospace industry by using the five-year period to 31 December 2025, rather than the five-year period to 31 March
2025 at the impairment test trigger event date, no indicators of an additional impairment were identified;
• growth rates for periods beyond those covered by management estimates. Management’s own estimates of long-term growth rates
had not changed and long-term inflation forecasts for the countries in which the CGUs and groups of CGUs operate have either
remained at the same levels, or increased modestly at 31 December 2020, since the trigger event impairment test date; and
• discount rates at 31 December 2020. These were recalculated at 31 December 2020 and had decreased since the trigger event
impairment test for all CGUs and groups of CGUs, thus increasing their value-in-use.
8
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Meggitt PLC
Annual Report & Accounts 2020
18. Development costs and programme participation costs
At 1 January 2019
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2019
Opening net book amount
Exchange rate adjustments
Additions – Internal development costs
– Cash payments
Transfers from contract assets
Interest capitalised (see note 12)
Businesses disposed
Amortisation - net operating costs
Net book amount
At 1 January 2020
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2020
Opening net book amount
Exchange rate adjustments
Additions – Internal development costs
– Cash payments
Transfers to contract assets
Disposals
Interest capitalised (see note 12)
Businesses disposed (see note 44)
Impairment losses*
Amortisation - net operating costs
Net book amount
At 31 December 2020
Cost
Accumulated amortisation
Net book amount
189
Programme
participation
costs
£’m
38.0
(19.8)
18.2
18.2
(0.7)
–
1.6
–
–
–
(1.1)
18.0
38.4
(20.4)
18.0
18.0
(0.7)
–
2.6
–
–
–
–
–
(1.2)
18.7
39.6
(20.9)
18.7
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4
6
-
2
2
8
Development
costs
£’m
774.9
(217.8)
557.1
557.1
(16.3)
54.7
–
7.2
2.8
(0.9)
(28.7)
575.9
814.4
(238.5)
575.9
575.9
(7.6)
41.4
–
(1.8)
(1.0)
1.8
(19.7)
(25.6)
(31.5)
531.9
800.0
(268.1)
531.9
* Of the impairment losses, £24.5m (2019:£Nil) has been charged to operating exceptional items (see note 10). This relates to programmes where changes in third
party fleet forecasts and customer announcements subsequent to the COVID-19 outbreak have required write-downs of the carrying value of capitalised
development costs to reflect reduced future expected benefits from these programmes.
The net book amount of development costs includes £423.3m (2019: £447.1m) in respect of Airframe Systems which have an estimated
weighted average remaining life of 12.7 years (2019: 13.0 years). Interest has been capitalised using the average rate payable on the
Group’s floating rate borrowings of 1.2% (2019: 2.0%). Tax relief claimed on interest capitalised in the year is £0.3m (2019: £0.5m).
Although the Group has recorded a material impairment loss in the current year, this has arisen as a result of the unprecedented
uncertainty in the aerospace sector in 2020. The Group does not believe there is a significant risk that third party fleet delivery forecasts
will fall further in 2021, such that a material impairment loss will be required to be recognised in the next 12 months.
The Group has individually material balances capitalised on the Airbus A220, Bombardier Global 7500/8000, Embraer 450/500, Irkut MC
21, Gulfstream G500/G600, LEAP-X, Dassault Falcon 6X, Boeing 787 and Airbus A321NEO programmes. These programmes have an
aggregate net book amount of £318.3m at 31 December 2020 (At 31 December 2019 these programmes had an aggregate net book
amount of £319.0m). Of this net book amount, £59.0m (2019: £51.0m) relates to aircraft programmes not yet in service. The Group does
not believe that for any of these programmes there is a significant risk of an OEM bankruptcy or programme cancellation in the next 12
months which would give rise to material loss in 2021.
190
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
19. Other intangible assets
At 1 January 2019
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2019
Opening net book amount
Exchange rate adjustments
Additions
Disposals
Amortisation – net operating costs
Net book amount
At 1 January 2020
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2020
Opening net book amount
Exchange rate adjustments
Businesses disposed (see note 44)
Additions
Disposals
Amortisation – net operating costs
Net book amount
At 31 December 2020
Cost
Accumulated amortisation
Net book amount
8
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Acquired in business combinations*
Customer
relationships
Technology
£’m
£’m
Trade
names and
trademarks
£’m
1,142.6
(717.8)
424.8
424.8
(11.4)
–
–
(68.0)
345.4
1,099.9
(754.5)
345.4
345.4
(6.1)
–
–
–
(67.0)
272.3
1,056.9
(784.6)
272.3
332.3
(232.5)
99.8
99.8
(2.5)
–
–
(21.1)
76.2
321.8
(245.6)
76.2
76.2
(1.1)
–
–
–
(20.5)
54.6
282.5
(227.9)
54.6
32.4
(29.2)
3.2
3.2
(0.1)
–
–
(0.7)
2.4
30.0
(27.6)
2.4
2.4
–
–
–
–
(0.7)
1.7
21.7
(20.0)
1.7
Software
and other
assets
£’m
190.6
(108.0)
82.6
82.6
(1.0)
17.2
(0.4)
(18.8)
79.6
Total
£’m
1,697.9
(1,087.5)
610.4
610.4
(15.0)
17.2
(0.4)
(108.6)
503.6
202.4
(122.8)
79.6
1,654.1
(1,150.5)
503.6
79.6
(0.1)
(0.1)
13.2
(0.4)
(19.7)
72.5
503.6
(7.3)
(0.1)
13.2
(0.4)
(107.9)
401.1
212.2
(139.7)
72.5
1,573.3
(1,172.2)
401.1
* Amortisation of these items is excluded from the Group’s underlying profit figures (see note 9).
The net book amount of customer relationships includes £182.8m (2019: £243.0m) in respect of Airframe Systems and £77.3m (2019:
£87.7m) in respect of Engine Systems. These have estimated weighted average remaining lives of 4.3 years (2019: 5.0 years) and 12.0
years (2019: 12.8 years), respectively.
The net book amount of technology includes £32.0m (2019: £49.4m) in respect of Airframe Systems and £20.6m (2019: £24.2m) in
respect of Engine Systems. These have estimated weighted average remaining lives of 3.3 years (2019: 3.8 years) and 7.7 years (2019: 8.6
years), respectively.
Meggitt PLC
Annual Report & Accounts 2020
20. Property, plant and equipment
At 1 January 2019
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2019
Opening net book amount
Exchange rate adjustments
Businesses disposed
Additions
Disposals
Transfers
Depreciation*
Net book amount**
At 1 January 2020
Cost
Accumulated depreciation
Net book amount
Year ended 31 December 2020
Opening net book amount
Exchange rate adjustments
Businesses disposed (see note 44)
Additions
Transferred to assets classified as held for sale (see note 22)
Disposals
Transfers
Depreciation*
Land and
buildings
£’m
Plant,
equipment
and vehicles
£’m
Right-of-use
assets:
property
£’m
Right-of-use
assets:
other
£’m
218.5
(89.8)
128.7
128.7
(3.1)
(4.8)
16.8
(11.7)
8.8
(8.6)
126.1
221.7
(95.6)
126.1
126.1
(1.7)
(0.4)
30.8
–
(0.2)
1.9
(8.3)
553.6
(357.4)
196.2
196.2
(5.8)
(1.3)
60.6
(1.1)
(9.1)
(32.2)
207.3
158.7
(82.0)
76.7
76.7
(2.1)
(0.1)
54.1
–
0.3
(15.4)
113.5
570.3
(363.0)
207.3
203.8
(90.3)
113.5
207.3
(3.4)
(2.4)
40.8
(0.8)
(1.2)
(1.9)
(32.4)
113.5
(1.6)
(4.0)
10.4
(0.9)
–
–
(14.8)
191
Total
£’m
934.9
(530.9)
404.0
404.0
(11.2)
(6.2)
132.9
(12.8)
–
(57.3)
449.4
1,000.4
(551.0)
449.4
449.4
(6.8)
(6.8)
83.0
(1.7)
(1.6)
–
(56.7)
458.8
993.9
(535.1)
458.8
F
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s
–
1
4
6
-
2
2
8
4.1
(1.7)
2.4
2.4
(0.2)
–
1.4
–
–
(1.1)
2.5
4.6
(2.1)
2.5
2.5
(0.1)
–
1.0
–
(0.2)
–
(1.2)
2.0
5.0
(3.0)
2.0
Net book amount
148.2
206.0
102.6
At 31 December 2020
Cost
Accumulated depreciation
Net book amount**
233.2
(85.0)
148.2
567.5
(361.5)
206.0
188.2
(85.6)
102.6
* The depreciation charge for the year includes £3.8m which has been charged to exceptional operating items (2019: £1.4m).
** Included within the net book amount are assets under construction of £9.2m (2019: £1.1m) relating to land and buildings and £26.9m (2019: £20.2m) relating to
plant, equipment and vehicles.
192
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
21. Investments
The Group’s investments in its joint ventures, Meggitt UTC Aerospace Systems, LLC (UTC Aero) and HiETA Technologies Limited (HiETA)
are accounted for using the equity method and are stated as follows:
At 1 January
Exchange rate adjustments
Additions*
Share of (loss)/profit after tax
At 31 December
2020
£’m
14.1
(0.5)
10.4
(3.2)
20.8
2019
£’m
12.9
(0.5)
–
1.7
14.1
*
In January 2020, the Group acquired a 33% investment in HiETA Technologies Ltd, a UK company with world-leading capabilities in metal additive manufacturing
and a focus on developing new ways to make heat exchangers using additive manufacturing technology. The investment comprised £7.6m paid in cash in the year
and contingent consideration of £2.8m.
Summarised financial information for the joint ventures
The information below reflects amounts presented in the financial statements of the joint ventures adjusted to reflect the Group’s
accounting policies (and not the Group’s share of those amounts unless otherwise stated).
Summarised statement of comprehensive income
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Revenue
Operating (loss)/profit
Finance costs
(Loss)/profit before tax
Tax charge
(Loss)/profit after tax
Total comprehensive (expense)/income
Summarised balance sheet
Property, plant and equipment
Cash and cash equivalents
Other current assets
Total current assets
Financial liabilities (excluding trade payables)
Other liabilities
Total liabilities
Net assets/(liabilities)
Reconciliation of summarised financial information
Net assets/(liabilities) at 1 January
Total comprehensive (expense)/income
Net assets/(liabilities) at 31 December
Group’s interest in joint venture
Goodwill
Group’s investment at 31 December
There are no contingent liabilities relating to the Group’s interest in the joint ventures.
UTC Aero
£’m
10.6
2020
HiETA
£’m
2.4
(2.9)
(0.2)
(3.1)
(0.1)
(3.2)
(3.1)
(3.1)
(0.2)
(3.3)
–
(3.3)
(3.3)
UTC Aero
£’m
2020
HiETA
£’m
2.8
4.3
7.3
11.6
(4.1)
(8.7)
(12.8)
1.6
2.8
0.3
0.6
0.9
(6.6)
(1.0)
(7.6)
(3.9)
UTC Aero
£’m
2020
HiETA
£’m
4.7
(3.1)
1.6
1.1
10.4
11.5
(0.6)
(3.3)
(3.9)
(1.3)
10.6
9.3
Total
£’m
13.0
(6.0)
(0.4)
(6.4)
(0.1)
(6.5)
(6.4)
Total
£’m
5.6
4.6
7.9
12.5
(10.7)
(9.7)
(20.4)
(2.3)
Total
£’m
4.1
(6.4)
(2.3)
(0.2)
21.0
20.8
2019
UTC Aero
£’m
24.1
2.8
(0.1)
2.7
(0.2)
2.5
2.4
2019
UTC Aero
£’m
2.0
3.2
9.1
12.3
(3.1)
(6.5)
(9.6)
4.7
2019
UTC Aero
£’m
2.3
2.4
4.7
3.3
10.8
14.1
Meggitt PLC
Annual Report & Accounts 2020
193
22. Assets classified as held for sale
In December 2020, the sale of the Group’s aircraft ducting business, based in Dunstable UK, together with a small product line from one
of the Group’s other businesses was agreed. Accordingly, the related assets of the business have been classified as a disposal group
held for sale and are presented separately at the balance sheet date together with directly associated liabilities. The sale completed on
30 January 2021 for a cash consideration of £20.2m, subject to an adjustment for working capital in the business at the date of disposal.
At 1 January 2020
Additions
At 31 December 2020
Goodwill (see note 17)
Property, plant and equipment (see note 20)
Inventories
Trade and other receivables
Assets classified as held for sale
Trade and other payables
Contract liabilities
Provisions (see note 34)
Lease liabilities
Liabilities directly associated with assets classified as held for sale
23. Inventories
Raw materials and bought-in components
Manufacturing work in progress
Finished goods and goods for resale
Total
Assets
classified as
held for sale
£’m
–
14.7
14.7
2020
Liabilities
directly
associated
with assets
classified as
held for sale
£’m
–
(3.7)
(3.7)
Total
£’m
–
11.0
11.0
Total
£’m
3.7
1.7
5.2
4.1
14.7
(1.4)
(1.1)
(0.1)
(1.1)
(3.7)
2020
£’m
163.3
160.3
103.3
426.9
2019
£’m
175.8
205.8
108.2
489.8
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8
The cost of inventories recognised as an expense and included within cost of sales is £1,080.9m (2019: £1,353.3m). The cost of
inventories recognised as an expense includes £13.4m (2019: £7.2m) in respect of write-downs of inventory to net realisable value. Of
this write-down, £8.6m (2019: £Nil) has been recognised as an exceptional operating item (see note 10). This relates to inventory held for
specific older aircraft programmes, where customer announcements with regards to the future operations of the existing fleet made
subsequent to the COVID-19 outbreak, have required write-downs of inventory to reflect the new significantly reduced demand. The
cost of inventories recognised as an expense has been reduced by £3.3m (2019: £3.6m) in respect of the reversal of write-downs of
inventory to net realisable value made in previous years.
194
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
24. Trade and other receivables
Trade receivables
Prepayments
Other receivables
Current portion
Other receivables
Non-current portion
Total
2020
£’m
198.8
12.5
39.8
251.1
16.5
16.5
2019
£’m
330.4
18.2
31.3
379.9
17.0
17.0
267.6
396.9
As at 31 December 2020, £7.9 million was due from one of the joint ventures (2019: £4.2 million) and is included within trade receivables.
Other receivables include £18.8m (2019: £17.0m) in respect of amounts recoverable from insurers and other third parties, principally
relating to businesses sold by Whittaker Corporation prior to its acquisition by the Group, of which £5.0m (2019: £2.2m) is shown as
current (see note 34).
The Group does not hold any collateral as security. Trade and other receivables are denominated in the following currencies:
8
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Sterling
US dollar
Euro
Other
Total
25. Contract assets
Conditional rights to consideration on over time contracts
Programme participation cash payments
Current portion
Conditional rights to consideration on over time contracts
Programme participation cash payments
Non-current portion
Total
2020
£’m
46.1
189.3
19.3
12.9
267.6
2020
£’m
45.7
3.1
48.8
24.6
35.0
59.6
2019
£’m
51.7
309.7
23.2
12.3
396.9
2019
£’m
63.8
2.5
66.3
25.4
29.8
55.2
108.4
121.5
Amortisation of programme participation cash payments of £3.1m (2019: £2.6m) has been recognised as a reduction in revenue in the
year. Cumulative catch-up adjustments to revenue recognised in a prior period, arising from changes in the current year in the measure
of progress or contract price on contract assets were £0.4m (2019: £1.2m).
26. 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.
2020
£’m
178.6
–
178.6
2019
£’m
136.2
19.1
155.3
Meggitt PLC
Annual Report & Accounts 2020
195
27. Trade and other payables
Trade payables
Social security and other taxes
Accrued expenses
Other payables
Current portion
Other payables
Non-current portion
Total
2020
£’m
131.4
10.7
58.5
95.9
296.5
8.5
8.5
2019
£’m
222.0
12.5
72.2
157.8
464.5
2.1
2.1
305.0
466.6
Other payables include £23.5m (2019: £48.3m) due to banks in respect of the Group’s supplier financing programme. No amounts due
under the programme met the requirements to be classified as bank borrowings (2019: £Nil).
28. Contract liabilities
Contributions received from customers during development phase of programmes
Cost per brake landing/power by the hour contracts
Other consideration received in advance of performance
Current portion
Contributions received from customers during development phase of programmes
Cost per brake landing/power by the hour contracts
Other consideration received in advance of performance
Non-current portion
Total
2020
£’m
1.7
4.9
44.2
50.8
45.1
5.2
23.6
73.9
2019
£’m
1.0
6.6
42.9
50.5
40.9
9.1
27.0
77.0
124.7
127.5
Revenue recognised in the year relating to amounts recognised as a contract liability at the beginning of the year was £36.1m
(2019: £43.9m). Cumulative catch-up adjustments to revenue recognised in a prior year, arising from changes in the current year in the
measure of progress or contract price on contract liabilities were £0.7m (2019: £2.6m).
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partly satisfied at
31 December 2020 is £208.6m (2019: £366.1m). Of this aggregate amount, the Group expects to recognise £161.4m (2019: £112.5m) as
revenue during 2021, with the balance recognised in more than one year but not more than five years. The Group has taken the practical
expedients available in IFRS 15 not to include amounts relating to contracts which have an expected duration of less than 12 months
when received, or amounts relating to contracts for which revenue is recognised using a method whereby the value to the customer
corresponds to the right to invoice the customer.
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-
2
2
8
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Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
29. Current tax liabilities
UK Controlled Foreign Company (CFC) regime
Other liabilities in respect of uncertain tax positions
Other current tax liabilities
Current tax liabilities
Note
a
b
2020
£’m
18.3
30.8
7.8
56.9
2019
£’m
18.3
28.7
34.6
81.6
a. In April 2019, the European Commission announced its decision that state aid partially applies to one of the UK’s CFC exemptions
that was utilised by the Group. This decision has been appealed by the UK Government and the Group has also lodged its own
separate appeal. There are a number of uncertainties that remain to be resolved, including the results of the appeals processes and,
should these be unsuccessful, the extent to which historical tax benefits received by the Group are deemed to have derived from
financing activities performed in the UK rather than overseas. In making an assessment of the appropriate tax liability related to
historical tax benefits received by the Group under the CFC regime, the Group has estimated that the most likely outcome is that the
appeals will not be successful and accordingly a liability for the Group’s estimated exposure is held.
Pending the outcome of these appeals, the UK tax authorities have an obligation to collect amounts due from UK businesses and the
Group. On 17 December 2020, the Taxation (Post-transition Period) Act 2020 received Royal Assent which gave the UK tax authorities
specific powers to recover amounts considered due from UK businesses and in late February 2021 the Group received an assessment
from the UK tax authority. The assessment is in line with the amounts provided and payments will be made in the first half of 2021. As
such, the Group does not consider there to be a significant risk of a material adjustment to the liability recognised within the next 12
months.
Separate to the state aid uncertainty, the Group is also in discussion with the UK tax authorities over the applicability of one of the
UK’s CFC exemptions utilised by the Group under UK domestic law. As such, in the event that the state aid appeals are successful, an
element of the £18.3m provision would remain until resolution of the discussions with the UK tax authorities.
b. In determining the Group’s tax liabilities, it is also necessary to consider other transactions in key tax jurisdictions for which the
ultimate tax determination is uncertain. The Group’s tax liabilities for these matters reflect a number of estimates where the amount
of tax payable is either currently under audit by the tax authorities or relates to a period which has yet to be audited. These areas
include the deductibility of interest on certain borrowings used to finance acquisitions made by the Group and the value at which
goods and services are transferred between Group companies. The nature of the items, for which a liability is held, is such that the
final outcome could vary from the amounts recognised once a final tax determination is made, although currently none of these
exposures are considered individually material. To the extent the estimated final outcome differs from the tax that has been
provided, adjustments will be made to the liabilities held in the period the determination is made. The Group does not consider
there to be a significant risk of a material adjustment to the liabilities recognised within the next 12 months.
8
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30. Lease liabilities
The Group leases various factories, warehouses, offices, plant and equipment. The following amounts are included in the Group’s
consolidated financial statements in respect of its leases:
Depreciation charge for right-of-use assets (see note 20)
Additions to right-of-use assets (see note 20)*
Net book amount of right-of-use assets (see note 20)
Interest on lease liabilities (see note 12)
Expense related to short-term leases and low-value assets
Net cash outflow for leases**
2020
£’m
16.0
11.4
104.6
6.0
0.6
17.9
2019
£’m
16.5
55.5
116.0
5.0
0.1
1.4
In 2019, this includes £38.4m relating to the new Ansty Park site which has a lease term of 30 years.
*
** Comprises capital payments of £15.4m (2019: £16.2m) and interest payments of £6.0m (2019: £4.1m), less a reverse lease premium received of £3.5m (2019:
£18.9m) relating to the new Ansty Park site.
Analysis of lease liabilities:
In one year or less
In more than one year but not more than five years
In more than five years
Present value of lease liabilities
Current portion
Non-current portion
Present value
of minimum
lease payments
2020
£’m
14.7
45.4
84.2
144.3
14.7
129.6
2019
£’m
16.4
51.8
84.4
152.6
16.4
136.2
Meggitt PLC
Annual Report & Accounts 2020
31. Bank and other borrowings
Bank loans
Other loans
Current portion
Bank loans
Other loans
Non-current portion
Total
Analysis of bank and other borrowings repayable:
In one year or less
In more than one year but not more than five years
In more than five years
Total
Analysis of bank and other borrowings:
Drawn under committed facilities
Drawn under uncommitted facilities
Less unamortised debt issue costs
Fair value adjustment to fixed rate borrowings
Interest accruals
Total
197
2019
£’m
0.2
219.2
219.4
141.4
553.1
694.5
913.9
219.4
467.8
226.7
913.9
898.4
–
(0.8)
6.7
9.6
913.9
2020
£’m
2.2
8.3
10.5
43.7
753.1
796.8
807.3
10.5
577.4
219.4
807.3
795.9
2.2
(2.4)
3.3
8.3
807.3
Debt issue costs are amortised over the period of the facility to which they relate. The Group has no secured borrowings.
The Group has the following committed facilities at notional value:
2010 Senior notes (USD125.0m)
2016 Senior notes (USD600.0m)
2020 Senior notes (USD300.0m)
Syndicated credit facility (USD750.0m)
Bilateral facility (USD125.0m)
Bilateral facility (GBP100.0m)
Bilateral facility (GBP45.0m)
Committed facilities
Drawn
£’m
91.6
439.5
219.8
–
–
–
45.0
795.9
2020
Undrawn
£’m
–
–
–
549.4
91.5
100.0
–
Total
£’m
91.6
439.5
219.8
549.4
91.5
100.0
45.0
740.9
1,536.8
Drawn
£’m
302.8
454.2
–
141.4
–
–
–
898.4
2019
Undrawn
£’m
–
–
–
426.4
94.6
100.0
45.0
666.0
Total
£’m
302.8
454.2
–
567.8
94.6
100.0
45.0
1,564.4
The Group issued USD400m of loan notes to private placement investors in 2010. The notes comprised three tranches as follows:
USD125m carried an interest rate of 5.02% and were repaid in June 2020; USD150m carried an interest rate of 5.17% and were repaid in
October 2020; and the remaining USD125m carry an interest rate of 5.12% and are due for repayment in June 2022. These loan notes are
designated as fair value through profit and loss and are in a hedge relationship with the Group’s interest rate swaps.
The Group issued USD600m of loan notes to private placement investors in 2016. The notes comprise two tranches as follows:
USD300m carry an interest rate of 3.31% and are due for repayment in July 2023; and USD300m carry an interest rate of 3.60% and are
due for repayment in July 2026. These loan notes are designated as net investment hedges of the net assets of USD denominated
subsidiaries.
The Group issued USD300m of loan notes to private placement investors in 2020. The notes comprise two tranches as follows: USD100m
carry an interest rate of 2.78% and are due for repayment in November 2023; and USD200m carry an interest rate of 3.00% and are due
for repayment in November 2025.
In 2014, the Group secured a five-year USD900m syndicated revolving credit facility which the Group reduced to USD750m in 2017 and
which matures in September 2021. During 2020, the Group secured a new one year USD575m multi-currency facility maturing in
September 2022 which will replace the USD750m facility in September 2021. At 31 December 2020, the amounts drawn under the
facility are £Nil (2019: £141.4m). Borrowings under the facility are subject to interest at floating rates which are linked to LIBOR.
During 2019, the Group signed three new committed term loan bilateral facility agreements with its relationship banks. They comprise
a USD125m facility with Bank of America, a GBP100m facility with Sumitomo Mitsui Banking Corporation and a GBP45m facility with
Caixabank. The USD facility matures in June 2023 and the two GBP facilities mature in January 2024. Borrowings under the facilities are
subject to interest at floating rates which are linked to LIBOR.
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8
198
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
31. Bank and other borrowings continued
Committed facilities expire as follows:
In one year or less*
In more than one year but not more than five years
In more than five years
Committed facilities
Drawn
£’m
–
576.1
219.8
795.9
2020
Undrawn
£’m
128.2
612.7
–
Total
£’m
128.2
1,188.8
219.8
740.9
1,536.8
Drawn
£’m
208.2
463.1
227.1
898.4
2019
Undrawn
£’m
–
666.0
–
666.0
Total
£’m
208.2
1,129.1
227.1
1,564.4
* Comprises the USD175.0m element of the USD750.0m revolving credit facility which expires in September 2021 and will not be replaced by the new USD575.0m
facility.
The Group also has various uncommitted facilities with its relationship banks. At 31 December 2020, £2.2m (2019: £Nil) was drawn under
these facilities.
Additionally, the Group has been confirmed as an eligible issuer under the Bank of England’s and HM Treasury’s Covid Corporate
Financing Facility (CCFF), under which the Group can draw up to £600m. The Group is eligible to issue commercial paper under this
facility (subject to certain terms and restrictions) up to and including 22 March 2021, with a maturity period of up to 12 months. The
Group has no commercial paper issued under this facility at 31 December, 2020 or at the date these consolidated financial statements
were approved by the Board.
After taking account of financial derivatives entered into by the Group that alter the interest basis of its financial liabilities, the interest
rate exposure on bank and other borrowings is:
8
2
2
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6
4
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At 31 December 2020:
US dollar*
Swiss franc
Euro
Sterling
Gross bank and other borrowings
Less: unamortised debt issue costs
Bank and other borrowings
Floating
Fixed
Total
£’m
(133.1)
–
–
45.0
(88.1)
(1.4)
(89.5)
£’m
672.9
166.4
58.5
–
897.8
(1.0)
896.8
£’m
539.8
166.4
58.5
45.0
809.7
(2.4)
807.3
Fixed rate borrowings
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
2.4
3.1
* Part of the proceeds from the issue of USD 300m senior notes at fixed interest rates in the year, has been used to reduce the level of gross USD borrowings held
at floating rates. Prior to this reduction, the Group had entered cross currency derivatives, which have not yet matured, and which convert USD floating rate
borrowings into fixed rate borrowings denominated in Swiss francs and euros (see note 33). At 31 December 2020, the notional amounts of these cross currency
swaps exceeds the gross value of USD floating rate borrowings and accordingly a negative value is reported in the table above for floating rate USD borrowings
after taking account of these financial derivatives.
At 31 December 2019:
US dollar
Swiss franc
Euro
Sterling
Gross bank and other borrowings
Less: unamortised debt issue costs
Bank and other borrowings
Floating
Fixed
Total
£’m
76.1
–
–
80.7
156.8
(0.1)
156.7
£’m
546.1
156.6
55.2
–
757.9
(0.7)
757.2
£’m
622.2
156.6
55.2
80.7
914.7
(0.8)
913.9
Fixed rate borrowings
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
2.5
3.2
The weighted average interest rate reflects the relative impact of interest rates based on the principal amounts and the duration of
borrowings.
Meggitt PLC
Annual Report & Accounts 2020
199
31. Bank and other borrowings continued
Hedges of net investments in foreign subsidiaries
The Group manages risks in respect of net operating assets held in foreign currencies by holding foreign currency denominated loans.
Carrying value at 1 January
Gain recognised in net finance costs due to movements in accrued interest and debt costs
Gain recognised in other comprehensive income due to exchange rate movements
Carrying value at 31 December
2020
£’m
461.1
(0.1)
(14.7)
446.3
2019
£’m
477.6
(0.2)
(16.3)
461.1
Cumulative translation adjustments recognised in other comprehensive income in relation to continuing net investment hedge loans are
a gain of £15.8m (2019: £1.1m gain). Net investment hedges are considered effective unless the value of the hedging instrument exceeds
the value of the hedged item. No ineffectiveness arose in either 2020 or 2019.
32. Financial instruments
At 31 December 2020:
Held at fair value
Held at amortised cost
Non-current:
Other receivables (see note 24)
Contract assets*
Derivative financial instruments (see note 33)
Current:
Trade and other receivables**
Contract assets*
Derivative financial instruments (see note 33)
Cash and cash equivalents (see note 26)
Through
profit
& loss
£’m
–
–
9.9
–
–
5.4
–
Financial assets
15.3
5.1
Current:
Trade and other payables***
Contract liabilities (see note 28)
Derivative financial instruments (see note 33)
Lease liabilities (see note 30)
Bank and other borrowings (see note 31)
Non-current:
Other payables (see note 27)
Contract liabilities (see note 28)
Derivative financial instruments (see note 33)
Lease liabilities (see note 30)
Bank and other borrowings (see note 31)
Financial liabilities
Total
–
–
(21.6)
–
–
–
–
(0.3)
–
(95.0)
(116.9)
(101.6)
Derivatives
designated
for
hedging
£’m
Assets
Liabilities
Total
book
value
Total
fair
value
£’m
£’m
£’m
£’m
–
–
5.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
F
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a
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c
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S
t
a
t
e
m
e
n
t
s
–
1
4
6
-
2
2
8
16.5
24.6
–
238.6
45.7
–
178.6
504.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(285.8)
(50.8)
–
(14.7)
(10.5)
(8.5)
(73.9)
–
(129.6)
(701.8)
16.5
24.6
15.0
238.6
45.7
5.4
178.6
524.4
(285.8)
(50.8)
(21.6)
(14.7)
(10.5)
(8.5)
(73.9)
(0.3)
(129.6)
(796.8)
16.5
24.6
15.0
238.6
45.7
5.4
178.6
524.4
(285.8)
(50.8)
(21.6)
(14.7)
(10.5)
(8.5)
(73.9)
(0.3)
(129.6)
(813.1)
(1,275.6)
(1,392.5)
(1,408.8)
5.1
504.0
(1,275.6)
(868.1)
(884.4)
* Excludes non-current programme participation costs of £35.0m and current programme participation costs of £3.1m (see note 25).
** Excludes prepayments of £12.5m (see note 24).
*** Excludes social security and other taxes of £10.7m (see note 27).
200
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
32. Financial instruments continued
At 31 December 2019:
Held at fair value
Held at amortised cost
Non-current:
Other receivables (see note 24)
Contract assets*
Derivative financial instruments (see note 33)
Current:
Trade and other receivables**
Contract assets*
Derivative financial instruments (see note 33)
Cash and cash equivalents (see note 26)
Financial assets
Current:
Trade and other payables***
Contract liabilities (see note 28)
Derivative financial instruments (see note 33)
Lease liabilities (see note 30)
Bank and other borrowings (see note 31)
Non-current:
Other payables (see note 27)
Contract liabilities (see note 28)
Derivative financial instruments (see note 33)
Lease liabilities (see note 30)
Bank and other borrowings (see note 31)
Financial liabilities
Total
Through
profit
& loss
£’m
–
–
9.5
–
–
2.0
–
11.5
–
–
(16.5)
–
(134.7)
–
–
(4.6)
–
(99.9)
(255.7)
(244.2)
Derivatives
designated
for
hedging
£’m
Assets
Liabilities
Total
book
value
Total
fair
value
£’m
£’m
£’m
£’m
–
–
5.1
–
–
1.8
–
6.9
–
–
–
–
–
–
–
–
–
–
–
17.0
25.4
–
361.7
63.8
–
155.3
623.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(452.0)
(50.5)
–
(16.4)
(84.7)
(2.1)
(77.0)
–
(136.2)
(594.6)
17.0
25.4
14.6
361.7
63.8
3.8
155.3
641.6
(452.0)
(50.5)
(16.5)
(16.4)
(219.4)
(2.1)
(77.0)
(4.6)
(136.2)
(694.5)
17.0
25.4
14.6
361.7
63.8
3.8
155.3
641.6
(452.0)
(50.5)
(16.5)
(16.4)
(220.7)
(2.1)
(77.0)
(4.6)
(136.2)
(702.7)
(1,413.5)
(1,669.2)
(1,678.7)
6.9
623.2
(1,413.5)
(1,027.6)
(1,037.1)
* Excludes non-current programme participation costs of £29.8m and current programme participation costs of £2.5m (see note 25).
** Excludes prepayments of £18.2m (see note 24).
*** Excludes social security and other taxes of £12.5m (see note 27).
Fair value measurement and hierarchy
For trade and other receivables, contract assets, cash and cash equivalents, trade and other payables, contract liabilities and floating
rate bank and other borrowings, fair values approximate to book values due to the short maturity periods of these financial instruments.
For trade and other receivables and contract assets, allowances are made within their book value for credit risk. Lease liabilities are
outside the scope of IFRS 7 “Financial Instruments: Disclosures” with regards to fair value disclosures.
Derivative financial instruments measured at fair value, are classified as level 2 in the fair value measurement hierarchy, as they have
been determined using significant inputs based on observable market data. The fair values of interest rate derivatives have been
derived from forward interest rates based on yield curves observable at the balance sheet date and contractual interest rates. The fair
values of foreign currency forward contracts have been derived from forward exchange rates observable at the balance sheet date and
contractual forward rates. The fair values of cross currency derivatives have been derived from forward interest rates based on yield
curves observable at the balance sheet date, forward exchange rates observable at the balance sheet date and contractual interest and
forward rates. Credit risk is not significant for these instruments.
The current and non-current elements of fixed rate bank and other borrowings measured at fair value, are classified as level 3 in the fair
value measurement hierarchy, as they have been determined using significant inputs which are a mixture of those based on observable
market data (interest rate risk) and those not based on observable market data (credit risk). The fair values attributable to interest rate
risk have been derived from forward interest rates based on yield curves observable at the balance sheet date and contractual interest
rates, with the credit risk margin kept constant. The fair values attributable to credit risk have been derived from quotes from lenders for
borrowings of similar amounts and maturity periods. The same methods of valuation have been used to derive the fair values of the
current and non-current elements of fixed rate bank and other borrowings which are held at amortised cost, but for which fair values are
provided in the tables above.
There were no transfers of assets or liabilities between levels of the fair value hierarchy in the year.
8
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Annual Report & Accounts 2020
201
32. Financial instruments continued
Impairment of financial assets
Trade receivables and contract assets are stated after a loss allowance of £12.4m (2019: £6.1m). Movements in the loss allowance during
the year are as follows:
2020
£’m
2019
£’m
At 1 January
Exchange rate adjustments
Businesses disposed
Utilised
Charge to income statement – net operating costs*
At 31 December
6.1
(0.2)
(0.2)
(1.1)
7.8
12.4
7.1
(0.1)
(1.6)
0.7
6.1
*
Includes £5.4m (2019: £Nil) which has been charged to exceptional operating items (see note 10). This relates to additional expected credit loss allowances
recognised as a result of the uncertainty facing the commercial aerospace industry and a number of airline operator bankruptcies subsequent to the COVID-19
outbreak.
The loss allowance is determined by reference to the ageing of gross balances which at 31 December 2020 is as follows:
Current
Up to 1 month past due
Up to 2 months past due
Up to 3 months past due
More than 3 months past due
Gross balances
Loss allowance
Total
Represented by:
Trade receivables – current (see note 24)
Contract assets – current (see note 25)
Contract assets – non-current (see note 25)
At 31 December
2020
£’m
235.7
20.7
7.3
4.1
13.7
281.5
(12.4)
269.1
198.8
45.7
24.6
269.1
2019
£’m
351.0
41.3
14.3
5.1
14.0
425.7
(6.1)
419.6
330.4
63.8
25.4
419.6
F
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a
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c
i
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t
a
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m
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–
1
4
6
-
2
2
8
The maximum exposure to credit risk at the balance sheet date is the fair value of each class of financial asset reported above.
Other receivables and cash and cash equivalents are also subject to the impairment requirements of IFRS 9, however the identified
impairment loss was not significant. The credit quality of the financial institutions where cash and cash equivalents is held are as follows:
Moody’s rating:
Aa
A
Baa
Total
2020
£’m
176.0
2.2
0.3
178.5
2019
£’m
122.3
33.0
–
155.3
202
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
32. Financial instruments continued
Financial liabilities designated as fair value through profit and loss
The Group designates loans that are in a hedge relationship with interest rate swaps as fair value through profit and loss. The difference
between fair values and contractual amounts at maturity of the current and non-current elements of bank and other borrowings
designated as fair value through profit and loss is as follows:
Contractual amount payable at maturity
Cumulative fair value adjustments arising from changes in interest rate risk
Cumulative fair value adjustments arising from changes in credit risk
Accrued interest and debt costs
Fair value
Changes in fair value in the year are as follows:
Bank and other borrowings at fair value through profit and loss:
At 1 January
Exchange rate adjustments
Settled upon maturity
Gain recognised in net operating costs due to interest rate risk (see note 9)
(Gain)/loss recognised in net finance costs due to movements in accrued interest and debt costs
Gain recognised in other comprehensive income due to changes in credit risk
At 31 December
2020
£’m
91.6
4.8
(1.5)
0.1
95.0
2019
£’m
227.1
6.4
0.3
0.8
234.6
2020
£’m
2019
£’m
234.6
2.6
(138.1)
(1.6)
(0.7)
(1.8)
242.7
(8.1)
–
(0.1)
0.1
–
95.0
234.6
The largest movement in credit spread seen in a six-month period since inception of the borrowings is 100 basis points. A 100 basis
point movement in the credit spread, used as an input in determining fair values at 31 December 2020, would impact other
comprehensive income by approximately £1.4m.
33. Derivative financial instruments
At 31 December 2020:
Cross currency swaps – not hedge accounted
Foreign currency forward contracts – not hedge accounted
Current portion
Interest rate swaps – fair value hedges
Foreign currency forward contracts – not hedge accounted
Non-current portion
Total
Contract or underlying
principal amount
Fair value
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
–
182.6
182.6
91.6
172.0
263.6
446.2
(299.5)
(40.3)
(339.8)
–
(85.7)
(85.7)
(425.5)
–
5.4
5.4
5.1
9.9
15.0
20.4
(20.0)
(1.6)
(21.6)
–
(0.3)
(0.3)
(21.9)
8
2
2
-
6
4
1
–
s
t
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e
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Meggitt PLC
Annual Report & Accounts 2020
203
33. Derivative financial instruments continued
At 31 December 2019:
Interest rate swaps – fair value hedges
Cross currency swaps – not hedge accounted
Foreign currency forward contracts – not hedge accounted
Current portion
Interest rate swaps – fair value hedges
Foreign currency forward contracts – not hedge accounted
Non-current portion
Total
Credit quality of derivative financial assets
The credit quality of derivative financial assets is as follows:
Moody’s rating:
Aa
A
Total
Contract or underlying
principal amount
Fair value
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
132.4
–
56.2
188.6
94.6
207.4
302.0
490.6
–
(211.8)
(216.5)
(428.3)
–
(199.2)
(199.2)
(627.5)
1.8
–
2.0
3.8
5.1
9.5
14.6
18.4
2020
£’m
8.1
12.3
20.4
–
(6.8)
(9.7)
(16.5)
–
(4.6)
(4.6)
(21.1)
2019
£’m
6.6
11.8
18.4
The maximum exposure to credit risk at the balance sheet date is the fair value of the derivative financial instruments.
Interest rate swaps
The Group currently holds fixed to floating interest rate swap contracts, denominated in US dollars, that have the economic effect of
converting fixed rate US dollar borrowings into floating rate US dollar borrowings. To the extent they continue to meet the criteria for
hedge accounting, the contracts are accounted for as fair value hedges.
The total notional principal amount of outstanding interest rate swap contracts at 31 December 2020 is USD125m (2019: USD300m)
which will expire in 2022. The weighted average floating rate payable on the swap contracts in 2020 was LIBOR +1.1% (2019: LIBOR
+1.1%).
Any difference recognised in the income statement between movements in the fair value of the interest rate swaps and the fixed rate
borrowings is considered to be hedge ineffectiveness. Possible sources of ineffectiveness arise from changes in the credit risk of either
party to the derivative contract and timing differences on cashflows between the derivative and hedged item. The fair value hedge
ineffectiveness recognised in the year is £Nil (2019: credit of £0.4m) (see note 9).
Cross currency swaps
The cross currency swap contracts are used to synthetically convert US dollar denominated floating borrowings into Swiss franc and
euro denominated fixed borrowings to commercially hedge against Swiss franc and euro denominated assets of foreign subsidiaries.
The contracts do not qualify to be hedge accounted.
Foreign currency forward contracts
Although the Group uses foreign currency forward contracts to hedge against foreign currency exposures, it has decided the costs of
meeting the extensive documentation requirements to be able to apply hedge accounting under IFRS 9 ‘Financial Instruments’ are not
merited. Foreign currency forward contracts are analysed as follows:
Fair value:
US dollar/sterling forward sales
Forward sales denominated in other currencies
Total
2020
2019
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
12.7
2.6
15.3
(1.7)
(0.2)
(1.9)
11.4
0.1
11.5
(10.8)
(3.3)
(14.1)
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
–
1
4
6
-
2
2
8
204
34. Provisions
Notes to the consolidated financial statements
continued
Environmental
(a)
£’m
66.7
(2.7)
–
–
16.0
–
0.7
–
(8.0)
72.7
Onerous
contracts
(b)
£’m
Provisions
Warranty
costs
(c)
£’m
13.3
(0.3)
(0.7)
–
6.5
(0.2)
–
(0.5)
(5.1)
13.0
14.8
(0.1)
(0.1)
(0.1)
8.0
(2.2)
–
–
(4.3)
16.0
At 1 January 2020
Exchange rate adjustments
Businesses disposed
Transferred to assets classified as held for sale (see note 22)
Additional provisions/(receivables recognised) in year*
Unused amounts reversed*
Charge/(credit) to net finance costs (see notes 12 and 11
respectively)
Transfers to trade and other payables
Amounts (utilised)/settled
At 31 December 2020
Current
Non-current
At 31 December
Meggitt PLC
Annual Report & Accounts 2020
Other
Total
(d)
£’m
5.8
0.3
–
–
10.7
(2.4)
–
–
(3.2)
11.2
£’m
100.6
(2.8)
(0.8)
(0.1)
41.2
(4.8)
0.7
(0.5)
(20.6)
112.9
2020
£’m
32.6
80.3
Environmental
receivables
(a)
£’m
(17.0)
0.7
–
–
(16.0)
–
(0.2)
–
13.7
(18.8)
2019
£’m
36.2
64.4
112.9
100.6
* Amounts in respect of environmental provisions and £7.8m in respect of other provisions have been recognised in net operating costs. Amounts in respect of
onerous contracts, warranty costs and £2.9m in respect of other provisions have been recognised in cost of sales.
a. 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. In determining the provision to be recognised, advice
is received by the Group from its environmental consultants and legal advisors to assist in the estimate of the level and timing of
remediation costs, including the period for which operations and monitoring (O&M) activities will be required. These estimates are
revised regularly as remediation activities progress and further information is obtained on the extent of activities for which the Group
is responsible. As the cumulative period for which groundwater testing has been performed increases, the results of the testing
provide a more reliable estimate of the extent to which these activities will continue to be required in the future. Over the last three
years, based on testing performed, the estimated period for which O&M activities will be required has increased by five years at the
majority of sites. Given the recent revisions to O&M periods, the Group no longer believes that it is reasonably foreseeable that any
increases to O&M periods will be required in the next 12 months which would result in a material increase to the level of provision
required. Whilst annual reductions and increases in estimated site remediation costs, excluding those relating to increases in O&M
periods, have been experienced over recent years, the Group no longer believes that it is reasonably foreseeable that any changes to
these estimates in the next 12 months would result in a material adjustment to the level of provision required. Provisions are expected
to be substantially utilised over the next 20 years and are discounted using an appropriate discount rate.
The Group has insurance arrangements in place which, together with other agreements with third parties, partly mitigates the
ongoing impact of historical environmental events on the Group. A receivable has been established to the extent these costs are
virtually certain to be recoverable under the Group’s environmental insurance policies or from other parties. Movements in the
receivable are shown in the table above (see also note 24). The Group is currently in litigation with a number of historic insurers over
the extent to which they are responsible for past and future remediation costs. No amounts have been recognised as receivables in
respect of these actions as recovery is not virtually certain. The Group does not currently believe it is reasonably foreseeable that in
the next 12 months, material amounts will be recognised as receivables in respect of these ongoing legal actions.
b. Provision has been made for estimated losses under certain trading contracts. Provisions are expected to be substantially utilised
over the next five years and are not discounted given the short period over which they will be utilised.
c. Provision has been made for product warranty claims. Provisions are expected to be substantially utilised over the next three years
and are not discounted given the short period over which they will be utilised.
d. 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, included within other provisions, for certain claims which cannot be recovered from insurers. 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. In addition, a provision of £6.4m has been recognised in the year relating to the restructuring of
certain of the Group’s operations. This provision is expected to be utilised over the next two years and is not discounted given the
short period over which it will be utilised.
8
2
2
-
6
4
1
–
s
t
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e
m
e
t
a
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a
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Annual Report & Accounts 2020
205
35. Deferred tax
Movements in deferred tax assets and liabilities without taking into consideration the offsetting of balances, are analysed below:
At 1 January 2019
Exchange rate adjustments
Reclassifications
Charge to income statement (see note 13)
Credit to other comprehensive income (see note 13)
Credit to equity (see note 13)
At 31 December 2019
Exchange rate adjustments
Businesses disposed (see note 44)
Reclassifications
Credit to income statement (see note 13)
Credit to other comprehensive income (see note 13)
Charge to equity (see note 13)
At 31 December 2020
Movements in gross deferred tax assets are analysed as follows:
At 1 January 2019
Exchange rate adjustments
Reclassifications
Charge to income statement
Credit to other comprehensive income
Credit to equity
At 31 December 2019
Exchange rate adjustments
Businesses disposed
Reclassifications
Credit/(charge) to income statement
Credit to other comprehensive income
Charge to equity
At 31 December 2020
Assets
£’m
125.4
(2.7)
2.5
(15.2)
12.2
2.0
124.2
(3.1)
(0.7)
(1.9)
6.7
12.4
(2.0)
Liabilities
£’m
(271.0)
8.2
(2.5)
9.1
–
–
(256.2)
5.2
7.4
1.9
31.9
–
–
Net
£’m
(145.6)
5.5
–
(6.1)
12.2
2.0
(132.0)
2.1
6.7
–
38.6
12.4
(2.0)
135.6
(209.8)
(74.2)
Provisions
£’m
34.9
(0.9)
–
(3.2)
–
–
30.8
(1.1)
(0.5)
–
4.9
–
–
34.1
Retirement
benefit
obligations
£’m
44.0
(1.0)
–
(2.7)
11.9
–
52.2
(0.4)
–
–
(1.7)
12.4
(1.9)
60.6
Assets
Contract
liabilities
£’m
3.1
0.7
–
11.7
–
–
15.5
(2.0)
(0.9)
–
4.6
–
–
17.2
Other
(*)
£’m
43.4
(1.5)
2.5
(21.0)
0.3
2.0
25.7
0.4
0.7
(1.9)
(1.1)
–
(0.1)
23.7
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
–
1
4
6
-
2
2
8
Total
£’m
125.4
(2.7)
2.5
(15.2)
12.2
2.0
124.2
(3.1)
(0.7)
(1.9)
6.7
12.4
(2.0)
135.6
*
Includes balances arising from temporary differences in relation to accruals, share-based payments, finance costs and derivative financial instruments, none of
which are individually material at either balance sheet date or include any material movements during either year.
206
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
35. Deferred tax continued
Movements in gross deferred tax liabilities are analysed as follows:
At 1 January 2019
Exchange rate adjustments
Reclassifications
Credit/(charge) to income statement
At 31 December 2019
Exchange rate adjustments
Businesses disposed
Reclassifications
Credit/(charge) to income statement
At 31 December 2020
Liabilities
Intangible
assets
Contract
assets
£’m
(231.5)
7.0
(8.3)
10.4
(222.4)
4.2
7.3
2.1
30.4
(178.4)
£’m
(11.2)
0.4
–
(0.1)
(10.9)
0.4
–
–
(1.1)
(11.6)
Accelerated
tax
depreciation
£’m
(28.3)
0.8
5.8
(1.2)
(22.9)
0.6
0.1
(0.2)
2.6
(19.8)
Total
£’m
(271.0)
8.2
(2.5)
9.1
(256.2)
5.2
7.4
1.9
31.9
(209.8)
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:
8
2
2
-
6
4
1
–
s
t
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F
Deferred tax assets
Deferred tax liabilities
Net balance at 31 December
Deferred tax liabilities all fall due after more than one year. Deferred tax assets are analysed as follows:
To be recovered within one year
To be recovered after more than one year
Total
2020
£’m
19.2
(93.4)
(74.2)
2019
£’m
23.3
(155.3)
(132.0)
2020
£’m
4.4
14.8
19.2
2019
£’m
11.0
12.3
23.3
The Group has unrecognised tax losses of £8.0m (2019: £9.9m) for which no deferred tax asset has been recognised. No asset has been
recognised in respect of these losses, as it is not regarded as probable they will be recovered. Deferred tax assets not recognised would
be recoverable in the event they reverse and suitable taxable profits are available. There are no unremitted earnings in foreign
subsidiaries that would give rise to a tax liability in the event of those subsidiaries remitting their earnings.
Meggitt PLC
Annual Report & Accounts 2020
207
36. 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 consolidated financial statements is detailed below:
• In the UK, the Group operates a funded defined benefit scheme. The scheme is closed to new members and on 1 February 2021,
following conclusion of a consultation process with active members of the scheme, the Group announced it would be closed to future
accrual for all members with effect from 6 April 2021. It is a registered scheme and subject to the statutory scheme-specific funding
requirements outlined in UK legislation, including the payment of levies to the Pension Protection Fund. It is established under trust
and the responsibility for its governance lies with the trustees who also agree funding arrangements with the Group;
• In the US, the Group operates three principal defined benefit schemes, all of which are closed to new members. Following closure of
the last remaining scheme to future accrual during the first half of 2020, they are now also all closed to future accrual for all members.
The schemes are tax-qualified pension schemes regulated by the Pension Protection Act 2006 and are insured by the Pension Benefit
Guarantee Corporation up to certain limits. They are established under, and governed by, the US Employee Retirement Income
Security Act 1974. Meggitt PLC is a named fiduciary with the authority to manage the operation of the schemes. The Group also
operates two small unfunded schemes; and
• In Switzerland, the Group operates a funded defined benefit scheme which is open to new members and future accrual. The scheme
is a tax qualified pension plan subject to the Swiss Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans
which constitutes a legal framework setting out the minimum requirements for occupational pension plans. Responsibility for its
governance lies with a foundation, which is similar in nature to a UK trustee board.
The UK and US schemes provide benefits to members in the form of a guaranteed level of pension payable for life. The benefits
provided depend on a member’s length of service. For the UK scheme, benefits are currently dependent on salary at retirement,
or average salary over employment in the final years leading up to retirement. Following closure of the plan to future accrual in 2021,
benefits will be dependent on salary at the date of closure, or average salary over employment in the final years leading up to the
date of closure, together with inflation linked to CPI for the period from closure to retirement. In the US, the schemes either provide
a benefit linked to salary at the date they were closed to future accrual or provide a fixed benefit for each year of service. The Swiss
scheme has many of the characteristics of a defined contribution scheme, but provides for certain minimum benefits to be guaranteed
to members.
For all funded schemes, benefit payments are made from funds administered by third parties unrelated to the Group. The assets of such
schemes are held in trust funds, or their equivalent, separate from the Group’s finances. For all unfunded schemes, benefit payments are
made by the Group as obligations fall due.
The Group also operates a number of defined contribution schemes under which the Group has no further obligations once
contributions have been paid.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
–
1
4
6
-
2
2
8
Healthcare schemes
The Group has two principal other post-retirement benefit schemes providing medical and life assurance benefits to certain employees
and former employees of Meggitt Aircraft Braking Systems Corporation and Meggitt (Rockmart), Inc. These schemes are unfunded and
closed to new members.
Amounts recognised in the income statement
Total charge in respect of defined contribution pension schemes
Service cost
Past service cost
Administrative expenses borne directly by schemes
Net interest expense on retirement benefit obligations
Total charge in respect of defined benefit pension schemes
Service cost
Net interest expense on retirement benefit obligations
Total charge in respect of healthcare schemes
Total charge
2020
£’m
19.9
14.5
0.1
2.6
4.3
21.5
0.7
1.4
2.1
43.5
2019
£’m
34.5
12.1
–
2.7
4.3
19.1
0.7
1.8
2.5
56.1
Of the total charge, £35.2m (2019: £47.3m) is included in employee costs (see note 8), of which £19.2m (2019: £29.3) has been recognised
in cost of sales and £16.0m (2019: £18.0m) in net operating costs. Of the remaining charge, £2.6m (2019: £2.7m) has been recognised in
net operating costs in respect of scheme administration expenses and £5.7m (2019: £6.1m) is recognised in finance costs (see note 12).
208
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
36. Retirement benefit obligations continued
Amounts recognised in the income statement continued
The Group has estimated, with the advice of its actuary, that the impact of the High Court ruling on 20 November 2020 in respect of the
requirement to provide uplifts to transfer values paid before 26 October 2018 to address inequalities in the calculation of Guaranteed
Minimum Pension obligations is not significant.
The Group has assessed whether the restructuring of the Group in response to the COVID-19 pandemic, which has included a reduction
in the Group’s workforce by approximately 25% requires a curtailment gain or loss to be recognised in the income statement. The
assessment, which has been completed at a scheme level by the Group’s actuaries, has concluded that the amounts involved are not
significant, either individually or in aggregate. The assessment took into consideration the rules of each scheme; the number of active
scheme members leaving the Group; the proportion of leavers taking early retirement together with early retirement factors; and
inflation differences for active, deferred and pensioner members.
Amounts recognised on the balance sheet
Present value of liabilities
Fair value of assets
Retirement benefit obligations
Present value of liabilities
Fair value of assets
Retirement benefit obligations
UK
pension
scheme
£’m
961.1
(774.5)
186.6
UK
pension
scheme
£’m
855.7
(705.1)
150.6
2020
Overseas*
pension
schemes
£’m
US
healthcare
schemes
£’m
Total
£’m
456.1
(394.0)
62.1
46.7
–
46.7
1,463.9
(1,168.5)
295.4
2019
Overseas*
pension
schemes
£’m
US
healthcare
schemes
£’m
445.9
(374.5)
71.4
45.9
–
45.9
Total
£’m
1,347.5
(1,079.6)
267.9
* Comprises £46.8m (2019: £51.0m) in respect of US schemes and £15.3m (2019: £20.4m) in respect of the Swiss scheme.
Of the total deficit of £295.4m (2019: £267.9m), £61.7m (2019: £60.9m) is in respect of unfunded schemes.
Changes in the present value of retirement benefit obligations
At 1 January
Exchange rate adjustments
Service cost
Past service cost
Net interest expense (see note 12)
Contributions – Group
Contributions – Members
Benefits paid
Settlements
Administrative expenses borne directly by schemes
Remeasurement of retirement benefit obligations:
Experience gain
Gain from change in demographic assumptions
Loss from change in financial assumptions
Return on schemes’ assets excluding amounts included in
finance costs
Total remeasurement loss/(gain)
Liabilities
£’m
1,347.5
(4.0)
15.2
0.1
28.4
–
2.5
(60.8)
(1.1)
–
(7.8)
(2.4)
146.3
–
136.1
2020
Assets
£’m
(1,079.6)
2.2
–
–
(22.7)
(36.9)
(2.5)
60.8
1.1
2.6
–
–
–
(93.5)
(93.5)
Total
£’m
267.9
(1.8)
15.2
0.1
5.7
(36.9)
–
–
–
2.6
(7.8)
(2.4)
146.3
(93.5)
42.6
Liabilities
£’m
1,224.7
(15.3)
12.8
–
36.0
–
2.7
(56.1)
–
–
(0.9)
(8.9)
152.5
–
142.7
2019
Assets
£’m
(1,015.6)
11.3
–
–
(29.9)
(48.0)
(2.7)
56.1
–
2.7
–
–
–
(53.5)
(53.5)
Total
£’m
209.1
(4.0)
12.8
–
6.1
(48.0)
–
–
–
2.7
(0.9)
(8.9)
152.5
(53.5)
89.2
At 31 December
1,463.9
(1,168.5)
295.4
1,347.5
(1,079.6)
267.9
8
2
2
-
6
4
1
–
s
t
n
e
m
e
t
a
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S
l
a
i
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a
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i
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Meggitt PLC
Annual Report & Accounts 2020
36. Retirement benefit obligations continued
Analysis of pension scheme assets
Equities
Government bonds
Corporate bonds
Hedge funds
Property funds
Cash
Derivative assets/(liabilities)
Other assets*
UK pension scheme
Equities
Government bonds
Corporate bonds
Property funds
Cash
Derivative assets
Other assets*
Overseas pension schemes
Equities
Government bonds
Corporate bonds
Hedge funds
Property funds
Cash
Derivative assets/(liabilities)
Other assets*
2020
Quoted
£’m
Unquoted
£’m
208.5
314.5
102.4
–
–
24.4
8.1
9.0
666.9
35.1
87.6
203.3
28.6
9.0
5.3
16.9
385.8
243.6
402.1
305.7
–
28.6
33.4
13.4
25.9
–
–
0.5
54.3
41.6
–
(2.1)
13.3
107.6
4.5
–
–
3.7
–
–
–
8.2
4.5
–
0.5
54.3
45.3
–
(2.1)
13.3
Total
£’m
208.5
314.5
102.9
54.3
41.6
24.4
6.0
22.3
774.5
39.6
87.6
203.3
32.3
9.0
5.3
16.9
394.0
248.1
402.1
306.2
54.3
73.9
33.4
11.3
39.2
%
26.9
40.6
13.3
7.0
5.4
3.1
0.8
2.9
100.0
10.1
22.2
51.6
8.2
2.3
1.3
4.3
100.0
21.2
34.4
26.2
4.6
6.3
2.9
1.0
3.4
Total pension schemes’ assets
1,052.7
115.8
1,168.5
100.0
209
%
32.8
40.7
9.3
7.4
3.7
6.6
(1.5)
1.0
100.0
16.1
25.2
42.9
7.0
2.1
0.7
6.0
100.0
27.0
35.4
20.9
4.8
4.9
5.0
(0.8)
2.8
Total
£’m
231.0
287.2
65.4
51.8
26.4
46.7
(10.8)
7.4
705.1
60.1
94.5
160.8
26.4
7.7
2.6
22.4
374.5
291.1
381.7
226.2
51.8
52.8
54.4
(8.2)
29.8
1,079.6
100.0
2019
Quoted
£’m
Unquoted
£’m
231.0
284.9
63.6
–
–
46.7
2.9
–
629.1
55.9
94.5
160.8
22.6
7.7
–
22.4
363.9
286.9
379.4
224.4
–
22.6
54.4
2.9
22.4
993.0
–
2.3
1.8
51.8
26.4
–
(13.7)
7.4
76.0
4.2
–
–
3.8
–
2.6
–
10.6
4.2
2.3
1.8
51.8
30.2
–
(11.1)
7.4
86.6
* Other assets principally comprise insured annuities, mortgage-backed securities and commodities, no category of which is individually material.
The schemes have no investments in any assets of the Group.
Financial assumptions used to calculate scheme liabilities
Discount rate*
Inflation rate
Increases to deferred benefits during deferment**
Increases to pensions in payment**
Salary increases
* The discount rate for the Swiss scheme was 0.08% (2019: 0.32%).
** To the extent not overridden by specific scheme rules.
UK
pension
scheme
%
1.40
3.00
2.30
2.90
2.80
2020
US
pension
schemes
%
2.30
N/A
N/A
N/A
N/A
US
healthcare
schemes
UK
pension
scheme
2019
US
pension
schemes
US
healthcare
schemes
%
2.30
N/A
N/A
N/A
N/A
%
2.05
3.00
2.10
2.90
2.85
%
3.10
N/A
N/A
N/A
N/A
%
3.10
N/A
N/A
N/A
N/A
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 scheme, which
include the results of an analysis of members used to support the 2018 triennial UK actuarial valuation. Allowance has been made for
rates of mortality to continue to fall at the rate of 1.25% per annum.
In the US, mortality assumptions are based on the Pre-2012 headcount weighted table, for schemes where benefits are not salary-linked,
and the Pri-2012 table for other schemes, with both tables projecting rates of mortality to fall using the 2020 Social Security
Administration’s Intermediate Cost Projections scale.
In Switzerland, mortality assumptions are based on the BVG 2015 (Generational) tables.
F
i
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a
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c
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t
a
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m
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t
s
–
1
4
6
-
2
2
8
210
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
36. Retirement benefit obligations continued
Financial assumptions used to calculate scheme liabilities continued
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
UK
scheme
Years
23.1-25.0
25.6-26.9
21.7-23.6
24.2-25.5
2020
US
schemes
Years
21.0-21.9
23.4-23.6
19.7-20.6
22.3-22.5
Swiss
scheme
Years
24.5
26.5
22.7
24.8
UK
scheme
Years
22.9-24.8
25.5-26.8
21.6-23.4
24.0-25.3
2019
US
schemes
Years
21.0-21.9
23.4-23.6
19.8-20.6
22.2-22.5
Swiss
scheme
Years
24.4
26.4
22.6
24.7
Details on the sensitivity of scheme liabilities to changes in key assumptions are provided below:
8
2
2
-
6
4
1
–
s
t
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e
m
e
t
a
t
S
l
a
i
c
n
a
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i
F
• The impact of a 50 basis point reduction in discount rate, the average annual movement in discount rates observed over the last five
years, would cause scheme liabilities at 31 December 2020 to increase by approximately £128.6m.
• The impact of a 10 basis point increase in inflation and salary inflation rates would cause scheme liabilities at 31 December 2020 to
increase by approximately £12.4m.
• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December 2020
to increase by approximately £57.3m.
The above sensitivities are based on a change in a single assumption while keeping all other assumptions constant. In practice, this is
unlikely to occur and changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to
significant actuarial assumptions, the same method of calculating the defined benefit obligation has been used as when calculating the
retirement benefit obligations recognised on the balance sheet. The methods and types of assumptions used in preparing the sensitivity
analysis are consistent with the previous year. No change has been considered necessary to any sensitivity levels, given recent past
experience.
Risks
The Group is exposed to a number of risks arising from operating its defined benefit pension and healthcare schemes, the most
significant of which are detailed below. The Group has not changed the process used to manage defined benefit scheme risks during
the year unless otherwise stated.
Asset volatility
This risk is partly mitigated by funded schemes investing in matching corporate bonds, such that changes in asset values are offset by
similar changes in the value of scheme liabilities. However, the Group also invests in other asset classes such as equities, property funds,
hedge funds, mortgage-backed securities, commodities and derivatives where movements in asset values may be uncorrelated to
movements in the yields on high quality corporate bonds. The Group believes that, due to the long-term nature of its scheme liabilities,
it is appropriate to invest in assets which are expected to outperform corporate bonds over this timeframe. Scheme assets are well
diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. Both the UK and
US schemes have purchased equity derivatives which enable the schemes to benefit from equity-like returns, subject to certain caps,
whilst providing an element of protection against falls in equity markets. These derivatives cover approximately 46% of the total equities
held by the schemes and have an average remaining life of 1.8 years at 31 December 2020. The Group actively monitors how the
duration and expected yield of scheme assets match the expected cash outflows arising from its pension obligations. For each UK and
US funded scheme, there is a ‘glide-path’ in place which provides, to the extent the funding position improves, for asset volatility to be
reduced by reduced exposure to return seeking assets and increased investment in bonds with maturities that match benefit payments
as they fall due.
Interest risk
In both the UK and the US, schemes invest in government bonds and corporate bonds as part of their hedging strategy. Additionally,
in the UK, the scheme has also invested in cash flow matching credit assets and interest rate derivatives to provide additional hedging
against interest risk exposures. At 31 December 2020, approximately 80% of the interest rate risk on the UK scheme’s liabilities,
measured on a funding basis, is hedged (2019: 60%). In the US, across the three funded schemes, hedging levels range from 80% to 90%
of scheme liabilities measured on a funding basis (2019: 40% to 90%).
Meggitt PLC
Annual Report & Accounts 2020
211
36. Retirement benefit obligations continued
Inflation risk
Salary inflation risk in the UK has been partly mitigated by linking benefits in respect of future service to average salaries over a period
of employment, rather than final salary at retirement. Salary inflation risk will no longer be relevant once the scheme closure to accrual
takes place with effect from 6 April 2021. Inflation risk in the UK in respect of deferred benefits and pensions in payment is mitigated by
caps on the levels of inflation under the scheme rules. Residual inflation risk (after scheme caps) is mitigated through investing in index
linked gilts and inflation rate derivatives. At 31 December 2020, these assets cover approximately 80% of liabilities measured on a
funding basis (2019: 60%).
In the US, schemes do not provide benefits at retirement which are dependent on future salary increases and the impact for the scheme
in Switzerland of salary inflation is not significant. In both the US and Switzerland, schemes provide for no inflation to be applied to
benefits in deferment or retirement. Exposure to inflation on US healthcare costs has been mitigated by freezing Group contributions to
medical costs at 2011 cost levels.
Longevity risk
To the extent life expectancy exceeds the Group’s estimates, the retirement benefit obligations recognised in the consolidated financial
statements would increase. This risk is more significant in the UK plan, where the average duration of its liabilities is longer compared to
the US schemes, and inflationary increases more common, resulting in higher sensitivity to changes in life expectancy. The Group
currently does not use derivatives to mitigate this risk.
Other information
In the UK, the most recent triennial valuation was as at 5 April 2018 at which date the deficit was measured for funding purposes at
£171.8m. As part of the valuation, the Group agreed with the trustees that it would make deficit contributions, which would increase by
approximately 5% each year in the expectation that these payments, together with asset returns, would eliminate the deficit by August
2023. Following the COVID-19 outbreak, the Group agreed with the trustee’s deferral of four months deficit contributions originally due
to be made in 2020, amounting to £9.6m and which will now be made over the remainder of the current recovery plan to August 2023.
Deficit contributions recommenced in Q3 of 2020. Under the amended recovery plan, the Group will now make deficit contributions of
£38.4m in 2021, £40.2m in 2022 and £29.9m in the period to August 2023. The present value of future deficit payments agreed as part
of the 2018 actuarial valuation does not exceed the scheme accounting deficit at 31 December 2020 and accordingly no additional
minimum funding liability arises. Principally due to the significant fall in bond yields since the date of the 2018 valuation, the current UK
funding position at 31 December 2020 is approximately £135.0m lower than that projected in the 2018 valuation. This funding shortfall
will, should it remain, be addressed through a revised recovery plan as part of the April 2021 triennial valuation, which the Group
expects to be finalised during the first half of 2022. Deficit contributions to address any additional deficit would commence at a date to
be agreed with the trustees once the valuation is finalised. The buy-out valuation at the 2018 valuation date, which assumed the Group
were to transfer responsibility of the scheme to an insurance company, was measured at £467.9m. The Group has no current plans to
make such a transfer.
In the US, minimum deficit reduction payments are driven by regulations and provide for deficits to be eliminated over periods up to
15 years. At 31 December 2020, the three funded schemes had funding levels of 78%, 94% and 99%, respectively. Legislation was
passed in response to COVID-19 allowing companies to defer contributions due in 2020 to January 2021, as a result of which the Group
deferred £2.4m of payments planned for 2020. Absent any changes in legislation, deficit contributions in 2021 are forecast to be £8.7m
(including the £2.4m deferral from 2020) and then reduce to approximately £6.0m for the next four years. The present value of deficit
payments due under legislation does not exceed the schemes’ deficits at 31 December 2020 and accordingly no additional minimum
funding liability arises. The Group’s US medical and life assurance benefits are unfunded.
F
i
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a
n
c
i
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S
t
a
t
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m
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n
t
s
–
1
4
6
-
2
2
8
The Swiss scheme has a surplus on a funding basis of £25.1m and no additional minimum funding liability arises.
Estimated total Group contributions expected to be paid to the schemes during 2021 are £53.7m.
The weighted average duration of the UK schemes’ defined benefit obligation is 19.5 years. The weighted average duration of the
overseas schemes’ defined benefit obligations is 12.7 years. The expected maturity of undiscounted pension and healthcare benefits at
31 December 2020 is as follows:
To be made in 2021
To be made in 2022
To be made in 2023 to 2025
To be made in 2026 to 2030
To be made in 2031 to 2035
To be made in 2036 to 2040
To be made in 2041 to 2045
To be made from 2046 onwards
Total expected benefit payments
Pension
schemes
£’m
Healthcare
schemes
£’m
49.2
50.6
155.9
270.2
268.1
248.2
219.1
575.3
3.2
3.1
8.6
12.2
9.7
7.7
5.8
10.5
Total
£’m
52.4
53.7
164.5
282.4
277.8
255.9
224.9
585.8
1,836.6
60.8
1,897.4
212
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
37. Share capital
Issued share capital
Allotted and fully paid:
At 1 January 2019
Issued on exercise of Sharesave awards
At 31 December 2019
Issued on exercise of Sharesave awards
At 31 December 2020
The Company does not have an authorised share capital.
Ordinary
shares of
5p each
Number ‘m
Nominal
value
Net
consideration
£’m
£’m
776.9
0.6
777.5
3.7
781.2
38.8
–
38.8
0.2
39.0
–
–
8
2
2
-
6
4
1
–
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
38. Share-based payment
The Group operates a number of share schemes for the benefit of its employees. The total credit recognised in net operating costs in
respect of such schemes is £2.5m (2019: £10.1m expense) (see note 8) and is analysed as follows:
Meggitt Long-Term Incentive Plan 2014 – Equity settled
Meggitt Long-Term Incentive Plan 2014 – Cash settled
Deferred Share Bonus Plan – Equity settled
Sharesave Plans – Equity settled
Total (credit)/expense
2020
£’m
(3.0)
(0.1)
0.3
0.3
(2.5)
2019
£’m
9.3
0.1
–
0.7
10.1
Meggitt Long-Term Incentive Plan 2014: Equity settled
Under this plan, an annual award of shares may be made to certain senior executives. The number of shares, if any, that an executive
ultimately receives, depends on three performance conditions:
• an earnings per share measure (33% of the award);
• a return on assets measure (33% of the award); and
• a strategic goals measure (33% of the award).
Each of the conditions is measured over a three-year performance period. An employee is generally entitled to a payment at the end of
the vesting period, equivalent to dividends that would have been paid during the vesting period, on any shares that vest. There is no
exercise price payable by the employees. The fair value of the award made in 2020 has been estimated at the market price of the share
on the date of grant, which was 579.6 pence (2019: 523.8 pence). Movements in the number of outstanding shares that may potentially
be released to employees are as follows:
At 1 January
Awarded
Exercised
Lapsed
At 31 December
2020
Number of
shares
under award
outstanding
‘m
2019
Number of
shares
under award
outstanding
‘m
16.0
4.1
(2.4)
(3.0)
14.7
16.7
4.6
(2.1)
(3.2)
16.0
At 31 December 2020, 1.1m of the shares under award are eligible for release. The remaining 13.6m shares under award have a weighted
average life of 397 days until they are eligible for release.
Meggitt PLC
Annual Report & Accounts 2020
213
39. Own shares
Own shares represent shares in the Company that are held by an independently managed Employee Share Ownership Plan Trust (‘the
trust’) formed to acquire shares to be used to satisfy share options and awards under the employee share schemes as described in the
Directors’ remuneration report on pages 114 to 141. At December 2020, the trust holds 3.8m ordinary shares (2019: 3.1m ordinary shares)
which are unallocated, being retained by the trust for future use. The shares are held for the benefit of employees. Of the shares held at
31 December 2020, 3.7m were issued during 2020 and 0.1m were purchased during 2018. Their market value at 31 December 2020 is
£17.6m (2019: £20.3m), representing 0.48% of the issued share capital of the Company (2019: 0.40%).
40. Contractual commitments
Capital commitments
Contracted for but not incurred:
Intangible assets
Property, plant and equipment
Total
2020
£’m
3.8
24.0
27.8
2019
£’m
3.7
46.9
50.6
Other financial commitments
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 35 years. The directors are satisfied that, at this time, there are no significant contingent liabilities arising from
these commitments. Programme costs comprise programme participation costs and the supply of initial manufactured parts (FOC) on
a free of charge or deeply discounted basis to OEMs in connection with their selection of the Group’s products for installation onto new
aircraft, where the Group has obtained principal supplier status. Programme participation costs are accounted for as described in note
2, FOC costs are expensed as incurred. Based on latest OE delivery forecasts from external agencies, the future estimated expenditure
under contractual commitments to incur development costs and programme costs at 31 December 2020, are shown in the table below.
In one year or less
In more than one year but not more than five years
In more than five years
Total
2020
2019
Development
costs
£’m
Programme
costs
£’m
Development
costs
£’m
Programme
costs
£’m
33.4
17.8
8.9
60.1
60.7
221.2
725.5
1,007.4
42.2
35.3
7.9
85.4
81.5
305.3
899.2
1,286.0
F
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c
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S
t
a
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t
s
–
1
4
6
-
2
2
8
41. Contingent liabilities
The Company has given guarantees in respect of credit facilities for certain of its subsidiaries, some property and other leases, and the
performance by some current and former subsidiaries of certain contracts. Also, there are similar guarantees given by certain other
Group companies. The directors believe that the probability of an outflow of economic benefits arising from the guarantees is remote.
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.
214
Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
42. Cash inflow from operations
(Loss)/profit for the year
Adjustments for:
Finance income (see note 11)
Finance costs (see note 12)
Tax (see note 13)
Depreciation (see note 20)
Amortisation (see notes 18 and 19)
Impairment losses (see notes 17 and 18)
Loss/(gain) on disposal of property, plant and equipment
Gain on disposal of businesses (see note 9)
Costs arising on disposal of businesses (see note 44)
Financial instruments – loss/(gain) (see note 9)
Impact of retranslating net foreign currency cash at spot rate
Share of loss/(profit) after tax of joint venture (see note 21)
Change in carrying value of held for sale assets and liabilities up to date of disposal
Retirement benefit obligation deficit payments
Share-based payment (credit)/expense (see note 38)
Changes in working capital:
Inventories
Trade and other receivables
Contract assets
Trade and other payables
Contract liabilities
Provisions
Cash inflow from operations
2020
£’m
2019
£’m
(314.2)
222.6
(0.5)
37.2
(19.8)
56.7
140.6
361.3
1.4
(32.0)
(3.8)
2.9
(0.4)
3.2
–
(21.7)
(2.5)
39.8
115.0
(4.3)
(146.2)
1.7
14.0
(2.2)
40.8
64.1
57.3
138.4
–
(0.9)
(23.5)
(12.2)
(15.0)
(0.6)
(1.7)
(0.5)
(35.2)
10.1
(75.6)
20.4
(15.7)
29.3
31.1
(16.6)
228.4
414.4
The Board uses free cash flow to monitor and measure the underlying trading cash performance of the Group. It excludes amounts
received and/or paid in respect of M&A activity for the reasons set out in note 9a. It is reconciled to cash from operating activities
below:
Cash inflow from operating activities
Add back cash outflow from business disposal expenses
Add back impact of retranslating net foreign currency cash at spot rate
Capitalised development costs (see note 18)
Capitalised programme participation costs
Purchase of intangible assets
Purchase of property, plant and equipment (net of grants received)
Proceeds from disposal of property, plant and equipment
Reverse lease premium received*
Free cash inflow
2020
£’m
154.2
5.2
0.4
(41.4)
(1.6)
(11.0)
(78.7)
1.3
3.5
31.9
2019
£’m
366.9
9.4
0.6
(54.7)
(2.0)
(17.2)
(77.2)
23.1
18.9
267.8
* Prior to any discussions with the lessor, the Group had negotiated terms for the purchase of land and subsequent construction of the building at Ansty Park, with a
number of third parties. The lessor received the benefit of these negotiated terms when it contracted with those same third parties, and in return agreed to make
a reverse lease premium payment to the Group, the majority of which was received in 2019 at inception of the lease with the balance received in 2020. The receipt
of the reverse lease premium of £3.5m (2019: £18.9m) has been included in free cash flow, consistent with the treatment of capital expenditure incurred by the
Group relating to the Ansty Park site.
8
2
2
-
6
4
1
–
s
t
n
e
m
e
t
a
t
S
l
a
i
c
n
a
n
i
F
Meggitt PLC
Annual Report & Accounts 2020
215
43. Movements in net debt
At 1 January 2019
Cash inflow from operating activities
Cash outflow from investing activities
Cash (inflow)/outflow from financing activities*
Lease liabilities entered
Exchange rate adjustments
Other movements
At 31 December 2019
Cash inflow from operating activities
Cash outflow from investing activities
Cash (inflow)/outflow from financing activities*
Lease liabilities entered
Businesses disposed or classified as held for sale
Exchange rate adjustments
Other movements
Bank and
other
borrowings:
Current
£’m
Bank and
other
borrowings:
Non-current
£’m
10.2
–
–
–
–
(5.6)
214.8
219.4
–
–
(215.1)
–
–
9.1
(2.9)
1,148.3
–
–
(212.6)
–
(26.4)
(214.8)
694.5
–
–
125.5
–
–
(22.2)
(1.0)
At 31 December 2020
10.5
796.8
Lease
liabilities:
Current
Lease
liabilities:
Non-current
Total
debt
Cash and
cash
equivalents
Net
debt
£’m
16.1
–
–
(0.2)
–
(0.4)
0.9
16.4
–
–
(11.9)
–
(1.7)
(0.3)
12.2
14.7
£’m
81.4
–
–
2.9
54.2
(2.3)
–
136.2
–
–
–
11.4
(3.9)
(1.9)
(12.2)
129.6
£’m
£’m
£’m
1,256.0
–
–
(209.9)
54.2
(34.7)
0.9
1,066.5
–
–
(101.5)
11.4
(5.6)
(15.3)
(3.9)
(181.9)
(366.9)
49.7
340.3
–
3.5
–
(155.3)
(154.2)
22.0
101.2
–
–
7.7
–
1,074.1
(366.9)
49.7
130.4
54.2
(31.2)
0.9
911.2
(154.2)
22.0
(0.3)
11.4
(5.6)
(7.6)
(3.9)
951.6
(178.6)
773.0
* Cash flows relating to bank and other borrowings are disclosed in the cash flow statement as proceeds from borrowings of £618.6m (2019: £0.4m), repayments of
borrowings of £705.8m (2019: £213.0m) and debt issue costs paid of £2.4m (2019: £Nil). Cash flows relating to lease liabilities are disclosed in the cash flow
statement as repayments of lease liabilities of £15.4m (2019: 16.2m) and reverse lease premium received of £3.5m (2019: £18.9m).
44. Business disposals
On 30 June 2020, the Group disposed of Meggitt Training Systems (MTS), for a cash consideration of USD155.7m. The transaction is
consistent with the Group’s strategy to focus on businesses of scale in markets where its leading positions offer greater potential for
growth and operational efficiencies. The business disposed was not a major line of business or geographical area of operation of the
Group. The net assets of the business at the date of disposal were as follows:
Goodwill (see note 17)
Development costs (see note 18)
Other intangible assets (see note 19)
Property, plant and equipment (see note 20)
Inventories
Trade and other receivables – current
Contract assets – current
Cash and cash equivalents
Trade and other payables – current
Contract liabilities – current
Lease liabilities – current
Provisions – current
Deferred tax (see note 35)
Lease liabilities – non-current
Net assets
Currency translation gain transferred from equity
Business disposal expenses
Gain on disposal (see note 9)
Total consideration received in cash
Cash inflow arising on disposal:
Total consideration received in cash
Less: cash and cash equivalents disposed of
Businesses disposed
Less: business disposal expenses paid*
Total cash inflow
* Of the total business disposal expenses paid, £3.5m were in respect of the disposal of MTS, with the balance relating to disposals in the prior year.
MTS
£’m
84.8
19.7
0.1
6.8
11.6
9.4
22.6
9.8
(15.4)
(4.4)
(1.5)
(0.1)
(6.7)
(3.0)
133.7
(44.0)
3.8
33.3
126.8
126.8
(9.8)
117.0
(5.2)
111.8
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Meggitt PLC
Annual Report & Accounts 2020
Notes to the consolidated financial statements
continued
45. Related undertakings
In accordance with section 409 of the Companies Act 2006, a full list of related undertakings as at 31 December 2020 is disclosed
below. Unless otherwise stated, undertakings have their registered office at Pilot Way, Ansty Business Park, Coventry, England, CV7 9JU,
United Kingdom, and have a single class of ordinary shares with 100% of the equity owned by the Group. No subsidiary undertakings
have been excluded from the consolidation.
Subsidiaries – directly owned
Dunlop Aerospace Limited
Integrated Target Services Limited
KDG Holdings Limited
Meggitt (Pamphill) Limited
Meggitt (Sand) Limited
Meggitt (Wimborne) Limited
Meggitt Engineering Limited
Meggitt International Holdings Limited3
Meggitt Pension Trust Limited
Negretti & Zambra Limited
Negretti Limited
Phoenix Travel (Dorset) Limited1
The Microsystems Group Limited
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Subsidiaries – indirectly owned
Aero-Tech Composites de Mexico, S. de R.L. de
C.V. (Mexico)2
Carretera 54 a Zacatecas 5690, Parque Industrial
Amistad Sur Saltillo, Coahuila 25070
Aircraft Braking Systems Europe Limited
Aircraft Braking Systems Services Limited
Artus SAS (France)
Chemin du Champ des Martyrs, 49240 Avrillé
Atlantic House Pension Trustee Limited
Avica Aerospace Ducting Limited
BAJ Coatings Limited4
Bells Engineering Limited
Bestobell Aviation Products Limited
Bestobell Engineering Products Limited
Bestobell Insulation Limited
Bestobell Meterflow Limited
Bestobell Mobrey Limited
Bestobell Service Co Limited
Bestobell Sparling Limited
Cavehurst Limited3
Dunlop Aerospace Group Limited3
Dunlop Aerospace Holdings Limited3
Dunlop Aerospace Overseas Investments
Limited
Dunlop Aerospace Overseas Limited3
Dunlop Holdings Limited3
Dunlop Limited3
Europeenne de Conception d’Etudes
Technologiques SAS (France)
8 Chemin de l’Etang, BP 15, F-16730 FLEAC
Evershed & Vignoles Limited
Heatric Limited5
King Tool International Limited
Meggitt (Baltimore) Inc. (USA)6
3310 Carlins Park Drive, Baltimore, Maryland 21215
Meggitt (Canford) Limited
Meggitt (Colehill) Limited
Meggitt (Erlanger), LLC (USA)7
1955 Surveyor Avenue, Simi Valley, California 93063
Meggitt (France) SAS (France)
10 rue Mercoeur, 75011 Paris
Meggitt (Hurn) Limited
Meggitt (Korea) Limited
Meggitt (North Hollywood), Inc. (USA)6
12838 Saticoy Street, North Hollywood,
California 91605
Meggitt (Orange County), Inc. (USA)6
4 Marconi, Irvine, California 92618
Meggitt Overseas Limited
Meggitt (Rockmart), Inc. (USA)6
669 Goodyear Street, Rockmart, Georgia 30153
Meggitt (San Diego), Inc. (USA)6
6650 Top Gun Street, San Diego, California 92121
Meggitt (Sapphire) GmbH (Germany)
Kaiserleistraße 51, 63067 Offenbach/Main
Meggitt (Sapphire) Limited
Meggitt (Sensorex) SAS (France)
196 rue Louis Rustin, Archamps Technopole, 74160
Archamps
Meggitt (Shapwick) Limited
Meggitt (Simi Valley), Inc. (USA)6
1955 Voyager Avenue, Simi Valley, California 93063
Meggitt (Tarrant) Limited
Meggitt (Troy), Inc. (USA)6
3 Industrial Drive, Troy, Indiana 47588
Meggitt (UK) Limited
Meggitt (Vietnam) Co., Ltd (Vietnam)8
No 7, 16A Road, Industrial Zone 2 of Bienhoa, Dongnai
Meggitt (Xiamen) Sensors & Controls Company
Limited (China)9
No.230 South 5 Gaoqi Road, Xiamen Area of China
(Fujian) Pilot Free Trade Zone 361006
Meggitt A/S (Denmark)
Porthusvej 4, 3490 Kvistgaard
Meggitt Acquisition Limited3
Meggitt Advanced Composites Limited3
Meggitt Aerospace Asia Pacific Pte. Ltd.
(Singapore)
1A Seletar Aerospace Link, Seletar Aerospace Park,
Singapore 797552
Meggitt Aerospace Holdings Limited3
Meggitt Aerospace Limited
Meggitt Aircraft Braking Systems Corporation
(USA)6
1204 Massillon Road, Akron, Ohio 44306
Meggitt Aircraft Braking Systems Kentucky
Corporation (USA)6
190 Corporate Drive, Danville, Kentucky 40422
Meggitt Aircraft Braking Systems Queretaro,
S. de R.L. de C.V. (Mexico)2
Carretera Estatal 200 Queretaro-Tequisquiapan,
KM 22 547 Interior A, Parque Aeroespacial, Queretaro,
CP 76278
Meggitt Asia Pacific Pte. Ltd. (Singapore)
1A Seletar Aerospace Link, Seletar Aerospace Park,
Singapore 797552
Meggitt Brasil Solucoes de Engenharia Ltda.
(Brazil)9
Avenida João Cabral de Mello Neto, No. 850, Suites 815
and 816, Barra da Tijuca, CEP 22.775-057, City and State
of Rio de Janeiro
Meggitt Canada Enterprises Inc. (Canada)
1501 McGill College Avenue, 26th Floor, Montréal,
Québec, H3A 3N9
Meggitt Defense Systems, Inc. (USA)6
9801 Muirlands Boulevard, Irvine, California 92618
Meggitt Filtration & Transfer Limited
Meggitt Finance (Beta)
Meggitt Finance Limited
Meggitt GmbH (Germany)
Kaiserleistraße 51, 63067 Offenbach
Meggitt PLC
Annual Report & Accounts 2020
217
Notes
1 Ownership held as ordinary B shares (50%).
2 Ownership held as quota interest (100%).
3 The entity has taken the audit exemption under
section 479A of the Companies Act 2006 in
respect of the financial year ended 31 December
2020.
Ownership held as deferred shares (55.55%) and
ordinary shares (44.45%).
4
5 Ownership held as ordinary A shares (60%) and
ordinary B shares (40%).
Ownership held as common stock.
Ownership held as membership interest (100%).
6
7
8 Ownership held as owner’s capital.
9
10 Ownership held as equity shares (100%).
11 Registered at 125 West Regent Street, Glasgow,
Ownership held as registered capital (100%).
Lanarkshire, G2 2SA, Scotland.
12 Joint venture with Hamilton Sundstrand
Corporation – ownership held as membership
interest (70%).
13 Subsidiary of Meggitt UTC Aerospace System,
LLC – ownership held as quota interest (99.97%).
14 Ownership held as ordinary shares (33.33%).
15 Ownership held as ordinary shares (33.33%).
16 Ownership held as ordinary shares (100%).
17 Ownership held as ordinary shares (50%).
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45. Related undertakings continued
Meggitt Holdings (France) SAS (France)
Chemin du Champ des Martyrs, 49240 Avrillé
Meggitt Holdings (USA) Inc. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Meggitt India Pvt Ltd (India)10
901, Brigade Rbix, No. 20. HMT Main Road, HMT
Township, North Bangalore Karnataka 560022
Meggitt International Limited3
Meggitt Investments Limited3
Meggitt-Oregon, Inc. (USA)6
2010 Lafayette Avenue, McMinnville, Oregon 97128
Meggitt Properties PLC
Meggitt Queretaro LLC (USA)7
1204 Massillon Road, Akron, Ohio 44306
Meggitt SA (Switzerland)
Rte de Moncor 4, PO Box 1616, CH-1701 Fribourg
Meggitt Safety Systems, Inc. (USA)6
1785 Voyager Avenue, Simi Valley, California 93063
Meggitt-USA Services, Inc. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Meggitt-USA, Inc. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Miller Insulation & Engineering Limited11
NASCO Aircraft Brake, Inc. (USA)6
13300 Estrella Avenue, Gardena, California 90248
OECO, LLC (USA)7
4607 SE International Way, Milwaukie, Oregon 97222
Pacific Scientific Company (USA)6
1785 Voyager Avenue, Simi Valley, California 93063
Park Chemical Company (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Piher International Limited
Precision Engine Controls Corporation (USA)6
11661 Sorrento Valley Road, San Diego,
California 92121
Securaplane Technologies, Inc. (USA)6
12350 N. Vistoso Park Road, Oro Valley, Arizona 85755
Serck Aviation Limited
Target Technology Petrel Limited
TFE Techniques et Fabrications Electroniques
SAS (France)
Rue Jean Perrin Zone Industrielle Actisud Le Capitre,
31100 Toulouse
Tri-scan Limited
Vibro-Meter Limited
Vibro-Meter S.a.r.l (Switzerland)
Rte de Moncor 4, PO Box 1616, CH-1701 Fribourg
Wallaby Grip Limited
Whittaker Aerospace
Whittaker Corporation (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Whittaker Development Co. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Whittaker Ordnance, Inc. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Whittaker Technical Products, Inc. (USA)6
1955 Surveyor Avenue, Simi Valley, California 93063
Zambra Legal Pty Ltd (Australia)
Suite 2, Level 11, 60 Castlereagh Street, Sydney,
New South Wales 2000
Entities not included in
the consolidation
Equity accounted investments
Meggitt UTC Aerospace Systems, LLC (USA)12
1400 Jamike Avenue, Erlanger, Kentucky 41018
Parkway-Hamilton Sundstrand Mexico S.
de R.L. de C.V. (Mexico)13
Carretera 54 a Zacatecas 5690, Parque Industrial
Amistad Sur Saltillo, Coahuila 25070
Valley Association Corporation (USA)14
1204 Massillon Road, Akron, Ohio 44306
Private company limited by guarantee
without share capital
Meggitt Pension Plan Trustees Limited
Registered charity
Evershed & Ayrton Fund
Registered branches
Meggitt (Korea) Ltd has a branch in South Korea
Meggitt (Xiamen) Sensors & Controls Ltd
has a branch in Shanghai
Joint ventures
HiETA Technologies Limited15
Private company with shares held
by a nominee
Pilot Funding Limited16
Subsidiaries – indirectly owned and not
included in the consolidation
ABL Systems (USA)17
1204 Massillon Road, Akron, Ohio 44306
Alston Properties LLC (USA)7
14600 Myford Road, Irvine, California 92606
Wallaby Grip (NSW) Pty Ltd (in liquidation)
(Australia)
Bradley Tonks, PKF Sydney, Level 8, 1 O’Connell Street,
Sydney, New South Wales 2000
Wallaby Grip Australia Pty Ltd (in liquidation)
(Australia)
Bradley Tonks, PKF Sydney, Level 8, 1 O’Connell Street,
Sydney, New South Wales 2000
Wallaby Grip B.A.E. Pty Ltd (in liquidation)
(Australia)
Bradley Tonks, PKF Sydney, Level 8, 1 O’Connell Street,
Sydney, New South Wales 2000
Wallaby Grip Industries Australia Pty Ltd
(in liquidation) (Australia)
Bradley Tonks, PKF Sydney, Level 8, 1 O’Connell Street,
Sydney, New South Wales 2000
218
Meggitt PLC
Annual Report & Accounts 2020
Company balance sheet
At 31 December 2020
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Derivative financial instruments
Deferred tax assets
Current assets
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
Lease liabilities
Bank and other borrowings
Net current assets
Non-current liabilities
Derivative financial instruments
Lease liabilities
Bank and other borrowings
Provisions
Retirement benefit obligations
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Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Other reserves
Retained earnings:
At 1 January
Profit for the year attributable to owners of the Company
Other changes in retained earnings
Total equity attributable to owners of the Company
Notes
2020
£’m
2019
£’m
4
5
6
10
11
7
10
8
10
9
10
9
12
13
36.1
0.4
2,078.8
15.1
37.8
43.4
0.9
2,082.7
16.5
27.4
2,168.2
2,170.9
1,451.4
5.2
0.1
27.7
1,325.9
6.6
9.3
32.9
1,484.4
1,374.7
3,652.6
3,545.6
(99.0)
(29.2)
(8.4)
(0.5)
(7.4)
(158.7)
(18.2)
–
(0.2)
(7.6)
(144.5)
(184.7)
1,339.9
1,190.0
(6.2)
–
(439.0)
(0.2)
(186.6)
(11.7)
(0.2)
(453.5)
(0.2)
(150.6)
(632.0)
(616.2)
(776.5)
(800.9)
2,876.1
2,744.7
39.0
1,226.6
1.6
17.5
38.8
1,226.5
1.6
17.5
1,460.3
177.0
(45.9)
1,521.4
139.7
(200.8)
2,876.1
2,744.7
The financial statements on pages 218 to 228 were approved by the Board of Directors on 3 March 2021 and signed on its behalf by:
A Wood
Director
L Burdett
Director
Meggitt PLC
Annual Report & Accounts 2020
219
Company statement of changes in equity
For the year ended 31 December 2020
At 1 January 2019
Profit for the year
Other comprehensive expense for the year:
Remeasurement of retirement benefit obligations
Other comprehensive expense before tax
Tax
Other comprehensive expense for the year
Total comprehensive income for the year
Employee share schemes:
Value of subsidiary employee services
Value of services provided
Issue of equity share capital
Dividends
At 31 December 2019
Profit for the year
Other comprehensive expense for the year:
Remeasurement of retirement benefit obligations
Other comprehensive expense before tax
Tax
Other comprehensive expense for the year
Total comprehensive income for the year
Employee share schemes:
Value of subsidiary employee services
Value of services provided
Issue of equity share capital
Dividends
At 31 December 2020
Equity attributable to owners of the Company
Share
capital
Share
premium
Notes
£’m
38.8
£’m
1,223.9
Capital
redemption
reserve
£’m
1.6
Other
reserves*
Retained
earnings
Total
equity
£’m
17.5
£’m
£’m
1,521.4
2,803.2
12
11
12
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
139.7
139.7
(94.5)
(94.5)
14.0
(80.5)
(94.5)
(94.5)
14.0
(80.5)
59.2
59.2
10.0
2.7
(2.6)
(130.4)
10.0
2.7
–
(130.4)
38.8
1,226.5
1.6
17.5
1,460.3
2,744.7
–
–
–
–
–
–
–
–
0.2
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
177.0
177.0
(54.1)
(54.1)
12.1
(54.1)
(54.1)
12.1
(42.0)
(42.0)
135.0
135.0
(3.0)
(0.6)
(0.3)
–
(3.0)
(0.6)
–
–
39.0
1,226.6
1.6
17.5
1,591.4
2,876.1
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*
Other reserves relate to the cancellation of the Company’s share premium account in 1988, which was transferred to a non-distributable capital reserve.
220
Meggitt PLC
Annual Report & Accounts 2020
Notes to the financial statements of the Company
1. Basis of preparation
These financial statements apply the recognition, measurement and presentation requirements of international accounting standards in
conformity with the requirements of the Companies Act 2006, but make amendments where necessary in order to comply with the Act
and take advantage of the following disclosure exemptions permitted by FRS 101:
• Paragraphs 10(d), 111 and 134-136 of IAS 1, ‘Presentation of financial statements’
• IAS 7, ‘Statement of cash flows’
• Paragraph 17 of IAS 24, ‘Related party disclosures’
• The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two or more
members of a group
• Paragraphs 45(b) and 46-52 of IFRS 2, ‘Share-based payment’
• IFRS 7, ‘Financial Instruments: Disclosures’
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 income statement and related notes and not to publish a separate statement of comprehensive income.
These financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the
revaluation of certain financial assets and financial liabilities (including derivative financial instruments) at fair value, in accordance with
the Companies Act 2006.
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2. Summary of significant accounting policies
The principal accounting policies adopted by the Company in the preparation of the financial statements are set out below.
These policies have been applied consistently to all periods presented unless stated otherwise.
Investments
Investments in subsidiaries are stated at cost less accumulated impairment losses, 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, using the deemed cost exemption in IFRS 1 on transition to FRS 101.
Intangible assets
Intangible assets, which comprise software, are recorded at cost less accumulated amortisation and impairment losses. Amortisation is
charged on a straight-line basis over the estimated useful economic lives of the assets, commencing with the date the assets are
available for use, typically over periods up to five years. Residual values and useful lives are reviewed annually and adjusted if
appropriate.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses. Cost includes expenditure
directly attributable to the acquisition of the asset.
For right-of-use assets, cost comprises an amount equal to the initial lease liability recognised, adjusted to include any payments made
for the right to use the asset, initial direct costs incurred and estimated costs for dismantling, removing and restoring the asset at the
end of the lease term.
Depreciation is charged on a straight-line basis over the estimated useful economic lives of the assets, commencing with the date the
assets are available for use, as follows:
Right-of-use assets
Shorter of the useful economic life
of the asset and the lease term
Plant and equipment
3 to 5 years
Motor vehicles
5 years
Residual values and useful lives are reviewed annually and adjusted if appropriate. When property, plant and equipment are disposed,
the difference between sale proceeds, net of related costs, and the carrying value of the asset is recognised in the income statement.
Impairment of non-current, non-financial assets
At each balance sheet date, the Company reviews the carrying amounts of its non-current, non-financial assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of any impairment loss. Where it is not possible to estimate the recoverable amount
of an individual asset, the Company estimates the recoverable amount of the cash-generating unit (CGU) to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future pre-tax
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable
amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its
recoverable amount.
Any impairment loss is recognised immediately in the income statement. Where an impairment loss is no longer required, it is reversed
with a corresponding credit to the income statement.
Meggitt PLC
Annual Report & Accounts 2020
221
2. Summary of significant accounting policies continued
Other receivables
Other receivables are initially recognised at fair value and subsequently measured at amortised cost less any impairment losses.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses (ECLs), which uses a lifetime expected
loss allowance. To measure ECLs, other receivables have been grouped based on shared credit risk characteristics and their ageing.
For amounts owed by subsidiary undertakings, which are repayable on demand, ECLs are based on the assumption that repayment is
demanded at the balance sheet date. The subsidiary undertaking’s access to sufficient accessible highly liquid assets in order to repay
the amounts due if demanded at the balance sheet date is assessed. The expected manner of recovery is considered when measuring
ECLs. If these indicate that the Company would fully recover the outstanding amounts due, ECLs will be limited to the effect of
discounting the amounts due using the effective interest rate, over the period until cash is expected to be realised.
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 Company participates in offset arrangements with certain banks whereby cash and
overdraft amounts are offset against each other.
Taxation
Current tax is based on taxable profit for the period, calculated using tax rates enacted or substantively 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 recognised in the Company’s financial statements. It is calculated using tax rates enacted or
substantively enacted at the balance sheet date. 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.
Current tax and deferred tax are recognised in the income statement, other comprehensive income or directly in equity depending on
where the item to which they relate has been recognised.
Foreign currencies
The Company’s financial statements are presented in pounds sterling. Transactions in foreign currencies are recorded at exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities, denominated in foreign currencies are reported at exchange
rates prevailing at the balance sheet date. Exchange differences on retranslating monetary assets and liabilities are recognised in the
income statement.
Retirement benefit schemes
For the Company’s defined benefit scheme, pension costs are charged to the income statement in accordance with the advice of
qualified independent actuaries. Past service credits and costs are recognised immediately in the income statement.
Retirement benefit obligations represent the difference between the fair value of the scheme assets and the present value of the
scheme defined benefit obligations measured at the balance sheet date. The defined benefit obligation is measured 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 UK corporate bonds with terms to maturity comparable
with the terms of the related defined benefit obligations. Where the Company has a statutory or contractual minimum funding
requirement to make contributions to a scheme in respect of past service and any such contributions are not available to the Company
once paid (as a reduction in future contributions or as a refund, to which the Company has an unconditional right either during the life
of the scheme or when the scheme liabilities are settled), an additional liability for such amounts is recognised.
Remeasurement gains and losses are recognised in the period in which they arise in other comprehensive income.
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For defined contribution schemes, payments are recognised in the income statement when they fall due. The Company has no further
obligations once the contributions have been paid.
Share-based compensation
The Company operates a number of share-based compensation schemes, which are subject to non-market based vesting conditions and
are principally equity settled.
For equity-settled schemes, at the date of grant, the Company estimates the number of awards expected to vest as a result of
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 Company revises its estimate of
the number of awards expected to vest and adjusts the amount recognised cumulatively in the income statement to reflect the revised
estimate. When awards are exercised and the Company issues new shares, the proceeds received, net of any directly attributable
transaction costs, are credited to share capital (nominal value) and share premium.
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 is recognised, over the vesting period, as an increase in investment in subsidiary
undertakings, with a corresponding credit to retained earnings.
222
Meggitt PLC
Annual Report & Accounts 2020
Notes to the financial statements of the Company
continued
2. Summary of significant accounting policies continued
Derivative financial instruments and hedging
Derivative financial instruments are initially recognised at fair value on the date the derivative contract is entered into and are
subsequently measured at fair value at each balance sheet date using values determined indirectly from quoted prices that are
observable for the asset or liability.
To the extent the maturity of the derivative financial instruments are more than 12 months from the balance sheet date, they are
classified as non-current assets or non-current liabilities. All other derivative financial instruments are classified as current assets or
current liabilities.
The Company utilises a large 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 in order to apply hedge accounting
under IFRS 9 ‘Financial Instruments’ are not merited. Therefore changes in fair value are recognised immediately in the income statement.
Borrowings
Borrowings are initially recognised at fair value, being proceeds received less directly attributable transaction costs incurred. Borrowings
are generally subsequently held at amortised cost at each balance sheet date with any transaction costs amortised to the income
statement over the period of the borrowings using the effective interest method.
Any related interest accruals are included within borrowings. Borrowings 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.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares 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.
Consideration paid for own shares, including any incremental directly attributable costs, is recorded as a deduction from retained
earnings. Details of own shares in the Company are disclosed in note 39 to the Group’s consolidated financial statements.
Dividends
Interim dividends are recognised when paid to shareholders. Final dividends are recognised when approved by the shareholders.
Details of dividends paid and proposed by the Company are disclosed in note 15 to the Group’s consolidated financial statements.
3. Critical accounting estimates and judgements
In applying the Company’s accounting policies set out in note 2, the Company is required to make certain estimates and judgements
concerning the future. These estimates and judgements are regularly reviewed and revised as necessary. The estimates and judgements
that have the most significant effect on the amounts included in the financial statements are described below.
Critical accounting 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. External actuarial advice is taken with regard to the
most appropriate assumptions to use. Further details on these estimates, and sensitivities of the retirement benefit obligations to these
estimates, are disclosed in note 12.
Critical accounting judgements
Going concern
The judgement made by the directors that the going concern basis is appropriate in preparing these financial statements is a new
critical judgement for 2020. The basis for making the judgement, the assumptions made in reaching the judgement and the results of
the stress testing performed are provided in note 1 of the Group’s consolidated financial statements on pages 162 to 164.
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Meggitt PLC
Annual Report & Accounts 2020
4. Intangible assets
At 1 January 2019
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2019
Opening net book amount
Additions
Amortisation
Net book amount
At 1 January 2020
Cost
Accumulated amortisation
Net book amount
Year ended 31 December 2020
Opening net book amount
Additions
Disposals
Amortisation
Net book amount
At 31 December 2020
Cost
Accumulated amortisation
Net book amount
223
Software
£’m
76.2
(37.6)
38.6
38.6
13.2
(8.4)
43.4
89.4
(46.0)
43.4
43.4
2.9
(0.3)
(9.9)
36.1
92.0
(55.9)
36.1
Software assets include costs relating to the Group’s enterprise resource planning system. The asset has a net book amount of £12.8m
(2019: £16.2m) and a remaining amortisation period of four years (2019: five years).
5. Property, plant and equipment
Cost
Accumulated depreciation
Net book amount
Plant,
equipment
and vehicles
£’m
6.2
(6.2)
–
2020
Other
Total
£’m
1.9
(1.5)
0.4
£’m
8.1
(7.7)
0.4
Plant,
equipment
and vehicles
£’m
6.4
(6.0)
0.4
2019
Other
Total
£’m
1.8
(1.3)
0.5
£’m
8.2
(7.3)
0.9
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Meggitt PLC
Annual Report & Accounts 2020
Notes to the financial statements of the Company
continued
6. Investments
Shares in subsidiary undertakings:
At 1 January
Capital contributions
Less contributions from subsidiary undertakings
At 31 December
2020
£’m
2019
£’m
2,082.7
–
(3.9)
2,081.2
7.3
(5.8)
2,078.8
2,082.7
As set out in note 17 of the Group’s consolidated financial statements on page 185, the Group identified the need to perform an
additional goodwill impairment test at 31 March 2020, in light of the impact of COVID-19 on its business. For the same reasons as the
Group, the Company also performed an assessment at 31 March 2020 of the recoverability of its investments. For this impairment test,
the Company utilised the value in use (VIU) calculations used for the Group’s goodwill impairment test. At the date of testing, the VIU
of the subsidiary undertakings in which the Company held an investment exceeded the carrying value of the investment and no
impairment was required. The Company also performed a sensitivity analysis to determine if any reasonably foreseeable change in
assumptions used in determining VIU would result in an impairment and concluded that for each sensitivity, there remained headroom
between the investment carrying value and the VIU. The methods used to derive the VIU, assumptions made and the reasonably
foreseeable changes in assumptions modelled were consistent with those used by the Group in its goodwill impairment testing (see
note 17 on pages 185 to 188).
A list of all subsidiary undertakings is disclosed in note 45 to the Group’s consolidated financial statements on pages 216 to 217.
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7. Other receivables
Amounts owed by subsidiary undertakings
Prepayments and accrued income
Other
Total
2020
£’m
1,450.8
0.4
0.2
2019
£’m
1,325.1
0.2
0.6
1,451.4
1,325.9
Amounts owed by subsidiary undertakings are unsecured and are stated net of amounts due to subsidiary undertakings, where a right
of set off exists. Within amounts owed by subsidiary undertakings are amounts totalling £1,358.3m (2019: £1,342.9m) which are interest
bearing, have no fixed date for repayment and are repayable on demand. Interest accrues at rates ranging from 1% to 3%.
Amounts owed by subsidiary undertakings are stated net of a loss allowance of £1.7m (2019: £1.9m). Each year, the Company performs
an assessment of recoverability of amounts owed by subsidiary undertakings in accordance with IFRS9 requirements. The Company
does not believe there is a significant risk of a material adjustment to the loss allowance recognised in respect of these receivables at
31 December 2020, in the next 12 months.
8. Trade and other payables – current
Trade payables
Amounts owed to subsidiary undertakings
Social security and other taxes
Accrued expenses
Other payables
Total
2020
£’m
1.7
90.6
0.5
4.1
2.1
99.0
2019
£’m
7.4
132.6
4.8
13.5
0.4
158.7
Amounts owed to subsidiary undertakings are unsecured. They include amounts totalling £Nil (2019: £22.6m) which are interest bearing,
have no fixed date for repayment and are repayable on demand. Interest accrues at rates ranging from 1% to 3%.
Meggitt PLC
Annual Report & Accounts 2020
225
9. Bank and other borrowings
Other loans - current
Other loans - non-current
Total
Analysis of bank and other borrowings repayable:
In one year or less
In more than one year but not more than five years
In more than five years
Total
Analysis of bank and other borrowings:
Drawn under committed facilities
Less unamortised debt issue costs
Interest accruals
Total
2020
£’m
7.4
439.0
446.4
7.4
219.5
219.5
446.4
2019
£’m
7.6
453.5
461.1
7.6
226.8
226.7
461.1
439.5
(0.5)
7.4
446.4
454.2
(0.7)
7.6
461.1
Debt issue costs are amortised over the period of the facility to which they relate. The Company has no secured borrowings (2019: £Nil).
The Company has the following committed facilities at notional value:
2016 Senior notes (USD600.0m)
Committed facilities
Drawn
£’m
439.5
439.5
2020
Undrawn
£’m
–
–
Total
£’m
439.5
439.5
Drawn
£’m
454.2
454.2
2019
Undrawn
£’m
–
–
Further details of the committed facilities are disclosed in note 31 to the Group’s consolidated financial statements on page 197.
The committed facilities expire as follows:
In more than one year but not more than five years
In more than five years
Committed facilities
Drawn
£’m
219.8
219.7
439.5
2020
Undrawn
£’m
–
–
–
Total
£’m
219.8
219.7
439.5
Drawn
£’m
227.1
227.1
454.2
2019
Undrawn
£’m
–
–
–
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–
1
4
6
-
2
2
8
Total
£’m
454.2
454.2
Total
£’m
227.1
227.1
454.2
The Company also has various uncommitted facilities with its relationship banks. No amounts had been drawn under these facilities at
31 December 2020 (2019: £Nil).
Additionally, the Company has been confirmed as an eligible issuer under the Bank of England’s and HM Treasury’s Covid Corporate
Financing Facility (CCFF), under which the Company can draw up to £600m. The Company is eligible to issue commercial paper
using this facility (subject to certain terms and restrictions) up to and including 22 March 2021, with a maturity date of up to 12 months.
The Company has no commercial paper issued under this facility at 31 December, 2020 or at the date these financial statements
were approved by the Board.
The fair value of bank and other borrowings is as follows:
Current
Non-current
Total
2020
2019
Book
value
£’m
7.4
439.0
446.4
Fair
value
£’m
7.4
452.7
460.1
Book
value
£’m
7.6
453.5
461.1
Fair
value
£’m
7.6
461.7
469.3
226
Meggitt PLC
Annual Report & Accounts 2020
Notes to the financial statements of the Company
continued
9. Bank and other borrowings continued
All borrowings are subject to interest at fixed rates. The interest rate exposure on bank and other borrowings is:
At 31 December 2020:
US dollar denominated other loans
Less unamortised debt issue costs
Bank and other borrowings
At 31 December 2019:
US dollar denominated other loans
Less unamortised debt issue costs
Bank and other borrowings
Fixed rate borrowings
Weighted
average
interest
rate
%
3.5
Weighted
average
period
for which
rate is fixed
Years
4.0
Fixed rate borrowings
Weighted
average
interest
rate
%
3.5
Weighted
average
period
for which
rate is fixed
Years
5.0
Total
£’m
446.9
(0.5)
446.4
Total
£’m
461.8
(0.7)
461.1
The weighted average interest rate reflects the relative impact of interest rates based on the principal amounts and the duration
of borrowings.
10. Derivative financial instruments
Interest rate swaps
Cross currency swaps
Foreign currency forward contracts
Current portion
Interest rate swaps
Foreign currency forward contracts
Non-current portion
Total
2020
2019
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
–
–
5.2
5.2
5.1
10.0
15.1
20.3
–
(20.0)
(9.2)
(29.2)
–
(6.2)
(6.2)
(35.4)
1.8
–
4.8
6.6
5.1
11.4
16.5
23.1
–
(7.0)
(11.2)
(18.2)
–
(11.7)
(11.7)
(29.9)
The Company does not use hedge accounting for any of its derivative financial instruments. It is exempt from certain FRS 101 disclosures
as the Group’s consolidated financial statements provide the disclosures required by IFRS 7 (see note 33 to the Group’s consolidated
financial statements on pages 202 to 203).
The loss recorded in the income statement, recognised in net operating costs, arising from the measurement at fair value of derivative
financial instruments, is £7.3m (2019: loss £19.1m).
The contract or underlying principal amount of foreign currency forward contracts in respect of derivative financial assets is £443.1m
(2019: £405.6m) and in respect of derivative financial liabilities is £362.1m (2019: £627.0m).
The fair value of foreign currency forward contracts is analysed as follows:
US dollar forward sales and purchases (USD/£)
Forward sales and purchases denominated in other currencies
Fair value
2020
2019
Assets
£’m
Liabilities
£’m
13.0
2.2
15.2
(11.2)
(4.2)
(15.4)
Assets
£’m
15.5
0.7
16.2
Liabilities
£’m
(19.7)
(3.2)
(22.9)
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Annual Report & Accounts 2020
227
11. Deferred tax
Movements in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances,
are as follows:
Assets
Liabilities
Net
At 1 January 2019
Reclassifications
Charge to income statement
Credit to other comprehensive income
Credit to equity
At 31 December 2019
Charge to income statement
Credit to other comprehensive income
Credit to equity
At 31 December 2020
Retirement
benefit
obligations
£’m
15.1
–
(3.3)
14.0
–
25.8
(2.4)
12.1
–
35.5
Other
Total
£’m
2.7
(1.1)
(0.6)
–
0.6
1.6
(0.7)
–
1.4
2.3
£’m
17.8
(1.1)
(3.9)
14.0
0.6
27.4
(3.1)
12.1
1.4
37.8
After taking account of the offsetting of balances, deferred tax assets are analysed as follows:
To be recovered within one year
To be recovered after more than one year
Total
Accelerated
tax
depreciation
£’m
(1.1)
1.1
–
–
–
–
–
–
–
–
2020
£’m
6.8
31.0
37.8
£’m
16.7
–
(3.9)
14.0
0.6
27.4
(3.1)
12.1
1.4
37.8
2019
£’m
5.9
21.5
27.4
There are no unremitted earnings in foreign subsidiaries that would give rise to a tax liability in the event of those subsidiaries remitting
their earnings.
12. Retirement benefit obligations
The Company is the sponsoring employer of the Meggitt Pension Plan, a funded defined benefit plan. Each participating company in
the Meggitt Pension Plan bears employer contributions in respect of future service. No other amounts are recharged by the Company to
any other participating employer. The Company has recognised the total deficit in respect of the Meggitt Pension Plan in these financial
statements. Further details on the plan are disclosed in note 36 to the Group’s consolidated financial statements on pages 207 to 211
in respect of the UK scheme.
The total charge to net operating expenses in respect of the defined contribution scheme in which employees of the Company
participate is £2.0m (2019: £2.1m).
Changes in the present value of retirement benefit obligations
At 1 January
Service cost
Past service cost
Net interest cost
Contributions – Company
Benefits paid
Administrative expenses borne directly by scheme
Remeasurement of retirement benefit obligations:
Gain from change in demographic assumptions
Loss from change in financial assumptions
Return on scheme assets excluding amounts included in finance
costs
Total remeasurement loss/(gain)
At 31 December
Present value of scheme liabilities.
*
** Fair value of scheme assets.
Liabilities
(*)
£’m
855.7
7.8
0.1
17.3
–
(29.5)
–
(1.6)
111.3
–
109.7
2020
Assets
(**)
£’m
(705.1)
–
–
(14.6)
(29.6)
29.5
0.9
–
–
(55.6)
(55.6)
Total
£’m
150.6
7.8
0.1
2.7
(29.6)
–
0.9
(1.6)
111.3
(55.6)
54.1
Liabilities
(*)
£’m
753.4
6.7
–
21.5
–
(26.2)
–
(2.5)
102.8
–
100.3
2019
Assets
(**)
£’m
(668.9)
–
–
(19.6)
(37.8)
26.2
0.8
–
–
(5.8)
(5.8)
Total
£’m
84.5
6.7
–
1.9
(37.8)
–
0.8
(2.5)
102.8
(5.8)
94.5
961.1
(774.5)
186.6
855.7
(705.1)
150.6
F
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4
6
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2
2
8
228
Meggitt PLC
Annual Report & Accounts 2020
Notes to the financial statements of the Company
continued
12. Retirement benefit obligations continued
Details on the sensitivity of scheme liabilities to changes in assumptions are provided below:
• The impact of a 50 basis point reduction in discount rate would cause scheme liabilities at 31 December 2020 to increase by
approximately £97.4m.
• The impact of a 10 basis point increase in inflation and salary inflation rates would cause scheme liabilities at 31 December 2020 to
increase by approximately £12.1m.
• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December 2020
to increase by approximately £40.2m.
The above sensitivity analyses are based on a change in a single assumption while keeping all other assumptions constant. In practice,
this is unlikely to occur, and changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation
to significant actuarial assumptions, the same method of calculating the defined benefit obligation has been used as when calculating
the retirement benefit obligations recognised on the balance sheet. The methods and types of assumptions used in preparing the
sensitivity analysis are consistent with the previous year. No change has been considered necessary to sensitivity levels, given recent
past experience.
The weighted average duration of the defined benefit obligation is 19.5 years. The expected maturity of undiscounted pension benefits
at 31 December 2020 is as follows:
Total
£’m
To be made in 2021
To be made in 2022
To be made in 2023 to 2025
To be made in 2026 to 2030
To be made in 2031 to 2035
To be made in 2036 to 2040
To be made in 2041 to 2045
To be made from 2046 onwards
Total
23.4
25.0
82.9
158.1
172.0
172.3
163.1
476.6
1,273.4
13. Share capital
Disclosures in respect of share capital of the Company are provided in note 37 to the Group’s consolidated financial statements on
page 212.
14. Share-based payment
Share awards have been granted to employees of the Company under various plans. Details of the general terms and conditions of each
share-based payment plan are provided in the Directors’ remuneration report on pages 114 to 141. Disclosure is also made in the
Group’s consolidated financial statements in note 38 on page 212.
15. Commitments and contingencies
The Company has no capital commitments (2019: Nil). Details of contingent liabilities impacting the Company are disclosed in note 41 to
the Group’s consolidated financial statements on page 213.
16. Other information
Directors’ remuneration
Details of the remuneration paid to directors of the Company are provided in the Directors’ remuneration report on pages 114 to 141.
Auditor’s remuneration
Remuneration payable to PricewaterhouseCoopers LLP for the audit of the Company was £27,000 (2019: £27,000).
Employee information
Wages and salaries
Social security costs
Retirement benefit costs
Share-based payment (credit)/expense
Employee costs including executive directors
2020
£’m
21.0
4.2
9.9
(0.6)
34.5
2019
£’m
31.2
4.2
8.8
2.7
46.9
The average number of persons employed by the Company in the year is 278 (2019: 241). The total number of employees reduced in the
year from 289 at I January 2020 to 275 at 31 December 2020.
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Annual Report & Accounts 2020
229
Five-year record
Revenue and profit
Revenue
Underlying profit before tax
Amounts arising on the acquisition, disposal and closure of businesses
Amortisation of intangible assets acquired in business combinations
Disposal of inventory revalued in business combinations
Financial instruments
Exceptional operating items
Net interest expense on retirement benefit obligations
(Loss)/profit before tax
Earnings and dividends
(Loss)/earnings per share – basic
Earnings per share – underlying
Dividends per ordinary share in respect of the year
Gearing ratio
Net debt as a percentage of total equity
2020
£’m
2019
£’m
2018
£’m
2017
£’m
2016
£’m
1,684.1
2,276.2
2,080.6
1,994.4
1,992.4
159.5
32.0
(88.2)
–
(2.9)
(428.7)
(5.7)
(334.0)
(40.4)p
16.5p
–
370.3
23.5
(89.8)
–
15.0
(26.2)
(6.1)
286.7
28.8p
37.3p
5.55p
334.8
25.1
(91.5)
–
(10.1)
(34.2)
(8.0)
216.1
320.2
25.3
(93.5)
–
60.7
(73.1)
(11.3)
228.3
352.1
39.1
(98.6)
(4.6)
(66.4)
(15.5)
(10.6)
195.5
23.2p
34.2p
16.65p
37.8p
32.0p
15.85p
22.1p
34.8p
15.10p
38.0%
37.1%
43.1%
45.9%
48.0%
The Group adopted IFRS 15 and IFRS 16 with effect from 1 January 2018, with prior year comparatives for 2017 restated. IFRS 15 in
particular is a complicated standard, requiring customer contracts to be reassessed against revised criteria for when, and at what value,
revenue should be recognised. It is therefore not practical to provide a restatement of the numbers presented above for 2016.
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3
2
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Meggitt PLC
Annual Report & Accounts 2020
Investor information
Contacts
Investor relations
E: investors@meggitt.com
Shareholder enquiries
Registrar:
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
T: 0370 703 6210
E: www.investorcentre.co.uk/
contactus
Information on Meggitt PLC, including the latest share price: www.meggitt.com
Enquiries about the following matters should be addressed to Meggitt PLC’s registrar:
• 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. Dividend confirmations are sent
directly to shareholders’ registered addresses. Quarterly statements will be available online at
www.investorcentre.co.uk. Shareholders will need their Shareholder Reference Number (SRN) and
registered address details to get started. Statements will be available from 30 April, 31 July,
31 October and 31 January each year.
• 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, which can be found on
their share certificate or a recent dividend tax voucher or dividend confirmation, to access this site. Once
signed up to Investor Centre, an activation code may be sent to the shareholder’s registered address to
enable the shareholder to manage their holding.
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Other useful contacts
Share dealing services are provided for shareholders by Computershare Investor Services PLC.
These services are provided by telephone (0370 703 0084) and online (to access the service,
shareholders should have their SRN and log onto www.computershare.trade.
ShareGift (www.sharegift.org, registered charity number 1052686): PO Box 72253, London, SW1P 9LQ
(0207 930 3737). ShareGift, 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.
Future payment of
dividends – mandatory
direct credit
From 2022, the Company is simplifying the way in which it pays dividends to shareholders by only paying cash
dividends directly into a shareholder’s nominated bank account. This is known as Mandatory Direct Credit.
The Company will no longer be issuing dividend cheques. Shareholders recorded on the register of members
as receiving dividend payments by cheque will be contacted by Computershare. Those shareholders will need
to take the required action by selecting the appropriate option as set out in the Computershare notification.
Meggitt PLC
Annual Report & Accounts 2020
231
Glossary
401(k)
ADS
An employer-sponsored defined-
contribution pension in the United
States
Aerospace, Defence, Security and
Space Organisation
Aftermarket (AM)
Spares and repairs
AGM
AR&T
ASK
BAME
Annual general meeting
Applied research and technology
Available seat kilometres
Black, Asian, and Minority Ethnic
Basis point
One-hundredth of a percent
BEPS
Board
Book to bill
Bronze stage
Business jets
CAGR
Capability
CFC
CGU
CHF
CI
CO2
2018 Code
CODM
Company
Base Erosion and Profit Shifting
Board of directors
The ratio of orders received to revenue
recognised in a period
Fourth stage of Meggitt
Production System
Aircraft used for non-commercial
operations
Compound annual growth rate
Expertise in technology and
manufacturing
Controlled Foreign Company
Cash generating unit
Swiss franc
Continuous improvement
Carbon dioxide
UK Corporate Governance Code 2018
Chief operating decision maker
Meggitt PLC
Condition-monitoring Monitoring the condition of aerospace
and land-based turbines and
supporting equipment to predict wear
and tear, promoting safety, up-time
and planned maintenance
Continuing Resolution Appropriations legislation restricting
modification from prior-year funding
patterns
Covid Corporate
Financing Facility
CR
CREST
D&A
DECC
DEFRA
DFARS
DLA
A Bank of England scheme introduced
in March 2020 to support firms during
the COVID-19 pandemic
Corporate Responsibility
Certificateless Registry for Electronic
Share Transfer
Depreciation and amortisation
Department of Energy & Climate
Change
Department for Environment, Food &
Rural Affairs
(US) Defense Federal Acquisition
Relation Supplement
Daily layered accountability, the nervous
system of the Meggitt Production
System, DLA is a multi-layered structure
of interlocking meetings at the start
of each working day that flows fresh,
accurate performance and operational
information up and down the business
enabling problems to be solved quickly
by those best equipped to do so
DoD
DPPM
DRIP
DGTR
EBITDA
E&C
ECR
EPS
ERG
ESG
EU
Executive Committee
FCA
FIFO
FIRST
FOC
FRC
FRS
FTSE
GAAP
GBP
GDP
GDPR
GHG
Group
HMRC
HSE
HPC
HPS
IAS
IET
IFBEC
IFRS
Installed base
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(United States) Department of Defense
Defective parts per million, a measure
of quality
Dividend reinvestment plan
Disclosure Guidance and Transparency
Rules
Earnings Before Interest, Tax,
Depreciation and Amortisation
Ethics & Compliance
(US) Export Controls Reform
Earnings per Share
Employee Resource Group
Environment, Social & Governance
European Union
Assists the Chief Executive to develop
and implement the Group’s strategy,
manage operations and discharge
responsibilities delegated by the Board
Financial Conduct Authority
First-in first-out
For Inspiration and Recognition of
Science and Technology
Free of charge
Financial Reporting Council
Financial Reporting Standard
Share index of companies listed on the
London Stock Exchange
Generally Accepted Accounting
Practice
British pound or pound sterling
Gross domestic product
General Data Protection Regulation
Greenhouse gas
Meggitt PLC and its subsidiaries
HM Revenue & Customs
Health, Safety & Environment
High Performance Culture (HPC) – our
chosen culture, with a particular focus
on diversity & inclusion and improved
employee engagement, to accelerate
execution of our strategy
High Performance System (HPS) –
our new Emerging Stronger plan for
Outstanding Operations, which will
replace the Meggitt Production
System (MPS)
International Accounting Standards
Institution of Engineering and
Technology
International Forum on Business Ethical
Conduct
International Financial Reporting
Standards
The sum total of the Meggitt products
and sub-systems installed on
customers’ equipment
IR
IP
Investor Relations
Intellectual property
232
Meggitt PLC
Annual Report & Accounts 2020
Glossary continued
PwC
R&D
REACH
RECs
Regional aircraft
Registrar
RIDDOR
RMU
RNS
ROCE
ROTA
RPH
SAP
Sell-side
Shipset
SIP
SRN
STIP
TCFD
TRIR
TSR
UAV
UN SDG
UKLA
USD
Ventilator Challenge
WACC
WBCSD
WRI
PricewaterhouseCoopers LLP
Research and development
Registration, Evaluation and
Authorisation of Chemicals
Renewable Energy Credits
Commercial aircraft with fewer than
100 seats
Computershare Investor Services PLC
The Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
Retrofit, modification and upgrade
Regulatory News Service
announcement
Return on capital employed
Return on trading assets
Retirement Plan Headcount
The Group’s selected enterprise
management system
Refers to the part of the financial
industry that is involved in the creation,
promotion, and sale of stocks, bonds,
foreign exchange, and other financial
instruments
Value of Meggitt’s content on
aircraft platforms
Share Incentive Plan
Shareholder Reference Number
Short-Term Incentive Plan
Taskforce on Climate-related Financial
Disclosures
Total recordable injury rate
Total shareholder return
Unmanned aerial vehicle
United Nations Sustainable
Development Goals
UK Listing Authority
United States dollar
A consortium led rapid production of
ventilators to help patients hospitalised
with COVID-19
Weighted average cost of capital
World Business Council for Sustainable
Development
World Resources Institute
ISA
International Standards on Auditing
Jet Zero Council (JZC)
KPI
Large jets
Lean
LIBOR
LTIP
M&A
MPS
Mix
MoD
MPP
MRO
Net borrowings
NHS
NPI
O&M
OE
OECD
OEM
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Partnership between industry and
government bringing together
ministers and chief executive officer-
level stakeholders to drive the
ambitious delivery of new technologies
and innovative ways to cut aviation
emissions
Key performance indicator
Commercial aircraft with greater than
100 seats
A method for the continual elimination
of waste within a manufacturing system
London Inter-Bank Offered Rate
Long-Term Incentive Plan
Mergers and acquisitions
Meggitt Production System (MPS) – our
single global approach to continuous
improvement using tools and processes
tailored for the Group. Being replaced
by our High Performance System
The impact on performance of revenue
streams with higher or lower
profitability growing at differing rates
UK Ministry of Defence
Meggitt Pension Plan
Maintenance, repair and overhaul
Net debt adjusted to exclude lease
liabilities
National health Service
New product introduction
Operations and maintenance
Original equipment
Organisation for Economic
Cooperation and Development
Original equipment manufacturer
Operations excellence A system of tools and processes that
embraces the way in which every
aspect of Meggitt is managed from the
factory floor to all functions and every
level of leadership from supervisors to
the Group Executive Committee
Growth excluding the impact of
currency and acquisitions and disposals
of businesses
Occupational Safety and Health
Administration
On-time delivery
Profit before tax
Printed circuit heat exchanger – a block
of flat, diffusion bonded plates on to
which fluid flow channels have been
chemically milled
Plan for every part
Aircraft or ground vehicle model
incorporating Meggitt products
Project management office
Programme Participation Cost
The production and utilisation lifecycle
of an aircraft model or ground vehicle
Organic growth
OSHA
OTD
PBT
PCHE
PFEP
Platform
PMO
PPC
Programme
Meggitt PLC
Ansty Business Park
Pilot Way
Coventry
CV7 9JU
United Kingdom
T +44 (0)24 7682 6900
www.meggitt.com
Registered in England and Wales
Company number 432989