Annual Report and Accounts 2021
ENABLING THE
EXTRAORDINARY
TO FLY TO POWER TO LIVE
Performance
Contents
Revenue
£1,489m
2020: £1,684m
Net debt2
£780m
2020: £773m
Underlying basic
earnings per share4
15.4p
2020: 16.5p
Net debt: EBITDA6
1.9×
2020: 2.2x
Underlying operating profit1
£177m
2020: £191m
Free cash flow3
£46m
2020: £32m
Liquidity
headroom5
£573m
2020: £908m
Statutory profit before tax
£31m
2020: loss of £334m
> Supported our stakeholders
through another challenging
year of COVID-19 and supply
chain disruption
> Delivered good cash
performance with free cash
flow of £46m
> Global employee engagement
up 2% versus 2020 levels and
4% above high performing
benchmark
> Commissioned our new
manufacturing and engineering
COE and global headquarters
at Ansty Park, UK
> Delivered civil aftermarket
organic revenue growth of
7% for full year; up 51% in the
second half (vs. H2 2020)
> Committed to setting targets
under SBTi framework
> Added 11 SMARTSupport™
aftermarket contracts
Financial summary
Highlights
Introduction
Our vision
02
At a glance
04
Chairman’s statement
06
Strategic Report
Chief Executive’s review
09
Business model
16
Market trends
20
Our strategy
24
Key performance indicators
26
Divisional reviews
34
Chief Financial Officer’s review
42
Risk management
48
Principal risks & uncertainties
50
Taskforce on Climate-related
Financial Disclosures
58
Corporate Responsibility
64
Section 172 statement
89
Stakeholder engagement
90
Directors’ Report
Chairman’s introduction to Governance
98
Board of Directors
100
Corporate Governance
104
Audit Committee report
114
Nominations Committee report
122
Directors’ remuneration report
126
Other statutory information
156
Financial Statements
Group Financial Statements
Independent auditors’ report
to the members of Meggitt PLC
160
Consolidated income statement
171
Consolidated statement
of comprehensive income
172
Consolidated balance sheet
173
Consolidated statement of
changes in equity
174
Consolidated cash flow statement
175
Notes to the consolidated
financial statements
176
Company Financial Statements
Company balance sheet
232
Company statement of changes
in equity
233
Notes to the financial statements
of the Company
234
Other Information
Five-year record
243
Investor information
244
Glossary
246
1 Underlying operating profit is reconciled to operating profit
in note 9 to the Group’s consolidated financial statements on
page 198.
2 Please see note 43 to the Group’s consolidated financial
statements on page 229.
3 Free cash flow is reconciled to cash from operating activities
in note 42 to the Group’s consolidated financial statements
on page 228.
4 Underlying earnings per share is reconciled to basic earnings
per share in note 14 to the Group’s consolidated financial
statements on page 201.
5 Liquidity headroom is the difference between the
Group’s committed credit facilities and its net borrowings
(excluding lease liabilities). Please see note 1 to the Group’s
consolidated financial statements on page 176.
6 As calculated in accordance with covenants in the Group’s
committed credit facilities as described on page 176.
Meggitt PLC Annual Report and Accounts 2021
We are Meggitt
We are innovators.
Customers worldwide rely on our
advanced technologies, products and
services in aerospace, defence and
selected energy markets to help make
the world a more efficient, sustainable
and safe environment.
Enabling a more
sustainable future
We work in amazing industries that underpin the
prosperity and wellbeing of our planet. As the world
looks to a net zero future, our technology and products
play a key role in enabling environmentally sustainable
flight and low-carbon power generation, enhancing
lives and making the world more secure.
Find out how we are creating a more sustainable future
in our Corporate Responsibility section on page 64
ENABLING THE
EXTRAORDINARY
TO FLY TO POWER TO LIVE
Meggitt PLC Annual Report and Accounts 2021
01
Introduction
Driven by our purpose,
vision and values
We are Meggitt
Introduction
Our purpose
At Meggitt we work closely with our customers to design and manufacture
systems and products for the aerospace, defence and selected energy markets to
deliver sustainable solutions for the most challenging environments by focusing on
engineering and operational excellence.
Our vision
ENABLING THE EXTRAORDINARY
We support each other working in
highly skilled passionate teams and
recognise outstanding contributions,
building great relationships with all
our stakeholders.
We do the right thing, in the
right way wherever we operate.
All our stakeholders can count on
us to act with integrity, honesty
and respect, with the highest
standards of ethical behaviour.
We’re good at what we do and
that’s why customers come back
to us. We deliver the most ambitious
technologies, products and services
safely, efficiently and cost-effectively
to our customers.
Our values
Our values reflect how we should strive together and
the behaviours that are integral to our drive for success.
EXCELLENCE
INTEGRITY
TEAMWORK
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.
Innovative technologies
which enhance lives and make
the world more secure.
To
LIVE
To
POWER
To
FLY
Meggitt PLC Annual Report and Accounts 2021
02
Guided by our strategy
and business model
Our strategy and business model
Our sustainability pillars
Delivering for our stakeholders
Our strategy
Our strategy supports our vision to enable the
extraordinary and to deliver technologically differentiated
systems and products with high certification requirements
in aerospace, defence and selected energy markets.
Read more on page 08
Our business model
Our diversified business model is core to our strategy.
The resilience this brings means we can deliver
value to all our stakeholders.
Read more on page 16
Technology
To support the evolving needs of our
global customers we will continue to
invest in innovative new technologies
to enable sustainable aviation.
Read more on page 83
Planet
Our goal is to contribute to a cleaner
future by continuously improving and
adapting our operational systems to
promote best practices, efficiencies
and improvements.
Read more on page 78
People
We are committed to creating a
rewarding, safe and productive working
culture for all Meggitt colleagues and
supporting our local communities
around the world.
Read more on page 72
Our customers
We strive to deliver the most
sustainable services and products
to our customers worldwide.
Read more on page 18
Our shareholders
We create value for shareholders
through earnings generation and
dividend payments.
Read more on page 17
Our people
Our success depends on the skills
and expertise of our people.
Read more on page 72
Our communities
We understand our role in
society and contribute to the
communities in which we operate.
Read more on page 75
Our suppliers
We have longstanding and
beneficial relationships with
our partners and suppliers.
Read more on page 17
Meggitt PLC Annual Report and Accounts 2021
03
Introduction
Introduction
At a glance
We deliver technologically differentiated systems and
products, with high certification requirements, across the
civil aerospace, defence and selected energy markets.
Aerospace
Unique technologies
for aerospace
Civil aerospace accounts for 46% of
Group revenue, with products and
sub-systems installed on almost every jet
airliner, regional aircraft and business jet
in service today.
Group revenue
by end market
Energy and other
Keeping the lights on
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 42% 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.
46%
Civil Aerospace
42%
Defence
12%
Energy and other
Our products are manufactured in our globally located facilities.
UK
2,327
8
Europe
940
4
North America
4,644
18
Rest of World
1,359
6
9,270
Total Group employees
Meggitt PLC Annual Report and Accounts 2021
04
We work in close collaboration with our customers to
develop pioneering products, and go to market through
four customer-aligned business divisions.
Innovation is at the heart of what we do,
underpinning the safety, reliability,
and environmental performance
of our products.
Optical sensing offers significant advantages over piezoelectric
sensing technologies. For combustion dynamics monitoring,
it enables more accurate measurement over a larger range of
frequencies and allows gas turbines to operate more efficiently
with lower emissions. Smaller in size and able to operate at a
higher temperature, optical sensors can be positioned closer
to the measurement point without signal degradation caused
by electromagnetic perturbations or vibrations, making them
suitable for hazardous environments.
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.
Read more on page 34
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.
Read more on page 36
Energy & Equipment
Specialises in energy and
defence equipment ranging
from electronics cooling to
ammunition handling systems
and heat transfer equipment
for offshore oil and gas
facilities and renewable
energy applications.
Read more on page 38
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.
Read more on page 40
50%
of revenue
14%
of revenue
18%
of revenue
18%
of revenue
Meggitt PLC Annual Report and Accounts 2021
05
Introduction
Introduction
Chairman’s statement
On behalf of the Board, I would like to thank
all employees for their resilience, dedication
and hard work in delivering the year.
Introduction
Having successfully navigated the
unprecedented reduction in global flight
activity in 2020 and the associated impact
on the civil aerospace sector and the
Group, 2021 has proved to be another
highly eventful year in the long and proud
history of Meggitt.
And, as in previous years, the Board’s
number one priority has been ensuring
the safety and wellbeing of our people
across the world as they continue to
deliver for our customers. While the
recovery has at times allowed for more
normal working patterns to resume, our
people and our sites have remained agile
and adapted to changing circumstances
throughout the year.
While we have been encouraged by
the impact of the vaccine rollout and
gradual recovery in civil aerospace during
the year, it is clear that activity levels
and consumer sentiment remain highly
sensitive to regional outbreaks and, as
we saw during 2021, the emergence of
new variants. We remain confident that
recovery will continue during 2022 albeit
its trajectory is likely to remain uneven.
The ongoing impact of global supply
chain disruption across many sectors as
economies have recovered and demand
has increased is well documented,
posing an additional challenge during
the year. I am extremely grateful to all our
employees for once again demonstrating
outstanding dedication and resilience
across our global sites which has been a
critical factor in enabling us to mitigate
these headwinds.
Alongside managing the recovery,
we have continued to invest in the
business across a number of areas:
through our ongoing commitment to
innovation and new technologies, we
continue to support our customers in
the development of more sustainable
solutions and applications across the
aerospace, defence and energy end
markets; under our People, Planet and
Technology framework, we are making
our ways of working and facilities
more sustainable; and finally, we have
continued to invest in our operational
capability through a number of projects
and initiatives, most notably the transition
to Ansty Park, our state-of-the-art facility
in the UK.
This investment will help ensure that our
people, technology and global footprint
will continue to thrive as the recovery
continues in 2022 and beyond.
2021 Performance
The Group has delivered the year against
a backdrop of continuing challenging
market conditions in civil aerospace,
where activity levels remain below
2019 levels despite recovering steadily
during the year. Our operations and
procurement teams have also worked
hard to mitigate the impact of disruption
in the supply chain at our sites as global
demand has increased.
The benefit of our diverse end-market
exposure and breadth of our civil
aerospace business can be seen in our
results, with civil aftermarket revenue
up on the prior year, with a strong
performance from business jets. Our
energy business has also performed well.
As in 2020, where possible, we have
continued to safeguard future growth
by protecting investment in new
technologies, completing key projects
such as Ansty Park and expanding
capacity to support our brakes business
as the recovery continues. Ansty Park and
the associated consolidation of five sites
in the UK, provides a modern, advanced
and sustainable facility fostering
enhanced interaction between a number
of product groups, as well as a number of
efficiency gains.
Meggitt PLC Annual Report and Accounts 2021
06
Maintaining a robust balance sheet and
managing cash flow remained key focus
areas for the Board and I am pleased
that our net debt levels were held in line
with the prior year. In accordance with
the terms of the proposed transaction
with Parker-Hannifin, the Board did not
reinstate the payment of dividends during
the year.
Proposed acquisition by
Parker-Hannifin
Meggitt is one of the world’s leading
aerospace, defence and selected energy
market businesses and over the last four
years, we have successfully delivered a
strategy that has fundamentally improved
our competitive position and standing
with customers, transitioning the business
through a programme of non-core
disposals, targeted investments and
building a High Performance Culture.
And the benefits of our independent
strategy were clear to see prior to
COVID-19, with the Group recording
seven consecutive quarters of revenue
growth, achieving record operating
profit and strong cash generation in
2019, and creating significant value
for shareholders. With the onset of
COVID-19 we took quick and decisive
action in the face of unprecedented
challenges, positioning the business to
remain competitive in that environment
and well positioned for the recovery.
As a result, the Group remains strongly
positioned, with a compelling strategy
which the Board believes can deliver
attractive value for shareholders over the
long term as our key markets, particularly
commercial aerospace, recover. At the
same time, however, there remains
significant uncertainty as to the precise
timing and speed of that recovery.
In that context, the Board decided that
the all-cash offer by Parker-Hannifin
would substantially accelerate and de-risk
the delivery of that value. In reaching this
decision, the Board carefully considered
the commitments offered by Parker-
Hannifin to safeguard the interests of
the Group’s wider stakeholders, the
alignment of respective business models,
cultures and the shared commitment to
invest in technology and sustainability.
Accordingly, following careful
consideration of both the financial
terms and Parker-Hannifin’s plans for
the Group under their ownership, the
Board recommended unanimously
the proposed acquisition which was
subsequently approved by shareholders
in September.
Board interaction/
developments
The Board has continued to operate
effectively through virtual and, where
possible, the resumption of face-to-
face meetings with UK-based Directors
with a number of additional meetings
being held over and above those that
were scheduled.
With no changes to the membership of
the Board in 2021, as in 2020, this has
provided important stability and continuity
for the Group, particularly in light of the
corporate activity in the summer months
culminating in the recommended offer in
August by Parker-Hannifin.
In addition to managing the Parker-
Hannifin transaction, the Board has
continued to focus on business as usual
activities with the main focus areas
being managing the Group through the
recovery, maintaining a robust balance
sheet and executing our strategy
including investment in technologies to
make aviation and energy generation
more sustainable.
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 employee engagement
schedule alongside other Board Directors
during 2021.
In light of continued restrictions on travel
and free movement at the start of the
year, Executive Directors increased their
level of interaction using virtual meetings
with every site and involving all levels of
the business.
As in previous years, I held virtual
meetings with shareholders at various
points during 2021 discussing a range
of topics.
People
We have no higher priority than
ensuring a safe and secure working
environment for all employees. As
well as the continued provision 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 with our Total Recordable
Incident Rate for the year reaching its
lowest level to date at 0.63 (2020: 0.71).
The Board is pleased that our work
on culture could continue during the
year, not only through monthly culture
briefings run for all of our leaders, but
also through our second annual Inclusion
Week in September, helping to connect
more of our employees across Meggitt
to our eight Employee Resource Groups,
membership of which has doubled to
reach over a thousand employees.
Navigating what has proved to be
another challenging year has required
strong leadership across the Group,
particularly our line managers and
operational leaders. On behalf of the
Board, I would like to thank all employees
for their resilience, dedication and
hard work.
In particular, I’d like to thank again all
those that have continued to work at
our sites to deliver for our customers
throughout the year.
Looking ahead
Having put in place strong foundations
through the execution of our strategy
over the last four years, with the recovery
in civil aerospace underway and the
ongoing commitments made by Parker-
Hannifin, the Board is optimistic about
the opportunities that lie ahead for
the Group and for all our stakeholders
including employees, customers,
shareholders and pension plan members.
Sir Nigel Rudd
Chairman
Meggitt PLC Annual Report and Accounts 2021
07
Introduction
Strategic Report
STRATEGIC
REPORT
Chief Executive’s review
09
Strategy in action: Strategic portfolio
14
Business model
16
Strategy in action: Customers
18
Market trends
20
Our strategy
24
Key performance indicators
26
Strategy in action: Competitiveness
30
Strategy in action: Culture
32
Divisional reviews
34
Chief Financial Officer’s review
42
Risk management
48
Principal risks & uncertainties
50
Taskforce on Climate-related
Financial Disclosures
58
Corporate Responsibility
64
Section 172 statement
89
Stakeholder engagement
90
Meggitt PLC Annual Report and Accounts 2021
08
Chief Executive’s review
Our priority during the year has
continued to be the safety of our teams
while delivering for our customers as
the recovery continues.
Introduction
Our focus in 2021 and as we move
through 2022, continues to be ensuring
the safety and wellbeing of our people,
protecting our sites, serving our
customers and executing our strategy.
As in 2020, against the backdrop of
what continued to be challenging
market conditions as the recovery
in civil aerospace got underway, our
employees have once again remained
focused on delivering for our customers
and executing our strategy, and I want
to thank all of them for their continued
resilience and dedication throughout
the period.
While the recovery in civil aerospace is
encouraging, driven by the continued
rollout of vaccines and more of the
global fleet gradually returning to
service, as we have seen throughout the
year, its trajectory has been non-linear
and remains highly sensitive to the
reintroduction of local restrictions and
border controls.
The extent of the recovery has also
varied greatly, with domestic, cargo
and business jets leading the way, with
international activity levels held back
by the closure of borders. With strong
content across all parts of the civil fleet
including large, regional and business
jets, the diverse nature of our civil
aerospace business allows us to benefit
from those parts of the market recovering
more quickly.
Full year performance
Having moved fast to reposition the
business in 2020, a major priority for
the Group and our global teams in 2021
has been to ensure our sites continued
to deliver for our customers as civil
activity levels increased, while navigating
the additional challenge caused by
disruption in the global supply chain as
global demand across a number
of sectors returned.
The work we have done over the last
four years to strengthen the Group
through our investments in differentiated
technology and operations combined
with our focus on High Performance
Culture, have been pivotal in helping
the Group mitigate the impact of these
additional external pressures.
During the year, we have seen
encouraging signs of the recovery with
civil aftermarket organic revenue growth
of 7% including a strong performance
from brakes where revenue grew 22%,
reflecting increased utilisation in the
narrow body, regional aircraft and
business jet fleets. We also saw strong
civil aftermarket organic order intake
in the final quarter of the year providing
us with momentum as we entered 2022.
I am also pleased that we delivered
another year of positive free cash flow,
maintaining a robust balance sheet
while continuing to invest in our people,
operations and technology in line with
our strategy.
During the year, we secured a number
of significant customer wins across our
end markets and continued to build the
pipeline of new opportunities to underpin
future growth, leveraging our leading
market positions and strong technology.
As we look ahead to the remainder of
2022 and beyond, and notwithstanding
that the trajectory of the recovery
in civil aerospace is likely to remain
uneven in the short term, the long-term
fundamentals of civil aerospace and
our defence and energy end markets
remain strong.
As a result of the successful execution
of our strategy and the work we have
done to position the Group, I am
positive about the future for the Group
and the opportunities that lie ahead for
employees and all our other stakeholders.
Meggitt PLC Annual Report and Accounts 2021
09
Strategic Report
Strategic Report
Chief Executive’s review
continued
Enabling our sustainable future
At Meggitt, we work in partnership
with all of our stakeholders to enable a
sustainable future and have adopted a
framework to illustrate our approach and
ambition, focusing on three core pillars:
People, Planet and Technology. The
framework is aligned to our core business
strategy and also looks through the wider
ESG lens including the United Nations
Sustainability Development Goals and
our corporate responsibility objectives.
• 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 2021, aligned with our purpose
of connecting our employees with the
communities we serve, we launched
our Community Heroes initiative, a
global volunteering programme giving
employees paid time off to volunteer
in their communities. We continued
the rollout of our leadership training
programmes, Spitfire and LeadX, to
develop our operational and high
potential leaders. We also significantly
expanded the number of ambassadors
supporting our eight Employee
Resource Groups and continued our
Extraordinary People recognition
scheme, recognising people and
teams across a number of categories:
Operational Excellence, Innovation,
Teamwork, Safety, Sustainability,
Customer Service and Community.
• 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 relative to revenue.
In 2021, we joined the United Nations
Race to Zero campaign committing to
reduce absolute value chain emissions
in line with a trajectory compatible with
a 1.5 degree warming scenario, and
reaching Net Zero before 2050. We
have increased our dedicated resources
with the appointment of a Group
Director of Sustainability, a key role to
review and oversee our environmental
operational performance across
the Group. Earlier in the year, we
completed our transition in the UK to
source 100% of electricity from green
sources and are proud that Ansty Park
was recognised as being in the top
25% of international new construction
projects for sustainability. Additionally,
we adopted the use of the Science
Based Targets initiative (SBTi) to allow
us to accurately measure emissions in
line with the Paris Agreement goals.
• 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, such as advanced
thermal systems, optical sensing
and engine composites, that allow
engines to become more efficient
and technologies that improve the
environmental performance of aircraft,
including electrical power and storage
solutions and green fire protection.
We are also actively involved in the
industry’s exploration of alternative
fuels including sustainable aviation
fuels and hydrogen.
Strategy update
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 resulting in
over 80% of Group revenue derived from
attractive markets where we have strong
market positions. With over 70% of Group
revenue generated from sole-source,
life-of-programme positions underpinned
by Meggitt-owned intellectual property,
the continued strengthening of our
technology portfolio remains a critical
priority of the Group.
In the year we successfully delivered
our technology programme milestones,
maintained our investment in
differentiated technology and continued
our commitment to invest two-thirds of
our innovation budget on technologies to
deliver the next generation of sustainable
aircraft. A summary of key highlights and
progress in 2021 are as follows:
• Next generation engines –
good progress has been made in
developing the new heat exchanger
technologies that will be needed to
meet the increased cooling of the next
generation of aircraft engines. This
has included expanding our additive-
manufacturing capabilities and working
with major engine companies and
industry research organisations to
develop and test solutions for new civil
and military engine designs.
• Green fire suppression –
work continues with aircraft OEMs
to qualify VERDAGENT®, Meggitt’s
proprietary “green” fire suppressant
agent to replace ozone depleting
Halon 1301. For cargo applications,
preparation is under way for an Airbus
flight test in 2022 and we were also
selected by Boeing to support their
2021 Eco Demonstrator programme
with an Alaskan Airlines sponsored 737-
9 aircraft equipped with our CF3I engine
fire suppressant delivery system. We
have also progressed the Minimum
Meggitt PLC Annual Report and Accounts 2021
10
Key highlights
55
SMARTSupport™ contracts with
an aggregate value of £223m
76%
Global engagement 2% above
2020 levels and 4% above high
performance benchmark
Performance Standard (MPS) testing
for engine applications of CF3I with
Boeing at the FAA Technical Centre
with cold testing to follow in 2022.
• Energy – in our Heatric business, we
continued to make good progress on
the application of its market-leading
PCHE technology in the field of super
critical CO2 power cycles, including
the supply of a recuperator for an EU
sponsored collaboration demonstrator
project launched in 2021. We are
working with turbine OEMs to develop
hydrogen-capable valves and an
optical sensing solution for combustion
pressure monitoring, allowing better
control of emissions and efficiency.
A customer engine demonstration
is under way and industrialisation is
continuing in 2022.
• Optical sensing – we have delivered
our first high-temperature engine-
mounted optical pressure sensing
systems to support engine testing
with major aerospace customers. Our
dynamic pressure sensing system
continues its demonstration testing
in an energy gas turbine environment
and we are planning an evaluation
test of this technology in a hydrogen
combustion environment in 2022.
Working with major aerospace
customers we have also made good
progress in evaluating the use of
our optical bleed air leak detection
technology as an upgrade on high-
rate programmes.
• Engine data management –
we successfully developed a prototype
of a high-temperature engine-mounted
Data Acquisition and Transmission Unit
(DATU), which supports an innovative
modular distributed health monitoring
solution for engine and airframe OEMs,
enabling them to access end-to-end
data for next generation engines in
real time. This prototype was delivered
to its miniaturised specification and
has elicited a positive response
from customers.
• Electric flight – with our major
urban air mobility customer, we
successfully delivered and tested our
technology meeting all expectations
for performance, stability and control.
On our second generation of lithium
ion batteries, we have focused on
industrialisation and continue to co-
define technology acceptance criteria
with certification authorities. The
3D-printed concept demonstrator was
shown at the NBAA exhibition. We
have also launched the development of
a HVDC energy buffer to complement
the primary electrical power source for
a customer’s greener future platform
architecture. We have matured our
technology for inertial sensing and
have received an award to develop a
tactical grade inertial measurement
unit for an eVTOL primary flight control
by a major airframe OEM.
We have also continued to leverage
advanced manufacturing technology
and processes across our sites:
• Additive manufacturing (AM) –
we have continued to increase the
use of additively manufactured tooling
to support production operations
across the Group and, through our
partnership with HiETA Technologies,
we have proven our capability to
provide AM heat exchangers, in less
than four weeks, to OEM customers for
ground-based tests. The work on the
ATI sponsored programme LAMDA has
launched, which sees our participation
in the development and evaluation of
a large format AM machine with our
partner Renishaw in Ansty Park.
• Digital manufacturing –
we have continued to deploy digital
manufacturing technologies into
production cells through the use of
digital work instructions, integration of
machining and inspection data systems
and the use of RFID real-time location
and augmented reality systems. The
technology has proven valuable both in
improving productivity and supporting
collaboration across our global teams
when, due to the pandemic, travel
was difficult.
Meggitt PLC Annual Report and Accounts 2021
11
Strategic Report
Strategic Report
Chief Executive’s review
continued
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) in the aftermarket.
We have continued to invest in capability
and capacity across our three global
Services & Support centres of excellence.
In our APAC hub in Singapore, we have
doubled our footprint and added over
100 new part numbers to our portfolio and
at our Americas hub in Miami, we have
consolidated a number of sites into the
facility and increased our footprint adding
significant capability across our product
portfolio. These investments, together with
our world-class facility at Ansty Park, provide
us with multi-product group MRO and
spares capability across all three regions.
During the year, we secured a number of
customer contracts across our three core
end markets of civil aerospace, defence
and energy, including:
• In civil aerospace, a $40m contract to
supply Wireless Emergency Lighting
Systems (WELS) to Boeing for the 787
and a £98m life of programme contract
for a civil airframe OEM for the supply
of rate gyrometer accelerometer units.
• In defence, a $22m contract for the
supply and retrofit of RF cables for the
F-22 aircraft.
• In energy, a significant order with a major
US turbines manufacturer for the sole
source supply of next generation valves
and a multi-million pound contract with
Siemens Energy to supply PCHEs for the
Mero 3 Floating Production Storage and
Offloading vessel.
A number of facilities were recognised
for their excellence by our customers in
2021: our facility in Rockmart, US, which
manufactures self-sealing, crashworthy
fuel cells, received “Supplier of the
Year” from Bell, Boeing Defence and a
multi-service US military panel for the
development and production of new
ballistic-tolerant, crashworthy fuel cells for
the Osprey aircraft; our San Diego site,
which supplies high performance and
high-temperature advanced composites,
was presented with a Performance
Excellence Award for Product Quality
and On-Time Delivery; and our Fribourg
facility was nominated for an innovation
award for their novel optical sensing
technology, recognised as a breakthrough
in combustion monitoring for aircraft
engines and land-based gas turbines,
used in power generation.
In Services & Support, we saw continued
momentum with SMARTSupport™,
our long-term contract offering for
aftermarket customers, securing an
additional 11 agreements, taking the total
number to 55 with an aggregate value
of £223m, 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. We
were also delighted that our partnership
with Lufthansa Technik Shenzhen
was approved by the Civil Aviation
Administration of China to perform repair
and overhaul services for our market-
leading fire detectors.
Competitiveness
We have no higher priority than ensuring
a safe and secure working environment for
all employees. As well as the continued
provision of additional measures at
each site to protect our people and
reduce the risk of infection, we delivered
an improvement in our overall safety
performance with our Total Recordable
Incident Rate for the year reaching its
lowest level to date at 0.63 (FY 2020: 0.71).
We have commissioned our Ansty
Park facility, our state-of-the-art UK
engineering and advanced manufacturing
centre of excellence and global
headquarters. The site is one of the
biggest investments in UK manufacturing
in a decade as well as being Meggitt’s
largest infrastructure investment in
its history. The transition included the
closure of five UK sites and the transfer
of over 1,000 employees and 1,700
separate pieces of equipment with the
site housing our Thermal and Braking
Systems product groups as well as our
European Services & Support hub for
MRO and spares. Having attained CAA
and BSI approvals, we are conducting
direct customer shipments from the site.
We are pleased with the operation of the
site in these early stages and supported
our customers well over the traditionally
busy final quarter. We look forward to
further productivity improvements as
the new ways of working at Ansty are
further embedded.
In line with our footprint reduction
strategy, we concluded the sale of our
Dunstable and Toulouse sites, with the
closure of a further two sites planned for
2021 moving into 2022. At the end of the
year we had a total of 36 manufacturing
locations, representing a 36% reduction
in our global footprint since 2016 and
remain on track with our target to reduce
footprint by 50% by the end of 2023.
We made good progress in Engine
Composites, following our investments in
engineering and process improvements
at our Erlanger and Saltillo sites and
have received further customer approvals
for direct shipment of our high-volume
products from our site in Saltillo, Mexico.
We deployed our High Performance
System (HPS), which replaces and builds
on the Meggitt Production System (MPS)
and is designed to measure and drive
efficiency across all Group functions and
Meggitt PLC Annual Report and Accounts 2021
12
sites. All sites have been assessed in line
with the framework and action plans have
been created to deliver improvements.
A key area of focus for the Group in 2021,
which we expect to continue in 2022,
has been managing the procurement of
materials into our sites against a backdrop
of global supply chain disruption as
demand levels in civil aerospace have
increased. We have deployed dedicated
resources and new tools to improve
access to critical materials, with the
main priority being to continue to satisfy
customer orders. We have also taken the
opportunity during the year to further
develop our supply chain function by:
continuing to enhance our processes;
upskilling our teams; rationalising our
supply base; and increasing the use of
analytics and automation.
Culture
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 and cultivating a culture of
high performance. In 2021, we focused
our efforts on protecting our people,
employee and leadership development,
diversity and inclusion and employee
engagement and recognition.
We continue to invest in talent
through our graduate and apprentice
programmes. Following nearly a decade
of success with our Engineering &
Operations Graduate programme,
we launched our Corporate Graduate
Programme to business functions in the
UK promoting professional development
opportunities across Finance, Corporate
Affairs and IT. Alongside this, the Ansty
Park facility welcomed its first degree
apprentices and across the Group
we now have over 100 graduates and
apprentices. We also participated in the
10,000 Black Interns programme in the
UK in anticipation of hiring a number of
interns in 2022.
In the first half we also launched two new
training programmes: Spitfire for our
Operations leaders and LeadX, which
embed and reinforce concepts from our
High Performance Culture work for our
future business leaders.
During 2021 we saw continued progress
with our work on High Performance
Culture despite extremely challenging
COVID-19 travel restrictions and
lockdowns. Nearly 70% of employees
have now attended training sessions.
We made excellent progress in the
number of employees engaged with
our Employee Resource Groups (ERG),
doubling membership to over 1,000. We
held our annual Diversity and Inclusion
week with 18 sites hosting events
along with virtual sessions focused on
introducing employees to our ERGs and
providing learning and development
opportunities on various topics.
We also hosted numerous events
throughout the year to increase awareness
and visibility including: celebrating
International Women’s Day and Women
in Engineering Day, Pride Week and
Black History month in the US and UK.
Employees also took part in the Steps
for Vet’s Challenge, Remembrance Day
Celebrations and joined talks on Latino
History. Additionally, in support of Suicide
prevention week, our SHINE ERG hosted
“Subject Matter Expert” talks at multiple
sites and provided Mental Health First
Responders training. We also launched
Community Heroes, our community
and charity outreach programme, which
enables employees to volunteer for local
good causes in their community.
Our progress on culture, throughout a
particularly challenging period for the
Group and our teams over the last two
years, has been reflected in our recent
employee survey, with engagement
levels increasing by 2% above 2020
levels and 4% above the global high
performing benchmark.
Outlook
Building on the positive momentum
in 2021 and good order intake at the
end of the year, the outlook for our civil
aerospace business is encouraging.
However, with a number of countries still
experiencing high infection rates and with
travel restrictions in place, forecasting
the pace and trajectory of this recovery
remains difficult, particularly in the short
term. The prospects for our energy and
defence end markets are expected to
remain solid.
Looking ahead, based on the significant
progress we have made to transform the
Group, 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.
Since the Group is in an offer period
under the UK Takeover Code, we are not
providing financial guidance for 2022, nor
are we able to comment on expected
performance relative to any analyst
forecasts that may be available.
Tony Wood
Chief Executive Officer
Meggitt PLC Annual Report and Accounts 2021
13
Strategic Report
Strategic Report
Strategy in action
IMAGES: A colleague demonstrates how
Meggitt are using augmented reality to
train operators without needing to travel.
Another colleague uses his Hololens to
run Visual Factory work instructions.
Digital and additive manufacturing technologies are being used across
Meggitt to make products in new and unique ways, to improve productivity
and to reduce waste.
Digital work instructions allow complex
parts to be assembled by skilled
technicians whilst efficiently collecting
all of the information that is needed in
aerospace’s highly regulated market.
Replacing the traditional paper-based
systems, that are still widely used in
the aerospace sector, has increased
productivity and allowed the operators
to focus on the critical aspects of
building the products.
Connecting machining and inspection
tools into the same ecosystem is
driving further improvements in
productivity and augmented reality
adds another dimension, enabling
operators to work with a digital overlay
to what they are seeing in the physical
world and to interact with colleagues
across our global factories.
Additive manufacturing is another
technology that has come of age in the
manufacturing environment where fittings
and tools can now be quickly designed
and printed to meet local needs.
There are many more opportunities
for us to integrate digital technologies
into our operations and processes, as
we continue to investigate possibilities
we are driving fundamental change,
both in how we operate and how we
deliver value to our customers.
12%
average efficiency gain in
teams adopting Visual Factory
c. 7,000
labour hours saved on one
pilot product line between
Jan 21 – Dec 21 compared
with 2020 baseline
At Meggitt we are developing both next generation products
and advanced manufacturing technologies to make them
efficiently and sustainably.
TECHNOLOGY.
Our strategic priorities are underpinned by
our three Corporate Responsibility pillars.
Read more about our Technology pillar on page 83
Meggitt PLC Annual Report and Accounts 2021
14
Delivering breakthrough performance
STRATEGIC
PORTFOLIO
Through focusing on engineering and operational excellence,
we build broad installed bases of equipment for which we
provide support throughout their lifecycle.
Meggitt PLC Annual Report and Accounts 2021
15
Strategic Report
Strategic Report
Business model
How we create value through the investment cycle
Strong partnerships
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.
Market-leading technology
We invest in market-leading technology
and robustly defend our intellectual
property rights. We hold leading
market positions across a number
of product lines.
Maintaining a
competitive
advantage
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:
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.
Through-life
Services & Support
We provide aftermarket
services and support building
longer-term, more durable and
deep partnerships through
SMARTSupport™.
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 73,000 civil and
military aircraft.
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.
Meggitt PLC Annual Report and Accounts 2021
16
Diverse end markets
We have diverse end-market exposure
with our technology and products utilised
in a large fleet across civil, defence and
selected energy markets.
World-class services and support
Our customers demand high quality,
timely services and support to maximise
the value of our products through
their lifecycles.
Strong values
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.
How we
share value
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
£373m to our shareholders through
dividends and paid £166m in interest to
our holders of debt.
Employees
We employ over 9,000 people and in
2021 paid over £568m in wages, salaries
and employee benefits.
Governments
We paid over £80m in social security
and corporation taxes to governments in
2021. 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.£4.5bn to our suppliers.
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.
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.
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.
Aftermarket revenue (£)
Time
Legacy platforms
Younger platforms
New and future platforms
Illustrative
Annual revenue (£)
Entry in service
25 years
Fleet size/deliveries
Product
development
Revenue from aftermarket
grows over the life of the
programme
Revenue from original
equipment as OEMs
produce each new aircraft
Annual deliveries
Total fleet
Illustrative
Production
Post Production
Meggitt PLC Annual Report and Accounts 2021
17
Strategic Report
Strategic Report
Strategy in action
Enhancing lives by keeping
the lights on for our
CUSTOMERS
Connecting valuable components to new opportunities.
Meggitt PLC Annual Report and Accounts 2021
18
We repair through all stages of lifecycle, offering our global customers
a more cost-efficient, sustainable way to stay airborne for longer.
For airline operators, scheduled
maintenance is a way of life. Ensuring
passenger safety, reliability and
operational efficiency. An aircraft on
ground (AOG) due to component
failure not only results in lost
passenger and cargo revenue, but
there are also significant associated
costs. New for old is not the most
cost-efficient route and it isn’t the
most sustainable either.
We harvest and refurbish Meggitt parts
from retired aircraft and offer them
to our customers as a convenient,
cost-efficient alternative to brand-new
spares. Known as Used Serviceable
Material (USM), this solution optimises
product lifecycle, giving high quality,
recertified parts a second chance to fly
as well as offering a more sustainable
alternative. For example, a USM fire
extinguishing bottle can be seen in the
image below.
End-of-life recycling is another
major part of our SMARTSupport™
value proposition.
3
Global regional centres
of excellence in EMEA,
Asia and the Americas
It’s fair to say that when a Meggitt part enters service it’s in
it for the long haul.
IMAGES: Colleagues from the
SmartScoping team within Meggitt’s
Services & Support division take part
in a Daily Layered Accountability
meeting (DLA).
An electromechanical valve is repaired
at Ansty Park, UK.
PLANET.
Our strategic priorities are underpinned by
our three Corporate Responsibility pillars.
Read more about our Planet pillar on page 78
Meggitt PLC Annual Report and Accounts 2021
19
Strategic Report
Strategic Report
Market trends
Revenue
£260m
Market segments
• Large jets >100 seats
• Regional jets <100 seats
• Business jets
• Civil helicopters
Revenue by platform category
Large jets
66%
Regional jets
6%
Business jets
28%
Annual commercial deliveries1
2021
2020
2019
2018
2017
2016
2015
1,372
693
918
1,196
1,474
1,422
125
126
224
1,586 235
262
290
287
Large jets
Regional jets
Annual business jet deliveries
2021
2020
2019
2018
2017
609
560
710
625
643
651
2016
2022 outlook
OEM production rates expected to
increase versus 2021 levels, as airframe
and engine manufacturers begin
to gradually increase supply as the
recovery continues and demand for
new aircraft increases.
Business jet deliveries are expected
to be slightly up on 2021 reflecting
the continued recovery and customer
demand in this segment.
Backlog for new aircraft remains
healthy reflecting expectations of
continued fleet renewal and strong
long-term fundamentals.
Over the medium term air traffic is
expected to return to pre-COVID
levels by 2023/24 and then continue
growing. This will then feed through to
increased deliveries of new aircraft.
Civil original equipment
2021 market trends
• Increase in new build rates by airframe
and engine OEMs as demand for new
aircraft continued to recover during
the year.
• Increase of 32% in combined deliveries
of large jets from Airbus and Boeing.
• Deliveries of regional aircraft in line
with 2020 with growth in business jets
of 9%.
• Continued approvals for the return to
service of the Boeing 737MAX with the
aircraft authorised in 180 countries.
Meggitt performance in 2021
• Civil OE revenue down 10% organically
with growth of 17% in the second half
(vs. H2 2020), reflecting the gradual
recovery in civil aerospace.
• In large jets, the largest component
of our civil OE revenue (66%), organic
revenue was down 13% driven by lower
wide body demand including the B787,
B777 and A350XWB.
• OE revenue from business jets (28%
of civil OE revenue) was down 4% on
an organic basis.
• OE revenue from regional jets (6%
of civil OE revenue) was 7% lower on
an organic basis.
1 Excludes military variants.
Meggitt PLC Annual Report and Accounts 2021
20
Revenue
£425m
Market segments
• Large jets >100 seats
• Regional jets <100 seats
• Business jets
• Civil helicopters
Revenue by platform category
Large jets
54%
Regional jets
20%
Business jets
26%
Average monthly
commercial active fleet
2021
2020
2019
2018
2017
2016
2015
74%
65%
90%
91%
91%
91%
90%
Average monthly
commercial ASKs (Mn)
2021
2020
2019
2018
2017
446
848
794
745
693
2016
380
2022 outlook
The continued rollout of vaccines and
significant pent up demand to travel
expected to underpin the continued
recovery in civil aerospace.
Pace and trajectory of the recovery
in the short term expected to remain
sensitive to regional outbreaks and
local restrictions.
Domestic travel, business jets and
regional aircraft expected to continue
to lead the recovery.
Industry expectation that air traffic
activity will return to 2019 levels by
2023/24.
Beyond the recovery period, the
fundamental drivers supporting air
traffic growth over the long term
remain in place, with global passenger
growth of 3.3% (IATA) per annum
expected over the next 20 years.
Civil aftermarket
2021 market trends
• Continued recovery in flight activity
with global RPKs and ASKs for the
month of December 2021 up 80% and
46% versus December 2020.
• Active fleet up to 79% at the end of
2021 having started the year at 68%.
• Trajectory and pace of recovery
remained sensitive to regional
outbreaks of COVID-19 and associated
restrictions on travel.
• Recovery led by domestic travel, with
global domestic ASKs for the month
of December 2021 up 15% versus
December 2020, representing 85% of
2019 levels.
• Strong recovery in business jets with
activity levels up 48% for the full year,
with activity for the month of December
2021 at 123% of December 2019 levels.
Meggitt performance in 2021
• Group civil AM revenue up 7%
organically with large jets up 1%,
regional aircraft up 6% and business
jets up 21%.
• Strong civil AM growth of 51%
in the second half on an organic basis.
• Civil AM organic orders up 50% in the
year with growth of 119% in the second
half and book to bill of 1.11x.
• Good performance in brakes with
revenue up 22% organically, with
growth across all platform categories.
• On a regional basis in Services &
Support: revenue in Asia and the US
up 7% and 2% respectively with Europe
down 18%, all on an organic basis.
Meggitt PLC Annual Report and Accounts 2021
21
Strategic Report
Strategic Report
Market trends
continued
Revenue
£620m
Market segments
• Military aircraft & helicopters
• Ground vehicles
• Naval
• Space
Group defence revenue
by platform category
Fighter/attack
36%
Light attack
5%
Rotary wing
28%
Special mission
3%
Transports
8%
Ground/naval
20%
US DoD Spending ($bn)
134
2022
2021
2020
2019
2018
Procurement
Research, Development, Test & Evaluation
Other
92
95
105
106
112
432
442
444
456
469
142
146
147
147
Group defence revenue
by geography
Rest of Europe
15%
Rest of the World
9%
UK
4%
US
72%
2022 outlook
Defence expenditure in the US, our
most important defence market
representing 72% of total Group
defence revenue expected to
remain stable.
US defence budget for 2022 approved
at $715 billion representing an increase
of 2% on 2021.
While most major defence spending
nations are committed to maintaining
defence spending, an increasing
proportion is expected to be allocated
to cyber, autonomy, space, maritime
and weapon systems.
Defence
2021 market trends
• US Department of Defence outlays
in the US up 4% for fiscal year 2021.
• Outlays for Procurement and RDT&E
up 6% and 2% respectively.
• After a period of robust spending
between 2017-2019, inventory
destocking by the Defence Logistics
Agency (DLA) lowered demand
for aftermarket spares.
Meggitt performance in 2021
• After three years of strong growth,
Group defence revenue ended the
year 11% lower on an organic basis.
• OE revenue down 7% and aftermarket
down 17% on an organic basis versus
the comparative period.
• Performance reflects inventory
destocking, lower orders by the US
Defence Logistics Agency in the
aftermarket and COVID-related
disruption at two of our US sites
in the year.
Meggitt PLC Annual Report and Accounts 2021
22
Revenue
£184m
Market segments
• Power generation
• Oil & Gas
• Renewables
Global investment in the power
sector by technology1
Battery storage
Renewable power
Electricity network
1%
Fossil fuel power
14%
Nuclear
5%
45%
35%
Group energy revenue by
application
Oil
Other
7%
Low carbon (vs. Oil)
70%
Zero carbon
10%
13%
2022 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.
Energy and other
2021 market trends
• Oil prices increased 76% from a low in
January reaching an in-year high of $85
per barrel in October, before ending
the year at $75 per barrel.
• Capital expenditure levels on energy
projects remained strong, particularly in
the renewables space where a number
of large projects were commissioned.
• Growth driven by increasing electricity
demand supplied by gas-fired
power plants and renewable power
generation systems.
• High gas prices have added to interest
in investment in LNG production
and transport.
Meggitt performance in 2021
• Energy revenue was up 6% in the year
on an organic basis with 8% growth
in the second half.
• Organic revenue in our Heatric and
Energy Sensing & Controls businesses
up 5% and 12% respectively.
• Revenue from other markets was 8%
lower versus the comparative period
on an organic basis.
1 International Energy Agency (2021),
World Energy Investment 2021, IEA, Paris.
Meggitt PLC Annual Report and Accounts 2021
23
Strategic Report
Strategic Report
STRATEGIC
PORTFOLIO
Focus areas
– Investment in sustainable and differentiated technologies.
– Increasing our exposure to attractive markets where
we have strong competitive positions.
2021 progress
– Sale of our ducting business and closure of our site
in Toulouse as part of our strategy to consolidate our
Power & Sensing capabilities.
– Successfully delivered all key technology
programme milestones.
– Continued investment in differentiated technologies
to contribute to a Net Zero Future including those to
support our customers in the development of next
generation aviation and low-carbon energy applications.
– Intensified focus on returns across our product portfolio.
2022 priorities
– Continue to invest at least two-thirds of our Research
and Technology innovation budget in technologies for
sustainable aviation and low-carbon energy.
– Continue to progress technology and product
development programmes with our customers.
– Focus on opportunities to grow revenue in defence
and energy.
Key risks
Business model
Failure to respond to fundamental changes in our
aerospace business model.
CUSTOMERS
Focus areas
– Supporting customers through the civil aerospace
recovery as demand and production levels increased.
– Growing our market share in the aftermarket.
– Consolidating our customer-aligned organisation.
2021 progress
– Customer-aligned organisation key to managing the
recovery in both OE production and the aftermarket.
– Continued to win new customer orders across civil
aerospace, defence and energy.
– Customer awards for our Airframes Systems Rockmart
and Engine Systems San Diego sites in the US.
– 11 SMARTSupport™ deals signed in the year taking
total number of contracts to 55 with an aggregate
value of £223m.
– Investment to broaden our offering and capability
across our three aftermarket Centres of Excellence
in Singapore, UK and the US.
– Worked closely with customers on key sustainability
programs for aerospace and energy.
2022 priorities
– Continue to support our customers through the
recovery as activity levels continue to increase.
– Continue to focus on operational improvements to
drive customer satisfaction.
– Grow our market share in the aftermarket by securing
additional SMARTSupport™ agreements.
– Continue to support customers and their net
zero ambitions.
Key risks
Customer satisfaction
Failure to meet customers’ cost, quality and delivery
standards as preferred suppliers.
Our strategy
continued
As the recovery in civil aerospace continued during 2021, 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.
Meggitt PLC Annual Report and Accounts 2021
24
COMPETITIVENESS
Focus areas
– Ensuring readiness across our global sites as OE build
rates and aftermarket demand increases.
– Driving productivity improvements across all sites.
– Building a resilient and optimised supply chain
delivering further purchase cost savings.
– Optimising factory footprint.
2021 progress
– Completed commissioning of our Ansty Park, UK
facility including customer transitions.
– Deployment of Meggitt High Performance System
(HPS) to drive process maturity.
– Embedded Spitfire operational leadership programme.
– Good progress streamlining our UK Polymers and
Composites business.
– Further reduction in our global footprint with 36 sites
at the end of 2021, a 36% reduction compared with
our 2016 baseline.
– Implementation of greater automation and advanced
digital manufacturing at our sites.
– Further product transfers to low-cost manufacturing.
– Delivered improved safety performance recording
lowest ever TRIR of 0.63.
2022 priorities
– Continue to manage raw material and labour cost
inflation across global supply chain.
– Continue footprint consolidation to reach our goal of
50% reduction by end 2023.
– Drive environmental and sustainability improvements
across our sites.
– Roll out “Safety Star Program” to reinforce site safety.
Key risks
Project/programme management & inflation
Failure to meet new product programme milestones or
lower than expected production volumes.
Increase in raw material and input costs.
CULTURE
Focus areas
– Protecting our people.
– Recruiting, retaining, developing and engaging talent.
– Embedding a high performance, diverse and
inclusive culture.
– Supporting our local communities.
2021 progress
– Continued investment in talent through our graduate
and apprentice programmes.
– Continued commitment to High Performance
Culture with 70% of employees having attended
training sessions.
– Successfully launched “LeadX” leadership programme.
– Doubled membership of our eight Employee
Resource Groups to over 1,000 employees.
– Adoption of flexible working guidelines.
– Participated in 10,000 Black Interns programme.
– Increase of 2% in employee engagement versus 2020,
4% above high performance benchmark.
2022 priorities
– Continue to protect employees across our global sites.
– Complete rollout of HPC training across the Group
and reinforce HPC principles through our LeadX and
Spitfire leadership programmes.
– Continue to strengthen our approach to inclusion
and diversity.
– Encourage our people to engage with local
communities and charities through our Community
Heroes volunteering programme.
Key risks
People
Failure to attract, motivate and retain people due to lack
of opportunities and/or training.
Meggitt PLC Annual Report and Accounts 2021
25
Strategic Report
Strategic Report
Key performance indicators
Link to strategic priorities
Strategic Portfolio
Customers
Competitiveness
Culture
1
2
3
4
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 (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 whilst also managing our
impact on our wider environment. The
Group adopted IFRS 15 and IFRS 16 with
effect from 1 January 2018, with prior
year comparatives for 2017 restated.
For 2017, EPS growth compared to
performance in 2016, is not fully restated,
though it does reflect the 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. After
a trial during 2021, from 2022 onwards,
the Group will include measures
supporting the Group’s environmental
commitments in its KPI monitoring, and
also in the Group’s 2022 LTIP Award.
Meggitt PLC Annual Report and Accounts 2021
26
Underlying operating
profit (UOP)
1
3
4
Performance
£177.3m
Underlying operating profit
2021
2020
2019
2018
2017
177.3
190.5
402.8
367.3
353.3
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 197.
Read more on page 132
Target
As part of the Group’s Q3 2021 Trading
Update the Group guided that FY 2021
underlying operating profit would be
between £170m – £190m. The Group
does not typically publish profit targets.
Result
2021: £177.3m. See page 42 for details.
Read more on page 132
Directors’ incentive plans
Underlying operating profit was a
performance measure in the 2021 STIP
and is a measure for the 2022 STIP. The
2021 STIP outturn fell between Threshold
and Target. It is expected that a
proportion of the STIP bonus will be paid
in respect of 2021.
For the purposes of these plans, actual
and target underlying operating profit
are measured at constant currency. See
pages 132 and 142 for details.
Return on capital
employed (ROCE)
1
3
4
Performance
5.3%
ROCE
2021
2020
2019
2018
2017
5.3%
5.2%
11.0%
10.0%
9.4%
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).
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 is no specific
target for 2021 alone. Details of the
ROCE target from the 2021 LTIP are
shown on page 135.
Result
2021: 5.3%. Three-year average ROCE to
2021 was 7.1%.
Read more on page 134
Directors’ incentive plans
ROCE is a performance measure for
Executive Directors in the 2019, 2020 and
2021 LTIP. ROCE will be a performance
measure in the 2022 LTIP. For the
purposes of these plans, underlying
operating profit and capital employed
are measured at constant currency. See
pages 135 and 142 for details.
Underlying
EPS growth
1
2
3
4
Performance
-6.7%
Underlying EPS growth
2021
2020
2019
2018
2017
-6.7%
-55.8%
9.1%
6.9%
-1.5%
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.
Read more on page 201
Target
We do not typically publish profit targets.
As LTIP underlying EPS targets are set
over a three-year period, there are no
specific targets for 2021 alone. Details of
the underlying EPS target from the 2021
LTIP are shown on page 135.
Result
2021: -6.7%. See page 42 for details.
Read more on page 171
Directors’ incentive plans
Underlying EPS is a performance measure
for the 2019, 2020 and 2021 LTIPs, and is
proposed for the 2022 Award. See pages
135 and 142 for details.
Meggitt PLC Annual Report and Accounts 2021
27
Strategic Report
Strategic Report
Key performance indicators
continued
Free cash flow
1
2
3
4
Performance
£45.7m
Free cash flow
2021
2020
2019
2018
2017
45.7
31.9
267.8
167.4
197.4
Definition and basis
of calculation
Cash generated excluding amounts in
respect of the proposed acquisition and
disposal of businesses and payments to
shareholders. Free cash flow is reconciled
to statutory measures in note 42 of the
Group’s consolidated financial statements
on page 228.
Read more on page 132
Target
We do not typically publish free cash flow
targets. At the start of 2021, the Group was
expecting to maintain a positive free cash
flow through 2021. This view was maintained
in the Q3 2021 Trading Update.
Result
2021: £45.7m. This was in line with the
Q3 2021 Trading Update. Free cash flow
before tax and interest is a measure in the
2021 STIP. However, the 2021 outturn did
not trigger vesting and no bonus will be
paid on this component of the 2021 STIP.
Read more on page 44
Directors’ incentive plans
Free cash flow is a performance measure for
the 2021 and 2022 STIP. For the purpose of
these plans, actual and target free cash flow
figures are measured at constant currency
and exclude interest and tax. See pages 132
and 142 for details.
R&D investment
1
2
3
4
Performance
4.7%
R&D investment
2021
2020
2019
2018
2017
4.7%
5.8%
5.2%
6.6%
7.9%
Definition and basis
of calculation
Investment in research and development
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 196. It is
not adjusted for amounts capitalised,
amortised, impaired or incurred on
contracts funded by customers.
Read more on page 181
Target
Investment of 5% to 7% per annum.
The range reflects typical investment
fluctuations within the industry cycle.
Result
2021: 4.7%. Average over the last three
years 5.3%.
Read more on page 44
Directors’ incentive plans
R&D investment is not a specific
measure used in Directors’ incentive
plans. However, the 2019, 2020 and 2021
LTIPs include programme performance
measures which include the effective
delivery of R&D programmes. This same
measure is proposed for 2022 LTIP. See
pages 135 and 142 for details.
Total recordable
incident rate (TRIR)
1
2
3
4
Performance
0.6
Accident/incident rate Group
2021
2020
2019
2018
2017
0.6
0.7
0.7
0.8
1.2
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.
Read more on page 76
Target
In 2021, the Group had a TRIR target of
less than or equal to 0.7 For 2022, the
target is 0.6.
Result
2021: 0.6. The Group has been collecting
TRIR data for this KPI since 2017. See
page 133 for details.
Read more on page 76
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 2021 STIP.
Meggitt PLC Annual Report and Accounts 2021
28
Inventory turns
1
2
3
4
Performance
2.2x
Inventory turns
2021
2020
2019
2018
2017
2.2
2.1
2.7
2.7
2.5
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 197. 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.
In 2021, the Group updated its inventory turns definition. Annualised underlying cost of
sales is Q4 cost of sales, multiplied by 4. Average inventory is measured on a 4-month
average to the month of reporting. Using this approach for 2021, inventory turns would
fall to 2.0x vs. the 2.2x shown.
Read more on page 134
Target
The 2021 LTIP inventory turns target was 2.8 for 2021 using the 4-month average measure.
Result
2021: 2.0 (4-month measure); 2.2 (13-month measure)
Read more on page 134
Directors’ incentive plans
Inventory reduction is a performance measure for the 2019, 2020 and 2021 LTIP and is
proposed as a measure for 2022. 2019 and 2020 use the 13-month average definition,
whilst 2021 and 2022 use the 4-month average.
Emissions intensity
1
2
3
4
Performance
36.9T/£m CO2e
Tonnes Scope 1 and 2 CO2e /
£m revenue
2021
2020
2019
2018
2017
36.9
52.8
48.3
55.1
57.1
Definition and basis
of calculation
Scope 1 and scope 2 CO2 equivalent
emissions for the reporting period
calculated using market-based reporting,
divided by consolidated Group revenue.
Market based reporting includes the
impact of renewable energy contracts. Note
that 2020 and 2021 reporting includes the
impact of propane consumption.
Read more on page 82
Target
The Group has a target to reduce its
greenhouse gas emissions relative to
revenue by 50%, against a base year
of 2015, by 31 December 2025 and
includes the impact of incorporating
renewables energy contracts (market
based reporting). All site level targets use
location-based reporting to drive local
abatement and energy efficiency.
Result
2021: CO2e equivalent tonnes per £m
revenue of 36.9, a reduction of 54% vs.
a 2015 baseline.
Read more on page 82
Directors’ incentive plans
Emissions intensity is being introduced
for the first time to the Group’s 2022 LTIP
Award. The overall Group target of a 50%
reduction by December 2025 will also
continue to be monitored by the Board.
Meggitt PLC Annual Report and Accounts 2021
29
Strategic Report
Strategic Report
Strategy in action
Enhancing lives through investing
in continuous improvement and
COMPETITIVENESS
We are committed to spending two-thirds
of investment in research and technology on
developing technologies that support industries
in the drive to become more sustainable.
Meggitt PLC Annual Report and Accounts 2021
30
TECHNOLOGY.
Our strategic priorities are underpinned by
our three Corporate Responsibility pillars.
Read more about our Technology pillar on page 83
The first ever commercial application of a MAN ETES heat pump system
in the Danish port of Esbjerg.
Developing technologies that provide real alternatives to fossil
fuel power plants.
This groundbreaking solution offers a
carbon-neutral alternative to traditional
fossil fuel power plants, harnessing
wind and seawater hydro power
to supply energy to approximately
100,000 local inhabitants.
The MAN ETES heat pump installation
is both the largest sea water heat
pump in Denmark and the largest
heat pump in the world to use CO2
as a refrigerant.
Meggitt PCHEs (Printed Circuit Heat
Exchangers) are central to the system
and provide the thermal transfer
between the innovative CO2 refrigerant
loop and the district heating network.
Gas turbines, fuelled with natural gas
or hydrogen, will remain an important
part of the world’s energy systems for
the coming decades and Meggitt is
partnering with some of the leading
suppliers to develop technologies that
continue to improve turbine efficiency
and performance.
100%
The ETES system achieves
complete decarbonisation
of the final energy demand
IMAGE: An example of
a Meggitt PCHE (Printed
Circuit Heat Exchanger).
Meggitt PLC Annual Report and Accounts 2021
31
Strategic Report
Strategic Report
Strategy in action
Enhancing lives by building
an inclusive culture
CULTURE
Our people are at the centre of our
sustainable future. They are the ones who
enable our innovation, sustainable
technologies and success.
Meggitt PLC Annual Report and Accounts 2021
32
Our peer recognition scheme, “Extraordinary People”, gives each of us the
opportunity to reward colleagues who live and breathe the core Meggitt
values of Teamwork, Integrity and Excellence.
There are many things that go
into being a truly great company –
innovative technology and solutions,
operations and functions performing at
their best, and great relationships with
our customers and each other.
Our High Performance Culture and
great values are at the heart of how
we work at Meggitt. Colleagues that
demonstrate great Teamwork, always
acting with Integrity – doing the right
thing, in the right way, and staying
focused on Excellence for
our customers.
A culture of appreciation and
recognition is an important building
block for our values. Our new
employee recognition programme
“Extraordinary People” is a great
way of recognising the special
efforts and commitment of individual
colleagues and teams across the whole
of Meggitt.
4,000+
Nominations of Extraordinary
People since the launch
Recognising our Extraordinary People.
PEOPLE.
Our strategic priorities are underpinned by
our three Corporate Responsibility pillars.
Read more about our People pillar on page 72
Sustainability
Safety
Customer Service
Innovation
Teamwork
Excellence
Community
Meggitt PLC Annual Report and Accounts 2021
33
Strategic Report
Strategic Report
Divisional reviews
AIRFRAME
SYSTEMS
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.
Meggitt PLC Annual Report and Accounts 2021
34
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 50%
of Group revenue, generating 52% of its
revenue from OE sales and 48% from the
aftermarket derived mainly from Braking
Systems, with the remaining aftermarket
revenue from other product groups
reported in Services & Support.
Highlights
• Progress on testing and certification
with OEMs to qualify VERDAGENT®,
Meggitt’s proprietary “green” fire
suppressant; we have also been
selected by Boeing to support their
ecoDemonstrator programme with
our CF3I engine fire suppressant
delivery system.
• Supporting more electric flight, launched
the development of an HVDC energy
buffer to complement the primary
electrical power source for a customer’s
greener future platform architecture.
• Transfer of products associated with
footprint consolidation with disposal of
Toulouse site and associated product
moves to sites in Europe and APAC.
• Significant investment in automation,
lean production, testing capability and
efficiency at our Rockmart facility in the US.
IMAGE: Swiss Airbus A320 pictured on take-off.
President: Chris Allen
Revenue
£737m
(2020: £793m)
Airframes
Civil OE
23%
Civil AM
27%
Defence OE
27%
Defence AM
20%
Energy & other
3%
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
Markets
Civil aerospace
Fixed wing defence aircraft
Rotary wing defence aircraft
Unmanned aerial vehicles
• “Supplier of the Year 2021” award
received from Bell, Boeing Defence
at Rockmart facility.
2021 Performance
Organic revenue was down 3% for the
year (H1: -15%; H2: +12%) with civil
aerospace revenue up 2% and defence
revenue down 5%.
Civil OE revenue was down 14% on an
organic basis with growth of 7% in the
second half reflecting the gradual recovery
in OEM build rates during the year. Large
jet and regional aircraft OE ended the
period down 20% driven by lower widebody
demand on the B787, B777 and A350XWB
partially offset by growth on the A320 and
A220 platforms. In regional aircraft, revenue
was down 12% with business jets flat versus
2020, outperforming large and regional jets
on a relative basis.
Civil aftermarket revenue grew by 20% on
an organic basis driven by the recovery
in demand in brakes with large, regional
and business jets up 19%, 18% and 23%
respectively. Brakes revenue increased by
22% organically with good growth across
a number of platforms including the A220
in large jets, CRJ and ERJ fleets within
regional aircraft and a number of business
jet platforms.
Defence revenue was down 5% on an
organic basis, with OE 1% higher. In the
defence aftermarket, revenue was 12% lower
than the prior year, reflecting general market
softness (including customer destocking)
seen during the period and COVID-related
disruption at one of our sites in the US.
Underlying operating profit was up 4%
on an organic basis with underlying
operating margin 110 basis points higher
than the comparative period at 16.3%
(FY 2020: 15.2%).
Meggitt PLC Annual Report and Accounts 2021
35
Strategic Report
Strategic Report
ENGINE
SYSTEMS
Divisional reviews
continued
Providing core technologies for engine manufacturers across
a broad range of competencies including thermal management,
engine sensing and advanced composites.
Meggitt PLC Annual Report and Accounts 2021
36
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 91% of its revenue
from OE and 9% from the aftermarket
as a result of its principal route to the
aftermarket being through the Services
& Support division.
Highlights
• Established our new thermals
headquarters at our Ansty Park facility.
• 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
with customer approvals received from
Pratt & Whitney and Safran for direct
shipment on GTF and LEAP programmes.
• MBDA “Performance Excellence
Award” at our site in San Diego.
• Completed sale of our ducting business
based in Dunstable (UK) in January 2021.
IMAGE: A Meggitt colleague sets up a Mazak in our brand new thermal cell producing
commercial and defence heat exchangers at Ansty Park, UK.
President: Troy Peterson
Revenue
£208m
(2020: £253m)
Engines
Civil OE
43%
Civil AM
2%
Defence OE
39%
Defence AM
7%
Energy & other
9%
Divisional capabilities
– Complex high-temperature engine
composite components
– Control valves and sub-systems
– Engine sensors
– Thermal management
Markets
Civil aerospace
Fixed wing defence aircraft
Rotary wing defence aircraft
• Good progress with cost reduction,
operating margin expansion, yield
improvement and new technology
development using optical and
wireless systems.
2021 Performance
Revenue decreased by 10% (H1: -27%;
H2: +10%) on an organic basis largely
driven by defence where revenue ended
the year down 18% due to a large, one
-off order in the prior year and quality
issues experienced in the first half from
a key supplier which were subsequently
resolved. Civil OE revenue was down 2%
with growth of 41% in the second half
all on an organic basis. Civil revenue in
Engine Composites was flat year on year.
Engine Systems generated an underlying
operating loss of £16.5m (2020: loss of
£16.2m) resulting from lower revenue
and, as reported in our half year results,
lower productivity in in the first quarter
caused by COVID-related disruption at
our US sites.
We made good progress on our recovery
plan in Engine Composites, transferring
more production down to our low cost
facility in Saltillo, Mexico, as well as
introducing further process improvements
and increasing yields significantly on
certain parts. As volumes recover in both
civil and defence, we expect the financial
performance of this product group to
steadily improve with our ultimate target
of mid-teens operating margins.
Meggitt PLC Annual Report and Accounts 2021
37
Strategic Report
Strategic Report
Divisional reviews
continued
Providing innovative, aero-derivative technologies with
applications across the energy and defence sectors.
ENERGY &
EQUIPMENT
Meggitt PLC Annual Report and Accounts 2021
38
What does the division do
Energy & Equipment consists of our
energy product groups and defence
business 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. Defence
Systems provides a series of complex
engineered products to defence agencies
in electronic cooling, ammunition
handling and scoring systems. Energy
& Equipment represents 18% of Group
revenue and generates 84% of its revenue
from OE and 16% from the aftermarket.
Highlights
• Supply by Heatric of its heat exchanger
technology on the first commercial
application of a MAN ETES (Electro-
Thermal Energy Storage) heat pump,
which harnesses wind and hydro power
to supply energy.
• Provision of our optical dynamic
pressure sensing technology on two
demonstrator power stations.
• Secured a significant customer order
with a major US turbines manufacturer
for the sole-source supply of next
generation valves.
• Continued progress on the transfer of
high-volume parts to low-cost countries.
• Strong focus on operational
performance and procurement
initiatives to drive margin improvement.
IMAGE: Printed Circuit Heat Exchangers (PCHEs) being manufactured at our Heatric facility in
Poole, UK.
President: Paul Devaux
Revenue
£271m
(2020: £315m)
E&E
Defence
47%
Energy & other
53%
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
Markets
Defence ground vehicles
Defence and security
Energy and industrial
Ground fuelling
2021 Performance
Revenue for the year was flat on 2021
(H1: +4%; H2: -4%) on an organic basis
with a good performance from energy
offset by lower defence revenue.
In energy, revenue grew by 9%, with
Heatric revenue up 5% and sensing
and controls up 12%.
Defence revenue was 9% lower driven by
lower rotary wing orders into our Defence
Systems business.
Underlying operating profit was 7% lower
with operating margin at 15.6%, 120
basis points higher than the comparative
period (FY 2020: 14.4%).
Meggitt PLC Annual Report and Accounts 2021
39
Strategic Report
Strategic Report
Divisional reviews
continued
Providing throughlife MRO and spares services
across our extensive installed base through
our three regional hubs.
SERVICES &
SUPPORT
Meggitt PLC Annual Report and Accounts 2021
40
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 18% of Group
revenue and generates 100% of its
revenue from the aftermarket.
Highlights
• Continued delivery of strategic
initiatives with consolidation of our
MRO capabilities and expansion of our
capacity in our three regional centres
of excellence: Ansty Park in the UK,
Singapore and Miami in the US.
• 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.
• Launched Customer Experience
journey to streamline and improve
customer interactions.
• Addition of 11 SMARTSupport™
agreements.
IMAGE: A Meggitt colleague working on restraints at our Services & Support MRO Centre of
Excellence which is located within Ansty Park, UK.
President: Stewart Watson
Revenue
£274m
(2020: £322m)
S&S
Civil AM
80%
Defence AM
20%
Divisional capabilities
– Maintenance, Repair and Overhaul (MRO)
– Spares provisioning
– SMARTSupport™
Markets
Civil aftermarket
Fixed wing defence
aircraft AM
Energy and industrial
Rotary wing defence aircraft
2021 Performance
Divisional revenue was 11% lower for
the full year (H1: -27%; H2: +10%) on an
organic basis, with civil aftermarket down
3% and defence down 32%.
In civil aerospace, we saw good growth
in both organic revenue and order
intake in the second half up 31% and
58% respectively, reflecting the overall
recovery in the sector and book to bill of
1.09x providing good momentum as we
entered 2022.
The differing pace and trajectory of the
recovery across the world can be seen in
the disparities in regional performance
with our Asian and US businesses ending
the year with organic revenue up 7% and
2% respectively and Europe down 18%.
Large jet revenue, which represented
82% of Services & Support civil revenue,
was down 3% in the year, with regional
and business jets down 21% and up
12% respectively.
The softer performance in defence largely
reflects lower orders from the Defense
Logistics Agency in the US linked to the
burn down of inventory after several years
of robust spending to increase combat
readiness. In the second half, we saw
signs of an improving outlook with orders
up 4% and book to bill for defence for the
year at 1.14x.
Underlying operating profit was 23%
lower with underlying operating margin
120 basis points lower at 11.5% (FY
2020: 12.7%).
Meggitt PLC Annual Report and Accounts 2021
41
Strategic Report
Strategic Report
Chief Financial Officer’s review
We’ve remained focused on the continued
stewardship of the Group through a second
year of COVID-19, whilst protecting investment
to support growth and the recovery.
Against the backdrop of a second year
of COVID-19 and another challenging
year for the civil aerospace sector, we
remained focused on the continued
stewardship of the Group while
continuing to execute our strategy.
We navigated the Group safely through
2021, generating positive free cash flow,
maintaining a robust balance sheet
(net debt:EBITDA ratio of 1.9x) while
protecting investment in key projects that
will underpin the recovery and the return
to growth.
We also successfully refinanced the
Group with a new, three-year, $410m
revolving credit facility, which will
continue to provide solid financial
foundations as the recovery continues
in 2022 and beyond.
Table 1 – Financial summary
2021
£’m
2020
£’m
Growth %
Reported
Organic1
Orders
1,525.8
1,547.1
(1)
9
Revenue
1,489.2
1,684.1
(12)
(5)
Underlying2
EBITDA3
291.0
296.9
(2)
3
Operating profit
177.3
190.5
(7)
(3)
Profit before tax
149.3
159.5
(6)
(4)
Earnings per share (p)
15.4
16.5
(7)
Statutory
Operating profit/(loss)
63.4
(297.3)
121
Profit/(loss) before tax
31.3
(334.0)
109
Earnings/(loss) per share (p)
4.0
(40.4)
110
Free cash flow4
45.7
31.9
43
Net cash flow5
58.8
136.0
(57)
Net debt
779.5
773.0
1
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 used by the Board to measure the underlying trading cash performance of the Group as set out in note 42.
5
Net cash flow represents the movement in net debt in the year, adjusted to exclude new lease liabilities entered, exchange differences and other non-cash movements.
Meggitt PLC Annual Report and Accounts 2021
42
The work we have done in recent years
to make the Group more competitive,
including rationalising our global
footprint, and the cost reduction
measures taken in 2020 to resize the
Group, means we are well placed to drive
efficiency savings as volumes recover.
Our ability to realise some of these
benefits in 2021 has been held back by
input and labour cost inflation resulting
from disruption across the global supply
chain, and we expect some of this to
continue in 2022. While we will continue to
use a number of measures to offset these
cost headwinds, including pricing, the
long-term nature of some of our customer
and supplier contracts may constrain our
ability to do so in the short term.
Following completion of a consultation
process, we closed the UK defined
benefit scheme to future accrual in April
2021, bringing it in line with the Group’s
pension schemes in the US.
We have also started preparations
across the Group for the introduction of
a UK Sarbanes-Oxley regime, which will
reform the UK’s corporate governance,
audit and reporting regimes with
implementation expected to happen
towards the end of 2023.
Finally, I would like to thank the finance
team for their hard work and their
valuable contribution to what has been
another important year for the Group.
Group orders and revenue
While we have continued to see
encouraging signs of the recovery in
civil aerospace during 2021, with overall
activity levels rising, an increase in Group
civil aftermarket organic revenue and
sequential increases in quarterly civil
aerospace organic revenue, the Group’s
full year results reflect the ongoing
effects of COVID-19 and global supply
chain disruption on the Group and the
wider sector.
Group and civil aerospace organic
revenue were 16% and 26% lower
respectively in the first half, reflecting the
continuation of low levels of civil activity
in 2021 and trading in the first quarter
of 2020 being relatively unaffected by
COVID-19. In the second half, Group
civil aerospace organic revenue was 37%
higher than the comparative period, with
OE up 17% (large jets +15%, regional
+42% and business jets +18%) and
civil aftermarket up 51% on an organic
basis (large jets +42%, regional +71%
and business jets +58%). We also saw
a continuation of the trend seen in the
second quarter, with good sequential
growth in civil aftermarket organic
revenue in the third and fourth quarters.
For the full year, Group orders were
up 9% on an organic basis with book
to bill of 1.01x. Our order book in civil
aerospace saw strong organic growth
with orders up 117% in the second half
versus the comparative period and book
to bill for the full year of 1.11x in both civil
OE and civil aftermarket.
Group revenue for the year was 5% lower
on an organic basis with solid growth in
energy and flat revenue in civil aerospace
more than offset by softer defence where
revenue was down 11% organically. In civil
aerospace, organic revenue from civil OE
and civil AM ended the year down 10%
and up 7% respectively. Energy revenue
increased by 6% on an organic basis.
Reported Group revenue of £1,489.2m
(FY 2020: £1,684.1m) was 12% lower as
analysed in table 3.
Profit and earnings per share
As in 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. In
2021, given their significance and that
they relate to historic matters, certain
Whittaker environmental costs have been
recognised as an exceptional operating
item (see Note 10).
Group underlying operating profit on a
reported basis was 7% lower in the year
at £177.3m (FY 2020: £190.5m) as a result
of the lower revenue, additional costs
associated with COVID-19 and supply
chain disruption and adverse currency
movements. Underlying operating
margins for the full year increased by 60
basis points to 11.9% (FY 2020: 11.3%)
with operating margin recovering strongly
in the second half increasing 520 basis
points compared with the first half.
Underlying profit before tax decreased
by 6% on a reported basis to £149.3m (FY
2020: £159.5m) with underlying earnings
per share 7% lower at 15.4 pence (FY
2020: 16.5 pence).
Moving from underlying to statutory
measures, Group profit before tax was
£31.3m (FY 2020: loss of £334.0m) and
basic earnings per share was 4.0 pence
(FY 2020: loss per share of 40.4 pence),
with the prior year impacted by the non-
cash impairment of intangible assets and
other asset write-downs.
Divisional performance
The main focus areas across our four
divisions in 2021 has been protecting
Table 2 – Revenue growth
Revenue (£’m)
Growth (%)
2021
2020
Reported
Organic
Civil OE
260.2
306.0
(15)
(10)
Civil AM
424.7
419.6
1
7
Total civil
684.9
725.6
(6)
–
Defence
620.0
768.4
(19)
(11)
Energy
135.0
131.1
3
6
Other
49.3
59.0
(16)
(8)
TOTAL
1,489.2
1,684.1
(12)
(5)
Table 3 – Organic growth
Revenue
Underlying operating profit
2021
£’m
2020
£’m
Growth %
2021
£’m
2020
£’m
Growth %
1,489.2
(0.1)
72.3
1,684.1
(42.2)
(12) Reported
Impact of M&A1
Impact of currency2
177.3
0.2
10.0
190.5
3.7
(7)
1,561.4
1,641.9
(5) Organic
187.5
194.2
(3)
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 2020 translation and transaction exchange rates.
Meggitt PLC Annual Report and Accounts 2021
43
Strategic Report
Strategic Report
Table 4 – Operational highlights
Revenue
Underlying Operating Profit/(Loss)
2021
£’m
2020
£’m
% Growth
2021
£’m
2020
£’m
% Growth
Reported
Organic
Reported
Organic
Airframe Systems
737.0
793.1
(7)
(3)
120.2
120.5
–
4
Engine Systems
207.8
253.3
(18)
(10)
(16.5)
(16.2)
(2)
(8)
Energy & Equipment
270.7
315.3
(14)
–
42.1
45.4
(7)
(5)
Services & Support
273.7
322.4
(15)
(11)
31.5
40.8
(23)
(18)
Total Group
1,489.2
1,684.1
(12)
(5)
177.3
190.5
(7)
(3)
Table 5 – Investing for the future
2021
£’m
2020
£’m
% Growth
Reported
Organic
Total research and development (R&D)
70.7
97.9
(28)
(21)
Less: Charged to cost of sales/WIP
(14.5)
(20.8)
(30)
(24)
Less: Capitalised
(27.6)
(41.4)
(33)
(26)
Add: Amortisation/Impairment
35.6
32.6
9
27
Charge to underlying net operating costs
64.2
68.3
(6)
4
Capital expenditure
69.7
89.7
Chief Financial Officer’s review
continued
our people, keeping our sites open
and delivering for our customers and
supporting our local communities. As a
result of the increase in global demand
as economies recovered in 2021, the
divisions have had to face an additional
challenge during the year of ramping
up production against the backdrop of
disruption across the global supply chain
and, at times, site-specific disruption
caused by COVID-19.
The financial performance of the
individual divisions is summarised in
table 4. Prior year figures have been
restated to reflect the transfer of a
number of product lines from the Energy
& Equipment division to the Engine
Systems division with effect from 1
January 2021. The restatement comprised
external revenue of £19.7m and
underlying operating profit of £3.0m.
Finance costs
Lower underlying net finance costs of
£28.0m (FY 2020: £31.0m) principally
reflects currency translation benefits and
lower overall levels of bank debt during
the year.
Taxation
The Group’s underlying tax rate for the
year was 19.3% (FY 2020: 19.7%).
As anticipated, the Group received
assessments from the UK tax authority in
2021 following the EU Commission ruling
that the UK CFC regime constituted
partial state aid. The assessments
received amounted to £18.0m and were
fully covered by provisions held at 31
December 2020 and have been paid in
full in 2021. During the year 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.
We understand the European General
Court is due to issue its judgment in 2022.
Cash tax decreased in the year and was
lower than expected at £37.7m (FY 2020:
£42.1m) largely driven by the geographic
mix of profits and the phasing of tax
payments in 2020. Over the next few
years, we continue to expect the cash tax
rate to converge 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.
Dividends
In line with the terms of the previously
announced proposed transaction with
Parker-Hannifin, the Group is not paying a
final dividend for 2021.
Investing for the future
During the year, we continued to
invest in differentiated and sustainable
technologies to support new product
development and future growth
opportunities. Total R&D expenditure for
the full year of £70.7m which represented
4.7% of Group revenue was lower than
the comparative period (FY 2020: £97.9m,
representing 5.8% of Group revenue)
reflecting measures taken across the
Group in 2020 and 2021 to bring R&D
expenditure back in line with our target
of ~5% of Group revenue. The charge to
underlying net operating costs, including
amortisation and impairment, decreased
by 6% (increased by 4% on an organic
basis) to £64.2m (FY 2020: £68.3m).
Capital expenditure of £69.7m in 2021
was lower than the prior year (FY 2020:
£89.7m) and below our guidance of
around £80m issued in March 2021,
driven by the re-phasing of a proportion
of investment in carbon expansion and
a change in mix between operating and
capital expenditure on the completion of
Ansty Park.
Cash flow and net debt
We continued to maintain a disciplined
approach to managing our cash during
the year while continuing to invest in the
Group and, despite the continuation of
challenging market conditions, generated
another year of positive free cash flow of
£45.7m (FY 2020: £31.9m).
Investment in working capital generated
an outflow of £48.8m (FY 2020:
£8.1m inflow) as we responded to
the anticipated increase in customer
demand as the civil recovery continued.
Investment in capital expenditure was
£69.7m (FY 2020: £89.7m) with the Ansty
Park and carbon expansion projects
representing over half of this spend.
Deficit payments made in respect
of retirement benefit schemes were
Meggitt PLC Annual Report and Accounts 2021
44
£42.1m (FY 2020: £21.7m) in line with
the revised payment schedule agreed
with the pension trustees following the
deferral of some deficit contributions to
the UK scheme in 2020. Cash inflows of
£36.4m from the disposal of property,
plant and equipment primarily relates
to the proceeds generated by the sale
and leaseback of sites in the US and
UK as part of our ongoing footprint
optimisation strategy.
At the end of December 2021, net debt
of £779.5m (FY 2020: £773.0m) including
lease liabilities of £169.0m (FY 2020:
£144.3m), was broadly in line with the
prior year after taking into account
adverse currency movements of £27.1m
and we had ample headroom of £572.6m
on committed facilities of £1,183.1m.
Debt structure and financing
In November 2021, we extended the
duration of our debt by refinancing our
revolving credit facility with a three-year,
$410m multi-currency facility maturing in
November 2024 with options to extend
by another two years. We also reduced
the size of our three term loans from
$125m, £100m and £45m, to $50m, £50m
and £30m respectively, while extending
some maturities and increasing flexibility
to further extend, if required. At the year
end, £30m was drawn under these bank
facilities and with headroom of £573m on
committed facilities our liquidity remains
strong. In 2022, we have one maturity of
$125m, which represents the final tranche
of our 2010 private placement notes.
There are two main financial covenants
in our financing agreements. The net
debt:EBITDA ratio, which must not
exceed 3.5x, was at 1.9x at 31 December
2021 (December 2020: 2.2x) and interest
cover, which must be not less than 3.0x,
was 11.3x (December 2020: 9.8x). At the
end of 2021, the Group had significant
headroom against both key covenant
ratios, and net debt:EBITDA was within
our target range of 1.5x to 2.5x.
Post-retirement benefit
schemes
The Group’s principal defined benefit
schemes are in the UK and US. Following
completion of a consultation process, the
UK scheme was closed to future accrual
with effect from 6 April 2021. All of
the Group’s US pension schemes have
previously been closed to future accrual.
Total scheme deficits in 2021 reduced
to £136.4m (FY 2020: £295.4m),
Table 6 – Cash flow
2021
£’m
2020
£’m
Underlying operating profit
177.3
190.5
Depreciation and amortisation
113.7
106.4
Working capital movements
(48.8)
8.1
Net interest paid
(28.2)
(32.1)
Tax paid
(37.7)
(42.1)
Exceptional operating items paid
(25.9)
(49.3)
Purchase of property, plant and equipment and software assets
(69.7)
(89.7)
Proceeds from disposal of property, plant and equipment
36.4
1.3
Capitalised development costs/programme participation costs
(29.3)
(43.0)
Retirement benefit deficit reduction payments
(42.1)
(21.7)
Other
–
3.5
Free cash flow
45.7
31.9
Net proceeds from disposal/acquisition of businesses
11.3
104.2
Issue of equity share capital
1.3
0.3
Other
0.5
(0.4)
Net cash generated
58.8
136.0
Lease liabilities entered
(38.7)
(11.4)
Lease liabilities disposed with businesses
0.1
5.6
Exchange differences
(27.1)
7.6
Other movements
0.4
0.4
Net debt movements
(6.5)
138.2
Net debt at 1 January
(773.0)
(911.2)
Net debt at 31 December
(779.5)
(773.0)
Table 7 – Post-retirement benefit scheme summary
2021
£’m
2020
£’m
Opening net deficit
295.4
267.9
Service cost
6.8
15.2
Group cash contributions
(48.9)
(36.9)
Deficit reduction payments
(42.1)
(21.7)
Other amounts charged to income statement1
(1.6)
8.4
Remeasurement gains – schemes’ assets
(47.4)
(93.5)
Remeasurement (gains)/losses- schemes’ liabilities
(77.3)
136.1
Remeasurement losses – asset ceiling
9.3
–
Currency movements
0.1
(1.8)
Closing net deficit2
136.4
295.4
Liabilities
1,355.1
1,463.9
Less assets
(1,228.0)
(1,168.5)
Add impact of asset ceiling
9.3
–
Closing net deficit2
136.4
295.4
Assets as percentage of liabilities
91%
80%
1
Comprises past service amounts, administration expenses borne directly by schemes, net interest expense
and, in 2021, a curtailment gain arising from closure of the UK scheme to future accrual.
2
Comprises £97.9m (2020: £248.7m) in respect of pension schemes and £38.5m (2020: £46.7m) in respect of US
healthcare schemes.
Meggitt PLC Annual Report and Accounts 2021
45
Strategic Report
Strategic Report
Chief Financial Officer’s review
continued
with the principal drivers of the net
reduction being:
– A reduction of £77.3m (FY 2020:
increase of £136.1m) relating to
re-measurement gains on scheme
liabilities. These principally arise from
an increase in AA corporate bond
yields in both the UK and US, reversing
the trend seen in recent years, which
more than offset increases in UK
inflation assumptions;
– A reduction of £47.4m (FY 2020:
reduction of £93.5m) due to re-
measurement gains on scheme
assets; and
– Deficit reduction payments of £42.1m
(FY 2020: £21.7m) of which £38.0m (FY
2020: £21.7m) was paid in respect of
the UK scheme.
In the UK, the Group continues to
make deficit payments in accordance
with a recovery plan agreed with the
trustees following the 2018 triennial
funding valuation, amended following
the four-month deferral of £9.6m of
deficit contributions originally due to be
made in 2020. 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 £40.2m in 2022
and £29.9m in the period to August 2023.
The UK 2021 triennial valuation is
substantially complete and is expected
to be finalised in H1 2022. The draft
valuation results indicate an additional
funding shortfall, not covered by the
deficit payments being made under
the existing amended recovery plan, of
approximately £60.0m. This additional
shortfall principally arises due to a
significant reduction in gilt rates between
the two valuation dates and is equivalent
to approximately 1.5 years of additional
deficit contributions, based on the
annual deficit payments being made
under the existing 2018 recovery plan.
Discussions with the trustees to agree
the timing of contributions to meet the
additional funding shortfall have not yet
been concluded.
In the US, the Group made deficit
payments in respect of its funded defined
benefit pension schemes of £4.1m (FY
2020: £1.7m). Under current legislation,
no further payments are expected to be
required until 2025.
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
translation risk for the sterling/euro and
sterling/Swiss franc and transaction risk
for the US dollar/euro and US dollar/
Swiss franc.
The results of foreign subsidiaries are
translated into sterling at weighted
average exchange rates. Over the year
as a whole, the average sterling rate
against the US dollar was $1.36 (FY 2020:
$1.29) providing a negative impact
on our reported results for the year.
Compared to 2020, translation of results
from overseas businesses decreased
Group revenue by £60.4m and decreased
underlying profit before tax (PBT) by
£6.5m in the year.
The sensitivity of full-year revenue
and underlying PBT to exchange rate
translation movements against sterling,
when compared to the 2021 average
rates, is shown in table 9.
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
Table 8 – Exchange rates
2021
2020
Average translation rates against Sterling:
US dollar
1.36
1.29
Euro
1.17
1.14
Swiss franc
1.26
1.22
Average transaction rates:
US dollar/sterling
1.36
1.38
US dollar/euro
1.16
1.15
US dollar/Swiss franc
1.13
1.08
Year-end rates against Sterling:
US dollar
1.35
1.37
Euro
1.19
1.11
Swiss franc
1.23
1.20
Table 9 – Translation currency sensitivity
Average
rate
Revenue
£’m
Underlying
PBT
£’m
Impact of 10 cent movement*:
US dollar
1.36
75
7
Euro
1.17
7
1
Swiss franc
1.26
6
2
*
As measured against 2021 actual full-year revenue and underlying PBT.
Table 10 – Transaction hedging
Hedging in
place1 %
Average
transaction
rates
2022:
US dollar/sterling
100
1.34
US dollar/euro
100
1.19
US dollar/Swiss franc
46
1.12
2023 – 2025 inclusive:
US dollar/sterling
47
1.34
US dollar/euro
32
1.20
US dollar/Swiss franc
–
1.15
1
Based on forecast transaction exposures, with unhedged exposures based on exchange rates at 31 December 2021.
Meggitt PLC Annual Report and Accounts 2021
46
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 2020, the Group’s
revenue and underlying profit before tax
were unfavourably impacted by £11.9m
and £2.3m respectively by currency
transaction movements.
Each ten cent movement in the US
dollar against the average hedge
rates achieved in 2021 would affect
underlying PBT by approximately
£6.0m 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. Table 10
sets out the Group’s transaction hedging
currently in place.
Taking translation and transaction effects
into account, the impact of changes
in foreign exchange rates in FY 2021
compared with FY 2020 rates was to
decrease reported revenue by £72.3m
and underlying PBT by £8.8m.
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 nine
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,
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 the majority
of our borrowings are held.
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 rolling 12-month (30 June and 31
December) and 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 2021, we have comfortable
headroom on both key financial
covenant measures.
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 2021, the percentage of net
borrowings at fixed rates was 109% (2020:
108%), and of gross borrowings was 83%
(2020: 84%) and the weighted average
period to maturity for the first 25% was
4.5 years (2020: 6.0 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.
Non-financial information
Our non-financial information statement is
contained in the Corporate responsibility
report on page 88.
Louisa Burdett
Chief Financial Officer
Table 11 – Net debt by drawn currency (£’m)
2021
2020
Sterling
34.3
39.2
US dollar
778.8
786.3
Euro
(26.3)
(32.4)
Swiss franc
(6.3)
(16.1)
Other
(1.0)
(4.0)
Net debt
779.5
773.0
Table 12 – Covenant ratios
Covenant
2021
2020
Net debt:EBITDA
<3.5x1
1.9x
2.2x
Interest cover
>3.0x
11.3x
9.8x
1 A ratio of 4.0x applies in the two six-month reporting periods following a significant acquisition.
Meggitt PLC Annual Report and Accounts 2021
47
Strategic Report
Strategic Report
Risk management
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.
Meggitt’s corporate strategy is designed
to optimise our business model and
take risk, with the required controls,
on an informed basis. See pages 16 to
17 for a full description of our business
model and pages 24 to 25 for our
strategy. To enable value to be created
for our shareholders, we set varying risk
tolerances and associated criteria. Risk
tolerance levels are flowed down to the
divisions and functions to embed in
operational processes.
The Board approved an updated
Group risk appetite statement with
associated risk tolerances to ensure
Governance
Responsibility for risk management operates
at all levels throughout Meggitt:
The Board
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 2021,
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.
Audit Committee
The Board has delegated responsibility for reviewing and ensuring the
effectiveness of the risk management process to the Audit Committee.
Executive 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.
that identified risks are managed within
acceptable limits.
The likely timeframe within which the impact
of these 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.
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 risk areas to increase
understanding of the key drivers and
indicators which enables 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
During 2021 we continued to refine our
risk management approach as a result
of the ongoing pandemic impacts.
Meggitt PLC Annual Report and Accounts 2021
48
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.
2
1 3 7
9 10 11
5
12 14
8
4 6 13
Increasing likelihood
Increasing risk impact
Medium
High
Very high
Almost
certain
Highly
probable
Probable
Unlikely
Very
unlikely
We were pleased to note the processes
described below continued to operate
on a consistent basis with prior years,
providing dynamic risk assessments to
support decision-making for business unit,
functional and executive management.
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.
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
through the Group’s 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 and
the interconnectivity of identified risks.
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.
Comfort over the management of
these risks is demonstrated through the
updated Group risk assurance matrix
which summarises the assurance activities
taking place throughout the Group in
relation to the principal risks.
Strategic risks
Medium to low tolerance for risks
arising from poor business decisions
or sub-standard execution of
business objectives.
1 Business model
2 Industry changes
3 Climate change
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.
4 Quality escape/equipment failure
5 Business interruption
6 Project/programme management
7 Customer satisfaction
8 IT/system failure
9 Supply chain
10 Group change management
11 People
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
Financial risks
Medium to low tolerance for financial
risks including taxation, pension
funding, management failure to
provide adequate liquidity to meet our
obligations and managing currency,
interest rate and credit risks.
13 Pension funding
14 Liquidity
Meggitt PLC Annual Report and Accounts 2021
49
Strategic Report
Strategic Report
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 continued to assess the effect on
our existing risks and considered resultant
emerging risks rather than having a
single, standalone COVID-19 risk.
Strategic priorities
1 Strategic portfolio
2 Customers
3 Competitiveness
4 Culture
Change in risk
Increase
y
No change
Decrease
Risk velocity
H High
Impact within 6 months of risk occurring
M Medium
Impact between 6 and 36 months of risk
occurring
L Low
Impact after more than 36 months of risk
occurring
KPIs
• Financial performance (underlying
operating profit, ROCE, underlying EPS
growth and free cash flow)
• R&D investment
• TRIR (total recordable incident rate)
• Inventory turns
• Emissions intensity
Principal risks & uncertainties
Strategic risks
Risk
Description
Impact
How we manage it
Industry changes
1
H
KPIs:
• Financial performance
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 ongoing
impacts of COVID-19) or terrorist
events; or industry consolidation
that materially changes the
competitive landscape.
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.
Business model
2
y
M
KPIs:
• Financial performance
• R&D investment
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.
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 lifecycle enabling more effective
performance monitoring and more
predictable pricing.
• Investment in research and development
to maintain and enhance Meggitt’s
intellectual property.
Meggitt PLC Annual Report and Accounts 2021
50
Strategic risks
Risk
Description
Impact
How we manage it
Climate change
3
y
M
KPIs:
• Financial performance
• R&D investment
• Emissions intensity
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 pages 58 to 63.
Operational risks
Risk
Description
Impact
How we manage it
Quality escape/
equipment failure
3
y
H
KPIs:
• Financial performance
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.
• HPS implementation and maturity.
• Supplier quality assurance process.
Business interruption
3
y
H
KPIs:
• Financial performance
• R&D investment
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.
Decreased revenue
and profit, damage
to operational
performance
and reputation.
• Group-wide business continuity and crisis
management plans, subject to regular testing
and updated for lessons learned. These were
also invoked during 2021 in response to
COVID-19.
• Comprehensive insurance programme,
renewed annually and subject to property
risk assessment visits.
Meggitt PLC Annual Report and Accounts 2021
51
Strategic Report
Strategic Report
Principal risks & uncertainties
continued
Operational risks
Risk
Description
Impact
How we manage it
Project/programme
management
3
y
M
KPIs:
• Financial performance
• R&D investment
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.
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.
Customer
satisfaction
2
M
KPIs:
• Financial performance
• Inventory turns
Failure to meet customers’ cost,
quality and delivery standards or
qualify as preferred suppliers.
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.
IT/Systems failure
1
H
KPIs:
• Financial performance
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.
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.
• 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.
Meggitt PLC Annual Report and Accounts 2021
52
Operational risks continued
Risk
Description
Impact
How we manage it
Supply chain
1
M
KPIs:
• Financial performance
• Inventory turns
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.
• Dynamic supplier risk assessment process
leveraging our data and using leading
indicators to help identify risks and trigger
containment and corrective actions.
• Local sourcing strategy to improve operational
efficiency and minimise potential impacts
and disruption from cross-border tariffs.
• Enhanced approach to supplier excellence
by supporting supplier audit activities.
• Improved supplier engagement on delivery
performance including the placing of
longer-term commitments, buffer stock
arrangements and issuing of performance
“report cards” to key suppliers.
Group change
management
3
y
M
KPIs:
• Financial performance
• Inventory turns
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 significant
transition projects.
• Regular monitoring by Executive Committee
through operational and project reviews.
• HPS implementation at new/expanded sites.
People
4
H
KPIs:
• Financial performance
• Inventory turns
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.
• Talent attraction and retention strategies
focusing on local market competitiveness
and career development frameworks.
Meggitt PLC Annual Report and Accounts 2021
53
Strategic Report
Strategic Report
Principal risks & uncertainties
continued
Corporate risks
Risk
Description
Impact
How we manage it
Legal and
compliance
3
y
H
KPIs:
• Financial performance
• TRIR
Significant breach of increasingly
complex trade compliance,
bribery and corruption, USG
contracting, ethics, intellectual
property, data protection,
competition/anti-trust laws,
facilitation of tax evasion and
the market abuse regime.
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.
• Ongoing 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.
Financial risks
Risk
Description
Impact
How we manage it
Pension funding
3
y
M
KPIs:
• Financial performance
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.
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.
Liquidity
3
M
KPIs:
• Financial performance
Financial risk management is
considered in detail on pages
188 to 189.
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.
Meggitt PLC Annual Report and Accounts 2021
54
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.
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 2021
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 2022 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.
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, in response to the
COVID-19 pandemic, the Group
executed a material reduction in its
structural cost base and held net debt
below £800m (December 2020: £773m).
The covenant ratio was 2.2x. The Group
secured a forward start on its RCF for
one year on $575m to September 2022
and issued $300m on an oversubscribed
private placement in November 2020.
The anticipated recovery in the civil
aerospace aftermarket has been slower
to materialise than was anticipated 12
months ago, extending the pressure
on profitability and therefore covenants
through 2021. Continued close
management of the Group’s cash position
and a focus on delivery through H1 2021
saw the Group’s covenant rise modestly
to 2.4x by June 2021 after more than
12 months of the pandemic, whilst also
protecting the business from further
significant cost reduction in anticipation
of a market recovery. Through H2 2021,
there was a focus on continuing to
refinance debt, with the Group closing a
new $410m RCF facility in Q4, alongside a
number of revisions to bilateral facilities.
By the end of 2021, the Group had
materially extended its maturity profile
and resized its gross debt burden, whilst
also delivering its strongest six months
of profit generation since the start of
the pandemic.
Meggitt PLC Annual Report and Accounts 2021
55
Strategic Report
Strategic Report
Principal risks & uncertainties
continued
By the end of 2021, the Group’s covenant
ratio has fallen to 1.9x with net debt at
£779.5m. With increased volumes of AM
orders now being placed, though the
COVID pandemic is not over, the Group’s
financial and debt position continues to
improve, moderating the threat posed to
its viability by COVID.
Climate change
Meggitt explicitly monitors the impact
of climate change on the Group as part
of its risk register. Meggitt has potential
exposures both on the demand side
(primarily transition risks) should flight
volumes be impacted by changes in the
tax regime or consumer flying habits
be moderated. In addition, there are
a number of supply side challenges
(primarily physical risks) from issues such
as extreme weather.
Whilst the Group does consider that it
has potentially material exposure to the
impact of climate change, the magnitude
of that impact within the current viability
assessment period is likely to be lower
than for some of the other risks faced
by the Group. Therefore, though it is
monitored, it is not formally part of this
viability assessment, given the magnitude
of the potential impacts from other risks.
Assessment of prospects
The Board believes that, despite the
impact of COVID-19 over the last years,
the prospects for both the aerospace
market and for the Group within it
continue to be favourable in the medium
to long term:
• We believe that the desire for
individuals to travel and to connect
with others remains and that air travel
will play a critical part in meeting
that demand;
• Growth in civil aerospace markets is
returning; Meggitt provides equipment
to all major new platforms entering
service in the near future;
• Meggitt has an installed base of 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 well
into the future;
• We are diversified by end market and
by customer;
• We supply into both civil (46% revenue)
and defence (42%) aircraft markets, and
into selected energy markets (9%);
• 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 ten customers generate 45% of
our revenue;
• We invest for the long term and protect
our know-how;
• We invest in market-leading
technology. We continue to target
spending, on average, 5-7% of revenue
on R&D through the cycle;
• 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, 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 continue to have robust liquidity
and a strong financial base;
• The Group has reduced its levels of
debt over the last two years to £779.5m
in spite of the pressures from COVID.
The Group generated free cash flow in
both 2020 and 2021;
• Our gearing ratio at the end of 2021
was 1.9x (net debt/EBITDA) and
interest cover was 11.3x, both well
within our covenant limits; and
• We have just under £1.2bn of
committed facilities as at 31 December
2021, and a headroom of £573m.
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. Market recovery: Industry observers
continue to see a recovery in the civil
aerospace market. The Group expects
revenue to recover to 2019 levels by
2024-25.
2. Meggitt evolution: The Group has a
number of material projects, including
the completion of the move into Ansty
Park and other footprint reduction
efforts, for which the benefits are
expected to accrue to Meggitt within
the next five years.
3. Programme investment: The Group
typically expects the investment
cycle of five years for engineering
development programmes.
4. Refinancing: The Group’s existing debt
base will typically be fully refinanced
over a five-year period.
Given the above, and the long cycle
nature of the Company’s activities, the
Board concluded that five years continues
to be the correct timeframe over which to
assess viability and risk impact.
Assessment of viability and risk
stress tests
The Group continues to model a
progressive recovery in activity in the
civil aerospace market on the back of
encouraging market data seen in late
2021. A number of outcomes continue
to be possible regarding COVID-19,
but the Group continues to believe
that a full recovery in civil aerospace
activity is likely to be by 2023-24. It is
against this recovery baseline that the
Group’s viability has been tested using
two scenarios against the output of
the Group’s annual long-term planning
process. More detail on the base
performance case can be seen in Note 1
of the consolidated financial statements.
1. Loss of a major customer
Other than with the profound ongoing
demand shock precipitated by COVID,
we test the scenario in which the Group
faces potential major customer loss risk.
The aviation sector is reliant on a well-
developed system of global regulations
and equipment qualifications. Security
of data is also critical when working
with both the private sector and with
governments. The Group has modelled
the impact of a significant loss of revenue
following a regulatory or compliance
failure at Meggitt. Censure for non-
compliance can be severe, whether
through fines or fleet grounding. This
Meggitt PLC Annual Report and Accounts 2021
56
scenario is modelled to unfold in parallel
with the recovery from COVID-19 but
over a 12-month period given the time
taken for customers to resource, which
allows the civil AM recovery to be well
underway in the underlying base case.
2. Major business disruption event
We model a supply-side shock, such as
manufacturing disruption in California
as a result of a natural disaster. Business
disruption continues to be one of the
highest impacting risks on the Group’s
financial performance, both around the
impact on major customers and suppliers.
Given the concentration of aerospace
assets in California, a natural disaster
here would have a significant impact.
As modelled, such a disaster takes two
years to rebuild from, and with material
production losses.
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 extended dividend suspension or
material reduction in discretionary spend
would also be open beyond current
COVID horizons. As in 2020, the Group
would find it challenging should a second
external shock occur before the recovery
from COVID-19 is well established.
However, particularly given the recent
strong data on AM orders, the Group
continues to believe that both the scale
of losses and of mitigating levers would
mean there was limited impact on the
Group’s viability.
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.
Meggitt PLC Annual Report and Accounts 2021
57
Strategic Report
Strategic Report
Taskforce on Climate-related
Financial Disclosures (TCFD)
Recommendation
Recommended disclosure
Further detail
available
Current status
Future priorities
1) Governance
a) Describe the Board’s oversight of climate
related risks and opportunities
Section
1 below
• Climate change and
environmental sustainability is
a major consideration of our
business at all levels.
• Climate related risks and
opportunities are integrated
into our strategy and
business model.
• All Board and management
committees review risks and
opportunities as part of their
areas of responsibility.
• Sustainability strategy will
continue to be reviewed
by the Board on an
annual basis.
• Any future Board
appointments will take
into consideration climate
change/sustainability skills
and experience.
• Increased linkages between
sustainability performance
and LTIP/Remuneration
Committee considerations.
b) Describe management’s role in assessing
and managing climate related risks and
opportunities
Section
1 below
2) Strategy
a) Describe the climate-related risks and
opportunities the organisation has
identified over the short, medium and
long term
Section
2 below
• Climate related risk and
opportunities have been
considered in the overall
strategic plan over three
timeframes, <3 years, 3-10
years and >10 years.
• Strategic planning is integrated
into financial planning.
• Greater level of scenario
modelling within the
review cycle.
• Continued commitments
on research and technology
investment into sustainable
technologies.
• Setting of science-based
targets and confirming
a clearly defined path to
reduce emissions.
b) Describe the impact of climate
related risks and opportunities on the
organisation’s businesses, strategy and
financial planning
Section
2 below
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate related
scenarios, including a 2C or lower scenario
Section
2 below
3) Risk
Management
a) Describe the organisation’s processes for
identifying and assessing climate related
risks
Principal Risks
section and
section 3 below
• ISO 31000 aligned risk
management framework
incorporating climate-
related risk.
• Climate change is viewed as
a principal strategic risk which
is continually reviewed across
the business.
• Transition and physical
risks are evaluated through
demand side and supply side
scenario planning.
• Continued development of
risk assessment processes
to better identify emerging
climate related risks.
• Greater scenario planning
incorporating climate
related risks.
b) Describe the organisation’s processes for
managing climate related risks
Principal Risks
section and
section 3 below
c) Describe how processes for identifying,
assessing and managing climate related
risks are integrated into the organisation’s
overall risk management
Principal Risks
section and
section 3 below
4) Metrics &
Targets
a) Disclose the metrics used by the
organisation to assess climate related risks
and opportunities in line with its strategy
and risk management process
Section
4 below
• GHG emissions have been
reported since 2017 against a
target to reduce GHG by 50%
(relative to revenue) against the
2016 baseline.
• Market and location based
reporting is including in the
reporting regime.
• Disclosure of Scope 3 emissions
are in the planning and initial
screening phase.
• Set internal site targets to drive
a reduction in emissions.
• Scope 1 & 2 reduction measures
incorporated into LTIP.
• Complete and disclose
material scope 3 categories.
• Implement an internal
carbon price to ensure
cost of climate impact (all
scopes) is embedded in
business decisions – e.g.
capital expenditure within
our facilities.
• Lay out a roadmap to
achieve science based
targets, e.g. through
substitution of fossil-
fuel fired processes and
facilities and procurement
of renewable energy.
b) Disclose Scope 1, Scope 2 and if
appropriate Scope 3 greenhouse gas
(GHG) emissions, and the related risks
Section 4 below
and Planet
section of CR
report (page 82)
c) Describe the targets used by the
organisation to manage climate related
risks and opportunities and performance
against these targets
Section
4 below
We adopted TCFD reporting early in
2020 and have developed our reporting
process during 2021 towards compliance
with the disclosure requirements from
2021 onwards.
Many of the TCFD requirements were
already integrated into our strategy,
operations and culture and we have
strengthened our reporting in this Annual
Report to provide additional disclosures
in key areas.
As per Listing Rule 9.8.6(8)R, Meggitt
has adopted climate-related financial
disclosures consistent with the TCFD
recommendations and recommended
disclosures with the exception of Scope
3 data disclosure and improvements
planned for 2022 as detailed below.
Meggitt PLC Annual Report and Accounts 2021
58
Integrating Meggitt reporting
into the TCFD framework:
Risk
Management
Metrics
& Targets
Strategy
Governance
The Board of Directors is ultimately
responsible for developing the Group’s
strategy on climate change and
overseeing our progress in this area.
Day-to-day responsibility is delegated
to the Chief Executive, supported by the
Executive Committee. Below that there
are employee working groups working
on specific projects, overseen by the
Environmental Steering Committee.
1) Governance
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
business 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 Board
The Board is responsible for the Group’s
strategy on climate change, including
oversight of climate-related risks and
opportunities impacting the Group.
At a strategic level, the Board considers
the impacts of climate change on both
our markets and our operations.
The Board continually monitors our
performance and progress in these
areas, receiving regular updates on
international policies to decarbonise the
aviation sector, including market-based
measures, technological solutions and
demand management. The Board takes
these factors into consideration when
setting the Group’s policies and strategy.
The Board approves the Corporate
Responsibility & Sustainability Policy
and the Environmental Policy that sets
out the Group’s commitment to running
a sustainable business. These policies,
which are available on our website, are
reviewed by the Board on a regular
basis to ensure they are appropriate and
up to date.
There has been an increased focus on
climate-related matters as the landscape
continues to evolve with further
regulatory developments and changes
in stakeholder expectations. A summary
of the primary climate change-related
activities undertaken by the Board
throughout 2021 and into 2022 are set
out below:
1. Reviewed and approved an updated
Environmental Policy;
2. Reviewed the performance on our
environmental sustainability metrics
and targets;
3. Reviewed and approved risk appetite
including appetite in respect of
climate change risk;
4. Reviewed and approved the Group
Risk Register to monitor Group
risks and how they are mitigated,
including climate change risk;
5. Received regular updates on climate
change risk and opportunities
from the Chief Executive, Group
Operations Director and Group
Director Engineering and Strategy;
6. Considered climate change risk and
opportunities when reviewing and
approving our strategic plan;
7. Received an update on the Group’s
sustainability strategy; and
8. Received an update on technology
with a primary focus on sustainable
aviation.
Audit Committee
The Audit Committee is responsible
for reviewing the content of the ARA,
including the TCFD disclosures, and
advising the Board if the ARA as a whole
is fair, balanced and understandable.
The Committee is also responsible for
reviewing the adequacy and effectiveness
of the Group’s risk management
processes including those relating to
climate change risk and the processes
to determine the Group’s overall risk
appetite, tolerance and strategy, and
advises the Board on the appropriateness
of those processes.
During the year the Committee discussed
the Group’s natural catastrophe business
interruption risk, including climate
related weather events using scenario
analysis to look at emerging risks,
common underlying drivers and potential
mitigating actions. The Committee
discussed severe climate-related weather
events, sought clarification on mitigating
actions and a report will be provided to
the Board on climate-related risk to our
operations in 2022.
Corporate Responsibility Committee
The Corporate Responsibility (CR)
Committee has independent oversight
of the implementation of the Group’s
environmental performance and receives
regular updates on environmental KPIs,
environmental audits.
The Corporate Responsibility Committee
reviews environmental reports twice
a year.
Remuneration Committee
The Remuneration Committee is
responsible for setting the Group’s
remuneration policy, including how ESG
factors are considered when determining
executive pay.
In 2021, the Committee considered the
increasing importance of ESG-related
factors and 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 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 further considered
ESG measures when looking at 2022 plan
measures and has incorporated a new
strategic measure on carbon emission
reduction (more detail can be found in
the Directors’ remuneration report on
page 126).
The Committee is satisfied that the
current and proposed incentive structures
for senior executives do not raise
ESG risks by inadvertently motivating
irresponsible behaviour.
The Remuneration Committee reviews
performance updates for the LTIP,
including ESG measures, three times
a year.
Meggitt PLC Annual Report and Accounts 2021
59
Strategic Report
Strategic Report
Nominations Committee
The Nominations Committee ensures
the Board and senior management team
have the appropriate skills, knowledge
and experience to operate effectively and
to deliver the Group’s strategy.
In 2021, climate change/sustainability
expertise was added to our skills matrix.
Management level
Finance Committee
The Finance Committee has delegated
responsibility to approve investments and
certain corporate activities up to amounts
determined by the Board.
The Committee considers climate-related
risks and opportunities relating to proposals
submitted for approval.
CEO
The Chief Executive Officer is the
designated owner of the Group’s climate
change risk and is ultimately responsible
for managing the risk across the business.
Executive submit regular reports to the
Board on the Group’s climate change-
related risks and opportunities.
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 ESC, comprised of the Group
Company Secretary, Group Director,
Engineering & Strategy, and Group
Operations Director deploys 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.
Group Director, Sustainability
The Group Director, Sustainability
was appointed in 2021 (reporting to
the Group Operations Director) and
is driving Meggitt’s environmental
sustainability programme of change –
defining our increased ambition, and
launching projects directly reducing
our impact, as well as change initiatives
designed to embed progressively
sustainable considerations into our core
operating model.
Environmental Senior Forum
Environmental Senior Forum includes
senior stakeholders and project sponsors
from Finance, Operations, Procurement,
Communications, Research and
Technology, Corporate Responsibility and
Facilities Management, reporting to the
ESC for strategic guidance.
2) Strategy
Overview of climate-related risks
and opportunities
Given the scale and immediacy of the
climate change challenge, the changing
expectations of our key stakeholders
present both risks and opportunities to
our business. A summary of these risks
and opportunities are presented in the
following table, as a complement and
expansion of the overall climate change
risk detailed on page 51. Potential impact
and mitigation of these risks are outlined
in the table at the bottom of page 62.
Taskforce on Climate-related
Financial Disclosures (TCFD) continued
Meggitt PLC Annual Report and Accounts 2021
60
Short term (<3 yrs)
Medium term (3-10 yrs)
Long term (> 10yrs)
Opportunities
Risks
Opportunities
Risks
Opportunities
Risks
Aerospace
markets
Increased utilisation
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.
Early reduced
demand for air
travel, driven by
evolving passenger
preference, or
increased prices
due to further
regulatory changes
(e.g. more
onerous CORSIA
requirements).
Upgrades of
existing aircraft
designs and launch
of new platforms
to improve fuel
efficiency where
Meggitt’s thermal,
sensing, composite,
electrical and
flow control
technologies are
well suited.
Material reduced
demand for air
travel, driven by
evolving passenger
preferences, or
increased prices
due to regulatory
changes (e.g.
introduction of
carbon taxes,
increase in fuel
costs due to SAF
mandates).
Continued demand
for Meggitt
technologies to
enable highly
efficient aircraft
powered by SAF
and the emergence
of hydrogen-
powered aircraft.
Sustainable
aviation technology
transition is
not sufficiently
rapid to alleviate
environmental
concerns and
mitigate additional
regulatory costs,
further reducing
demand for air
travel.
Energy
markets
Accelerating
demand for energy
efficiency, natural
gas and energy
storage driving
strong demand
for Meggitt’s
industrial heat
exchangers and
gas-turbine control
technologies.
Initial assessment of
risks in this market
segment is limited
given Meggitt’s
exposure to both
natural gas and
renewable energy
markets.
Further accelerating
demand for low-
carbon energy
drive further
increased demand
for Meggitt’s key
clean energy
technologies.
Early, meaningful
transition away
from natural gas
reduces demand for
equipment in this
part of the market.
Increased demand
for energy
efficiency and
storage, hydrogen,
carbon capture,
offers significant
opportunities
for our heat
exchangers and
thermal systems
capabilities.
Long-term trends
away from fossil
fuels reduces
demand for
equipment in this
part of the market.
Production
operations
Substitution of
gas-fired processes,
modernising
our facilities and
improvement
of production
processes all reduce
Scope 1and 2
emissions.
Engagement
with suppliers
on low-carbon
expectations in
purchased goods
and services.
Increased input
costs due to
energy prices and
incremental cost of
renewable energy.
Move to renewable
electricity through
mix of on-site/
off-site generation,
provide long-
term price
stability/security
e.g. through
Power Purchase
Agreements.
Smaller number of
larger and more
efficient global
plants.
Further reductions
in embedded
carbon in material
inputs through
collaboration with
suppliers to reduce
emissions and
increase yields.
Increased input
costs due to carbon
taxes and higher
cost of low-carbon
raw materials and
services.
Additional capex
required to
substitute fossil fuel
fired processes to
meet internal GHG
reduction targets.
Physical disruption
to Meggitt facilities
and supply chains.
Sub-optimised
capacity due
to changes in
demand.
Changes to
production facilities
to provide key
technologies for
next generation
green propulsion
and energy sectors.
Increased input
costs due to carbon
taxes, voluntary
carbon removals
and higher cost
of low-carbon
raw materials and
services.
Additional capex
required to
substitute fossil fuel
fired processes to
meet internal GHG
reduction targets.
Physical disruption
to Meggitt facilities
and supply chains.
Impact of climate-related risks and
opportunities on our strategy
The world has a few short years to meet
the challenge of climate change in order
to avoid its worst effects. We are a key
supplier of technology to the critical
aviation, defence and energy markets and
as such we recognise the important role
we play in the ongoing carbon transition.
The opportunities and risks that climate
change pose are managed as an integral
part of our strategic plan for the business
(see page 62), in terms of how demand
will change for existing and new products
and how our operations will change in
terms of 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 the evolution of air travel,
potential launches of new types of aircraft
and engines, and impact on our sites.
Our strategy is heavily influenced by
the risks and opportunities we have
identified, and consideration of these
are incorporated into our business and
financial planning processes. Innovation
is at the heart of everything we do,
and enabling a sustainable future is a
core element of our purpose, driving
our long-term strategy. Recognising
the opportunity in supporting our end
markets through the carbon transition,
in 2020 we committed that at least two-
Meggitt PLC Annual Report and Accounts 2021
61
Strategic Report
Strategic Report
Scenario
Scenario summary
Main risks
Main opportunities
Impact
Mitigation
~1.5-2 degree
warming
The global economy
de-carbonises
largely in line with
the commitments
made under the Paris
Agreement.
Primarily transition risks:
• Market – short-medium-
term reduction in
demand for flying as
consumer priorities
evolve, prior to
technological change
enabling low-carbon
commercial flight.
• Regulatory – reduced
margin due to
internalisation of carbon
cost through e.g.
carbon taxes.
Accelerated transition
to Net Zero in energy
and aviation stimulates
greater demand for
Meggitt’s sustainability-
focused and
low-carbon enabling
technology.
We’ve considered a
wide range of demand
and supply shocks,
including risk related
to climate change in
our overall viability
assessment. More
details can be found
on pages 55-57.
Full economic
modelling of balance
of risk and opportunity
in this scenario is
under review.
Market – Investment
targets for low-carbon
technologies to enable
systemic carbon
transition enable
continued growth
(see page 84).
Regulatory – Progressive
investment in permanent
abatement to achieve
science-based targets to
minimise regulatory risk.
~3-4 degree
warming
The global economy
does not make
sufficient progress on
reducing emissions
to limit the average
temperature rise to
<2 degree over pre-
industrial levels.
Primarily physical risks:
• Disruption of global
supply chains.
• Increased severe
weather events
disrupting our
manufacturing facilities.
• Reduction in demand
for flying driven by
economic disruption.
Although, in this
scenario air travel
may continue to
grow, we do not see
opportunities related
specifically to climate
change.
We conduct physical
risk assessments of our
sites’ vulnerability to
natural events.
Full economic
modelling of balance
of risk and opportunity
in this scenario is
under review.
Work with insurers to
continually update
specific site risk and
mitigation measures.
Increased focus on
resilience in supply
chain strategy.
thirds of our Research & Technology
investment would be into sustainable
technologies, outlined in more detail
on page 84. We work closely with our
customers to develop the next generation
of lighter, more efficient systems and
components, as well as the breakthrough
technology needed to reach Net Zero.
Our strategic planning process for
our operating businesses ensures that
climate-related risks and opportunities are
considered and incorporated in individual
business unit strategy. In addition, we
include material risks and opportunities,
including those related to climate, into
our investment cases.
We also understand the important
contribution of our own operations – we
have reduced net Scope 1 and 2 emissions
by 50% since 20151, and in 2021 committed
to setting updated, science-based targets
in line with the 1.5 degree pathway of the
Paris Agreement. Our abatement plan
will also contribute to our customers’ and
suppliers’ Scope 3 reduction targets, and
we constantly look for opportunities to
collaborate to support the more efficient
decarbonisation of the full value chain (e.g.
through our membership of the International
Aerospace Environmental Group).
As part of our sustainability strategy,
in 2022 we will work to further embed
our climate impact into key business
decision-making processes – developing
common and consistent methodologies
for management to assess and quantify
environmental impact, and ensure that
decisions are consistent with our science-
based reduction targets.
Resilience of our strategy
In assessing scenarios affecting the
long-term viability of the Group, climate
change was considered as a potential
driver of both demand and supply
side shocks.
In understanding how our business may
be impacted by climate-related risks and
opportunities based on our strategy,
we consider two high level scenarios
emerging by 2030, outlined below:
• 1.5-2 degrees
– In this scenario, the global response to
the threat of climate change is timely
and effective, and succeeds in limiting
global average temperatures to 1.5-2
degrees over pre-industrial levels.
The global business environment
is characterised by coordinated
government policy and regulation such
as carbon taxes, as well as consumer
behaviour favouring low-carbon
products and services. With regard
to our end markets – in civil aviation,
demand growth is dampened until
technological change enables low-
carbon commercial flight and growth
can re-start, and the energy market
accelerates its transition towards large-
scale renewables and away from fossil
fuel generation.
• 3-4 degree pathway
– In this scenario, there is less
coordinated and concerted effort,
change is slower and more piecemeal,
emissions remain at or close to 2021
levels and the world starts to feel
ever more effects of climate change
through the 2020s. The temperature
continues to climb on the trajectory
to hit 4 degrees, leading to significant
disruption in societies, economies and
supply chains across the world. In this
scenario, there is both demand and
supply side impact as the physical
manifestations of climate change
emerge in the shape of extreme
weather events, and biodiversity loss
and desertification leading to food
system disruption and mass migration.
Both scenarios present risk (and in some
cases opportunity) to our business, but
each has a greater or lesser degree of
transition and physical risks as outlined in
the table below (with linked mitigation)
1
Relative to revenue.
Taskforce on Climate-related
Financial Disclosures (TCFD) continued
Meggitt PLC Annual Report and Accounts 2021
62
To further understand the physical risk
that climate change presents to our
business, we have undertaken a high
level assessment of the impact of natural
hazards, including those made more likely
by climate change (flood, wildfire and
wind storm).
A specialist third party analysed Meggitt’s
key manufacturing sites, utilising
desktop modelling for each location,
considering a variety of hazard zones. The
geographic concentration of sites within
the portfolio was mapped to understand
risk clusters. The number of high and
extreme risk assets within the portfolio
was identified, along with the peril types
driving exposure. A report was then
produced analysing which portfolios and
countries are most exposed to each peril,
determining key drivers, and aggregating
the information to understand where
resilience resources should be targeted.
We intend to conduct further risk analysis
in 2022, aligned with climate change
scenarios, to greater understand the
physical risks to the business prevalent in
the 3-4 degree warming scenario.
In summary, through our risk and
opportunity management process
and the mitigating actions we are
undertaking, we believe we are resilient
to the majority of risks presented by
climate change currently assessed, and
well positioned to take advantage of
the opportunities deriving from the Net
Zero transition.
During 2022 we intend to further develop
our risk and opportunity assessment
framework, and continually review
mitigating actions based on scenario
modelling and analysis.
3) Risk Management
The Group maintains a robust risk
management framework based on ISO
31000, and includes a formal process for
identifying, assessing and responding
to risk, including climate-related risk.
Our risk management processes are
detailed on page 48, and includes
a series of Group-wide control and
actions to mitigate principal risks to
our business. Our published principal
risks have included a specific risk for
climate change since 2020 (consolidating
previous climate-related risks previously
incorporated into other risks) along with
potential impact and mitigation.
In addition, we model both demand
and supply side shocks to our business
in order to test ongoing viability, and
risk related to climate change is a
specific consideration.
4) Metrics & Targets
We have a number of metrics and targets
which allow us to measure and reduce our
impact on the environment, summarised
on page 82. For our carbon emissions
specifically, we track Gross and Net
Scope 1 and 2 emissions (reported in line
with the Greenhouse Gas protocol), which
are measured by site and communicated
quarterly for Board and management
level reporting and management
action purposes.
Our existing Greenhouse Gas reduction
target is to reduce Scope 1 and 2
emissions, normalised for revenue, by
50% by 2025 (with a 2015 base year). We
are on track to achieve this reduction
early, and so have committed to update
this target by 2023, including a Scope 3
measure, in line with the requirements of
the Science Based Targets initiative (SBTi)
for the 1.5 degree pathway.
Throughout 2021 and for 2022 Meggitt
has and will continue to put in place
appropriate plan and incentives for
the businesses to invest in reducing
our impact by:
• Setting a clear direction by committing
to setting science-based targets,
illustrating the methodology and the
data throughout the business and
in reporting;
• Cascading site level in-year
environmental targets through our
strategy deployment process;
• Incorporating Scope 1 and 2 reduction
measures into our LTIP measure;
• Implementing an internal carbon
price to ensure cost of climate impact
is embedded in business decisions
– e.g. capital expenditure within our
facilities; and
• Laying out a roadmap to substitute
fossil fuel-fired processes and
facilities, including long-term capital
allocation planning.
We have conducted initial screening
of our Scope 3 inventory to identify
the most material categories, and
are working to develop a consistent
calculation methodology in line with the
Greenhouse Gas Protocol. In calculating
our full Scope 3 inventory we will utilise
voluntary methodologies, tools and
standards appropriate to the aerospace,
defence and energy markets (such as
those developed by the International
Aerospace Environmental Group). In 2022
we will refine our initial Scope 3 baseline
and commence reporting of material
Scope 3 emissions by 2023, with a view
to progressively incorporating absolute
Scope 3 reduction measures into our
climate-related KPIs and targets as
outlined above, including those covered
by our forthcoming science-based
targets. These targets will be linked to
business decision-making processes as
outlined in Section 2 above.
To ensure we are positioned to meet
customers’ increasing demand for
enabling technologies for sustainable
aviation, we have set a target that two-
thirds of our Research & Technology
investment would be in sustainable
technologies (see page 84) – we continue
to track and actively manage this metric.
We constantly review our metrics and
targets to ensure that the data reported
is aligned with our strategy, targets, and
provides the information needed for
our business leaders to drive results. We
also review other relevant data, such as
market data and reports, as well as our
customers’ and suppliers’ commitments
and expectations, to provide an
indicator on the status of our climate
change-related risks and opportunities,
our stakeholder expectations in the
context of their own commitments, and
changes to our strategy and planning
processes required.
Meggitt PLC Annual Report and Accounts 2021
63
Strategic Report
Strategic Report
ENABLING
A MORE
SUSTAINABLE
FUTURE
We are committed to working in partnership with
our employees, communities, customers, suppliers
and shareholders to protect our people and planet
and to develop technologies for the benefit
of future generations.
Corporate Responsibility
People
Planet
Technology
Meggitt PLC Annual Report and Accounts 2021
64
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 Sustainable
Development Goals, and allows us to
strengthen our relationships with all of
our stakeholder groups.
2021 saw Meggitt expand even further
the role of corporate responsibility
across the Group. Our work on our
strategic portfolio, our investment in
differentiated technologies, alongside
our commitment to manufacturing
efficiencies and our high performance
culture, values, and diversity and
inclusion all contribute to the sustainable
development of our business and is the
key to our continued long-term success.
Delivering on
our commitments
Focusing on our People, our Planet and our Technology
as the framework to enable a more sustainable future
and deliver on our commitments to our stakeholders.
Technology
To support the evolving needs of our
global customers we will continue to
invest in innovative new technologies
to enable sustainable aviation.
Read more on page 83
Planet
Our goal is to contribute to
a cleaner future by continually
improving and adapting
our operations.
Read more on page 78
People
We are committed to creating a
rewarding and safe working culture
for all colleagues and supporting
our communities.
Read more on page 72
Our sustainability pillars
Meggitt PLC Annual Report and Accounts 2021
65
Strategic Report
Strategic Report
Corporate Responsibility
continued
01 Strategy
and Approach
Our approach to Corporate
Responsibility and
Sustainability is a vital
thread across the whole
business which is integrated
into our strategy and
priorities. As we venture
into the future with all
our stakeholders we are
developing a business that
is innovative and conscious
of our responsibilities, from
reducing our emissions
and inequalities to driving
forward an ethical culture
and supply chain. We
continue to develop our
approach to sustainability
and reporting mechanisms
whilst understanding our
opportunities through our
sustainability framework
of People, Planet
and Technology.
02 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, including meeting reporting
requirements such as gender pay
gap and gender ratios for executives
and the Board;
• minimising the environmental
impact of products and processes
and maintaining internationally
accredited environmental
management systems standard
ISO 14001;
• conducting business relationships
ethically and responsibly;
• complying with anti-slavery and
human-trafficking legislation;
• working with our suppliers to
build a sustainable and resilient
supply chain;
• acting as a responsible supplier and
encouraging all our counterparties
to do the same; and
• supporting our local communities.
03 Our focus areas and stakeholders
People
Health & Safety
Diversity &
Inclusion
Technology
Reducing
aerospace emissions
Supporting green
energy
Employees
Shareholders
Customers
& suppliers
Ethics and
business conduct
Anti-bribery
Speaking up
Planet
Using low-carbon
energy
Reducing our
waste
Local
communities
Stakeholders
Meggitt PLC Annual Report and Accounts 2021
66
04 Action
For our stakeholders
this means:
• committing to invest over two-
thirds of our innovation budget on
technologies for sustainable aviation
and energy;
• continuing to improve the
environmental sustainability and
resilience of our global sites;
• complying with relevant national
laws and regulations and
reporting requirements;
• providing a supportive, rewarding
and safe working environment;
• embedding the employee
recognition scheme, “Extraordinary
People” into the way we work;
• delivering training for all employees
on our Code of Conduct, health
and safety, anti-harassment 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 policies and
procedures across all areas
of the business;
• removing all sales agents from
our business and implementing a
continuous improvement plan for
all intermediaries;
• conducting audits and risk assurance
reviews in key compliance areas; and
• adopting robust internal and external
reporting and controls, and ensuring
financial probity.
05 Governance and Compliance
Ultimately, the Board
is responsible for the
implementation and
monitoring of our
Corporate Responsibility
and Sustainability
Policy (CR&S Policy).
Ongoing 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,
charitable 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 2021
are outlined on page 92.
In 2021, the Board of Directors
continued to receive updates on
diversity and inclusion activities across
the Group, including the significant
progress in 2021 with our Employee
Resource Groups and the Meggitt
Inclusion Week held in September.
Health and safety reporting is also
overseen directly by the Board
with regular reports from the Chief
Executive, and in 2021 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. Day-to-day
responsibilities of the Board and the
Chief Executive for overseeing the
CR&S Policy in 2021 were delegated
as follows:
• the Group Operations Director
had functional responsibility for
environment and sustainability and
health and safety, led by our Group
Director, Sustainability and 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 2021, health and safety (total
recordable incident rate) was a key
strategic non-financial KPI (see page
28). In 2021, we introduced 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 are continually
monitored and assessed and our Group
progress is reported in this section. Our
non-financial information statement as
required by Sections 414CA and 414CB
of the Companies Act 2006 is set out on
page 88.
Meggitt PLC Annual Report and Accounts 2021
67
Strategic Report
Strategic Report
Corporate Responsibility
continued
Environmental, Social and
Governance (ESG) reporting
and guidance
During 2021, Meggitt built on the 2020
review of environmental, social and
governance reporting, and further
embedded the sustainability framework
of “Enabling our sustainable future”
through the three pillars of People,
Planet and Technology.
This framework captures our commitment
to drive our business to be more sustainable.
Our framework covers the reporting
requirements under the Taskforce on
Climate-related Financial Disclosures (see
page 58) and is also linked to the United
Nations Sustainable Development Goals.
United Nations Sustainable
Development Goals
After aligning to four United Nations
Sustainable Development Goals in 2020
which integrate into the overall Meggitt
strategy, Meggitt has continued to develop
its corporate responsibility approach
(see pages 66 and 67). During 2021,
the following progress has been made:
UN Sustainable
Development Goal
Our approach
Our commitment
What we
did in 2021
9 Industry, innovation
and infrastructure
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.
Meggitt can contribute to this
goal by encouraging innovation
and continuing our commitment
to research and development
on sustainable technologies for
aviation and energy.
See our pillars on Planet
and Technology.
• 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.
• See technology
case studies
throughout;
• Footprint
reduction;
• Reduced
emissions;
• Utilising Employee
Resource Groups
(ERGs) across the
business; and
• Joining the UN’s
Race to Zero and
committing to
setting targets
under the SBTi
framework.
UN Sustainability
Development Goal
Our approach
Our commitment
What we
did in 2021
10 Reduced
inequalities
Reducing inequalities and
ensuring no one is left
behind are integral to
achieving the Sustainable
Development Goals.
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.
See our pillar on People.
• 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.
• Inclusion Week
– multiple ERG
activities;
• Joined 10,000
black interns
programme;
• Launched
Community Heroes
programme
enabling
employees to
support local
good causes.
Meggitt PLC Annual Report and Accounts 2021
68
UN Sustainability
Development Goal
Our approach
Our commitment
What we
did in 2021
16 Peace, justice
and strong
institutions
Promote peaceful and
inclusive societies for
sustainable development.
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.
See our section on Corporate
compliance and business conduct.
• 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; and
• All-employee yearly compliance training
in key areas including our Code of Conduct,
ethical business practices and health
and safety.
• Revised Financial
Crime policy;
• Revised Anti-
Corruption and
Ethical Business
Conduct Policy;
• Risk Assurance
reviews;
• Improved data
analysis for
ethics cases; and
• Launched ethics
investigation
standard process
and training.
UN Sustainability
Development Goal
Our approach
Our commitment
What we
did in 2021
12 Responsible
consumption and
production
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.
Meggitt can contribute to this goal
by concentrating on:
achieving the environmentally
sound management of chemicals
and all wastes throughout their
lifecycle and significantly reducing
their release into 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.
See our pillar on Planet.
Reducing greenhouse gas emissions
and waste to landfill, which are being
managed by opportunities to maximise
operational efficiencies:
• Setting science-based targets for GHG
reduction in line with 1.5 deg pathway;
• Sourcing renewable energy;
• Harmonising more sustainable practices
across our sites including waste recycling,
minimising plastics, electric car charging;
• 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.
• GHG reductions;
• Purchased
renewable energy;
• Reviewing waste
goals;
• Environmental
targets for each
site;
• Commenced TCFD
reporting; and
• Joined the UN’s
Race to Zero and
committing to
setting targets
under the SBTi
framework.
Meggitt PLC Annual Report and Accounts 2021
69
Strategic Report
Strategic Report
Corporate Responsibility
continued
Our behaviours with each other, our customers,
our suppliers and in our communities must be
exemplary and we must accept nothing less.
Corporate Responsibility
Committee
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.
The challenges created by the COVID-19
pandemic continued to bring all matters
related to corporate responsibility and
sustainability to the fore in 2021. During
2021, we received detailed progress
reports on environmental performance,
sustainability and ethics and business
conduct including trend analysis, detailed
Speak Up Line case reports, and updates
on all-employee training. We also
received reports on supplier engagement
and discussed feedback on employee
engagement activities. We also discussed
specifically the impact of COVID-19 on
our stakeholder groups to ensure our
approach was balanced.
Committee membership and
attendance in 2021
Mrs N L Gioia
(Committee Chairman)
Mr A Wood
Mrs L S Burdett
Mr G S Berruyer
Mr A Garard
x Scheduled meetings
Teamwork
In 2021 new training on our ethics
investigations process was rolled out
to relevant employees from different
functions including in Health & Safety,
Quality, Commercial, Legal and Human
Resources in order to standardise and
provide a consistent standard to all
ethics investigations. Best practice
was shared and a single approach was
adopted enabling all investigators to
work as a team globally.
Meggitt PLC Annual Report and Accounts 2021
70
2021 in numbers
0.9
ethics cases per 100
employees globally
+31,000
hours of training
delivered to all employees
51
trained ethics investigators
37%
reduction YoY in Scope 1 and 2
GHG emissions (market-based)
50%
of all energy consumed from
renewable sources
Customers
The Board discussed engagement
with customers at every meeting
during 2021. The Committee
determined that the regular
reports to the Board and customer
updates were appropriate and gave
the Board a good oversight and
understanding of customer views.
Our markets and key customer
activities are outlined in our Strategic
Report (page 24).
Suppliers
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 2021. 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.
Employees
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
pages 74 and 87).
• A focus on the impact of COVID-19 on
our stakeholder groups, particularly
in relation to actions taken by
management to control cost;
• Appointment of Group Director of
Sustainability to drive operational
improvements connected to
environmental sustainability across
the Group;
• Expansion of the Ethics Management
Committee to provide direction on all
employee compliance training;
• Continuing to minimise sales agents in
our business;
• Refreshing our Financial Crime Policy
and also updating and consolidating
our Anti-Corruption and Ethical
Business Conduct policies;
• Improving data analysis in connection
with the independent Speak Up Line
to identify trends and shape training
requirements across the business;
• Launched our employee volunteering
programme “Community Heroes”
giving all employees time to volunteer
for worthy causes;
Shareholders
The Committee determined that
the regular reports to the Board
on shareholder engagement
during 2021, 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 90.
• Implementing site-level key
performance indicators and targets
for environmental measures such as
energy and water consumption and
waste to landfill;
• Joined the United Nations Race to
Zero campaign – committing to reduce
absolute value chain emissions in line
with a trajectory compatible with a 1.5
degree Celsius warming scenario, and
reaching Net Zero before 2050;
• Joined the 10,000 Black interns
programme in the UK with anticipation
of hiring 13 interns from the programme;
• Continuing with the LeadX training
programme for high-potential leaders
across the Group and Spitfire Training
Programme for operations leaders;
• Grew the percentage of electricity
consumed from renewable sources
through a mix of on-site generation
and market-based measures; and
• Scope 2 emissions reporting to capture
both location-based and market-based
methodologies.
Meggitt PLC Annual Report and Accounts 2021
71
Strategic Report
Strategic Report
PEOPLE
Meggitt continues to put our people first
through our values, our work towards a high
performing and inclusive and diverse culture,
as well as supporting our communities.
Corporate Responsibility
continued
Meggitt PLC Annual Report and Accounts 2021
72
EXCELLENCE
We enable the
extraordinary
at Meggitt.
We are 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.
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.
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.
Living our values
and gain support for any culture-related
programmes.
High Performance
Culture (HPC)
68% of our total workforce have attended
unfreezing sessions (including 87% of
our leaders). Due to the challenges
we faced as a result of the COVID-19
pandemic, we were unable to support
the volume of in person training required
and therefore our goals to achieve higher
Our values and culture
To accelerate our progress towards
becoming a truly integrated global
business and cultivating a culture of high
performance, we focused our efforts on
employee and leadership development,
diversity and inclusion, employee
engagement, and recognition. Culture
forums were held across the organisation
on a bi-monthly basis. This forum is where
our site and product group leaders can
update progress on culture plans, share
ideas and best practices as well as reinforce
Our values reflect how we should work together and the behaviours that are
integral to our culture. Our work on culture continues to be a key part of our overall
Group strategy and supported by culture plans established in the business.
participation rates have been delayed
into 2022, however, in order to combat
these challenges some sessions have
been conducted virtually. Our target is to
ensure over 90% of our employees have
attended unfreezing sessions by the end
of 2022. We also launched content across
the workforce to reinforce HPC on a
daily basis in DLA meetings and through
intranet articles and videos.
Meggitt PLC Annual Report and Accounts 2021
73
Strategic Report
Strategic Report
Corporate Responsibility
continued
Diversity and Inclusion
Our Diversity and Inclusion Policy sets
out our commitments at Board-level to
making Meggitt a diverse and inclusive
organisation. The Policy reinforces that
we employ a diverse workforce that
reflects the diverse communities within
which we operate and that we always
foster an inclusive culture where people
are valued, respected and supported.
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.
During 2021 we saw substantial progress
in the number of employees engaged
with our Employee Resource Groups
(ERG), from 400 ambassadors to over
1,100. We held our annual Diversity
& Inclusion Week event with 18 sites
hosting events along with virtual sessions
focused on learning more about our
ERGs. Employee Resource Group leaders
were trained in advanced concepts
relating to diversity and inclusion.
ERGs took the lead on many activities
throughout the year to raise awareness,
educate, and support the cultivation of
an environment where employees can
be at their best, including celebrating
International Women’s Day and Women
in Engineering Day, Pride Week and
Black History month in the US and UK.
Employees also took part in the Steps
for Vet’s Challenge, Remembrance Day
Celebrations and joined talks on Latino
History. Additionally, in support of Suicide
prevention week, our SHINE ERG hosted
“Subject Matter Expert” talks at multiple
sites and provided Mental Health First
Responders training. We also launched
Community Heroes, our community
and charity outreach programme which
enables employees to volunteer for local
good causes in their community.
Our UK gender pay gap reduced from
9.3% to 5.7% in 2021, 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 2022. We are committed
to building a more diverse and inclusive
Meggitt and meeting reporting
requirements including gender pay gap
reporting and the FTSE Women Leaders
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.
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.
Employee recognition
A culture of appreciation and recognition is
an important building block for our values.
Our Extraordinary People 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
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 4,000
nominations in 2021.
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.
Our work on culture, particularly
throughout a challenging period for
the Group and for our people over the
last two years, has been reflected in our
results for 2021 which show engagement
Group Board
5
56%
4
44%
Senior managers*
97
82%
21
18%
Wider employees
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.
Meggitt PLC Annual Report and Accounts 2021
74
levels rising 2% from 2020 (and 4%
above the global high performing
benchmark). Most improved areas are
ethical behaviours, team-working and
cooperation, challenging the status
quo and ongoing feedback. The area
most needing to improve is reducing
bureaucracy and efficiency of processes,
which is an area of ongoing focus.
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 have had great success
in the two programmes we launched in
2020, LeadX for high-potential leaders
completed two cohorts and launched two
additional cohorts in 2021.
Spitfire for operations leaders continued
with great success in 2021. Cohort 1 and
2 both graduated from the programme,
completing ten “Action Learning
Projects”, each with significant cost
savings to the business. Our current
Cohort 3 includes 26 participants across
the US and Mexico, with eight actively
progressing Action Learning Projects.
Several of our sites also launched
operator certification programmes
to upskill employees while improving
operational performance.
We continue to develop employees’
leadership capabilities and during the
year implemented formal programmes
to raise capability in functional teams,
including finance, engineering,
information technology, procurement,
project and programme management.
We also continue to build on our
graduate and apprenticeship
programmes with 41 graduates in the
programme and 61 apprentices. We
were also the first aerospace company
to participate in the 10,000 Black interns
programme in the UK, and we expect to
hire 13 new interns in 2022 as a result.
The market for talent acquisition
and labour shortages has presented
challenges in several of the regions
in which we operate. Despite the
challenges, our talent acquisition team
worked closely with our leaders to ensure
we could secure talent at pace.
In our efforts to improve processes related
to people, we created shared service teams
in the UK and US to manage employee
transactions more efficiently and enabling
better use of our technology for employee
self-service. AskHR and our intranet
supports employees and managers on
items related to HR policy and processes.
Communities and charities
The Sponsorship & Charitable Giving
Policy contains guidance about the
types of organisations (charitable and
non-charitable) that we will consider
funding, with criteria that 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 2021 Meggitt
donated to a number of charities aligned
to the goals set out by our Employee
Resource Groups and foodbanks in
the UK and US which are linked to our
local communities. Our plan for work
with charities in 2022 will continue to
Headcount by division
Number of employees
and contractors
Airframe Systems
4,406
Engine Systems
2,249
Energy & Equipment
1,215
Services & Support
551
Central
849
Legacy Businesses
–
Total
9,270
Headcount by region
Number of employees
and contractors
UK
2,327
Rest of Europe
940
USA
4,644
Rest of World
1,359
Total
9,270
Headcount by length of service
Number of employees
and contractors
Less than 5 years
4,558
Between 5 and 10 years
1,640
Between 10 and 15 years
1,115
Between 15 and 20 years
749
Between 20 and 25 years
580
Over 25 years
628
Total
9,270
Meggitt PLC Annual Report and Accounts 2021
75
Strategic Report
Strategic Report
be aligned to our sites and their local
communities and the work our Employee
Resource Groups do.
In addition to charitable giving, Meggitt
launched a new volunteering scheme
called Community Heroes. In the spirit
of community and sustainability Meggitt
wants to celebrate our extraordinary
people who already contribute to their
local communities and charities and
give them an additional day’s paid leave
to spend within their communities, or
give others the opportunity to give back
through various initiatives run by our
sites and Employee Resource Groups.
Our colleagues have gone above and
beyond throughout the pandemic and
Meggitt will continue to support and
encourage this through our Community
Heroes programme.
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.
Health & Safety
Our Health & Safety Policy sets outs
responsibilities at all levels of our
Company 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. In
2021, we continued to take steps to
ensure that our workers were protected
against COVID-19 and strongly promoted
vaccinations for employees. We
continued to implement the COVID-19
pandemic risk mitigation measures such
as social distancing and mandatory
mask-wearing in accordance with national
and local government requirements,
and required sites to conduct COVID-19
pandemic risk assessments on a
frequent basis taking into account local
transmission rates, changes in national
and local guidelines and requirements
and information provided by applicable
health authorities. All of these actions
allowed our businesses to operate in the
COVID-19 pandemic as secure and safe
environments throughout 2021.
We continued to conduct daily safety
reviews and training through our HPS
DLA process by presenting health
and safety topics for discussion at the
beginning of every day for employees
at all levels of the Company. These
discussions also included safety stand
downs where we shared lessons learned
across all of our sites from incidents that
occurred. We also resumed our external
third-party HSE auditing programme
which was paused in 2020 due to the
COVID-19 pandemic and which ensures
our sites are maintaining compliance with
applicable health and safety regulations.
In 2021, we integrated health and
safety awareness training in our Spitfire
training programme, which included
detailed health and safety training for
members of our executive management
teams across the Group. This training
included an awareness training of health
and safety compliance obligations that
are applicable to our sites as well as a
behavioural based safety training which
focused on how employees’ individual
behaviours and actions can contribute to
incidents that occur in the workplace.
We continue to measure site health and
safety performance through our Safety
Star Programme. One key change that
was made to this Programme in 2021
was to incorporate our Safety Leadership
Index (SLI) as a mandatory metric that
all sites had to achieve in order to
achieve Platinum Star status. The SLI
incorporates the number of safety walks
that our site Senior Leadership teams
conduct on our production floors, the
number of Safety Stand Downs (site-
wide discussions on a specific subject
regarding health and safety) that sites
conduct, and the number of days in
which the sites’ safety champions are
conducting “safe observations” which
are dedicated to focusing on health and
safety behaviours and actions as opposed
to their normal production job. In 2021,
61% of sites achieved Platinum Star status
in our Safety Star Programme, which
represents the highest level of health
and safety excellence achievable within
the Company.
In 2021, we continued to reduce our
Total Recordable Incident Rate (TRIR).
Our TRIR improved in 2021 to 0.6 (0.7
in 2020), representing a 0.9% reduction
year on year as a result of a decade of
continuous improvement activities. Our
lost time incident rate (LTIR) was at 0.24
which represents an excellent indicator
of preventing serious injuries within
the Company.
We are targeting all of our sites to
obtain certification to ISO 45001 for
their occupational health and safety
management system by end of 2022.
In 2021, 60% of sites have achieved this
target. This will ensure that all of our
sites are maintaining a health and safety
management system that provides the
maximum achievable protection for all of
our employees.
Corporate Responsibility
continued
Meggitt PLC Annual Report and Accounts 2021
76
2021 saw Meggitt participate in the first year of
the 10,000 Black Interns programme which aims
to sustainably tackle Black underrepresentation
in the UK’s professional industries.
The scheme plans to cumulatively
hire 10,000 Black interns over a
five-year period to help shape career
trajectories and broaden horizons
through work experience. Companies
from numerous sectors pledged one
or more paid summer internship
positions to the scheme, to which
Black students who are studying at,
or recently graduated from a UK
university can apply. With over 700
companies participating in this first
year, Meggitt was the first aerospace
company of the seven participants in
the Engineering & Automotive sector.
All applicants are provided
with a wide range of training
opportunities, such as CV writing
and interview preparation as part
of the development aspect of the
programme, providing knowledge
that candidates will take with them
into their future careers.
In December, assessment centres
for the 2022 summer intake were
held at Ansty Park, and from a pool
of high calibre candidates, 13 roles
were offered in Engineering & Supply
Chain over 4 UK sites: Ansty Park,
Fareham, Loughborough and Poole.
The successful applicants ranged
from final year PhD candidates to
students at the beginning of their
undergraduate degree.
This programme which reinforces our
commitment to welcome Black talent
to the engineering industry, was
brought forward within Meggitt by
BE@M, an employee-led group which
exists to highlight and advocate for
people of colour within Meggitt.
10,000 Black Interns.
13
Roles were offered
in Engineering and
Supply Chain
4
UK sites participated:
Ansty Park, Fareham,
Loughborough and Poole
Meggitt PLC Annual Report and Accounts 2021
77
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PLANET
Corporate Responsibility
continued
We take our responsibility towards the
environment seriously, setting ever higher
ambitions to reduce our impact, and ensuring we
have achievable plans that we will deliver upon.
Meggitt PLC Annual Report and Accounts 2021
78
Our commitment
At Meggitt we recognise that we have
an important role in preserving and
sustaining the finite resources and
natural capital of our planet for future
generations. The starting point for our
contribution to this critical imperative
for the planet is the impact of our own
operations, value chain and products.
In 2021 we renewed our focus on two
specific environmental areas – our
greenhouse gas emissions and our
use of material across our value chain
– which together provide our greatest
opportunity to reduce our impact on the
environment, and accelerate towards our
sustainable future.
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.
During 2021, Meggitt appointed its
first dedicated Group Director of
Sustainability to review the environmental
operational performance across the
Group, define our ambition and create
the programme to achieve our targets.
The position has been designed to work
with our health, safety and environmental
teams as well as other functional leaders
and in line with our sustainability, ESG
and corporate responsibility strategies. A
clear aim is to focus our innovation, which
is at the heart of what we do, to build a
sustainable business for the future, and
embed sustainability as a thread through
our whole business.
Greenhouse gas emissions
We recognise the responsibility that
we have to play an important role in
mitigating the most disruptive effects
of climate change on vulnerable
populations, by eliminating our net
greenhouse gas emissions across our
value chain in line with the goals of the
Paris Agreement. That’s why, in 2021,
we joined the United Nations Race to
Zero campaign – committing to reduce
absolute value chain emissions in line
with a trajectory compatible with a 1.5
degree warming scenario, and reaching
Net Zero before 2050.
We have committed, through the
Science Based Targets initiative (SBTi),
to setting science-based greenhouse
gas reduction targets. These will update
our existing target to reduce by 50% our
Scope 1 and 2 emissions (normalised for
revenue) by 2025 from a 2015 baseline,
and will incorporate Scope 3 emissions
for the first time. Our plan to achieve
these ambitious targets is prioritised
based on the materiality of our Scope
1, 2 and 3 emission categories, and the
important principle of focusing initially
on our own operations before expanding
progressively to encompass the
embedded carbon emissions elsewhere
in our value chain.
Our Planet, Our Home
We are gathering momentum towards a sustainable future, committing to
Net Zero across our value chain in line with a pathway that limits global
warming to 1.5 degrees Celsius and setting science-based targets to make
further meaningful reductions in our environmental impact in this decade.
Our approach
Our overall approach to meeting
our environmental commitments
was agreed in 2021 and is
summarised by the following
six points:
Set out a roadmap to reduce
materially our Scope 1 emissions
by progressively replacing Natural
Gas fired processes with low-
carbon alternatives.
Launch a project to reduce the
effect of the combustion of
effluent gas from our carbon
brake manufacturing process.
Increase our use of renewable
energy through a blend of on-site
renewable electricity generation,
and market-based mechanisms
such as 100% renewable contracts,
Power Purchase Agreements (PPAs)
and Renewable Energy Certificates.
Increase our energy efficiency
by putting in place measures to
improve consumption visibility
and management.
Better understand the carbon
emissions “embedded” in the
goods and services we purchase,
and work with our suppliers to set
and implement near-term science-
based reduction targets.
Progressively embed environmental
considerations into all our
business decisions, for example
through the use of an internal
“shadow“ carbon price.
Meggitt PLC Annual Report and Accounts 2021
79
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Corporate Responsibility
continued
Performance
Overall, our electricity and natural
gas consumption fell by 8% and 15%
respectively (0% and 7% normalised
for revenue), reflecting primarily the
continued impact of the COVID-19
pandemic on our operations and the
consequent re-sizing of the business
since Q2 2020, and also continuing
energy efficiency programmes.
Scope 1 and Scope 2 emissions also fell
in absolute terms, driven, in addition
to continued lower levels of activity, by
the continued reduction in the carbon
intensity of the electricity grids in the
countries in which we operate. Our
growing on-site generation capacity also
contributed to gross Scope 2 reductions
– for example our solar roof at Ansty Park
generated 2GWh of renewable electricity
over the course of 2021, supplying 26%
of the site’s need over the course of the
year, and saving 440 tonnes of CO2e.
Our site in Rockmart, US, completed a
major project in 2021 to replace two of
their large older boilers with five smaller
batch boilers which reduces natural gas
consumption when demands for steam
are low.
Our continued footprint consolidation
strategy has led to a smaller number of
larger more efficient sites. This activity has
also contributed to the reduction in our
GHG emissions.
For the first time, we report our Scope
2 emissions with both location-based
and market-based methodologies,
incorporating our long-standing contracts
for renewable energy in Switzerland
and Denmark, and the 100% renewable
contract in the UK which was introduced
in 2020. In the US we purchased
Renewable Energy Certificates (RECs)
equivalent to the non-renewable portion
of our consumption in Kentucky and
California, and have joined a community-
based solar PV project in the vicinity of
our Danville, Kentucky, facility. These
measures lead to a reduction of 50% in
our market-based Scope 2 emissions
when compared to the location-
based figure:
We are on track to meet our existing
GHG reduction target, of a 50% reduction
in Scope 1 and 2 emissions, normalised
for revenue, between 2015 and 2025.
The reduction to 2021 is 54% which is
already over the target threshold, albeit
driven in part by a reduction in volume
which will in some part reverse as the
world emerges from the pandemic. We
will replace this objective by 2023 with a
science-based target, in line with the 1.5
degree pathway, in order to continue our
GHG reduction trajectory through to 2030
and beyond.
With regard to our Scope 3 emissions,
we undertook a screening exercise
in 2021 to identify our most material
categories for more accurate baselining,
and incorporation into our science-
based targets. Our upstream supply
chain emissions will continue to be a
particular focus, and we have launched
projects to define and set near-term
science-based targets covering this
category, determining a meaningful and
actionable baseline, and set a strategy to
engage with suppliers and set a reduction
trajectory. We continue to work towards
making our initial Scope 3 emissions
disclosures for 2022.
Material use, waste
and recycling
In 2021 we renewed our focus on the
materials and consumables we utilise
over the lifecycle of our products.
Our target of reducing total waste to
landfill by 10% from 2016 levels expired
at the end of 2021. Although we did see
an improvement from 37% in 2016 to 32%
in 2021, we did not achieve the overall
target set.
We remain committed to eliminating
waste to landfill where technically
feasible, and learning the lessons
from previous initiatives. During 2022
a new target will be set renewing our
waste management targets based on
reviewing our waste streams in more
detail, in line with a hierarchical plan to
improve efficiency of material use across
our operations:
• Improve the waste management of our
existing waste streams – increasing the
recycling rate and setting site targets;
• Review how waste is generated
in our manufacturing operations
and look to reduce at source – e.g.
through use of re-usable packaging,
advanced machining and additive layer
manufacturing;
• Incorporate material re-usability into
our design processes, preserving the
value of the materials we use as far as
possible for re-use after de-commission
and disposal; and
• Maximise lifecycle utilisation of our
parts through our Services & Support
division – for example through “smart
scoping” in our Maintenance Repair
and Overhaul (MRO) processes to
extend the life of our parts and reduce
the need for replacement.
Meggitt PLC Annual Report and Accounts 2021
80
Some successes realised in 2021
include our Denmark site where the
site team identified an opportunity to
recycle a portion of a production water
waste stream.
Our Troy, US, site worked with their
vendors to identify many waste streams
that could be recycled instead of
landfilled. Our Irvine, US, site conducted
a waste audit involving a number of
site volunteers – to inspect general
waste streams, educate and improve
recycling behaviour.
Water usage
Overall our water usage has increased
by 11% (21% normalised for revenue)
between 2020 and 2021, and has also
increased by 20% since 2016, missing
our target of a 10% reduction between
2016 and 2021. The specific rise in 2021
was partially driven by the transition
to Ansty Park, with similar levels of
consumption seen at the legacy and new
sites as all were operating during the
transition period. This one-time effect is
expected to unwind in 2022; without this
one-off effect, the water consumption
15%
reduction YoY in Scope 1 & 2
emissions (location-based)
37%
reduction YoY in Scope 1 & 2
emissions (market-based)
54%
reduction in Scope 1 & 2 emissions
against 2015 baseline
Waste to landfill has decreased by 35% since 2016/percentage waste to landfill has reduced from 37% to 32%.
Water purchased (l)
per £1m revenue
2021
2020
2019
2018
2017
476
394
401
365
345
Waste to landfill as % total waste
2021
2020
2019
2018
2017
31.9%
34.6%
25.7%
37.7%
34.2%
Waste to landfill (haz vs. non-haz)
2021
2020
2019
2018
2017
152
2,561
522
2,884
303
4,247
250
3,811
305
3,815
Non-hazardous waste to landfill
Hazardous waste to landfill
normalised for revenue would be largely
flat compared to 2020 and compared
to 2016.
Unlike carbon emissions where a tonne
of GHG emitted anywhere has the same
effect, our impact on water supply is
highly dependent on the geographical
context. Learning the lessons from
previous water management targets,
our refreshed approach will concentrate
on regional regulations and reduction
targets in the areas of greatest water
scarcity and issue, to ensure tighter focus
on our areas of greatest impact.
Scope 1 & 2 GHG emissions
(location-based)
2021
2020
2019
2018
2017
26,342
49,066
31,042
57,918
36,724
73,271
36,571
78,055
34,495
79,292
Scope 1 (tonnes CO2e)
Scope 2 (tonnes CO2e)
Scope 1 & 2 GHG emissions
(market-based)
2021
2020
2019
2018
2017
26,342
28,668
31,042
57,918
36,724
73,271
36,571
78,055
34,495
79,292
Scope 1 (tonnes CO2e)
Scope 2 (tonnes CO2e)
Meggitt PLC Annual Report and Accounts 2021
81
Strategic Report
Strategic Report
Corporate Responsibility
continued
Environmental metrics1 (Table 1)
2021
Change
2020
Utilities
Purchased electricity – gWh
156
-8%
170
MWh per £m revenue
105
4%
101
Purchased natural gas – gWh
135
-15%
158
MWh per £m revenue
90
-4%
94
Greenhouse gas emissions (CO2e) (Scope 1 and 2, location-based reporting) – tonnes
75,408
-15%
88,9593
Tonnes per £m revenue
50.6
-4%
52.83
Greenhouse gas emissions (CO2e) (Scope 1 and 2, market-based reporting2) – tonnes
55,010
-38%
88,9593
Tonnes per £m revenue
36.9
-33%
52.83
Waste – tonnes
8,503
-14%
9,852
Tonnes per £m revenue
5.7
-2%
5.9
Water – cubic metres
708,786
11%
637,546
Cubic metres per £m revenue
476
26%
379
Targets (Table 2)
Baseline year
Five year performance
period (financial years)
Target improvement over
performance period
Achieved
as at 31.12.2021
GHG emissions1,2 –
relative to revenue
2015
To 31 December 2025
-50%
-54%
Water consumption –
relative to revenue
2016
To 31 December 2021
-10%
+20%
Waste to landfill – as a %
of total waste
2016
To 31 December 2021
-10%
-5.4%
GHG emissions data4 (Table 3)
2021 Tonnes of CO2e
2020 Tonnes of CO2e
Scope 1 – Combustion of fuel and operation of facilities
26,342
31,0423
Scope 22 (market-based) – Electricity, heat, steam and cooling purchased for own use
28,668
57,9173
Scope 2 (location-based) – Electricity, heat, steam and cooling purchased for own use
49,066
57,9173
Total Scope 1 & Scope 2 (market-based) emissions
55,010
88,9593
Intensity measurement:
Total Scope 1 and Scope 2 (market-based) emissions reported above, normalised to tonnes
per £m revenue
36.9
52.8
Proportion of emissions and energy usage for UK and offshore area sites (Table 4)
UK and offshore areas
UK % of Group total
Electricity purchased (gWh)
37.3
24
Natural gas purchased (gWh)
44.4
33
Scope 1 and 2 (location-based) greenhouse gas emissions (CO2e, tonnes)
16,104
21
Proportion of Renewable Energy generated and purchased (Table 5)
2021
Total electricity consumed by all sites (gWh)
157
Renewable energy generated on-site (gWh)
2
Renewable energy purchased (gWh)
77
Percentage electricity from renewable sources
50%
1 Location-based Greenhouse gas emissions (GHG) are calculated using location-based conversion factors published in the 2020 and 2021 Guidelines to BEIS GHG Conversion Factors for
Company Reporting for UK locations. Emissions from overseas electricity are calculated using location-based conversion factors published in the IEA Emission factors 2021. Reported as per
requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008; Scope 1 emissions are conservatively calculated with total consumption of
natural gas, assuming all combusted – however, a proportion of carbon is captured in solid form within carbon brake discs.
2 Market-based Scope 2 emissions incorporate market-based reporting, taking into account 100% renewable energy contracts in the UK, Switzerland, Denmark, and the purchase of Renewable
Energy Certificates in California and Kentucky, US.
3 2020 Scope 1 emissions re-stated to include the consumption of propane gas in carbon brake manufacturing facilities. For clarity, propane gas is included in 2021 data.
4 Table 3 shows the GHG emissions data required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008; The companies for which the GHG data
is reported here are the same as those consolidated in the Group’s financial statements; Global GHG emissions were calculated using conversion factors published in the Guidelines to BEIS
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 2021.
Meggitt PLC Annual Report and Accounts 2021
82
TECHNOLOGY
Decarbonising how we fly is a
generational challenge that will need
both nearer-term evolutionary
developments and more radical
mid-term changes.
Corporate Responsibility
continued
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83
Strategic Report
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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
Use of sustainable aviation fuels –
new fuels with lower greenhouse
gas emissions
Enabling sustainable
energy production
Enabling renewable
power generation
Enabling zero carbon
power generation
Enabling green hydrogen
production and/or operation
Reducing emissions through
improved gas turbine combustion
efficiency and/or turbine
performance optimisation
We believe that technology has a critical
role in making air travel sustainable and
in transitioning energy systems away
from fossil fuels. We have committed
to spend at least two-thirds of our
investment in innovation in sustainable
technologies annually. In 2021 actual
investment was at 81% and we have
also committed to reducing the
greenhouse gas emissions from our own
operations. In 2021 we made a net zero
commitment that includes developing
manufacturing technologies that improve
the environmental impact of our own
production processes.
Aerospace
Decarbonising how we fly is a generational
challenge that will need both nearer-term
evolutionary developments and radical
mid-term changes.
In the near term we continue to see
opportunities in improving the efficiencies
of engines and reducing the weight and
drag of airframes. The current generation
of aircraft are already ~15% more efficient
than those that they are replacing and
replacement of the older aircraft, due
to fuel prices and the consequences of
the COVID-19 pandemic, continues to
accelerate. Meggitt already has a strong
position on the majority of the modern
and fuel-efficient aircraft and engine
programmes and, as they are further
developed, our intent is to continue
partnering with our customers to maintain
and grow our position.
In the next few years we expect that
increasing quantities of sustainable
aviation fuel (SAF) will be required in
jet-fuel. SAF will initially be produced
from biomass and municipal waste and,
in time, to transition to power-to-liquid
fuels formed from green hydrogen and
captured carbon. The speed at which
SAF production can be brought on-
stream and production costs reduced will
be critical to the long-term sustainable
growth of the aviation sector.
Innovating for a sustainable future
As communities, governments and markets around the world increasingly face the
need to decarbonise how we live, work and travel, Meggitt is committed to developing
technologies that will support the world’s net zero journey.
Meggitt PLC Annual Report and Accounts 2021
84
Innovation investment in sustainable technologies
Meggitt Technologies
Lighter, more
efficient aircraft
Next generation
engines
Sustainable aviation
fuels (e-fuels, hydrogen)
Thermal systems
Safety systems
Fuel systems
Optical sensing
Engine composites
Braking systems
High temperature systems
Electrical systems
Additive/digital manufacturing
Hydrogen-fuelled aircraft are being
explored in the industry and many of
the challenges are around the thermal
systems where Meggitt has considerable
capability. However, the challenges of
operating hydrogen fuel systems in an
aircraft are significant and we believe
that hydrogen-fuelled gas turbines may
offer the most viable solution, although
the challenges around cryogenic fuel
storage and the atmospheric impact
of the water emissions from the aircraft
still need to be resolved. Meggitt is
participating in the development of this
technology but we do not anticipate
this emerging technology having a
significant commercial impact in the
coming decade.
Electric propulsion is being
commercialised for a new class of small
aircraft and Meggitt is playing an active
part in these programmes. We anticipate
the first of these new aircraft will enter
into service in the coming year or two
and it will be important to see how the
new airborne mobility sector develops.
However, limitations in battery power
density mean that battery-powered
aircraft will require a further breakthrough
in battery chemistry before they are
viable for longer distance air travel and
we see these new aircraft as developing
a potentially new mode of short-range
transport and not replacing existing types
of aircraft.
The aircraft and engine OEMs continue
to develop the next generation of
aircraft and propulsion systems and
Meggitt is developing technologies
to support these programmes.
Some of these technologies include
additively manufactured thermal system
components, lightweight composite
parts, optical and wireless sensing
solutions, high power density electric
machines and green fire-suppressants.
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Additive Manufacturing ZEROe
Through our partnership with HiETA
Technologies Limited, we have
expanded our Additive Manufacturing
(AM) possibilities.
We use AM to improve the
performance of our heat exchangers.
This manufacturing process enables
us to produce more complex shapes
than ever before, while enhancing the
thermal performance by allowing us to
get more heat transfer surface within a
smaller volume.
Meggitt is contributing to the Airbus
ZEROe demonstrator programme, which
is developing zero emission aircraft. In
support of the programme the Meggitt
Applied Research & Technology team
and the HiETA engineering teams have
successfully designed and manufactured
a world-first additive manufactured heat
exchanger for the Airbus ZEROe ground
test rig in less than four weeks.
The team worked collaboratively
to produce a range of concepts,
incorporating novel heat transfer
surfaces, flow guide vanes and
optimised structural support. The
Airbus Design Review was completed
successfully and the Meggitt team
started the build the same day!
This project is testament to the market
changing dynamics that Additive
Manufacturing offers as it revolutionises
the way that products are conceived,
designed and manufactured. It also
offers an unrivalled benefit to sustainable
aviation in its greatly reduced weight
compared with conventional heat
exchanger technology thus reducing the
overall fuel consumption of an aircraft.
Corporate Responsibility
continued
“Additive Manufacturing is enabling smaller and lighter heat
exchangers than ever before. We are extremely proud to be
able to support Airbus’s ZEROe programme by producing
a one-of-a-kind heat exchanger. Developing technologies to
support sustainable aviation is at the heart of our AR&T strategy.
Additive Manufacturing is just one of the tools enabling future
generations of aircraft such as the ZEROe programme.”
1st
climate neutral zero
emission aircraft
4 weeks
from design and manufacture
to test rig
Meggitt PLC Annual Report and Accounts 2021
86
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 accordance with the law
and governance, ethics, diversity and the
environment. At Meggitt, we commit to
conducting business fairly, impartially,
and to complying 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.
After updating our Code of Conduct in
2020, Meggitt followed this with updates
to the Financial Crime Policy as well as
updating and consolidating the Anti-
Corruption and Ethical Business Conduct
policies. Our policies complement our value
of Integrity and accompany our standards
on conducting business fairly and ethically
under the remit of corporate compliance.
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. In 2021
additional work has been conducted with
the service provider to compile greater
data analysis of calls enabling us to better
identify trends and training requirements.
Contact information for 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 continues to
have daily oversight through the Ethics
Management Committee, which reviews
cases to ensure consistent application
of the process and investigation quality.
The Committee reviewed trend analysis
data to ensure additional training
and coaching was being rolled out in
the required areas. The results of the
Committee’s findings were also reported
to the CR Committee and a process of
debriefing participants in larger cases
was included in 2021. Alongside this,
new training was rolled out in 2021 for
ethics investigators to ensure a consistent
approach. A total of 48 employees were
trained on this process during 2021.
The investigation 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 on 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
was the main area for calls received on
our Speak Up Line in 2021). Each Meggitt
site has a designated Ethics Champion
who is available to assist employees with
questions or concerns, and who also
attends virtual sessions 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.
Compliance training
In addition to the updated Ethical Business
Conduct Policy and Code of Conduct, we
continued to promote our ethical business
conduct through training issued to all
employees, targeted training delivered
at specific sites, video messaging to all
employees and briefings delivered to our
site-based Ethics Champions. 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 2021, we provided training
to all employees on data privacy, health
and safety, our Code of Conduct, physical
security and anti-harassment.
Anti-bribery and corruption
Our Anti-Corruption Policy, which has now
been updated and consolidated with our
Ethical Business Conduct 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, know your counterparty,
as well as breaches of the Ethical Business
Conduct 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 as well
as employee responsibilities.
Meggitt continued to treat our approach
to commercial intermediaries as
extremely important. During 2021 this
remit was broadened to review all types
of counterparties within our business
dealings and now is captured in a “know
your counterparty” process across the
business. 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, which is independently audited.
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.
Corporate compliance
and business conduct
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Corporate Responsibility
continued
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. We ask
our suppliers to comply with our Code
of Conduct or similar standards. Steps
that we are taking to combat modern
slavery and human trafficking in our
supply chain are set out in our Modern
Slavery Statement available on our
website. Meggitt 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,
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. In addition, during 2021
Meggitt combined modern slavery efforts
with the requirements of US legislation on
the Combatting of Trafficking in Persons
which has led to a rollout of employee
and Company obligations, responsibilities
and renewed ways of working. 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
under Section 414C of the Companies
Act 2006. Our business model on page
16 summarises the key resources and
relationships we leverage to generate
and preserve value. Non-financial key
performance indicators on page 26
onwards, 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.
Related Group policies
Related principal risks
(pages 50 to 54)
Environmental matters pages 78 to 82
Environmental Policy
Industry Change
Climate Change
Business Interruption
Employees pages 72 to 77
Diversity & Inclusion Policy
Health & Safety Policy
People
Social matters pages 72 to 77
Group Sponsorship and
Charitable Giving Policy
Business Interruption
Industry Change
Human rights pages 87 to 88
Corporate Responsibility
and Sustainability Policy
People
Supply Chain
Anti-bribery and corruption page 87
Ethical Business Conduct and
Anti-Bribery & Corruption Policy
Legal & Compliance
Meggitt PLC Annual Report and Accounts 2021
88
Section 172 statement
In accordance with Section 172 of the
Companies Act 2006, our 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, future
prospects, and environmental and
wider stakeholder impacts.
• A formalised procedure which
highlights the impact of important
decisions on key stakeholders to assist
the assessment of Section 172 impacts.
This formalised approach embeds the
consideration of stakeholder interests
during the decision-making process.
• 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 105 the day-to-
day management of the business is
delegated to the executive management
team. The principles underpinning
Section 172 of the Companies Act are
not only considered at Board level
but are an integral part of our Group’s
culture. Our Corporate Responsibility and
Sustainability Policy requires our 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. Through this
Policy we ensure that the business is run
with regard to our stakeholders.
Our comprehensive ethics programme,
which includes an independently run
whistleblowing hotline, promotes high
standards of business conduct across the
Group. The programme 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, [6,315] of our current employees
have attended High Performance
Culture “unfreezing” sessions including
the Board who participated in sessions
in 2019.
Our Group Environmental Policy sets
out our commitment to incorporate
environmental considerations in all
aspects of our business. See page 79
for further details.
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 decision-
making level of the business we ensure
that key decisions taken promote
the long-term sustainable success of
the Group.
Engagement and decision-making
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.
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Stakeholder
How we engage at
Board level
Further engagement
activities
What matters
to them
Governance
in action
Workforce
Building a safe,
healthy and
happy work
environment
helps our
workforce reach
their full potential
and strengthens
our business.
Nancy Gioia, Chair of the
Corporate Responsibility
Committee and the Non-
Executive Director responsible
for employee engagement,
led a programme of employee
engagement activities
throughout the year. This
included the independent
Non-Executive Directors
mentoring a member of the
senior management team
and remotely participating in
various employee engagement
activities. Further details of
our employee engagement
programme during 2021 can be
found on page 92.
Early in 2021, our Chief
Executive conducted over 50
remote Town Halls with teams
across the globe, representing
a cross section of employees
from all levels of the business,
to obtain a direct pulse from
employees on key matters that
interest them. Themes from
these Town Halls 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 key
information and achieve
a common awareness of
the financial and economic
factors affecting the Group’s
performance.
Members of senior
management participate
in Board and Committee
meetings.
An independently run
whistleblowing hotline is in
place with regular reports to
the Corporate Responsibility
Committee and the Board.
Interests relate to:
• Personal development,
progression opportunities
and pay reviews/rises.
• Retention of key talent.
• Employee wellbeing and
mental health.
• Clarity on future flexible
working arrangements.
• The impact of the proposed
acquisition by Parker-
Hannifin on the workforce.
• The future of flying/civil
aerospace especially bearing
in mind the impacts of
climate change.
• The future of defence
spending.
To sustain morale and retention
and respond to feedback from
our workforce we:
• Issued a global (but locally
variable %) pay rise in
October 2021.
• Committed to return to the
normal pay review process in
April 2022.
• Released a policy statement
and global guidelines on
flexible working.
• Released a new mental
health and wellbeing policy.
• Continued to update our
workforce on factors
affecting our business via
intranet updates and
leadership blogs.
• Communicated with
employees on the proposed
acquisition by Parker-
Hannifin, with
communications linked to
major milestones owing to
regulatory restrictions on
what we can say.
Shareholders
Securing our
shareholders’
trust through
continuous
engagement
ensures their
ongoing
investment and
support.
The Chief Executive and Chief
Financial Officer, together with
our VP Investor Relations meet
regularly with key shareholders
and report back to the Board.
The Chairman met with some
of our key shareholders during
the year on matters related to
governance.
In early 2021, the Chair of the
Remuneration Committee
continued engagement with
our major shareholders, and
proxy advisors, to discuss
and seek feedback on
remuneration proposals which
cumulated in the approval of
the Remuneration Policy at the
2021 Annual General Meeting.
The Chair of the Audit
Committee will seek
engagement with shareholders
on significant matters related
to the Committee’s area
of responsibility as and
when applicable.
The Company Secretary
and VP Investor Relations
engaged with our major
shareholders and proxy
advisors ahead of and after
the Annual General Meeting
to answer questions on the
resolutions and report key
themes back to the Board.
Last year’s Annual General
Meeting was held as a hybrid
meeting to facilitate greater
shareholder engagement
and participation by allowing
shareholders to attend, speak
and vote at the meeting
virtually.
The General Meeting
and Court Meeting for
shareholders to approve the
offer from Parker-Hannifin
were also held as hybrid
meetings to maximise
shareholder participation
and engagement.
Interests relate to:
• Strategy and performance,
financial returns and
dividends.
• Availability of our Non-
Executive Directors to
discharge their duties
effectively.
• Gender and ethnic
diversity at Board and
senior management level.
• How effectively the
Company is managing risks
and pursuing opportunities
including in relation to
climate change.
• Directors’ remuneration.
• The Directors’ authority to
allot shares in the Company.
Our dividend decision-making
process balances the desire
of shareholders for immediate
returns, against the need to
maintain a robust balance
sheet and manage cash flow.
It is in this context, and the
subsequent offer from Parker-
Hannifin, that the Board did not
make or propose a dividend
in 2021.
We maintain robust processes to
monitor the time-commitments
of our Non-Executive Directors
and conduct annual evaluations
to ensure that they continue to
be effective and discharge their
duties properly. More information
is available on page 110.
We are mindful of the
increasing interest in climate
change and have focused on
improving our disclosures on
this topic so that shareholders
are better informed on how
we manage risk and pursue
opportunities in this area.
Further details can be found
on pages 58 to 63.
At the 2021 Annual General
Meeting we received more
than 20% of votes against
the resolutions to approve
the Remuneration Policy and
to authorise the Directors to
allot shares in the Company.
Further details can be found
on page 113.
Stakeholder engagement
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90
Stakeholder
How we engage at
Board level
Further engagement
activities
What matters
to them
Governance
in action
Customers
Understanding
our customers’
priorities is
imperative to
meeting their
needs.
Continuous engagement by our
CEO and divisional presidents
and product group teams
to discuss performance and
technologies.
The Board receives regular
reports on customers,
customer-related key
performance indicators,
and ongoing actions to
improve performance.
The Group’s Services &
Support division is entirely
focused on civil and defence
aerospace aftermarket
customer service. The
Board receives regular
updates on the division’s
progress from the CEO and
an annual update from the
divisional president.
Customers are invited for
site visits and to speak at
leadership conferences
to strengthen our
collaborative relationships.
Interests relate to:
• Product value and quality.
• On time delivery.
• Excellent customer service
and support.
• Innovative and sustainable
technologies.
• Strong, collaborative
relationships.
• Sustainability.
• Ethical conduct and
behaviour with increased
focus on human trafficking
and modern slavery.
The Meggitt High Performance
System (HPS) provides
continuous improvement to our
manufacturing processes for
the benefit of our customers.
HPS measures are included
in the Long Term Incentive
Plan and progress with HPS is
discussed by the Board and
Remuneration Committee.
We hold monthly leadership
meetings with a consistent
focus on our customers and
performance. We also meet
with customers to discuss
technology road maps.
We share our customers’
commitment to sustainability
and have signed up to the
United Nations’ Race to Zero
campaign. Further details can
be found on page 79.
We are committed to
conducting our business in an
ethical manner. During 2021
we revised and merged our
Ethical Business Conduct and
Anti-Bribery and Corruption
policies and introduced a
new compliance plan to
combat human trafficking and
modern slavery.
We regularly monitor customer
scorecards and ensure
responsiveness to issues via the
Voice of the Customer process.
Suppliers
Strong
relationships
with our supply
base enhance our
effectiveness and
profitability.
The Corporate Responsibility
Committee receives
regular updates 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.
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.
Supplier risk assessments
are undertaken and we
engage with those suppliers
perceived to be higher
risk to seek confirmation
of compliance on certain
matters.
We also conduct site visits of
our suppliers’ facilities.
Interests relate to:
• Being treated fairly during
the sourcing stage.
• Solid two-way
communication channels.
• Timely financial payments.
• Strong, collaborative
relationships.
Our supplier development
process enables suppliers
to feed back comments and
if necessary seek our help
to resolve systemic issues.
Through this process we have
achieved an overall reduction
in total supplier responsible
quality escapes of more
than 10%.
We have taken actions to
improve our Pay on Time
performance with increased
focus on addressing
bottlenecks and using metrics
to identify and address
underlying causes.
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Stakeholder engagement
continued
Stakeholder
How we engage at
Board level
Further engagement
activities
What matters
to them
Governance
in action
Local
communities
Our relationships
with the
communities close
to our sites are
vital; we build
trust through
local dialogue.
The Board approves
the Group’s Corporate
Responsibility and Sustainability
Policy which sets out our
commitment to encourage
employees to help community
organisations and charities,
provide financial or in-kind
resources to organisations and
projects with a community
benefit and support local
schools, colleges and
universities for the benefit of
our communities.
Our approach to local
communities, charities and
implementation of the Group’s
Sponsorship and Charitable
Giving Policy is discussed at
each Corporate Responsibility
Committee meeting.
The Board is kept up to date
with community projects
on a regular basis through
the CEO’s report and
updates from the Corporate
Responsibility Committee.
We monitor the
environmental impact of our
facilities and agree targets on
greenhouse gas emissions,
water and waste.
Our site managers and their
teams engage with their
local communities to provide
support in line with our
Corporate Responsibility and
Sustainability Policy.
We maintain an active
external communications
programme through social
media to communicate
key messages and monitor
comments about the Group.
Regular social media updates
are provided to executive
management.
• Responsiveness to local
concerns.
• Ongoing open dialogue.
• Our impact on the local
environment.
• Local jobs.
• Local contributions (skills or
financial donations).
As part of Earth Day in April
2021, many of our sites across
the globe planted trees at their
facilities, or at a local school
or park as part of our efforts
to promote responsible use of
natural resources and to further
the advancement of sustainable
practices across the Group.
In July 2021 we launched our
Community Heroes scheme
which enables our colleagues
to give their time to worthy
causes. Further details can be
found on page 76.
Implementing site level key
performance indicators and
targets for environmental
measures such as energy and
water consumption and waste
to landfill.
Employee engagement
With the continuation of COVID-19
travel restrictions in 2021 and the impact
of a challenging trading backdrop,
my engagement strategy focused on
delivering to the best extent possible
a rounded view of what is top of mind
of Meggitt employees. Although in
person visits were not possible for the
majority of the year, video chats with
employees, either one-on-one or as a
small group, proved to be very effective.
Additionally, I was pleased that the use
of video enabled the continued and
expanded involvement of my Non-
Executive Director colleagues in the 2021
programme. This enabled us to cover
more ground and broadened board
exposure to direct employee feedback.
Key engagement undertaken in 2021 and
early 2022 include:
• Virtual engagements – supported by
my Non-Executive Director colleagues,
virtual engagements have been
conducted with our sites in Xiamen,
China and Stevenage, UK and with
individuals from different levels of the
following functions: Finance and IT,
Commercial and Corporate Affairs, HR,
Engineering and Operations. I also
conducted virtual engagement with the
ERG leads and HPC facilitators.
• Site visit – with the easing of lockdown
restrictions I was able to visit our
Airframe Systems site in Oregon where
I was able to meet and speak with the
local workforce.
• Ethical engagement – detailed
engagement with the Group
Company Secretary & EVP Ethics
and Communications and the Group
Director, Corporate Compliance,
Ethics & Corporate Responsibility,
in which we were able to discuss
specific ethics cases and themes, and
improvement work being undertaken
on the ethics programme.
• Graduate engagement – Colin Day and
I conducted virtual engagement with a
small group of graduates to get a feel
on the matters of importance to them.
• Mentoring – my Non-Executive
Director colleagues and I held one-
on-one discussions on careers and
personal development with selected
high potential employees.
• Career talks – Alison Goligher attended
a Women in Engineering event hosted
by our STEM/PAVE Employee Resource
Groups to speak about her career
in engineering, and Caroline Silver
attended our leadership conference
to discuss her background in finance
and how it supports her role as a Non-
Executive Director of the Company.
General feedback themes included: the
proposed acquisition by Parker-Hannifin;
the importance of the High Performance
Culture programme and the challenges
in embedding the programme during
the COVID-19 pandemic; the value
employees placed on inclusion activities
undertaken throughout the Group and
what more could be done to support
activities for shopfloor employees in
future; graduate retention; flexibility and
working from home arrangements; the
senior management team communicates
and listens well to employees.
Feedback from these activities was
provided to the Board in February 2022
and will help shape future decisions.
Nancy Gioia
Non-Executive Director responsible for
employee engagement
Meggitt PLC Annual Report and Accounts 2021
92
During the year, the Board and its
Committees made decisions to
strengthen our governance framework,
implement our strategy and generate
the best returns for our shareholders.
The different interests of our stakeholder
groups, and the impact of decisions
upon them, were considered during
the decision-making process. In some
cases, the interests of stakeholder
groups conflicted, and the Board and its
Committees had to assess these conflicts
and attempt to balance them in their
decision-making.
Key
Likely consequences of our
decisions in the long term
The interests of our workforce
The need to foster relationships
with our suppliers, customers
and others
Impact of our operations on the
community and environment
Maintaining a reputation for high
standards of business conduct
The need to act fairly between
our shareholders
Decision – Disposal of
the Airframe Systems
Toulouse business
1 2 3 4 5
Key considerations
• The Toulouse site was not achieving
its financial targets and had not been
prior to the COVID-19 pandemic.
Consideration was given to closing or
selling the site.
• The site’s financial performance had
led to a high level of uncertainty and
anxiety amongst the local workforce,
which was compounded by the
COVID-19 pandemic. The workforce
therefore sought clear direction for the
future of the site.
1
2
3
4
5
6
• Closing the site would make the
entire workforce redundant, with
poor prospects of employment
in other Meggitt sites due to the
physical location and hiring freeze
implemented in response to COVID-19.
The local labour market had also been
significantly impacted by COVID-19
meaning potentially poor prospects
for alternative employment elsewhere.
A site closure would therefore likely
have a significant impact on the local
community. Alternatively, a buyer
would retain a significant portion of
the workforce and Meggitt would offer
enhanced redundancy terms to those
who would not be retained.
• In the case of a site closure, the
manufacturing activity would transfer
to other Meggitt sites, carrying a high
level of risk for customers arising from
the loss of legacy knowledge of the
Toulouse employees. A sale of the
site would mean a smoother transition
for customers but would mean them
accepting a new supplier which would
carry continuity risk given that the
prospective buyers were smaller than
Meggitt and thus more susceptible
to economic pressure resulting from
COVID-19.
• External legal advice was sought to
ensure compliance with applicable
labour laws and maintain our
reputation for high standards of
business conduct.
Stakeholder engagement
• The workforce was informed of the
proposals and was updated regularly
on developments.
• Regular meetings with the employee
work council encouraged a high level
of trust and transparency despite the
highly sensitive nature of the discussions.
• All affected customers had been
informed of the proposal and were
kept engaged by local management
throughout the process.
Outcome
• Significant effort was made in finding
a suitable buyer for the business.
Due diligence was conducted
on all potential buyers to ensure
the business was transferred to a
suitable custodian.
• The business was sold to Domusa,
with final approval of the transaction
delegated to the Board’s Finance
Committee. The sale helped progress
the Group’s footprint consolidation
strategy and enable more efficient
use of shareholder investment to
maximise long-term returns.
• The high level of transparency with
the workforce and clarity as to the
site’s future alleviated workforce
anxiety and allowed those who
would not be retained to plan for
future employment.
• Transparency and engagement with
our customers helped maintain trust
and our reputation for high standards
of business conduct.
• The majority of roles were retained
by Domusa, minimising the number
of redundancies and the overall
impact on the local community.
Enhanced redundancy terms were
offered to those who lost their roles
as a result of the sale, maintaining
Meggitt’s reputation for treating its
workforce fairly.
Decision – Supporting and
recommending to shareholders
Parker-Hannifin’s offer of 800
pence per Meggitt share
1 2 3 4 5 6
Key considerations
• Meggitt had a compelling standalone
strategy which would deliver attractive
value for shareholders over time as
the Group’s key markets recovered
from the impact of COVID-19. At
the same time, there was significant
uncertainty as to the precise
timing and speed of recovery and
Parker-Hannifin’s cash offer would
substantially accelerate delivery of
value to shareholders at a substantial
premium to the then prevailing
market price of Meggitt shares.
Decision-making in practice
Meggitt PLC Annual Report and Accounts 2021
93
Strategic Report
Strategic Report
• The need to generate the best value for
shareholders while ensuring that other
stakeholder interests (including those of
the Group’s key customers) are protected.
• The need to comply with all applicable
laws, regulations and contractual
obligations to maintain our reputation
for high standards of business conduct.
• The need to incentivise and retain key
members of staff, especially those at
greater risk of being made redundant
or who would play key roles in
the transaction.
• The combination of Meggitt and Parker-
Hannifin may give rise to operational
economies of scale which could result in
headcount reductions or the relocation of
Meggitt employees, particularly those in
central corporate functions.
• Parker-Hannifin’s highly regarded
reputation and acquisition experience
suggested that the Meggitt businesses
would continue to thrive within the
Parker-Hannifin Group.
• Parker-Hannifin’s enhanced access
to capital would enable it to invest in
Meggitt’s long-term programmes and
benefit from the sharing of technology.
The integration of the businesses
would likely benefit our customers by
creating scale and an ability to take
on more technical and commercial risk
in developing products and systems
especially relating to sustainable
technologies required for the future.
• Parker-Hannifin could leverage its
enhanced scale to negotiate more
favourable terms with suppliers
and customers.
• The importance of Meggitt’s rich UK
heritage and its customer relationship
with the UK Government, and the need
to secure binding commitments to
protect its interests.
• Parker-Hannifin’s reputation for
supporting its local communities and its
generous charitable giving campaigns
meant that Meggitt’s local communities
would likely be well supported
following the proposed acquisition.
• Parker-Hannifin’s commitment
to mitigating its impact on the
environment and implementing
creative solutions to reduce their
energy consumption and emissions
complemented Meggitt’s sustainable
aviation strategy. The scale of the
combined business would enable it to
take on greater risk and develop more
sustainable products at a faster pace.
Stakeholder engagement
• Meggitt provided Parker-Hannifin
with due diligence information and
held extensive discussions to secure
commitments to Meggitt’s business,
employees, pension schemes and the
UK Government.
• Meggitt undertook due diligence on
Parker-Hannifin to ensure that it would
be a good long-term owner of the
Group’s business.
• Meggitt continues to engage
extensively with advisors and relevant
regulators to obtain all required
approvals and ensure that all
applicable laws and regulations are
complied with.
• Meggitt held a hybrid Court and
General meeting to approve the
transaction. The hybrid nature of
the meetings facilitated greater
shareholder participation and
engagement by allowing shareholders
to attend, ask questions and vote at the
meeting either in person or virtually.
• Meggitt engaged on a constructive
basis with TransDigm and its advisors
in order to facilitate an offer by
TransDigm following its expression
of interest at 900 pence per share.
Meggitt provided TransDigm and
Parker-Hannifin with equivalent access
to both due diligence information and
management and in response to a
request from TransDigm, further due
diligence information was provided to
both TransDigm and Parker-Hannifin
after the announcement of Parker
Hannifin’s cash offer.
• Communications were issued
after the announcement of Parker-
-Hannifin’s cash offer to inform Group
employees, the trustees of Meggitt’s
pension schemes and Meggitt’s
shareholders and share option holders.
Further communications were sent
to participants in the Group’s share
incentive schemes to explain how the
proposed acquisition would impact
them and the steps they would need
to take, if any, to realise value from
their entitlements.
Outcome
• Shareholders approved the 800 pence
cash offer from Parker-Hannifin on
21 September 2021. The proposed
acquisition is currently subject to
various regulatory approvals and is
expected to complete in Q3 2022.
• Where possible, the new combined
Group will seek to reallocate staff
from discontinued roles arising from
the transaction to other appropriate
roles. Furthermore, Parker-Hannifin
has provided binding commitments to
the effect that assuming an ordinary
course of business environment, it
will maintain Meggitt’s existing R&D,
product engineering, and direct
manufacturing labour headcount in
the UK at no less than current levels
and will increase by at least 10% the
number of overall apprenticeship
opportunities currently offered by
Meggitt in the UK.
• Parker-Hannifin has also held
constructive discussions with the
trustee of the UK Meggitt Pension Plan
and has entered into a memorandum
of understanding to set out its intention
with respect to the future funding of
the Plan.
• Tailored incentive and retention
mechanisms have been deployed to
those in critical roles to ensure that
they do not leave the business before
the deal is completed and to maintain
talent in the business until a proper
evaluation can be undertaken by
Parker-Hannifin.
• Parker-Hannifin announced its intention
to safeguard the existing employment
rights of the management and
employees of the Combined Group
in accordance with applicable law and
confirmed that it does not envisage any
material change in their conditions of
employment.
Strategic Report
This Strategic Report comprising pages
08 to 94 has been approved by the Board
and is signed on its behalf by.
Tony Wood
Chief Executive Officer
Stakeholder engagement
continued
Meggitt PLC Annual Report and Accounts 2021
94
Meggitt PLC Annual Report and Accounts 2021
95
Strategic Report
DIRECTORS’
REPORT
Chairman’s introduction to Governance
98
Board of Directors
100
Corporate Governance
104
Audit Committee report
114
Nominations Committee report
122
Directors’ remuneration report
126
Other statutory information
156
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
96
Meggitt PLC Annual Report and Accounts 2021
97
Directors’ Report
Directors’ Report
Chairman’s introduction
We uphold the highest standards of corporate governance and
business conduct that underpin successful and sustainable long-
term businesses. We remain accountable to our shareholders, whilst
recognising the value of strong relationships with our workforce
and wider stakeholders built on a culture of openness and trust.
Governance highlights in 2021
• Ongoing oversight of the business
response to COVID-19.
• Leading the strategy and response
in respect of Parker-Hannifin’s and
TransDigm’s interest in Meggitt.
• Setting the Group’s strategy and plan.
• Additional Remuneration Committee
meetings to consider the impact of
the all-cash offer from Parker-Hannifin
on the Group’s outstanding share
schemes and incentives to mitigate the
increased retention risk arising from
the offer.
• We maintained a robust schedule of
employee engagement activities to
better understand and address key
issues raised by employees including
the impact of the all-cash offer from
Parker-Hannifin on the workforce.
More details on employee engagement
activities can be found on page 92.
• The appointment of Alison Goligher
as Senior Independent Director from
the date of the 2021 Annual General
Meeting and a review of Guy Berruyer’s
independence following the conclusion
of his third three-year term.
2021 Board attendance
Sir Nigel Rudd1
Chairman
Mr A Wood2
Chief Executive
Mr G S Berruyer
Non-Executive
Director
Mrs L S Burdett2
Chief Financial
Officer
Mr C R Day2
Non-Executive
Director
Mrs N L Gioia
Non-Executive
Director
Ms A J P Goligher
Non-Executive
Director
Mr G C Hachey2
Non-Executive
Director
Mrs C L Silver2
Non-Executive
Director
7 Scheduled meetings
18 Additional meetings
Meetings attended
Non-attendance
1 Met the independence criteria on appointment as
Chairman on 23 April 2015.
2 Unable to attend additional meetings due to prior
commitments. Many additional meetings were
convened at short notice, where possible the
Chairman sought the views of Directors not able to
attend in advance of the meetings and fed these
back to the Board.
Meggitt PLC Annual Report and Accounts 2021
98
Dear Shareholder,
On behalf of the Board I am pleased
to present the Corporate governance
report for the year ended 31 December
2021. This report describes Meggitt’s
governance structures and procedures,
and summarises the work of the Board
and its Committees to illustrate how
we have discharged our responsibilities
this year.
The COVID-19 pandemic continued to
impact the way we worked throughout
the year with meetings conducted
remotely to accommodate attendance
during various lockdowns and periods of
travel restrictions, although I am pleased
that I and other Board members were
physically able to attend some meetings
during the year.
In addition to seven scheduled Board
meetings, we held 18 additional Board
meetings in 2021 to support and
guide senior management and give
due consideration to the all-cash offer
from Parker-Hannifin and TransDigm’s
expressed interest in the Group.
I am proud of the Board’s dynamic and
agile response to these events and I
thank my Board colleagues for their
flexibility and outstanding support
throughout the year, particularly as some
of the additional meetings were called at
short notice and at unsociable hours.
Board composition
Continuity of leadership has been a
key focus during the pandemic and will
continue to be so up to the anticipated
completion date of the proposed
acquisition by Parker-Hannifin. I believe
that the Board has the right balance
of skills and expertise to successfully
guide the Company through continued
challenges presented by COVID-19 and
the proposed acquisition by Parker-
Hannifin, and that changes to the Board
composition during the year would have
detracted from these critical focus areas.
Whilst regrettable that we were not able
to strengthen the diversity of our Board
during the year, I believe that our focus
on continuity has enabled the Group to
respond well to the challenges of the
pandemic and the all-cash offer from
Parker-Hannifin. Further details on the
Board’s skills and experience can be
found on page 123.
Purpose, values and culture
Our culture is important to us, it’s what
makes us who we are. We monitor our
culture to ensure that it remains aligned
with our purpose and values. Details of
how we monitor culture can be found on
page 107.
In addition to the financial terms of
Parker-Hannifin’s all-cash offer, we
carefully considered Parker-Hannifin’s
values, culture, plans for Meggitt’s
business and the impact of the proposed
acquisition on our key stakeholders.
Further details on the process the Board
followed and the matters it considered
when considering the Parker-Hannifin
offer can be found in the case study on
pages 93 and 94.
UK Corporate Governance
Code
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 24 and 25.
Sir Nigel Rudd
Chairman of the Board of Directors
2 March 2022
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.
Page100
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.
Page104
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.
Page114
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.
Page122
Directors’ remuneration report
Introduced by its Chair, Alison Goligher,
this report summarises the Committee’s
approach to remuneration and its link
with our strategy.
Page126
Other statutory information
This section sets out other information
we are required to disclose in
accordance with Section 415
of the Companies Act 2006.
Page156
Meggitt PLC Annual Report and Accounts 2021
99
Directors’ Report
Board of Directors
Sir Nigel Rudd DL
Non-Executive Chairman
Appointed: 2015
Nationality: British
Whilst Sir Nigel had confirmed his intention
to retire from the Board in 2019, which was
subsequently delayed owing to the significant
impact of COVID-19 on the Group, the Board
believes that there is significant benefit in
continuity of leadership as the proposed
acquisition by Parker-Hannifin progresses.
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 leading 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 business acumen
and strong shareholder focus are extremely
valuable to the Board and have played a key
role during the acquisition process.
Current appointments
Non-Executive Chairman of Sappi Limited.
Appointments in unlisted companies
Director of iPulse Limited and iPulse
Direct Limited.
Previous appointments
Chairman of Signature Aviation plc and
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
N
Tony Wood
Chief Executive
Appointed: 2016 (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 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.
His experience of leading cultural change in
previous roles has brought the Group’s culture
into focus and created a cooperative and
collaborative workforce to execute the Group’s
strategic objectives.
Current appointments
Non-Executive Director of National Grid plc
and member of the People & Governance and
Safety & Sustainability Committees.
Organisations
Director of ADS, the UK trade organisation
representing the aerospace, defence, security
and space sectors. Fellow of the Royal
Aeronautical Society and Association for
Project Management (APM).
Committee membership
C F D
Committee membership
A Audit
N Nominations
R Remuneration
C Corporate Responsibility
F Finance
D Disclosure
Denotes Chairman
Directors’ Report
Providing expert
skills and experience
to create and deliver
sustainable value
and promote the
long-term success
of the Group.
Meggitt PLC Annual Report and Accounts 2021
100
Guy Berruyer
Non-Executive Director
Appointed: 2012
Nationality: French
Guy reached the conclusion of his nine-year
term in October 2021. The Board reviewed
this position in 2021, and considered that it
was important both to ensure continuity on
the Board and to secure continued input from
a valued Board member, during a period of
ongoing uncertainty as a result of COVID-19
and the proposed acquisition by Parker-
Hannifin. The Board is satisfied that Guy
continues to be independent and proposes his
re-election as an independent Non-Executive
Director.
Skills and experience
Trained as an electrical engineer at the École
Polytechnique Fédérale de Lausanne and
holds a Harvard Business School MBA. Guy has
extensive international leadership experience
and as former Chief Executive of a FTSE 100
plc, he brings significant insight, challenge and
expertise to Board and Committee discussions.
Appointments in unlisted companies
Non-Executive Director of Civica Group.
Chairman of the Supervisory Committee of
DL Software.
Previous appointments
Group Chief Executive of The Sage Group
plc and Chief Executive of Sage Group plc’s
Europe and Asia division. Early career spent
with software and hardware vendors in French
and other European management roles.
Non-Executive Chairman of Brandwatch, a
digital consumer intelligence company. Non-
Executive Director of Berger Levrault, a French
software and services company.
Committee membership
A N R C
Louisa Burdett
Chief Financial Officer
Appointed: 2019
Nationality: British
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. This has been
key as the Group took decisive action to deal
with the effects of the COVID-19 pandemic
and in discussions regarding the proposed
acquisition by Parker-Hannifin.
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. 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
C F D
Colin Day
Non-Executive Director
Appointed: 2015
Nationality: British
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 auditors and
internal audit.
Colin 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 and Chairman of the
Audit Committee of Euromoney Institutional
Investor PLC.
Appointments in unlisted companies
Non-Executive Director and Chairman of the
Audit and Risk Assurance Committee of the UK
Government’s Department for Environment,
Food & Rural Affairs (DEFRA). Non-Executive
Director of FM Global Inc. and FM Insurance
Europe S.A. Non-Executive Chairman of
MK:U Limited.
Organisations
Independent member and member of
the Finance Committee 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, FM
Global and Senior Independent Director of
Amec Foster Wheeler plc.
Committee membership
A N R
Meggitt PLC Annual Report and Accounts 2021
101
Directors’ Report
Gender Diversity
Female
44%
Male
56%
Independence
Independent1
67%
Non-Independent
33%
1 Excluding the Chairman.
Board of Directors – Non-Executive
continued
Nancy Gioia
Non-Executive Director
Appointed: 2017
Nationality: American
Skills and experience
Electrical engineer who has held senior
engineering and operational roles and has
a strong background in manufacturing.
Nancy’s background in the fast-paced
automotive manufacturing area brings
important perspective to Board discussions
about strategic initiatives. Her prior roles mean
that she brings an understanding of the value
of culture and diversity and inclusion to her
role as Chair of the Corporate Responsibility
Committee and as the Non-Executive Director
responsible for employee engagement. She
also has a keen interest in cyber security.
Current appointments
Non-Executive Director of Brady Corporation,
Chair of the Management Development and
Compensation Committee and member of
the Technology Committee. Non-Executive
Director of Lucid Group Inc., member of the
Executive Committee, Member of the Board of
Advisors of KPIT Technologies Ltd.
Appointments in unlisted companies
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.
Other responsibilities
Appointed by the Board as the Non-Executive
Director responsible for employee engagement.
Committee membership
A N R C
Alison Goligher OBE
Senior Independent Director
Appointed: 2014
Nationality: British
Skills and experience
Trained engineer and holds a MEng Petroleum
Engineering from Heriot-Watt University.
Alison brings important energy sector
experience and, with her strong operations
focus, makes an excellent contribution to
strategic discussions. During her seven years
on the Board she has built strong relationships
with other non-executives and executive
management and has a detailed knowledge of
the Group which makes her well qualified for
the role of Senior Independent Director which
she assumed in 2021.
Alison has chaired our Remuneration
Committee since 2019 and also chairs
Remuneration Committees on two other
boards, all of which provide her with
excellent experience of overseeing complex
remuneration matters and policy reviews.
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
Part-time Executive Chair of Silixa Ltd,
a provider of distributed fibre optic
monitoring solutions.
Organisations
Member of the Royal Society of Edinburgh, the
Institute of Directors, the Society of Petroleum
Engineers and the Society of Petrophysicists
and Well Log Analysts (SPWLA).
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.
Committee membership
A N R
Committee membership
A Audit
N Nominations
R Remuneration
C Corporate Responsibility
F Finance
D Disclosure
Denotes Chairman
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
102
Non-Executive Director Tenure
0–2 years
14%
3–4 years
29%
5–6 years
29%
7–8 years
14%
9+ years
14%
Executive Director Tenure
0–2 years
0%
3–4 years
50%
5–6 years
50%
7–8 years
0%
9+ years
0%
Guy Hachey
Non-Executive Director
Appointed: 2019
Nationality: Canadian
Skills and experience
Holds an MBA from Concordia University,
a B. Comm. from McGill University and has
over 30 years’ experience in senior roles
across aerospace and automotive industries.
Guy brings significant operational,
commercial and global experience to the
Board. During his career, Guy has played a
vital role in transforming product portfolios
and was recognised at Bombardier Aerospace
for having brought five new derivative aircraft
to market. His invaluable experience and
knowledge with company transformations
introduces a fresh perspective to discussions
at Board and Committee meetings, and his
skill-set aligns well in supporting the Board
achieve its strategic priorities.
Current appointments
Non-Executive Director of Hexcel
Corporation and Chairman of the
Compensation Committee.
Previous appointments
Guy served as President and Chief Operating
Officer of Bombardier Aerospace from May
2008 to July 2014. Prior to joining Bombardier,
he held numerous senior roles with Delphi
Corporation, including President Delphi
Powertrain Systems and President Delphi
Europe, Middle East and Africa. Guy began
his career with General Motors Corporation,
where he held senior operational roles in
Canada and the US.
Committee membership
A N R
Caroline Silver
Non-Executive Director
Appointed: 2019
Nationality: British
Skills and experience
Chartered accountant with significant global
investment banking experience specialising in
financial institutions, financial technology and
market infrastructure, and capital raising.
Caroline brings strong financial, investment and
audit skills to the Group gained from her broad
experience in different industry sectors. As Chair
of a listed company, she also brings experience of
leading international strategies and shareholder
dialogue and introduces a fresh perspective to
discussions at the Board and Committees owing
to her background in financial services.
Current appointments
Non-Executive Chair of consumer products
group PZ Cussons Plc and Chair of the
Nominations Committee. Non-Executive Director
of Intercontinental Exchange, Inc. (ICE) and Chair
of ICE Clear Europe Limited. Member of the
International Advisory Board of Adobe 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. Mentor at JNA
Mentoring Partners.
Organisations
Trustee of the Victoria and Albert Museum and
Chair of the Finance and Investment Committees
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. Previously on the
Board of the London Ambulance Service NHS
Trust and Chair of the Audit & Risk Committee.
Former Senior Independent Director of M&G
PLC and member of the Audit, Remuneration,
Risk and Nominations Committees.
Committee membership
A N R
Meggitt PLC Annual Report and Accounts 2021
103
Directors’ Report
Corporate Governance
Directors’ Report
Management
Committees
Board Committees
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.
Corporate
Responsibility
Two Independent
Non-Executive Directors,
the Executive Directors and
Group General Counsel
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.
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.
Finance
Executive Directors and
Group General Counsel &
Director, Corporate Affairs
Approves treasury related activity,
insurance and other matters
delegated by the Board.
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.
Board of Directors
Membership: Sir Nigel Rudd (Chairman), Executive and Independent Non-Executive Directors
Creating and delivering sustainable value by:
• Collectively setting the strategy and directing the Group.
• Setting the Group’s values and standards.
• Ensuring obligations to shareholders, employees and other stakeholders are met.
Meggitt PLC Annual Report and Accounts 2021
104
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 2021
Key matters
considered
Outcome
Strategy
The Group’s strategy
Acquisition
Disposals
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.
Reviewed and approved the terms of the proposed acquisition of the
Group by Parker-Hannifin.
Approved the sale of the high pressure metallic ducting and clamps
business in January 2021 and the sale and leaseback of the Group’s
Airframe Systems facility in Loughborough, UK in July 2021.
Culture
Code of Conduct and
Group policies
The Board reviewed and re-approved our Code of Conduct which
reflects our commitment to ethical business conduct and to comply
with laws and regulations. The Code demonstrates the conduct that is
a fundamental part of our values and culture.
During the year the Board has also reviewed and approved Group
policies on the following matters: Diversity and Inclusion, Financial
Crime, Environmental, Treasury and a consolidated policy on Ethical
Business Conduct and Anti-Bribery and Corruption.
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 107.
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.
We do this by establishing its purpose,
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
utmost importance to our shareholders
and wider stakeholders are taken by the
Board as a whole.
Meggitt PLC Annual Report and Accounts 2021
105
Directors’ Report
Corporate Governance
continued
Directors’ Report
Area of focus
in 2021
Key matters
considered
Outcome
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.
– Approved an updated Risk Management Policy.
– Implemented a new risk oversight process (risk on a page).
– Received an update on the effectiveness of risk management from
the Audit Committee.
– Reviewed and approved the risk appetite statement and Group
Risk Register.
– Approved the long-term viability statement.
Long-term viability
Reviewed models of a number of scenarios including climate change,
base case and severe but plausible downside scenario for both
planning and going concern purposes which underlie the long-term
viability of the Group.
Operational
performance
Performance of the
four divisions against
strategic objectives
The Chief Executive provided updates on divisional performance at
every meeting.
The divisional presidents attended Board meetings during the year to
provide detailed updates on divisional performance.
Financial
performance
Payment to
shareholders
In order to retain cash within the Group, manage net debt levels and
preserve flexibility the Board did not recommend a final dividend for
2020 or declare an interim dividend during 2021.
Financial statements
Approved the 2020 financial statements and 2021 interim
financial statements.
Going concern
The Board reviewed the models underlying the appropriateness of
adopting the going concern basis in the 2020 financial statements.
Budget
The Board reviewed performance against 2021 budget.
Governance
Stakeholder engagement
The Board continued with its stakeholder engagement programmes
as detailed on pages 90 to 92 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.
Effectiveness
An internal evaluation was conducted at the end of 2021 for the
Board and its Committees to reflect on their own performance and
recommend areas for improvement.
Independence
The Board gave careful consideration to whether Guy Berruyer
remained independent on conclusion of his third three-year term as
a Non-Executive Director of the Company, and concluded that he
remained independent.
Meggitt PLC Annual Report and Accounts 2021
106
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 90 to 92. Output from
these activities are reported to the Board
and its Committees to help shape the
decisions that we make.
We hold an annual strategy day where
we receive a detailed report on the
markets in which the Group 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
they remain appropriate and clearly
articulate the behaviours we expect from
employees and management.
The Remuneration and Nominations
Committees promote our values by
ensuring that we have the right people in
the organisation who respect our purpose
and values and structuring remuneration
schemes to reward the right behaviours as
well as strategic achievements.
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.
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 regular commentary provided in
the Chief Executive’s Report at every meeting. We also have a standalone annual session with the Group HR Director
focused 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 February 2022, with a detailed review taking place with the Non-Executive Director for
employee engagement beforehand.
4. Employee engagement – Reports from the Non-Executive Director for employee engagement are provided to the
Board. See page 92 for further details on engagement activities and key themes in 2021.
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, Corporate
Compliance, Ethics & Corporate Responsibility.
6. Internal audit reports – Provided to the Audit Committee at each meeting and identify areas of non-compliance to
help us assess the 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 the data and actions 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 our policies
and regulations that apply to them. During 2021, we continued 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.
Meggitt PLC Annual Report and Accounts 2021
107
Directors’ Report
Corporate Governance
continued
Directors’ Report
Shareholders and other stakeholders
Corporate
Responsibility
Committee
Remuneration
Committee
Board
Audit
Committee
Nominations
Committee
Workforce/culture/performance
Ensure remuneration is fair
across the organisation
Attract and retain talent
Strategic objectives
Oversight financial reporting
and risk management
Business and functional
updates
Policies
Ensuring the right people
are in place
Oversight
of engagement
Engage
Reports
Engage
Reports
Engage
Reports
Reports
Reports
Engage
Oversight corporate
responsibility
Reports and KPIs
Assurance on integrity of
the financial statements
Promote and reward
right behaviours
How we ensure our culture aligns with our values and strategy
Meggitt PLC Annual Report and Accounts 2021
108
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. During 2021
an updated briefing was provided
by external lawyers to the Board and
members of the Executive Committee
with regard to inside information and
their obligations under the market
abuse regime.
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.
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.
• Ensures there is an effective
system for communication
with shareholders.
Senior Independent Director
Alison Goligher
• Makes herself 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.
• Acts, if necessary, as a focal
point and intermediary for the
other Directors.
Chief Executive
Tony Wood
• Leads the 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.
• 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.
• Manage various functions and
operations across the Group.
Independent Non-Executive
Directors
Alison Goligher, Colin Day, Nancy
Gioia, Guy Hachey, Caroline
Silver and Guy Berruyer
• 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.
• Determine appropriate levels of
remuneration for the Executive
Directors and participate in the
selection and recruitment of new
Directors and succession planning.
Non-Executive Director for
employee engagement
Nancy Gioia
• Engages with employees
through a range of formal and
informal initiatives.
• Ensures that employee policies and
practices are in line with the Group’s
purpose and values and support the
desired culture.
• Regularly reviews 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.
• Ensures good information flow
within the Board and between
Non-Executive Directors and
senior management.
Meggitt PLC Annual Report and Accounts 2021
109
Directors’ Report
Directors’ Report
Corporate Governance
continued
Conflicts
Our Directors hold appointments in
other listed and non-listed companies
as shown on pages 100 to 103.
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 July 2021, Nancy Gioia was appointed
as a Non-Executive Director of Lucid
Group, a company incorporated in
the United States and listed on the
Nasdaq stock market. The Board
considered the appointment on its own
merit, taking into consideration the
nature, expectation and requisite time
commitment of the new role together
with a holistic view of Nancy’s existing
appointments and responsibilities and
her strong attendance at scheduled
and additional Board and Committee
meetings. Following such consideration
the Board was satisfied that Nancy
would continue to have sufficient time
to effectively discharge her duties to
Meggitt following the appointment.
The Board is mindful of the number of
external appointments held by Colin
Day and Caroline Silver. Both Colin and
Caroline have risen to the challenges
and extra time commitment demanded
of the Board and its Committees
over the past two years. Colin has
continued to meet with management
and the internal and external auditors
outside of scheduled Audit Committee
meetings to provide additional oversight
and guidance on risk management
and financial reporting matters.
Both Caroline and Colin have mentored
a member of senior management
and have been involved in the 2021
employee engagement programme
and Caroline presented at our 2021
leadership conference. The Board
continues to be satisfied that both Colin
and Caroline have time to discharge
their duties to Meggitt and is completely
satisfied with their performance.
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 continue to have the
capacity to effectively discharge their
duties to Meggitt effectively.
Information and support
The Chairman is responsible for ensuring
the Directors receive accurate, timely
and clear information.
The Company Secretary is responsible
for supplying the Board with the
information it needs to discharge its
duties and ensuring good information
flows within the Board and Committees
and between senior management and
the Non-Executive Directors. The Board
considers the quality of information it
receives and the effectiveness of the
annual Board schedule during the Board
evaluation process.
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. The last external
review was undertaken in 2019 by Clare
Chalmers Limited. An internal review was
undertaken in 2021 which focused on
key governance areas.
The Board reviewed the suggestions
made following the evaluation and
agreed the actions shown on page 112.
Mindful that Guy Berruyer’s nine-year
tenure on the Board could impair, or
appear to impair his independence
and impartiality towards executive
management, the Board carefully
considered his contribution to
Board and Committee meetings and
relationship with the management
team and unanimously agreed that Guy
continued to bring an objective view
to Board and Committee discussions,
offer constructive challenge to executive
management and hold them to account,
add value to the development of
the Group’s strategy and remained
independent and was not swayed by his
relationship with the executives.
Meggitt PLC Annual Report and Accounts 2021
110
2020 Evaluation results
Agreed actions
Progress
Improving the quality of Board and
Committee papers with a focus
on enhancing readability, avoiding
duplication and making better use of
executive summaries.
Feedback has been delivered to executive management on: (i) the length of
papers; (ii) overlap in reports; (iii) more use of executive summaries; and (iv) the
importance of readability.
Recognising the cost and time saving
benefits of wholly-virtual meetings
given the international nature of the
Board, integrate some wholly-virtual
meetings into future Board schedules.
Wholly-virtual meetings continued in 2021 due to ongoing COVID-19
restrictions and the need for short notice meetings to consider and respond to
interest in the Group from TransDigm and Parker-Hannifin.
Some wholly-virtual meetings will be scheduled for 2022.
Schedule more virtual engagements
with senior executives in 2021.
Senior management engagement was hosted virtually in 2021. Further details
on engagement activities can be found on page 92.
Resume site visits and in person
Non-Executive Director events and
briefings as soon as possible.
Ongoing COVID-19 restrictions in 2021 impeded this action, however, the
Chairman and several Non-Executive Directors visited the new Ansty Park site
in 2021, and three Non-Executive Directors attended the senior leadership
conference in February 2022. Subject to COVID-19 restrictions, site visits and
other in person Non-Executive Director events will resume in 2022.
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 2021
Internal Board evaluation
planning by the Chairman
and Company Secretary.
December 2021
to January 2022
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 Non-Executive
Directors support and challenge
executive management.
• How well the Non-Executive
Directors understand the Group’s
business and contribute to setting
the Group’s strategy.
• Whether the Board responded
well to the proposed acquisition
by Parker-Hannifin, gave due
consideration to all stakeholder
groups and achieved the
best outcome for the
Company’s shareholders.
• How well the Board understands
the impact of climate change on
Meggitt’s markets and operations.
• Whether the Board takes the
impact of climate change into
consideration when
setting the Group’s policies
and strategy.
• Whether the Board has a good
understanding of the interests of the
Company’s key stakeholders.
• 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.
• Whether the skills and experience on
the Board are appropriate.
• Whether the Chairman’s leadership
style and tone is effective.
• Whether the Company Secretary is
supporting the Board as appropriate.
• Whether the Board schedule and
papers are appropriate.
• Whether risk management is
undertaken appropriately.
• Whether the Board has sufficient
oversight of the succession
planning process.
February 2022
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
to assess the performance of the
Chairman and the Chairman held
remote meetings with the Non-
Executive Directors without the
Executive Directors present where the
performance of executive management
was discussed.
Meggitt PLC Annual Report and Accounts 2021
111
Directors’ Report
Corporate Governance
continued
Directors’ Report
2021 Evaluation
Another internally run evaluation was conducted via an online questionnaire at the end of 2021 and focused on the governance
areas set out on page 111. The Board has reviewed the output from the evaluation and has agreed the following:
Area
Agreed action
Engagement with the senior
management team.
The continued impact of COVID-19 limited the frequency of interactions
between the senior management team and the Non-Executive Directors, as
a result additional engagement sessions between the senior management
team and the Non-Executive Directors will be incorporated into the 2022
engagement schedule.
Board composition.
The proposed acquisition of the Group by Parker-Hannifin is expected to
complete in Q3 2022 and there is no appetite to change the Board composition
whilst the acquisition process is progressing. Should the proposed acquisition
not complete a detailed review of the Board’s composition will be conducted.
Whilst appointments will always be made on merit, strengthening the ethnic
diversity of the Board will be a key consideration in the recruitment process for
any new Director.
Board and Committee papers.
Whilst recognising the improvements to Board and Committee papers over
the year, more work is needed to ensure the succinctness of presentations and
consistent use of executive summaries.
Meggitt PLC Annual Report and Accounts 2021
112
Shareholder documents
We provide annual reports and other
documents to shareholders in their
elected format. Electronic copies of this
Annual Report and Accounts and the
Notice of the Annual General Meeting
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.
General Meetings
2021 Annual General Meeting
We recognise the importance of
the Annual General Meeting for
shareholders and held a hybrid
meeting in 2021 to facilitate and
enhance shareholder engagement
and participation.
We received 24.34% of votes against
the resolution to approve the Directors’
Remuneration Policy and 22.82%
of votes against the resolution to
authorise the Directors to allot shares
up to the maximum nominal amount
of £26,042,444, representing the UK
Investment Association’s guideline
limit of approximately two-thirds of the
Company’s share capital.
Remuneration Policy
We recognise the importance
of stakeholder engagement on
remuneration, particularly in the
aftermath of and recovery from the
COVID-19 pandemic. Prior to the Annual
General Meeting and as reported in the
2020 Directors’ remuneration report, we
carried out an extensive consultation
with our largest shareholders,
representing a significant proportion
of the register. As a result of the initial
consultation stages we implemented
changes to the proposed Policy to take
account of feedback received. We were
pleased that the Policy was supported
by a wide range of our shareholders as
a result.
Whilst we will continue to consider any
feedback received as we implement the
Policy, we still believe that the hybrid
approach to our long-term incentives
adopted by the Policy, including both
performance and restricted share
awards, is completely appropriate
for Meggitt, allowing us to maintain
alignment between our shareholders
and motivating our leadership and
senior management team. We will
continue to assess the suitability of
the hybrid approach during the
Policy period.
Authority of Directors to
allot shares
We are aware that some institutional
investors, particularly outside the UK,
have specific policies against supporting
allotment authorities or allotment
authorities at the level sought. We also
note that this level of authority continues
to be supported by the majority of our
shareholders and is in line with the UK
Investment Association’s share capital
management guidelines and prevailing
voting guidelines of leading corporate
governance agencies applicable to UK
listed companies.
The Company has taken into
consideration shareholders’ views and
best practice in this area, and whilst
noting the stance of certain investors
on the matter, the Board considers 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.
General and Court Meetings
In September 2021 the General and
Court Meetings for shareholders to
approve the offer from Parker-Hannifin
were held as hybrid meetings to
facilitate and encourage shareholder
participation and engagement.
The resolution put to the General
Meeting was passed by 99.79% of the
votes cast and the resolution put to the
Court Meeting was passed by 99.77% of
the votes cast.
2022 Annual General Meeting
Our 2022 Annual General Meeting
is scheduled on 29 June 2022 and
will be held as a hybrid meeting to
enhance shareholder engagement and
participation channels. Further detail are
included in the Notice of Meeting.
All Directors are subject to election by
shareholders at the first Annual General
Meeting 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 Annual General Meeting will
be subject to re-election.
Statement of compliance
Throughout the financial year ended
31 December 2021 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. We were planning a review
of the UK pension plans and pension
provision for Meggitt in the UK when the
2018 Code came into force. This review
was completed and as a result, our UK
defined benefit pension plan closed in
April 2021 and the UK workforce pension
contribution will be 10% by April 2022.
Mr Wood and Mrs Burdett received
pension allowances in 2021 of 18% and
17.5% of salary respectively. In 2022,
Mr Wood and Mrs Burdett’s pension
allowances are being reduced to 15% of
salary. It has been agreed that further
reductions will be reviewed by the
Remuneration Committee in 2022 should
the proposed acquisition by Parker-
Hannifin not proceed.
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
M L Thomas
Company Secretary
2 March 2022
Meggitt PLC Annual Report and Accounts 2021
113
Directors’ Report
Audit Committee report
Protecting shareholders’ interests
through financial reporting and
internal control.
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.
In addition to myself, Committee members
throughout 2021 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 100 to 103.
By invitation, there were a number of
other regular attendees at meetings
throughout the year including the
Chairman of the Board, Chief Executive,
Chief Financial Officer, the Group
Financial Controller, and the internal
and external auditors. The Group Head
of Tax and a representative of Grant
Thornton, who provide co-sourced
audits for the internal audit function,
also attended meetings by invitation.
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 to 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 and Accounts and advising the
Board whether it 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.
Committee membership and
attendance in 2021
Mr C R Day
Committee
Chairman
Mr G S Berruyer
Non-Executive
Director
Mrs N L Gioia1
Non-Executive
Director
Ms A J P Goligher
Non-Executive
Director
Mr G C Hachey
Non-Executive
Director
Mrs C L Silver
Non-Executive
Director
Scheduled meetings
Non-attendance
1 Unable to attend due to prior external
commitments.
Meetings attended
Non-attendance
Directors’ Report
Dear Shareholder
I am pleased to present the report of the
Audit Committee for 2021.
I chair the Audit Committee and as a
Fellow of the Association of Chartered
Certified Accountants, and previous
Meggitt PLC Annual Report and Accounts 2021
114
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, re-appointment 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.
I have an open, constructive and
collaborative relationship with
management and meet with them
and the internal and external auditors
outside scheduled meetings to provide
guidance as appropriate. Prior to each
scheduled meeting, I meet with the
Chief Financial Officer, Group Financial
Controller, Head of Assurance & 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 and ensure appropriate time is
allocated for each item.
The Committee reviewed its own
effectiveness via the process described
on pages 110 to 111. Overall the results
of the survey were very positive with
no improvement actions identified
and areas previously highlighted for
improvement in prior years scoring
highly. It was noted that the Committee
was effective at discussing the material
matters of importance and challenging
management appropriately.
Since the year end, the Committee has
discussed the external auditors’ final
audit clearance report for 2021, reviewed
the financial information contained in
the 2021 Annual Report and Accounts
and full year results announcement and
recommended them to the Board for
approval. The Committee also provided
advice to the Board that the 2021 Annual
Report and Accounts, taken as a whole,
is 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 approves
the viability and going concern statements.
Committee activities in 2021
Approved
• The 2021 external audit fees
• The internal audit plan for 2022
• The terms of engagement for the external auditors
• The 2022 Audit Committee Agenda
Reviewed
• The financial information contained in the 2020 Annual Report and Accounts, 2020 full year and 2021 interim results
announcements and recommended them to the Board for approval.
• Significant estimates and judgements in respect of the Group’s financial statements (pages 116 to 119).
• The independence and effectiveness of the external auditors, and agreed their terms of engagement; the Committee also
reviewed the process for the mandatory audit tender in light of the proposed acquisition by Parker-Hannifin.
• 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 pages 110 to 111.
• The outcome of the internally facilitated internal audit review (see page 121).
• The external auditors’ strategy memorandum, including level of materiality applied by PwC, and interim audit clearance report for 2021.
• Terms of Reference for the Committee, which were recommended to the Board for approval.
• The reporting processes applied in the production of the 2020 Annual Report and Accounts and the output of these processes
to determine that the 2020 Annual Report and 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.
• The financial reporting consequences of TCFD and climate change.
• The implications of the BEIS consultation on “Restoring Trust in Audit and Corporate Governance”.
Updates and reports
• Received at every meeting from the Head of Assurance & 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 Group Head of Tax.
• Received technical accounting and governance updates provided by the Group Financial Controller, Company Secretary
and the external auditors.
Meggitt PLC Annual Report and Accounts 2021
115
Directors’ Report
Audit Committee report
continued
Critical accounting estimates and judgements:
Area
Action
Provision for environmental
matters relating to historic sites
and related insurance receivables
At each meeting in 2021, and also at the February 2022 meeting, the Committee
discussed the status of a claim from a third party that a former site operated
by Whittaker had contributed to environmental pollution for which it should be
responsible. These discussions included the status on a number of areas notably:
the third-party legal action; mediation between Whittaker and the third party;
mediation between Whittaker and its historic insurers and the ongoing litigation
brought by Whittaker against those insurers; and discussions with other third
parties over their responsibility for reimbursing Whittaker should it be found
responsible for any amounts.
At both the March 2021 meeting and the July 2021 meeting, the Committee
concluded that based on conditions at that date, including the nature and
amounts claimed by the third party, that neither a mediated settlement or, in
the event the matter went to court, an adverse trial outcome would result in a
material charge being recorded in the income statement in the next 12 months.
In their subsequent December 2021 and February 2022 meetings, the Committee
discussed the change in conditions since the July 2021 meeting and which
had led to the recognition by management of a £29.5m charge to the income
statement and were satisfied these could not have previously been considered
reasonably foreseeable.
In respect of the £29.5m liability recognised in the year, the Committee
discussed their expectations of potential outcomes. The Committee agreed with
management that a most likely amount approach should be used for estimating
the liability and that the amounts recorded reflected their best estimate of
that outcome based on conditions prevailing at the date of their February
meeting. Given the uncertainty over how the matter would be finally resolved,
the Committee concluded it was however appropriate to disclose that it was
reasonably foreseeable that material changes to the amounts recorded could be
recognised in the next 12 months.
At the February 2022 meeting, the Committee discussed with management its
assessment that it was not appropriate to recognise any amounts recoverable
from either historic insurers or third parties. The Committee concluded that whilst
it expected material amounts would be recovered, under the accounting policy it
had agreed with management that typically any insurance or third party recovery
in respect of environmental matters would only be considered virtually certain
when there was a signed binding agreement between the parties concerning
the nature and amounts to be reimbursed, no recoverable amounts should be
recognised as an asset at the balance sheet date. However, the Committee
agreed that given the likelihood that material amounts would meet the criteria to
be recognised within the next 12 months, this should be disclosed.
The Committee agreed that disclosing their estimate of any material adjustments
to the liability recognised or amounts that would be recognised as recoverable
from historic insurers or other third parties would be seriously prejudicial to the
outcome and accordingly should not be disclosed.
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 ensuring key personnel in the finance team have appropriate exposure to the Committee in the
virtual environment.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
116
Critical accounting estimates and judgements:
Area
Action
Development costs
The Committee discussed a report from management analysing amounts
capitalised across different aircraft platforms and manufacturers, including a
sensitivity analysis for specific programmes.
In light of the tensions with Russia over Ukraine at the date of the February
Committee, which preceded the date on which Russian troops entered Ukraine,
the main area of focus was the Irkut MC-21 programme, on which the Group has
a capitalised value of £40.9m at 31 December 2021. The Committee discussed
management’s sensitivity analysis for the programme, which showed headroom
had increased during 2021; the extent to which fleet volumes would need to
fall from those modelled by the Group before a material impairment would be
required, noting this was significant; the existing reported order backlog for the
aircraft; and its planned entry into service (EIS) date in late 2022 or early 2023.
The Committee concluded that, management’s assumptions were appropriate
and agreed no impairment was required. However, the Committee agreed that
it was reasonably foreseeable that tensions over Ukraine may escalate further in
the future, and were these to lead to sanctions, trade embargoes and/or other
measures being imposed, this could result in significant delays to the aircraft’s
EIS and/or the ability of the Group to access the benefits it expects from the
programme. Were these events to happen in the next 12 months, the Committee
concluded there was a risk a material impairment loss would be required against
the capitalised value on the programme.
For the remaining platforms on which the Group had material capitalised
balances at 31 December 2021, the Committee concluded that assumptions made
by management were reasonable and the carrying values and estimated lives of
the programmes were appropriate. 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.
There was also a wider discussion about the potential impacts of climate
change on the expected life of aircraft/engines and the fleet volumes assumed
by management in their impairment testing, including input from the Group’s
Director, Engineering & Strategy. The Committee concluded that climate
change had been appropriately reflected in the impairment testing modelling
assumptions used by management.
Retirement benefit obligations
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 prior year 2020 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 that the assumptions used, which were supported by
third-party actuarial advice, were appropriate. Given the sensitivity of the deficit
recognised to reasonably foreseeable changes in assumptions in the next 12
months, the Committee agreed this should continue to be considered a critical
accounting estimate.
Meggitt PLC Annual Report and Accounts 2021
117
Directors’ Report
Other significant areas of Committee focus:
Area
Action
Going concern
The Committee reviewed the work performed by management in assessing the
Group’s ability to continue as a going concern.
For the base case, the Committee considered the outputs from management’s
work, noting that in their role as members of the Board they had reviewed and
challenged the cash flow forecasts prepared by management that were used in
this scenario. The Committee also noted the level of committed credit facility
headroom that existed throughout the going concern assessment period and the
significant covenant headroom at the twice yearly testing dates of 30 June 2022
and 31 December 2022. The Committee agreed that given the Group is in an offer
period under the UK Takeover Code, it is not providing financial guidance for 2022
and accordingly the base case scenario assumptions should not be disclosed.
In considering the reverse stress scenario, the Committee discussed those
conditions under which the Group would be close to breaching its covenant ratios
during the going concern assessment period and the risk that these could occur.
The Committee noted that at each of the four covenant testing dates since the
COVID-19 outbreak, the Group had maintained comfortable headroom on its
covenant ratios with net debt/EBITDA remaining within the Board’s target range
of 1.5x to 2.5x. The Committee concluded that the likelihood of the conditions
modelled in the reverse stress scenario occurring was remote.
The Committee agreed in the event the proposed acquisition of the Group by
Parker-Hannifin was completed during the going concern assessment period,
that it believed Parker-Hannifin would be able to continue to operate the Group
as a going concern during that period and be able to finance the proposed
acquisition, including settlement of those liabilities becoming repayable on a
change of control.
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
The Committee agreed with management that, in light of the proposed
acquisition of the Group by Parker-Hannifin, a reliable estimate of the fair
value less costs of disposal (FVLCOD) of the Group existed. In assessing how
to attribute the FVLCOD of the Group to the level of the CGUs and groups of
CGUs at which impairment testing was performed, there was a discussion with
management on various different methods that could be used. As the offer from
Parker-Hannifin was made during the period the Group was performing its annual
impairment testing using a value-in-use basis, consistent with prior years, the
Committee agreed with management’s view that they should use the results of
this value-in-use analysis as an appropriate basis for allocation.
At the December meeting, the Committee considered a report from
management setting out the assumptions made in its value-in-use modelling,
including the cash flows used, which as members of the Board they had
previously reviewed; how these cash flows had been probability weighted to
reflect a number of different scenarios; discount rates applied to the cash flows;
and long-term growth rates, including the extent to which they reflected the
potential impacts of climate change and other structural changes in the market.
They also discussed a sensitivity analysis prepared by management setting out
the impact reasonably foreseeable changes in these assumptions could have
on the value-in use of each CGU and group of CGUs and how this would impact
the determination of their FVLCOD. The Committee noted that in each of the
sensitivities modelled, there was significant headroom between the FVLCOD of
the CGUs and groups of CGUs and their carrying value.
The Committee therefore concluded that no reasonably foreseeable change in
assumptions would lead a material goodwill impairment in the next 12 months.
Audit Committee report
continued
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
118
Other significant areas of Committee focus:
Area
Action
Liabilities for uncertain tax
positions
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 Head of Tax on each of the major
areas of exposure was also received and discussed. The Committee noted
that the anticipated assessment in the year by HMRC of £16.9m tax in respect
of the European Commission’s decision that state aid partially applied to one
of the UK’s CFC exemptions utilised by the Group, had been fully provided
for at 31 December 2020. It agreed that the future recovery of any element of
the assessment was dependent on the occurrence of certain events which are
uncertain, including the European General Court overturning the European
Commission’s state aid ruling on appeal. Given these uncertainties, the
Committee agreed that it was not appropriate to recognise any receivable in
respect of the matter. The Committee further agreed there was not a significant
risk of any material adjustment to the estimates made in 2022.
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 it was
appropriate to treat the £29.5m costs relating to the Whittaker environmental
claim as exceptional given its size, nature and that it was considered non-
recurring, noting that it related to a former site sold by Whittaker, prior to its
acquisition by the Group in 1999.
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.
The Committee agreed with management’s exclusion of costs incurred relating to
the proposed acquisition of the Group by Parker-Hannifin from underlying profit
measures and the disclosure of those costs contingent on the acquisition being
completed as a financial commitment.
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 2021 financial statements are set out
on pages 116 to 119. 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 and 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
seeks input from the Head of Assurance
& Risk and reviews questions completed
by management to illustrate the fair,
balanced and understandable aspects
of the Annual Report and Accounts and
a summary of the financial reporting
process. Following consideration of
these items together with the Annual
Report and 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 and Accounts.
EU Single Electronic Format (ESEF)
Pursuant to Disclosure and Transparency
Rule (DTR) 4.1.14R, the Group’s 2021
Annual Report and Accounts has to be
prepared in XHTML, a form of computer
language used to create web pages, and
the data included in the consolidated
financial statements needs to be marked
up with XBRL tags. In December 2021,
the Committee reviewed the process
management would take to comply
with the new requirements, which
included: our publisher partnering with
Arkk Solutions, a firm specialising in
XBRL tagging since 2011 to deliver a
full service ESEF solution; preparing a
test ESEF filing using the 2020 Annual
Report and Accounts to pre-empt and
address any potential issues; and the
Group’s central finance team working
with our publisher and Arkk to agree the
tagging taxonomy. In February 2022, the
Committee received an update on the
ESEF process and was satisfied with the
approach taken.
External audit
The external auditors are
PricewaterhouseCoopers LLP (PwC) who
were first appointed for the financial
year commencing 1 January 2003 after
Meggitt PLC Annual Report and Accounts 2021
119
Directors’ Report
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
re-appointed. There are no contractual
obligations restricting the Committee’s
choice of external auditors.
The mandatory rotation of auditors will
take place in 2023. Audit tenders include
a significant investment by the firms
chosen to tender, as well as additional
workload for the Group’s finance
team. In light of the high probability
that the proposed acquisition of the
Group by Parker-Hannifin will complete
before the end of PwC’s audit tenure,
the Committee confirmed support
for management’s proposal to pause
and re-commence the audit tender
project in Q2 2022 should it be
considered necessary.
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
PwC presented the audit strategy for
the 2021 financial year at the meeting
in July 2021, including their application
of materiality and the scope to be
able to provide an opinion on the
Group financial statements as a whole.
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.
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 they
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 auditors.
• The appropriateness of the
communication between the
Committee and the external auditors
in terms of technical issues.
• 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 February 2022, 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.
Independence
In assessing PwC’s 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 to the
Board that its partner and staff complied
with their ethics and independence
policies and procedures which are
fully consistent with the 2019 FRC
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 Committee is responsible for the
development and implementation of
the non-audit services policy which
was reviewed and re-approved in 2021.
The policy reflects the 2019 FRC 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 Chief Financial Officer 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 2021 were less than £0.1
million (1.1% of the total audit fee) and
average fees paid for non-audit services
for the last three years to 2021 were
less than £0.1 million (1.0% of the total
audit fee over that period). Fees paid for
non-audit services related to services
permitted 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 by the non-audit
services provided to the Group.
On the basis of the information above,
the Committee has determined that
the audit process is effective and that
PwC are appropriately objective and
independent and has recommended
that the Board submit the re-
appointment of PwC to shareholders for
approval at the Annual General Meeting
in 2022 for the 2022 financial year.
Audit Committee report
continued
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
120
Internal audit
The internal audit function is led by
the Head of Assurance & Risk and 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.
The internal audit function 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, tax, programme
management, HR/payroll, commercial
intermediaries, bid and proposal activity,
corporate compliance and business
continuity. In 2021, internal audits were
carried out for 30 Group locations
as part of the rotational audit cycle,
including shared service functions.
During the year, the Committee
monitored implementation of the plan
which was broadly delivered as originally
committed with remote audits being
conducted where necessary through the
use of technology, including utilisation
of applications such as WebEx and file
sharing and other innovative solutions
such as using cameras on factory floors
to validate tests.
The scope and responsibilities of internal
audit continue to expand and develop
with the business and are documented
in the Internal Audit Charter.
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 Criminal Finances Act 2017 and
Defense Federal Acquisition Relation
Supplement (DFARS). During the year,
Grant Thornton conducted audits on
cyber security, finance shared services,
ERP implementations and change
management and reported its findings
back to the Committee in December
2021. The approach for 2022 will
continue to rely on Grant Thornton’s
subject matter experts to deliver
specialist audits, including readiness
for cyber security model certification,
IT resilience, site and IT transformation
projects and finance shared services.
I regularly discuss the results of audits
with the Group Head of Assurance &
Risk between Committee meetings,
and 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 with
the Group Head of Assurance & Risk
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 the internal
audit function in 2021, taking into
consideration its discussions with the
Group Head of Assurance & Risk without
management present, its assessment of
the internal audit plan and the delivery
against that plan, the reports it received
on the work of internal audit and the
role and effectiveness of the internal
audit function in the context of the
wider risk management system and was
satisfied that the quality, experience
and expertise of the function remained
appropriate for the size and complexity
of the Group.
Communications with the FRC
During the year there was no interaction
with the FRC’s Corporate Reporting
Review team.
Whistleblowing
To help us encourage the highest
standards of ethical behaviours,
corporate governance and
accountability in our business activities,
the Group operates an independent
and anonymous Speak Up Line which
is available 24 hours a day, seven days
a week. A summary of whistleblowing
activity, together with details of related
investigations, is provided to the
Corporate Responsibility Committee,
which is responsible for oversight and
review of the process for handling
allegations from whistleblowers. The
Board also reviews whistleblowing
reports on a quarterly basis and
routinely reviews the arrangements for
employees to raise concerns.
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
2 March 2022
Meggitt PLC Annual Report and Accounts 2021
121
Directors’ Report
Nominations Committee report
Overseeing the composition of the Board
to ensure that it has the right balance of
skills, experience and expertise to deliver
on the Group’s strategic objectives.
Dear Shareholder,
The Nominations Committee plays a
leading role in assessing the balance
of skills, knowledge, experience
and diversity on the Board and its
Committees. It leads the process for
appointments, ensures plans are in place
for orderly succession to both the Board
and senior management positions, and
oversees the development of a diverse
pipeline for succession.
The Committee reviews the structure,
size and composition (including the
skills, knowledge, experience and
diversity) of the Board and makes
recommendations to the Board on
any proposed changes. Decisions on
Board changes are taken by the Board
as a whole taking into consideration
the Committee’s recommendations.
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.
The full terms of reference for the
Committee can be found on our website.
Committee effectiveness
In 2021, as a Committee we reviewed
our own effectiveness by way of a
questionnaire as set out on pages 110 to
111. Overall the evaluation was positive,
with the Committee satisfied with its
own effectiveness and no further actions
to take as a result.
Board composition and tenure
We consider a comprehensive skills
matrix that sets out the experience
and background of each Director and
review it against the Group’s strategic
objectives and principal risks to ensure
the Board comprises the skills and
capabilities required to meet the
demands of the business.
In February 2022 we expanded our skills
matrix to include details of Directors’
experience in respect of sustainability/
climate change in the sectors in which
we operate. This provides a clearer
picture of expertise in this area and will
assist in determining the requisite skill
set of future appointees.
Our skills matrix also includes the
tenure of myself and the Non-Executive
Directors to ensure that our succession
is regularly discussed and planned
accordingly in order to facilitate regular
refreshment of Board membership.
Guy Berruyer’s third three-year
term expired on 1 October 2021.
During the year, we carefully considered
his independence, taking into
Committee membership and
attendance in 2021
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 C Hachey
Non-Executive Director
Mrs C L Silver
Non-Executive Director
Meetings attended
Non-attendance
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
122
consideration his relationship with
executive management and the challenge
and support he provided at Board and
Committee meetings. We established that
he remained independent and provided
a key point of stability during a period of
significant change. We also determined
that Guy’s skills and experience remained
relevant, and his capabilities and
contribution at Board and Committee
meetings added great value to the
Company. Recognising the importance
of continuity whilst the proposed
acquisition of the Group by Parker-Hannifin
progresses, we recommended to the
Board that Guy continue to serve as an
independent Non-Executive Director.
The Board accepted this recommendation
and extended his service contract for a
further one-year term.
Colin Day’s second three-year term also
expired during the year. We recognised
the significant contribution he had made
during the year to Board and Committee
discussions, the additional time he
had dedicated to his Audit Committee
duties, including regular meetings with
management and the internal and external
auditors outside formal proceedings
and the time he had dedicated to the
employee engagement programme (see
page 92 for details) and were satisfied
that he was able to continue to discharge
his duties effectively notwithstanding his
external appointments. We recommended
that he remain on the Board as an
independent Non-Executive Director and
the Board accepted this recommendation
and extended his service contact for a
further three-year term.
Guy Hachey’s first three-year term
as a Non-Executive Director expired
on 31 December 2021. During this
first term Guy has brought significant
insight, challenge and expertise to
Board and Committee discussions
and has provided valuable support
to the employee engagement
programme. Following consideration
of Guy’s contribution to the Group
we recommended that he remain on
the Board as an independent Non-
Executive Director. The Board accepted
this recommendation and extended his
service contract for a further three-
year term.
In light of Guy Berruyer’s length of
service, we agreed in 2020 that Alison
Goligher should succeed Guy as Senior
Independent Director and she was
appointed to the role immediately
following the 2021 Annual General
Meeting. Alison has nearly seven years’
experience on the Board and has, as a
result, built good relationships with the
Non-Executive Directors 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
as Senior Independent Director.
As a Committee we are mindful of
Guy Berruyer’s tenure on the Board,
my announcement to retire from the
Board (which was postponed until
further notice during the COVID-19
pandemic) and that Alison Goligher’s
nine-year term is due to expire in 2023.
Whilst focus in 2020 and 2021 has been
on continuity to guide the Company
through the COVID-19 pandemic and
the proposed acquisition of the Group
by Parker-Hannifin we are aware that,
should the proposed acquisition not go
ahead, changes will need to be made
0
1
2
3
4
5
6
7
8
9
10
Listed Chair
CEO
AC Chair
RC Chair
SID
Operations
Financial
Risk/Legal/Regulatory
M&A
Information security (including cyber)
Climate change/Sustainability
Aerospace/Defence/Energy
Aerospace aftermarket/Customer Services
Industrial
Engineering
Europe (Inc UK)
N America
S America
Asia
Africa
Australia
Geographical Markets
Sectors
Corporate
Board Experience
Listed Chair
CEO
AC Chair
RC Chair
SID
Operations
Financial
Risk/Legal/Regulatory
M&A
Information security (including cyber)
Climate change/Sustainability
Aerospace/Defence/Energy
Aerospace aftermarket/Customer Services
Industrial
Engineering
Europe (Inc UK)
N America
S America
Asia
Africa
Australia
Geographical Markets
Sectors
Corporate
Board Experience
0
1
2
3
4
5
6
7
8
9
10
Board skills and experience
Meggitt PLC Annual Report and Accounts 2021
123
Directors’ Report
Nominations Committee report
continued
to ensure our Board is appropriately
refreshed. We have reviewed and
discussed the skills matrix and any future
appointments will focus on ensuring the
Board is appropriately diverse with the
right balance of skills and experience
to lead the Company in achieving its
strategic objectives.
Board effectiveness
In February 2022 we reviewed the
Board skills matrix and the output of the
Board evaluation process (described on
pages 110 to 111) and considered the
Board’s effectiveness. We paid particular
attention to the skillset each Director
brings to the Board, Guy Berruyer’s
independence, and to whether Colin
Day and Caroline Silver continued to
have sufficient time to discharge their
duties effectively in light of their external
appointments. On review, we were
satisfied that the Group has a strong,
dynamic and effective Board capable
of delivering the Group’s strategic
objectives and recommended to the
Board that all Directors be put forward
for re-election at the 2022 Annual
General Meeting.
Executive 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.
The succession plans for the executive
team, including the Executive Directors
are reviewed 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 to fulfil leadership roles 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
pages 102 and 103 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 Diversity and Inclusion Policy, which
is available on our website, 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.
On gender diversity, the Board currently
has four female Board members
representing 44% of the Board. This year,
Meggitt appeared 78th in the list of FTSE
100 companies on the FTSE Women
Leadership Review gender diversity
rankings. Our position is largely impacted
by the combined data for Executive
Committee members and their direct
reports which stands at 18.2% and shows
that we can improve further in this area.
Details of the work underway to strengthen
the diversity of our talent pipeline can be
found on page 74.
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 was planning to take this into
account, alongside diversity of gender,
nationality, skills and experience, in
filling the next Board position. However,
due to the focus on managing the
Group’s response to and recovery from
the COVID-19 pandemic, the significant
cost and time commitment required
to identify and select suitable Board
candidates and the high probability that
the proposed acquisition of the Group
by Parker-Hannifin will complete in 2022,
the Committee determined that it would
not be practical to recruit an additional
Board member during the year. As such
there was no opportunity to strengthen
the ethnic diversity of our Board in 2021.
Whilst no appointments are currently
planned for 2022, should the proposed
acquisition of the Group by Parker-
Hannifin not complete, a detailed review
of the Board’s composition will be
conducted and whilst appointments will
always be made on merit, strengthening
the ethnic diversity of the Board will be
a key consideration in the recruitment
process for any new Director.
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, which was reviewed and
updated during the year, 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.
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
Sir Nigel Rudd
Chairman of the
Nominations Committee
2 March 2022
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
124
Meggitt PLC Annual Report and Accounts 2021
125
Directors’ Report
Directors’ remuneration report
It has been a busy year during which we
have continued to engage with our wider
stakeholders during an exciting, interesting
and challenging period for the Group.
Chair’s introduction
and annual statement
Introduction
I am pleased to present the Directors’
remuneration report for the year ended
31 December 2021. In addition to this
introduction and annual statement, the
report includes: an “At a Glance” summary;
the Annual Report on Remuneration for
the year; and a copy of the Directors’
Remuneration Policy which was approved
by shareholders at the 2021 AGM.
Looking back… performance and
remuneration in 2021
Many of the challenges of 2020, driven
by the external environment, continued
to impact the civil aerospace industry in
2021, including the rise of the Omicron
COVID-19 variant in the latter part
of the year. Despite these ongoing
challenges, Meggitt has continued to
position itself well to benefit from the
recovery over time of the civil aerospace
sector, delivering robust performance
outcomes against its KPIs. This is
reflective of the significant ongoing
contribution of all our colleagues,
and the leadership of the Executive
Directors and the wider leadership team.
Significant time and effort was also
invested in the proposed acquisition of
the Group by Parker-Hannifin, to protect
the interests of all our stakeholders and,
if successful, significantly accelerate
and de-risk our plans to deliver value to
our shareholders.
It is this challenging, but exciting,
context that framed the Committee’s
decision-making in the year, and which
is summarised below.
Salary
The April 2021 annual merit based
increases were deferred for all employees
until October due to the continued
uncertainty for the industry. Additionally,
during the first half of 2021, in order to
manage cost and capacity with continued
volatility in civil aerospace markets, most
of our employees, including the Executive
Committee, took mandatory or voluntary
unpaid leave ranging from 8-13 days.
Our Board also volunteered a salary/fee
reduction of 10% during the same period.
In October 2021, a delayed increase
was awarded to all employees of 2.5%,
including Executive Directors, Executive
Committee and Non-Executive Directors.
STIP
2021 performance was above threshold
for underlying operating profit but below
threshold for the free cash flow element.
The Executive Directors’ performance
against the strategic objectives set at
Committee membership and
attendance in 2021
Ms A J P Goligher
Committee Chairperson
Mrs C L Silver
Non-Executive director
Mr C R Day
Non-Executive director
Mrs N L Gioia
Non-Executive director
Mr G C Hachey
Non-Executive director
Mr G S Berruyer
Non-Executive director
x Scheduled meetings
x Additional meetings
Meetings attended
Non-attendance
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
126
the start of year, and in the context of
the evolving priorities of the Group
during the year, was rated as significantly
exceeding expectations, using the
same scoring methodology as for the
wider STIP population. This outcome
warranted full payout of this element,
resulting in an overall STIP outcome
of 46.7% of maximum. The Committee
is satisfied that the outcome is
warranted by underlying performance
and accordingly did not exercise any
discretion. 25% of the amount earned
will be deferred into shares for two years.
LTIP
Although our financial performance
in 2019 was strong, the outturn for the
financial metrics in the 2019 LTIP award
(based on three-year performance
to 31 December 2021) was below
the threshold vesting, against the
backdrop of the continuing impact of
COVID-19 on the civil aerospace market.
Progress against our long-term strategic
targets produced an overall vesting of
13.2%. The Committee considered this
outcome in the wider context of the
Group’s performance, recognising the
outturn was in line with the employee
and shareholder experience and no
adjustments were made.
The Committee is confident that
the 2021 remuneration outcome for
Executive Directors is appropriate
given the context of the internal and
external environment.
2021 AGM
Prior to the 2021 AGM, the Committee
carried out an extensive consultation
on proposed changes to the Policy with
our largest shareholders, representing
a significant proportion of the register.
As a result of the initial consultation, the
Committee implemented changes to its
proposals to take account of feedback
received, as detailed in last year’s
report. We were pleased that the Policy
was supported by a wide range of our
shareholders as a result, registering a
75.66% vote in favour.
In accordance with the UK Corporate
Governance Code, and reflecting that
the Policy resolution received less than
80% of votes in favour, the Committee
published an update on the 2021 AGM
vote via RNS during the year. As noted
in that market announcement, the
Committee was aware at the time
of the AGM that shareholders have
divergent views on the proposals,
mainly regarding the use of multiple
long-term incentive vehicles. However,
the Committee continues to believe
that the hybrid approach adopted by
the Policy, including both performance
and restricted share awards, is
appropriate for Meggitt, allowing
us to maintain alignment between
our shareholders and motivating our
leadership and senior management
team. Following shareholder approval
of the Remuneration Policy in 2021,
the Executive Directors received Long
Term Incentive Plan awards under the
performance share award (PSA) at 125%
of salary and restricted share awards
(RSA) at 62.5% of salary. However, we
will continue to assess the suitability
of the hybrid approach during the
Policy period.
2022 implementation of Policy
The Committee remains confident that
the Remuneration Policy continues to
effectively support Meggitt’s short-
and long-term strategic objectives
and promote management and
shareholder alignment.
The Committee took actions to apply
our Directors’ Remuneration Policy
appropriately and in shareholders’
best interests in the context of the
offer for the Company by Parker-
Hannifin, which was approved by our
shareholders in September 2021.
Remuneration arrangements relating to
the offer for the Company are detailed
in the Co-Operation Agreement for the
transaction. In the process with Parker-
Hannifin, we were supportive of the
treatments secured by management
to protect the interests of employees,
including the preservation of all terms
and conditions until the end of 2022,
and beneficial terms to compensate
participating employees for the closing
of our Sharesave schemes following
deal completion.
Fixed pay
Effective 1 April 2022, Executive Director
salaries will be increased by 3% in line
with the broader employee population.
In line with our commitment to reduce
Executive Director pensions over time,
pension allowances will be further
reduced; from 18% to 15% of salary in
respect of the CEO and from 17.5% to
15% of salary from 1 January 2022.
STIP
The STIP will operate on the same basis
as last year, with a maximum opportunity
of 150% of salary for both Executive
Directors and with performance
assessed against a small number of key
financial and strategic measures. If the
Parker-Hannifin proposed acquisition
completes, Meggitt will assess the
performance conditions for the period
up to the court sanction date and pay
out the relevant portion of the STIP at
that time, in accordance with the Co-
Operation Agreement.
Long-term incentives
As in 2021, Executive Directors will
receive LTIP awards in the form of both
performance share awards (PSA) and
restricted share awards (RSA).
PSAs will be granted at 125% of salary,
with vesting assessed against an equal
blend of EPS, ROCE and strategic
objectives measured over three years.
RSAs will be granted at 62.5% of salary,
with final vesting (at the end of a three-
year vesting period for 2022 RSAs)
subject to a Committee assessment of
a range of business factors and overall
Group performance.
If the Parker-Hannifin proposed
acquisition completes, the LTIP awards
will vest on completion, in accordance
with the Co- Operation Agreement.
Looking forward
The Committee considers that the
current remuneration structure is clear,
simple, and appropriately aligned with
the Group’s strategy, risk appetite
and culture, and that incentives are
appropriately capped.
Our Remuneration Policy and practice
is in line with the UK Corporate
Governance Code (with the exception of
Provision 38 on pension allowances).
I hope that you find this report a clear
account of the Committee’s decisions for
the year and would be happy to answer
any questions you may have at the AGM.
Alison Goligher
Chair of the Remuneration Committee
Meggitt PLC Annual Report and Accounts 2021
127
Directors’ Report
Directors’ remuneration report
continued
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
an overall remuneration package that is competitive in the global markets where Meggitt competes
for talent;
Align
with investors: a significant proportion of remuneration is delivered in shares and subject to long-term
performance and holding periods; and between our Executive Directors and other senior managers who
work as one team towards the same goals;
Incentivise
short and long-term incentive plans provide an opportunity for management to meet and exceed targets
whilst outcomes are appropriately aligned with financial and operational performance; and
Retain
the remuneration structure and opportunity supports retention in an increasingly competitive
global setting.
Directors’ Report
2021 activity
Approved
• The 2018 LTIP vesting outcome.
• The 2021 STIP and PSA performance targets.
• The 2021 PSA and RSA opportunity levels.
• The 2020 Directors’ remuneration report and revised Remuneration Policy (which were subsequently
approved by shareholders at the 2021 AGM).
• The key remuneration terms of the Co-Operation Agreement with Parker-Hannifin.
• Terms of Reference for the Committee (available on our website).
• Since the year end, we have approved the structure of the 2022 STIP and both the 2022 PSA and RSA
awards, and confirmed the vesting outcome of the 2021 STIP and 2019 LTIP awards.
Discretion
exercised
• After due consideration, no discretion was exercised by the Committee during the year.
Meggitt PLC Annual Report and Accounts 2021
128
Strategic Portfolio
Investing in differentiated technologies
Delivering sustainability goals
Enhancing our business portfolio
LTIP: Innovation targets and ROCE in the LTIP.
Sustainability targets in the LTIP.
STIP: Strategic objectives for Executive
Directors include portfolio-related
activity and sustainability goals.
Customers
Accelerate organic growth
Maximising our share of the aftermarket
LTIP: Quality and delivery and other operational targets
to facilitate business recovery are included in the LTIP.
STIP: Strategic objectives for Executive Directors
include improving customer satisfaction.
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.
Competitiveness
Outstanding operations and processes
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.
Linking our remuneration to our strategy
KPIs
2019-2021 LTIP
Financial
Measures
Strategic Measures
Outturn 2021
72.4p
Earnings per share
(3-year cumulative)
Inventory 2.11
7%
ROCE
(3-year average)
Prog Excellence 3.1
On time delivery 68%
Quality Escapes 681
1 Cost of Sales as used in the inventory
turns measure includes the impact of
exceptional items.
2021 STIP
Financial
Measures
Strategic
Measures
£184m
Underlying
Operating Profit
Culture −
Engagement
£119m
Free Cash Flow1
Customer −
Operational
Improvements
1 As with previous years, the 2021 STIP
uses the Free Cash Flow measure
excluding the impact of interest
and taxation.
Strategic Portfolio
KPIs:
Growth
ROCE
Meggitt PLC Annual Report and Accounts 2021
129
Directors’ Report
Directors’ remuneration report
continued
2021 Outcomes
Outcomes versus pay scenarios
Directors’ Report
Single Figure 2021
Maximum
On-target
Minimum
78%
22%
36%
19%
31%
25%
27%
24%
10%
51%
5%
13%
16%
£986
£2,170
£4,055
£1,737
44%
Salary and benefits
Pension
STIP
LTIP
RSA
Outcome
Maximum
Strategic UOP FCF
Strategic EPS ROCE
2021 LTIP Outcome (% Vesting)
33.3%
33.3%
33.3%
EPS 0.0%
ROCE 0.0%
13.2%
Actual (CEO)
50.0%
20.1%
Actual (CFO)
50.0%
20.1%
Maximum
50.0%
50.0%
50.0%
Pay for performance history
£
Value of £100 invested on 31 December 2010
Group Chief Executive’s single total
remuneration figure £'000
Meggitt
Mr T Twigger
Mr S G Young
Mr A Wood
FTSE 100
0
30
60
90
120
150
180
210
240
270
300
0
1000
2000
3000
4000
5000
31/12/2021
31/12/2020
31/12/2019
31/12/2018
31/12/2017
31/12/2016
31/12/2015
31/12/2014
31/12/2013
31/12/2012
Incentive outcomes
2021 STIP Outcome
Mr A Wood (£’000)
Mrs L Burdett (£’000)
Single Figure 2021
Maximum
On-target
Minimum
35%
31%
24%
10%
27%
45%
78%
22%
19%
25%
16%
51%
5%
13%
£628
£1,378
£2,572
£1,103
Meggitt PLC Annual Report and Accounts 2021
130
2022 Remuneration
The summaries and illustrations below do not include any impact of the Parker-Hannifin proposed acquisition and associated Co-
Operation Agreement. In the event that the proposed acquisition completes, the terms of the Co-Operation Agreement with Parker-
Hannifin will take effect.
Components of Executive Directors’ remuneration 2022
Base salary
Set at a competitive level to attract and retain high calibre Directors in the relevant talent market.
Pension
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% with effect from 1 January 2022.
Benefits
Provides non-cash benefits which are competitive in the market where the Director is employed.
Annual
bonus (STIP)
Incentivises Executive Directors to deliver annual financial and strategic targets set at the start of each year.
There is a maximum award opportunity of up to 150% of salary, with 25% of any amount earned deferred in
Meggitt shares for two years.
LTIP (PSA
and RSA)
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
Performance Share Awards of up to 125% of salary and Restricted Share Awards of up to 62.5% of salary. The Executive
Directors are subject to post-cessation shareholding requirements, along with malus and clawback provisions.
Sharesave
Scheme and
Share Incentive
Plan (SIP)
To align the interests of UK employees and shareholders by encouraging all UK employees to own Meggitt shares.
2022 remuneration time horizons
2022 Incentive Plans
2022
2023
2024
2025
2026
2027
2028
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
STIP
Performance
Period
Deferral Period1
PSA
Performance Period
Holding Period
RSA
Vesting Period
Holding Period
1 STIP deferral of 25% of the outcome into shares for two years.
Long-Term Incentive Plan (LTIP) –
Performance Share Awards
Short-Term Incentive Plan
(STIP)
Underlying operating profit
33.3%
Free cash flow
33.3%
Strategic and financial objectives
33.3%
Total STIP
100.0%
Underlying EPS
33.3%
ROCE
33.3%
Strategic measures: HPS / Inventory /
Programmes / Sustainability
33.3%
Total PSA
100.0%
2022 pay scenario summaries
Max+50% SP
Maximum
On-target
Minimum
57%
35%
8%
33%
22%
5%
3%
3%
32% 10% 20%
33%
27%
14%
34%
27%
17%
£1,221
£2,114
£3,091
£3,729
19%
Salary and benefits
Pension
STIP
PSA
RSA
Max+50% SP
Maximum
On-target
Minimum
57% 8% 35%
33%
23%
5%
33%
3%
32% 10% 20%
27%
14%
£779
£1,345
£1,964
£2,368
19% 3%
27%
34%
17%
Mr A Wood (£’000)
Mrs L Burdett (£’000)
Meggitt PLC Annual Report and Accounts 2021
131
Directors’ Report
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 2021 and the prior year:
Mr A Wood
Mrs L S Burdett
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Salary1
Taxable benefits2
Pension Allowance3
634
14
120
597
14
143
402
14
74
378
14
84
Total fixed
768
754
490
476
Annual bonus4
Deferred bonus4
LTIP5
RSA6
357
119
275
218
–
–
171
n/a
226
75
174
138
–
–
–
n/a
Total variable
969
171
613
–
Total remuneration
1,737
925
1,103
476
1 Salary for both Executive Directors is reported with a voluntary reduction of 10% in the first half of the year in exchange for unpaid leave, aligned with the wider workforce. For the
CEO the annual salary of £663k reduced by £33k from January to June 2021, and for the CFO the annual salary of £420k reduced by £21k from January to June 2021. Executive Director
salaries were increased by 2.5% with effect from the deferred salary review date of 1 October 2021, in line with the wider workforce.
2 Taxable benefits consist primarily of company car or car allowance, fuel allowance and private health care insurance. Mrs Burdett received a relocation allowance as part of the transition
of the head office to Ansty Park of £6,240 in 2021.
3 Pension allowances were calculated on the unreduced salary for 2021 at 18% of salary for the CEO and 17.5% for the CFO.
4 STIP paid for performance over the relevant financial year. 25% of the payout was deferred into shares. Further details of the 2021 STIP, including performance measures, actual
performance and bonus payouts, can be found on pages 132 to 133.
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 2021, the figure represents the actual vesting outcome of the 2019 award. Based on performance to 31 December 2021 the 2019 LTIP award will vest at 13.2%.
The market value of vested shares has been estimated using the average share price over the last quarter of 2021 of 742.80 pence. £80k and £51k of the value of the 2019 LTIP shown for
the CEO and CFO respectively is attributable to share price appreciation, with Meggitt’s share price increasing by 42% since the grant date. The value also includes accrued dividends
of £2k and £1k for the CEO and CFO respectively. 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 134. For 2020, the figure represents the actual vesting of the 2018 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 2018 LTIP (for the CEO only, the CFO having joined Meggitt in 2019) vesting has been updated
from the 2020 report from £131k to £171k due to increase in share price owing to the proposed acquisition by Parker-Hannifin since the figures were estimated in February 2021.
6 RSA (Restricted Share Awards) were granted in 2021 as 3 separate tranches with a 1, 2 and 3-year vesting period. They are subject to a holding period, which when added to the vesting
period, will not be less than 5 years from date of grant and ends on the relevant expiry date. The 2021 figure represents full vesting of the 1-year tranche of awards granted in April 2021,
the Committee assessment period for which was substantially completed as at year end which is reported on page 135. The market value of vested shares has been estimated using
the share price over the last quarter of 2021 of 742.80 pence, with this value to be trued up in next year’s report. £79k and £50k of the value of the RSA shown for the CEO and CFO,
respectively, is attributable to share price appreciation, with Meggitt’s share price increasing by 58% since the grant date. See page 135 for further details.
Incentive outcomes for the year ended 31 December 2021 (audited)
STIP in respect of 2021 performance
The Board set stretching financial and strategic targets for the STIP at the start of the 2021 financial year. These targets, and the
performance against these, are summarised in the table below.
Executive Directors
Weighting
Measure
(as a percentage
of maximum)
Threshold
1/3 payout
Target
2/3 payout
Stretch
full payout
Actual1
Percentage of
element
Financial Underlying operating profit
33.3%
£175.3m
£219.1m
£241.0m
£184.2m
40.1%
Financial Free cash flow
33.3%
£130.4m
£163.0m
£179.3m
£118.6m
0%
Strategic See below
33.3%
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 133 of this report.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
132
A summary of the strategic objectives applying to each Executive Director and the outcome is provided below:
Tony Wood
Chief Executive
Strategy
Deliver sustainability goals and enhance portfolio to
underpin margin and earnings growth
Performance against objectives
• Implemented pricing review across all Product Groups.
• Implemented pricing review across all Product Groups.
Customer
Increase satisfaction levels and grow aftermarket
and defence
• Organic AM growth closed up 6.6% against a slower than
anticipated recovery in air travel globally. Quality Escapes –
significant improvement following Zero Defect Plan success
closing the year 48% lower than target, with DPPM also better
by 17%.
Competitiveness
Improve core business processes and efficiencies
• Successful transition of multiple business units to Ansty Park.
Culture
Improve employee engagement and embed high
performance culture programmes
• Engagement index achieved all-time best result at 76% with
a 73% response rate – a very good result in very challenging
circumstances for the business given the extended pandemic
and Parker-Hannifin deal impacts during the year.
• Lowest to date TRIR achieved at 0.63 and two key leadership
and operations leadership training programmes successfully
delivered and positively received by employees.
Louisa Burdett
Chief Financial Officer
Strategy
Provide liquidity for the Company
Performance against objectives
• Implemented necessary financial arrangements in place to
enable the business to operate safely through an extended
pandemic and to position it with sufficient flexibility to operate
successfully as civil aerospace recovers.
Customer
Support investors and MIS and FSSC as internal partners
• Managed investor messages during 2021 especially during
acquisition discussions and supported ESG disclosures.
Competitiveness
Improve Meggitt’s recurring cost base
• Significant de-risking in UK pension plan liabilities.
• Implemented new Investment Committee.
• Lead the acquisition of HiETA.
Culture
Drive incremental change to impact overall score
• Improvements and automation delivering significant
improvements in cash forecasting capability.
• Balance sheet reviews and an in-depth assessment of SOx
in readiness for 2022 action.
The Committee sets the above stated objectives for the Executive Directors at the start of the year. In its adjudication of the
outcome under the personal element of the STIP opportunity, the Committee also considered it appropriate to reflect the
Executive Directors’ personal performance in the context of the evolution in short-term strategic priorities presented by the
approaches from Parker-Hannifin and TransDigm. The Committee’s adjudication therefore reflects not only the basket of
objectives outlined above, but also a qualitative overlay of the significant contribution made to protecting stakeholder interests
throughout the year. This includes the significant value created through the potential transaction with Parker-Hannifin, which was
strongly supported by shareholders, and the work undertaken to safeguard wider stakeholder interests, including employees,
pension plan members, customers and suppliers, through the transaction should it proceed. In this context, the Committee
assessed the performance of the Executive Directors to have significantly exceeded expectations. In line with the approach
adopted for the wider STIP population, this rating outcome corresponds to full payout of the strategic element.
CEO and CFO payout based on assessment of objectives (% of element): 100%
As a result, the following STIP awards were received by Executive Directors in respect of 2021 performance:
Executive
% salary
£’000
Mr A Wood
70.1%
476
Mrs L S Burdett
70.1%
301
Meggitt PLC Annual Report and Accounts 2021
133
Directors’ Report
Directors’ remuneration report
continued
STIP – deferral into shares (audited)
As a result of the 2021 STIP outcome described above, and in line with the Remuneration Policy, 25% of the payout will be deferred
into shares and released (with no further performance conditions attached) after two years. Deferred STIP awards may lapse in
certain leaver circumstances.
Last year the Committee used its discretion to reduce the 2020 STIP vesting to zero. Accordingly, no deferred bonus share awards
were made under the Share Incentive and Retention Plan during the 2021 financial year.
LTIP 2019 outcome
The LTIP award granted in April 2019 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:
Performance period
Targets
Actual
% vesting
Element
2019
2020
2021 Weighting
Threshold
30%
Mid-point
65%
Stretch
100%
Performance
(of LTIP)
Underlying EPS (pence)
three-year aggregate
•
•
w
33.3%
108.9
115.5
122.3
72.4
0.0%
ROCE % average over three years
•
•
•
33.3%
12.1%
12.5%
12.9%
7.0%
0.0%
Strategic Measures1
•
•
•
Programme excellence2
•
•
•
11.1%
2.0
3.0
4.0
2019: 3.1
7.3%
2020: 2.8
2021: 3.1
MPS3
•
•
7.4%
40%
50%
60%
2019: 50.0%
4.1%
2020: 44.6%
HPS (MPS) Quality4
•
1.9%
1,225
1,192
1,165
681
1.8%
HPS Delivery4
•
1.9%
74%
84%
94%
68%
0.0%
Inventory Turns5
•
•
•
11.1%
3.0
3.2
3.4
2019: 2.7
0.0%
2020: 2.1
2021: 2.1
Overall outcome
13.2%
1 Progress against the targets for all strategic measures are assessed annually and the final vesting outcome is based on the average warranted outcome for performance in each year
covered by the relevant measure. For example the score for MPS is the average vesting warranted by for delivering a score of 50% in 2019 and 44.6% in 2020 (being the two years of the
2019 LTIP for which MPS targets were set).
2 Performance score out of 5. Programme excellence is the combined score of programmes and AR&T programmes (previously “innovation”) weighted 50/50.
3 Vesting is based on the number of our sites that have progressed up one stage of HPS in the year.
4 HPS (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.
5 Cost of Sales as used in the inventory turns measure includes the impact of exceptional items.
Based on these performance outcomes, 13.2% of the 2019 LTIP award will vest. Details of the awards vesting for Executive
Directors are set out in the table below:
Executive
Interests
held
Vesting
%
Interests
vesting
Date
of vesting
Share price
at vesting1
Value
£’0002
Mr A Wood
278,443
13.2
36,754
08.04.2022
742.8p
275
Mrs L Burdett
176,389
13.2
23,283
08.04.2022
742.8p
174
1 The market value of vested stock is based on the average share price over the last quarter of 2021.
2 The value includes the accrued distribution payable on the shares that vest (equivalent to a dividend, paid as income) of £2k for Mr A Wood and £1k for Mrs L Burdett.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
134
LTIP – 2021 Restricted Share Award (RSA) Tranche 1
As set out in last year’s remuneration report, the 2021 RSA vests in equal instalments after 1, 2 and 3 years, subject to a
discretionary assessment by the Committee of Meggitt’s performance against a basket of measures. The Committee evaluated
a range of performance categories, including: balance sheet strength (management of interest cover to 2.4x, and safeguarding
the balance sheet through successful RCF refinancing during the year); employee engagement scores (which increased in 41 of 42
parameters); health & safety (our best TRIR results to date); customer measures (escapes and AM growth); and progress against
our sustainability roadmap (exceeding our target for R&D expenditure in sustainable technologies, and ensuring no reputational
incidents in the year). Following the Committee’s assessment of Meggitt’s overall performance against this range of categories in
2021 it is confirmed that 100% of the first tranche of the 2021 RSA will vest in full as set out below:
Executive
Interests
held
Vesting
%
Interests
vesting
Date
of vesting
Share price
at vesting1
Value
£’000
Mr A Wood
29,292
100
29,292
29.04.2022
742.8p
218
Mrs L Burdett
18,556
100
18,556
29.04.2022
742.8p
138
1 The market value of vested stock is based on the average share price over the last quarter of 2021.
Scheme interests awarded in the year ended 31 December 2021 (audited)
LTIP – Performance Share Award (PSA)
Executive Directors were each granted PSA awards in 2021. Vesting is dependent on the achievement of three-year targets ending
on 31 December 2023. As disclosed in last year’s report, due to the impact of the continuing COVID-19 pandemic, the Committee
decided to delay setting the targets for the PSAs for 2021 until such time that it could finalise appropriate performance ranges.
Awards were granted on 29 April 2021 and the accompanying market announcement set out full details of the targets applying to
these awards, as below:
Weighting
Measure
Threshold1
Mid-point1
Stretch1
33.3%
Underlying EPS (pence) three-year cumulative
57.4
67.6
77.7
33.3%
ROCE average over three years
5.3%
6.8%
8.3%
Strategic measures:
11.1%
Programme excellence (programme performance on NPI and
AR&T programme health, and progress with sustainable technology
programmes)
2.0
3.0
4.0
11.1%
High Performance System Delivery Outcomes
Quality Outcomes
(outcomes are averaged based on our Company performance)
74%
1,225
84%
1,192
94%
1,165
11.1%
Inventory Turns
2.3
2.8
3.3
1 Vesting is 25% at threshold, 62.5 at mid-point and 100% at stretch.
2021 PSA
Executive
Form of award
Date of award
Shares over which
awards granted
Award price1
Face value
End of Performance
Period
£’000
% of salary2
Mr A Wood
Conditional Award
29.04.2021
175,753
471.54p
829
125%
31.12.23
Mrs L S Burdett
Conditional Award
29.04.2021
111,337
471.54p
525
125%
31.12.23
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.
Meggitt PLC Annual Report and Accounts 2021
135
Directors’ Report
Directors’ remuneration report
continued
LTIP – Restricted Share Award (RSA)
Following shareholder approval of the new Remuneration Policy, Executive Directors were each granted RSA awards in 2021.
Vesting of RSAs awards is subject to continued employment, but not any formal performance measures; however, the Committee
has assessed the vesting based on a basket of measures, as adjusting these measures to be appropriate for the position in the
recovery period. These measures have been disclosed on page 135. 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 assessment will be fully disclosed in the relevant Annual Report. In order to address
immediate issues of incentive and retention during the recovery period, and as disclosed last year, vesting of this first grant of RSA
awards will occur 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 owing to the application of the normal holding period.
2021 RSA
Executive
Form of award
Date of award
Shares over which
awards granted
Award price1
Face value
Date of vesting
£’000
% of salary2
Mr A Wood
Conditional Award
29.04.2021
87,876
471.54p
414
62.5%
29.04.2022-
29.04.2024
Mrs L S Burdett
Conditional Award
29.04.2021
55,668
471.54p
262
62.5%
29.04.2022-
29.04.2024
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 date of grant.
Total pension entitlements (audited)
Mr Wood and Mrs Burdett received pensions allowances in 2021 of 18.0% and 17.5% of salary respectively. The pension allowance
payments made in 2021 are included in the single total figure of remuneration table. Consistent with all employees, the Executive
Directors received pension contributions and all other benefits based on their unreduced salary (and the data in the single total
figure of remuneration reflects this).
In 2022, Mr Wood and Mrs Burdett’s pension allowances are being reduced to 15% of salary. Neither Executive Director
participates in a defined benefit pension. Further reductions to their pension allowances will be reviewed by the Committee later
in 2022.
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 applies to the Executive Directors. Further information on their
progress towards meeting their shareholding guidelines is set out below. 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 2021, the Chief Executive’s shareholding was 252% of base salary and the Chief Financial Officer’s shareholding
was 32% of base salary.
Executive Director
Shareholding Guideline
(% 2021 salary)
Shareholding
Current Shareholding
(% 2021 salary)
Guideline Met?
Mr A Wood
300%
232,316
252%
Building
Mrs L S Burdett
200%
18,413
32%
Building
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
136
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 2021, 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:
Shareholding
Ordinary shares of 5p each
Executive Director
2021
2020
Mr A Wood
123,348
43,291
Mrs L S Burdett
8,628
5,500
Between 1 January 2022 and 1 March 2022, the following changes to the interests of the Directors in the ordinary shares of the
Company took place: 1) Mr Wood acquired 40 shares through the Meggitt PLC Share Incentive Plan; and 2) Mr Wood and Mrs
Burdett retained 15,419 shares and 9,768 shares respectively following the vesting of their 2020 SIRP award on 28 February 2022.
Executive Directors’ shareholding requirements (audited)
Shares which are included within the shareholding requirement are:
Source of shares
Description
LTIP (PSA and RSA)
Shares awards that have vested but not been exercised on a net of tax basis and
share awards that have been exercised and retained
SIRP (Deferred Bonus)
Share awards that have not vested on a net of tax basis and shares released after
the two-year deferral period
Ordinary shares
Shares purchased directly in the market
Dividend reinvestment plan
Shares acquired through the dividend reinvestment plan
SIP
Shares acquired under the SIP (including those held in trust)
Sharesave Scheme
Shares exercised and retained
Meggitt PLC Annual Report and Accounts 2021
137
Directors’ Report
Directors’ remuneration report
continued
Executive Directors’ interests in share schemes (audited)
All outstanding LTIP PSA 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 2021). The awards made up to and including 2018 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 2019 and later years were unvested as at 31 December 2021. RSA awards (the
first grant of which took place in 2021) are not subject to a formal performance condition. Sharesave awards are not subject to
performance conditions.
Number of shares under award
Date of
award
At 1
January
2021
Awarded
Exercised
Lapsed
At 31
December
2021
Exercise
price
Market price
at date of
exercise
Date
exercisable
from
Expiry
Date
Mr A Wood
LTIP (2016)
1.12.16
112,506
0
-112,506
0
0
0
740.75p
1.12.19
1.12.21
LTIP (2017)1
7.4.17
142,837
0
0
0
142,837
0
n/a
7.4.20
7.4.22
LTIP (2018)1
3.4.18
332,852
0
0
-299,234
33,618
0
n/a
3.4.21
3.4.23
LTIP (2019)2
8.4.19
278,443
0
0
0
278,443
0
n/a
8.4.22
8.4.24
LTIP (2020)3
28.2.20
251,638
0
0
0
251,638
n/a
n/a
28.2.23
n/a
LTIP (2021 – RSA)3
294.21
0
29,292
0
0
29,292
n/a
n/a
29.4.22
n/a
LTIP (2021 – RSA)3
294.21
0
29,292
0
0
29,292
n/a
n/a
29.4.23
n/a
LTIP (2021 – RSA)3
294.21
0
29,292
0
0
29,292
n/a
n/a
29.4.24
n/a
LTIP (2021 – PSA)3
294.21
0
175,753
0
0
175,753
n/a
n/a
29.4.24
n/a
SIRP 2019
8.4.19
38,155
0
-38,155
0
0
n/a
n/a
8.4.21
n/a
SIRP 20203
28.2.20
29,146
0
0
0
29,146
n/a
n/a
28.2.22
n/a
Sharesave 20184
13.9.18
847
0
0
0
847 425.02p
n/a
1.11.21
1.5.22
Sharesave 20195
17.9.19
1,826
0
0
0
1,826 492.80p
n/a
1.11.24
1.5.25
Total
1,188,250
263,629
-150,661
-299,234
1,001,984
1 Nil cost options – vested (unexercised).
2 Nil cost options – unvested.
3 Conditional award – unvested.
4 Options – vested (unexercised).
5 Options – unvested.
Number of shares under award
Date of
award
At 1
January
2021
Awarded
Exercised
Lapsed
At 31
December
2021
Exercise
price
Market price
at date of
exercise
Date
exercisable
from
Expiry
Date
Mrs L S Burdett
LTIP (2019)1
8.4.19
176,389
0
0
0
176,389
n/a
n/a
8.4.22
8.4.24
LTIP (2020)2
28.2.20
159,409
0
0
0
159,409
n/a
n/a
28.2.23
n/a
LTIP (2021 – RSA)2
294.21
0
18,556
0
0
18,556
n/a
n/a
294.22
n/a
LTIP (2021 – RSA)2
294.21
0
18,556
0
0
18,556
n/a
n/a
294.23
n/a
LTIP (2021 – RSA)2
294.21
0
18,556
0
0
18,556
n/a
n/a
294.24
n/a
LTIP (2021 – PSA)2
294.21
0
111,337
0
0
111,337
n/a
n/a
294.24
n/a
SIRP (2019)
8.4.19
5,913
0
-5,913
0
0
n/a
n/a
8.4.21
n/a
SIRP (2020)2
28.2.20
18,463
0
0
0
18,463
n/a
n/a
28.2.22
n/a
Sharesave (2019)3
17.9.19
1,826
0
0
0
1,826 492.80p
–
1.11.24
1.5.25
Total
362,000
167,005
-5,913
0
523,092
1 Nil cost options – unvested.
2 Conditional award – unvested.
3 Options – unvested.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
138
External appointments held by Executive Directors as at 31 December 2021
Executive Director
Company
Role
Fees retained 2021
£’000
Mr A Wood
National Grid plc
Non-Executive Director
(from 1 September 2021)
Committee membership
30
5
35
Mrs L S Burdett
Electrocomponents plc
Non-Executive Director
Chair of Audit Committee
61
14
Total
75
Exit payments made in the year (audited)
No exit payments have been made in 2021.
Payments to past Directors (audited)
There were no payments to past Directors in 2021. 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. Performance, as required by legislation, is
measured by TSR over the ten-year period from 31 December 2011 to 31 December 2021.
£
Value of £100 invested on 31 December 2010
Group Chief Executive’s single total
remuneration figure £'000
Meggitt
Mr T Twigger
Mr S G Young
Mr A Wood
FTSE 100
0
30
60
90
120
150
180
210
240
270
300
0
1000
2000
3000
4000
5000
31/12/2021
31/12/2020
31/12/2019
31/12/2018
31/12/2017
31/12/2016
31/12/2015
31/12/2014
31/12/2013
31/12/2012
Meggitt PLC Annual Report and Accounts 2021
139
Directors’ Report
Directors’ remuneration report
continued
Pay for performance history
The table below details the CEO’s single total figure of remuneration over the same period:
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Mr A Wood1
Single total figure of remuneration
(£’000)
STIP outcome2
LTIP vesting2
2,334
82%
52.1%
1,949
68%
62.4%
925
0%
10.1%
1,737
70%
13.2%
Mr S G Young1
Single total figure of remuneration
(£’000)
STIP outcome2
EPP vesting2
ESOS vesting2
LTIP vesting2
1,296
39%
38%
76%
–
1,232
23%
0%
0%
–
1,347
31%
0%
0%
–
1,969
60%
N/A
N/A
17.3%
2,040
68%
N/A
N/A
18.9%
Mr T Twigger1
Single total figure of remuneration
(£’000)
STIP outcome2
EPP vesting2
ESOS vesting2
3,812
80%
88%
100%
1,845
35%
56%
98%
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 2021, this represents the outcome of the 2019 LTIP and the 2021 STIP.
Outcomes are expressed as a percentage of maximum.
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 years ended
31 December 2019 to 31 December 2021 for all Executive Directors compared to the change in earnings for employees of Meggitt
PLC, and UK employees over the same periods.
Salary
Benefits
Annual Bonus
2020-2021
2019-2020
2020-2021
2019-2020
2020-20212
2019-2020
CEO
CFO
6.2%3
6.3%3
-9.5%
-10%
0.0%
0.0%
0.0%
0.0%
n/a
n/a
-100%
-100%
Meggitt PLC Employees
UK Meggitt Employees
2.1%
0.4%
-3.2%
-0.5%
0.0%1
0.0%
0.0%
0.0%
n/a
n/a
-100%
-100%
1 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.
2 “n/a” for 2020-2021 reflects a nil bonus outcome for 2020 (the base year of the calculation).
3 The % increases to CEO/CFO salaries in 2020/2021, reflect the material voluntary reductions taken in 2020/2021. Excluding those voluntary reductions, the increases in salary earnt by
Executive Directors in 2020/2021 would have been in line with the Employee populations stated above.
A similar analysis is provided for the Non-Executive Directors on page 144.
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 2021. Where variable pay data was
available for the 2021 financial year outturn (to be paid in March 2022 in respect of executive and senior management annual bonus and
LTIP), actual amounts were used. Where the outturn of variable pay for 2021 was unknown at the date of calculation (for managerial,
professional and direct workforce), the amount to be paid in March 2022 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 calculation was made as at 31 December 2021 and the Committee considered the median pay ratio to be reflective
of pay and progression policies, together 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 2020 and 2021 ratios.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
140
The Committee takes into account these ratios when making decisions around the Executive Director pay packages, and the
Group takes the need to ensure competitive pay packages across the organisation seriously.
Lower quartile (25th percentile)
Median
Upper quartile (75th percentile)
(£)
Method
Total Pay
& Benefits
Total
Salary
Total Pay
& Benefits
Total
Salary
Total Pay
& Benefits
Total
Salary
2021
A
35,376
33,637
44,570
40,016
60,952
52,206
2020
A
34,019
31,788
43,831
40,584
59,994
55,550
2019
A
32,879
27,986
42,861
41,317
58,479
52,776
(£)
Method
Pay Ratio 25th Percentile
Pay Ratio Median
Pay Ratio 75th Percentile
2021
A
47:1
38:1
28:1
20201
A
26:1
20:1
15:1
2019
A
59:1
45:1
33:1
1 2020 Ratio has been updated due to the true up of the value at vesting of the 2018 LTIP. Prior reported ratio at median was 20:1.
Relative importance of spend on pay
The chart below shows shareholder distributions (i.e. dividends) and total employee expenditure for 2021 and the prior year, along
with the percentage change in both.
0
100
200
300
400
500
600
Dividends1
£0.0m
£0.0m
0%
14.2%
£485.1m
£565.4m
Shareholder distributions
Employee costs2
2021
2020
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.
2021 Committee evaluation
The Committee reviewed its own effectiveness and the effectiveness of their advisors using a detailed questionnaire and follow
up discussion. Overall, the results of the review were positive, in what was another challenging year including the continued
significant impact of COVID-19 on the aerospace market, and the Parker-Hannifin proposed acquisition, both of which had
implications for remuneration, recruitment and retention across Meggitt. The response of the Committee was viewed as proactive
and appropriate in these circumstances.
Overall, the meetings were well run, with papers of the right length, and discussions being both well-informed and appropriately
robust. The Committee considered it important to consider proactive and pragmatic approaches to remuneration structures,
whilst also taking into account international aerospace and defence comparators.
Context for the Committee’s decisions in 2021
The Committee included regular updates from executive management on the experience of key stakeholders in Meggitt to
ensure that this context was front of mind as the Committee discussed executive pay, with regular updates on impacts on wider
stakeholders, including employees, shareholders, customers and suppliers. The Committee also considered reports from Ellason
on the views of investors and investor advisory bodies on remuneration.
Meggitt PLC Annual Report and Accounts 2021
141
Directors’ Report
Directors’ remuneration report
continued
2022 Policy implementation
Base salary, pension and benefits
With effect from 1 April 2022, the Executive Directors’ salaries will be increased by 3%, in line with the salary increases for the
wider employee population effective from that date.
The following table shows the base salaries for the Executive Directors:
From 1 April 2022
£’000
%
change
From 1 October 2021
£’000
Mr A Wood
700
+3%
680
Mrs L S Burdett
443
+3%
431
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, Halma, IMI, Melrose Industries, Rolls-Royce, Rotork,
Senior, Spectris, Spirax-Sarco, Ultra Electronics and Weir Group.
From 1 January 2022, the Committee agreed a reduced pensions allowance for the Chief Executive and Chief Financial Officer of
15% of salary. There are no other changes to benefit provisions for 2022.
2022 Incentive Opportunities
No changes are proposed to the implementation of the 2021 Policy in 2022. The maximum STIP opportunity for Executive
Directors will continue to be 150% of salary. Performance Share Awards (PSA) are expected to be granted with face values of 125%
of salary for the Executive Directors, alongside Restricted Share Awards (RSA) with face values of 62.5% of salary.
2022 Incentive Plan Measures
Targets for the 2022 STIP and 2022 PSAs have been set following the usual methodology.
For 2022, the Committee has considered the increasing importance of ESG-related factors and has incorporated a new
sustainability measure into the PSA scorecard. The 2022 goal is to reduce Meggitt’s gross Scope 1 & 2 carbon emissions
(normalised for revenue, excluding carbon brake manufacturing) by 3% from 2022 levels. Carbon brake manufacturing
emissions are excluded as they arise from the brake manufacturing process itself and specific projects are underway to review
and reduce emissions from brake manufacturing. Strategic measures under the STIP for the Executive Directors also include
sustainability goals.
STIP
STIP design for 2022 is unchanged from 2021, as follows:
• Underlying operating profit 33.3%
• Free cash flow 33.3%
• Strategic Objectives 33.3%
The STIP targets for 2022 are considered to be commercially sensitive, and will be disclosed, together with details of whether they
have been met, in the 2022 Directors’ remuneration report (subject to them being no longer considered sensitive).
LTIP – Performance Share Awards
The measures for the 2022 PSAs are earnings per share (weighted one-third), ROCE (weighted one-third) and four strategic
measures (weighted one-third in aggregate, and which include our High Performance System, programme excellence,
sustainability and inventory):
• HPS: 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.
• Sustainability: based on reducing gross Scope 1 & 2 carbon emissions (CO2e), normalised for revenue, excluding carbon
brake manufacturing.
• Inventory: based on inventory turns.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
142
Targets
Weight
Threshold
Mid-point
Stretch Financial
measures
EPS (3-year average)
33.33%
76.0p
89.4p
102.8p
ROCE (3-year average)
33.33%
7.1%
8.6%
10.1%
Strategic measures*
HPS – quality escapes
5.6%
666
646
626
HPS – on-time delivery
5.6%
74%
84%
94%
Programme excellence
5.6%
2.0
3.0
4.0
Sustainability
5.6%
2%
3%
4%
Inventory
11.1%
2.2
2.7
3.2
Total
100%
* The targets apply to year 1 of the 2022 PSA, and also apply to year 2 of the 2021 PSA and year 3 of the 2020 LTIP.
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 Meggitt’s stage 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.
Co-Operation Agreement with Parker-Hannifin
The Committee took actions to apply our Directors’ Remuneration Policy appropriately and in shareholders’ best interests
in the context of the proposed acquisition for the Company by Parker-Hannifin which was approved by our shareholders in
September 2021.
All incentive plan outcomes for executives in the context of the transaction will be appropriately assessed by the Committee
against the relevant performance conditions (and subject to time pro-rating) prior to completion of the transaction which is
anticipated in Q3 2022. Complete details of the remuneration arrangements agreed by Meggitt and Parker-Hannifin relating
to the offer for the Company are detailed in the Co-Operation Agreement for the transaction which is available to view at
www.meggittoffer.com.
Owing to the lengthy regulatory process prior to completion, and as set out in the Co-Operation Agreement, the Committee
intends to operate the STIP and LTIP as normal in 2022 up until the deal completes. Further information is included in the STIP/
LTIP sections in this report.
Meggitt PLC Annual Report and Accounts 2021
143
Directors’ Report
Directors’ remuneration report
continued
Non-Executive Directors
Chairman and Non-Executive Director fee structure for 2021 and 2022
In Q1 2021, it was agreed to continue to freeze fees at 2020 levels, and to apply a 10% fee reduction from 1 January 2021 to
30 June 2021, aligned with the 10% voluntary unpaid leave reduction for Executive Directors.
On 1 October 2021, the Chairman and Non-Executive Director fees were increased by 2.5% from 2020 levels, consistent with the
delayed increase awarded to the wider workforce.
The Committee has approved a 3% increase to the Chairman’s fee with effect from 1 April 2022, in line with the salary increases
for the wider employee population effective from that date. The Finance Committee approved the same increase to the Non-
Executive Director base fee from that date.
The fee structure and levels for the Chairman and Non-Executive Directors in 2022 and 2021 (not including COVID-19 reductions)
are as follows:
20221
£’000
20211
£’000
Chairman fee2
366
364
Non-Executive Director base fee3
61
60
Additional fee for chairing Audit or Remuneration Committee
11
11
Additional fee for chairing Corporate Responsibility Committee and
Non-Executive Director responsible for Employee Engagement
11
11
Additional fee for Senior Independent Director
11
11
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 Non-Executive Directors (audited)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director in 2021 and 2022:
20211
£’000
20201
£’000
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
348
61
69
69
76
57
57
328
65
65
62
65
58
54
1 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 years ended 31 December 2019 to
31 December 2021 for all Non-Executive Directors compared to the change in salary, benefits and annual bonus for Meggitt PLC
employees, and all Meggitt UK employees over the same periods.
Salary
Benefits
Annual Bonus
2020-2021
2019-2020
2020-2021
2019-2020
2020-2021
2019-2020
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
6%
-6%
6%
11%
17%
-2%
6%
-9%
-4%
-8%
-26%
-4%
-34%
32%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Meggitt PLC employees
UK Meggitt employees
2.1%
0.4%
-3.2%
-0.5%
0%
0%
n/a
n/a
0%
0%
-100%
-100%
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
144
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 2021, as notified under the Disclosure Guidance and Transparency Rules (DTR) of the Financial Conduct Authority
(FCA), were as follows:
Shareholding
Ordinary shares of 5p each
2021
2020
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
250,000
38,000
76,937
3,188
6,000
3,000
5,000
250,000
38,000
76,937
3,188
6,000
3,000
5,000
Between 1 January 2022 and 28 February 2022, 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
Ellason LLP was appointed as the independent remuneration advisor to the Committee effective 1 January 2021 as a result of
a competitive tender run by the Committee for remuneration advisory services in H2 2020. The Committee undertakes due
diligence periodically to ensure that Ellason is independent and that the advice provided is impartial and objective. During 2021,
Ellason provided independent advice including support on the review of the Remuneration Policy and consultation, remuneration
provisions as part of the proposed acquisition by Parker-Hannifin, updates on the external remuneration environment and
Directors’ remuneration report drafting support. Ellason reports directly to the Chair of the Remuneration Committee and does
not advise the Company on any other issues. Their total fees for the provision of remuneration services to the Committee in 2021
were £46,085 (2020: £81,117 to previous advisors, Mercer) on the basis of time and materials.
Ellason is member and signatory of the Code of Conduct for Remuneration Consultants, details of which can be found at
www.remunerationconsultantsgroup.com. None of the individual Directors have any direct personal connections with Ellason.
AGM voting
The following table shows the results of the advisory vote on the 2020 Directors’ remuneration report at the 2021 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
603,974,822
95.82
26,349,305
4.18
630,324,127
5,384,782
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 Directors’ Remuneration Policy at the 2021 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
477,572,623
75.66
153,628,927
24.34
631,201,550
4,507,829
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.
Following the AGM, the Committee reviewed shareholder feedback in relation to the remuneration resolutions, as described in
the Chair’s introduction to this report. The Committee acknowledges the differing views of shareholders regarding the use of
multiple long-term incentive vehicles, but believes this to be appropriate in facilitating Meggitt’s ability to compete effectively in
its key talent markets to attract motivate and retain talent. We remain committed to keeping under review our approach during
the life of the Policy.
Remuneration Policy
The Policy that was approved by shareholders at the AGM on 29 April 2021 is reproduced in full below. The only change is the
update to the pay scenario charts to reflect 2022 remuneration and updating the pension allowance rates payable in 2022.
The Policy is effective for a period of up to three years from the date it was approved. In developing the 2021 Remuneration
Policy, the Committee took into account the provisions of the Code. The Policy is compliant with the Code, with the exception of
Provision 38 on pension allowances. We recap below our assessment of how we believe the current Policy complies with Provision
40 of the Code.
Meggitt PLC Annual Report and Accounts 2021
145
Directors’ Report
Directors’ remuneration report
continued
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 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 129.
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.
Predictability: Incentive opportunities are capped, with clearly defined payout schedules aiding participants’ understanding
of how incentives operate and the performance expectations attaching to these. The use of restricted share awards, further
enhances 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 Policy is 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.
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.
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.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
146
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 2022, for incumbent Executive Directors, the pension allowance will be 15%
of salary.
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.
Meggitt PLC Annual Report and Accounts 2021
147
Directors’ Report
Directors’ remuneration report
continued
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.
(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.
The award for performance under each element of the STIP will be calculated independently.
The Committee has discretion to review the consistency of the payout 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).
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
148
Long-Term Incentive Plan (LTIP)
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. Performance Share Awards (PSAs) which are subject to the achievement of stretching
performance targets.
2. Restricted Share Awards (RSAs) for which vesting levels are subject to a general
assessment by the Committee as to overall performance and any other wider
considerations. The Committee has discretion to apply additional conditions to some
or all of an RSA.
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.
(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.
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Directors’ Report
Directors’ remuneration report
continued
Long-Term Incentive Plan (LTIP) continued
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).
• 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.
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.
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.
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
150
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
Maximum annual
grant value
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.
N/A
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.
N/A
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
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)
LTIP
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.
Approach to performance measure selection and target setting
Performance measures have been selected to closely align with and reinforce our strategic priorities (see pages 24 to 25).
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.
Meggitt PLC Annual Report and Accounts 2021
151
Directors’ Report
Directors’ remuneration report
continued
Directors’ Report
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.
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.
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 2022 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.
2022 pay scenario summaries
Max+50% SP
Maximum
On-target
Minimum
57%
35%
8%
33%
22%
5%
3%
3%
32% 10% 20%
33%
27%
14%
34%
27%
17%
£1,221
£2,114
£3,091
£3,729
19%
Salary and benefits
Pension
STIP
PSA
RSA
Max+50% SP
Maximum
On-target
Minimum
57% 8% 35%
33%
23%
5%
33%
3%
32% 10% 20%
27%
14%
£779
£1,345
£1,964
£2,368
19% 3%
27%
34%
17%
Mr A Wood (£’000)
Mrs L Burdett (£’000)
Meggitt PLC Annual Report and Accounts 2021
152
The following assumptions have been made in compiling the 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
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.
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.
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Directors’ Report
• 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
Mr A Wood
Service contract dated
13 November 2017
Chief Executive
Officer
12 months
6 months
As set out in the Remuneration Policy.
No change of control provisions
Mrs L S Burdett
Service contract dated
17 September 2018
Chief Financial
Officer
12 months
6 months
As set out in the Remuneration Policy.
No change of control provisions
Remuneration policy for other employees and engagement
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 2021.
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.
• 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 programme is enhanced by the increase in
employee engagement.
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.
The Remuneration Committee primarily consults management to understand employee views on executive remuneration. The Board
also regularly invites Meggitt’s Non-Executive Director responsible for employee engagement, Nancy Gioia – who is a member of the
Committee – to report on feedback received through the Board’s very extensive engagement programme with the workforce (as outlined
elsewhere in this Annual Report). Therefore there is an effective two-way mechanism in place for employees’ views and feedback. As a
Board generally, we keep our approach to employee engagement (as set out on pages 90 and 92) under review and look forward to
evolving our approach further over time.
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 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.
Directors’ remuneration report
continued
Directors’ Report
Meggitt PLC Annual Report and Accounts 2021
154
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 9.3% to 5.7% in
2021. Our progress was driven by several senior executive changes and our increased focus on diversity and inclusion. The CEO
Pay Ratio increased from 20x to 38x, due to a increased incentive outcome for the CEO relative to the more fixed remuneration
packages for the UK workforce, a large proportion of whom are production workers.
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
To attract and retain Non-Executive Directors of the highest calibre with broad
commercial and other experience relevant to the Group.
Operation
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.
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 above.
By order of the Board
Alison Goligher
Chair of the Remuneration Committee
2 March 2022
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155
Directors’ Report
Other statutory information
Directors’ Report
The Directors present their report with the Group’s audited consolidated financial statements (prepared in accordance with UK-
adopted international accounting standards and the Companies Act 2006) 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 2021.
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 our Directors’ report by reference:
Information incorporated into the Directors’ report by reference
Location and page
Important events and likely future developments in the Group’s
business
Strategic report (pages 08 to 94)
Post balance sheet events
N/A
Employee information
Employee engagement
Employment of disabled persons
Corporate responsibility report (pages 74 to 77)
Stakeholder engagement pages (90 and 92)
Corporate responsibility report (page 76)
Engagement with stakeholders
Stakeholder engagement (pages 90 to 92)
Greenhouse gas emissions
Corporate responsibility report (page 82)
Research and development
Note 7 to the Group’s consolidated financial statements (page
196) and Chief Financial Officer’s review (page 44)
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
Note 3 to the Group’s consolidated financial statements (pages
188 and 189)
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 18 to the Group’s consolidated financial statements (page
204)
Overseas branches
Note 45 to the Group’s consolidated financial statements (pages
230 and 231)
Dividends
The Board recognises the importance of the dividend to the Company’s shareholders, but due to the financial impact of the
COVID-19 pandemic on the Group, the Board took the prudent decision not to recommend a final dividend per ordinary 5 pence
share for 2020 in order to retain cash within the Group, manage net debt levels and preserve flexibility. The Board also took the
decision not to pay an interim dividend in 2021 due to ongoing market conditions. Therefore no dividend was paid in 2021 (2020: nil).
In line with the terms of the previously announced proposed acquisition with Parker-Hannifin, the Group is not paying a final dividend
for 2021.
Dividend Reinvestment Plan
We operate 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, our Registrar. During 2021,
no dividends were paid.
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 100 to 103 and in the AGM notice. Succession activities are
highlighted in the Nominations Committee report on pages 122 to 124.
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.
Meggitt PLC Annual Report and Accounts 2021
156
Conflicts of interest
We have 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 conflict, the Directors must have regard to their general duties under the Companies Act 2006.
The authorisation of any conflict matter and the terms of authorisation are regularly reviewed by the Board. Further details can be
found on page 110.
Political donations
Neither the Group nor the Company made any political donations or incurred any political expenditure during the year (2020: None).
Share capital and control
As at 31 December 2021, the Company held 9,859 treasury shares with a nominal value of 5 pence each and the Company’s issued
share capital (excluding shares held in treasury) consisted of 782,005,314 shares with a nominal value of 5 pence each. As at 1
March 2022, the Company held 9,859 treasury shares with a nominal value of 5 pence each and the Company’s issued share capital
(excluding shares held in treasury) consisted of 782,021,555 shares with a nominal value of 5 pence each. The issued share capital
of the Company at 31 December 2021 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 our registered office. The holders of ordinary shares are
entitled to receive a copy of our Annual Report and Accounts, to attend and speak at our General Meetings, 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.
We operate 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 a General Meeting.
At the 2021 AGM, the Company was granted authority by shareholders to purchase up to 78,127,336 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 2021. 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
£26,042,444, of this amount £13,021,222 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 £1,953,183 and a further £1,953,183 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 2022 AGM or, if earlier, 30 June 2022. The Company will seek shareholder approval
to renew these authorities at the 2022 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 USD600m note purchase agreement dated May 2016, two term loan facility agreements in the
amounts of GBP30m and USD50m dated December 2019, a GBP50m term loan agreement dated June 2020, a USD300m note purchase
agreement dated November 2020 and a USD410m syndicated revolving credit agreement dated November 2021.
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.
Meggitt PLC Annual Report and Accounts 2021
157
Directors’ Report
Other statutory information
continued
Directors’ Report
Agreements with the Company’s Directors or employees providing compensation in the event of a takeover bid:
Director
Contractual entitlement
Mr A Wood
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.
Mrs L S Burdett
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.
Substantial shareholdings
At 31 December 2021, 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:
Direct
voting rights*
Indirect
voting rights*
Other financial
instruments with
voting rights*
Total
voting rights*
Percentage
of total
voting rights**
BlackRock Inc.
–
33,087,041
60,961,162
94,048,203
12.02
JPMorgan Securities plc
–
2,157,686
68,237,708
70,395,394
9.00
Societe Generale
50,995,659
–
95,500
51,091,159
6.53
Morgan Stanley
–
47,052,874
183,169
47,236,043
6.04
FMR LLC (FIL Limited)
–
38,024,107
1,430,060
39,454,167
5.05
The Capital Group Companies, Inc
–
38,606,468
–
38,606,468
4.94
Harris Associates L.P.
–
38,323,051
–
38,323,051
4.94
T. Rowe Price Associates, Inc
–
37,789,977
–
37,789,977
4.84
Standard Life Investments Ltd
22,153,694
3,769,560
–
25,923,254
3.96
Legal & General Group plc
23,704,643
–
–
23,704,643
3.01
* One voting right per ordinary share.
** Percentage of the Company’s issued share capital when the Company was notified of the change in holding.
In the period from 31 December 2021 to 1 March 2022 we received numerous notifications in accordance with DTR5 from Societe
Generale, Morgan Stanley, Barclays Bank plc, JP Morgan Securities plc and UBS AG London Branch. Details of all notifications were
published on a regulatory information service and are available on our website. The substantial interests notified to us as at 1 March
2022 are set out below:
Direct
voting rights*
Indirect
voting rights*
Other financial
instruments with
voting rights*
Total
voting rights*
Percentage
of total
voting rights**
BlackRock Inc.
–
33,087,041
60,961,162
94,048,203
12.02
JPMorgan Securities plc
–
2,764,678
68,955,589
71,720,267
9.17
Societe Generale
56,518,850
–
95,500
56,614,350
7.24
Barclays Bank plc
5,217,610
–
54,006,090
59,223,700
7.57
Morgan Stanley
–
43,625,560
18,950,751
62,576,311
8.00
FMR LLC (FIL Limited)
–
38,024,107
1,430,060
39,454,167
5.05
The Capital Group Companies, Inc
–
38,606,468
–
38,606,468
4.94
Harris Associates L.P.
–
38,323,051
–
38,323,051
4.94
T. Rowe Price Associates, Inc
–
37,789,977
–
37,789,977
4.84
Standard Life Investments Ltd
22,153,694
3,769,560
–
25,923,254
3.96
Legal & General Group plc
23,704,643
–
–
23,704,643
3.01
* One voting right per ordinary share.
** Percentage of the Company’s issued share capital when the Company was notified of the change in holding.
Statement of Directors’ responsibilities in respect of the financial statements
The Directors are responsible for preparing the Annual Report and Accounts and the financial statements in accordance with applicable law
and regulation.
Meggitt PLC Annual Report and Accounts 2021
158
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 UK-adopted international accounting standards and 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 applicable UK- adopted international accounting standards 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.
• Make judgements and accounting estimates that are reasonable and prudent.
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are 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 also 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 Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
Each of the Directors, whose names and functions are listed on pages 100 to 103, confirm that, to the best of their knowledge:
• The Group financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true
and fair view of the assets, liabilities, financial position and profit 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 and financial position of the Company.
• The Strategic Report and this Directors’ report include 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 they face.
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.
• 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 and Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for shareholders to assess the Group’s and Company’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.
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 176
to 177.
This Directors’ report, comprising pages 96 to 159, has been approved by the Board and is signed on its behalf by
M L Thomas
Company Secretary
2 March 2022
Meggitt PLC Annual Report and Accounts 2021
159
Directors’ Report
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 2021 and of the Group’s profit and the Group’s cash flows
for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards;
• 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 and Accounts 2021 (the Annual Report), which comprise: the
Consolidated and Company balance sheets as at 31 December 2021; 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.
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.
Other than those disclosed in note 6 to the Group financial statements, we have provided no non-audit services to the Company
or its controlled undertakings 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 two reporting units to address specific risk characteristics
and provide sufficient overall Group coverage of particular revenue streams. We used component teams in five 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 62% of Group profit before tax; 63% of Group underlying
profit before tax; and 79% 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. We considered the Group’s climate change risk assessment process and
this, together with involvement of our own climate change experts, provided us with an understanding of the potential impact of
climate change on the financial statements. See the ‘How we tailored the audit scope’ section below for further details.
Key audit matters
• Going concern (Group and Company)
• Goodwill impairment assessment (Group)
• Development costs impairment assessments (Group)
• Environmental provisions (Group)
• Retirement benefit obligation liabilities and complex pension scheme assets (Group and Company)
Materiality
• Overall Group materiality: £13.2m (2020: £15.2m) based on a five-year average of 5% of underlying profit before tax.
• Overall Company materiality: £35.0m (2020: £35.0m) based on 1% of total assets.
• Performance materiality: £9.9m (2020: £11.4m) (Group) and £26.25m (2020: £26.25m) (Company).
Financial Statements
Independent auditors’ report
to the members of Meggitt PLC
Meggitt PLC Annual Report and Accounts 2021
160
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.
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, provisions for uncertain tax positions and Company’s investments in subsidiary undertakings impairment assessment,
which were key audit matters last year, are no longer included because of the relative level of assessed audit risk associated with
these matters having reduced in the current year. Otherwise, the key audit matters below are consistent with last year.
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 2023 (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 December 2021 and updated through to the date of
approval of these financial statements. Further the Directors
modelled a reverse stress test scenario under which the
Group would be close to breaching its net debt:EBITDA
covenant ratio and concluded that, the likelihood of such a
scenario occurring to be remote and significantly outside
any severe but plausible scenarios modelled.
The Directors also considered the proposed acquisition
of the Group by Parker-Hannifin Corporation (Parker).
The Directors concluded that Parker has the intention and
ability to: finance the equity purchase, repay liabilities
falling due on a change of control and continue to
operate the Group as a going concern throughout the
assessment period.
In light of the uncertainty that remains as to the precise
timing and speed of the recovery and the challenging
market conditions, particularly in civil aerospace, and the
proposed acquisition by Parker, our audit devoted a significant
amount of resources to evaluating the Directors’ going
concern assessment.
Refer also to note 1 of the consolidated financial statements
(pages 176 to 177).
For our audit response and conclusions in respect of going
concern, see the ‘Conclusions relating to going concern’
section below.
Meggitt PLC Annual Report and Accounts 2021
161
Financial Statements
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 (£1,531.8m)
on the balance sheet.
Management has performed their annual impairment
review as at 30 June 2021. No triggering events have
been identified during 2021 and therefore no additional
impairment reviews have been performed. No impairment
charge has been recorded against goodwill in the
current year.
The proposed acquisition by Parker provides a reliable
estimate of fair value less costs of disposal (FVLCOD) and
this has been used to determine the recoverable amount for
the impairment review.
The recoverable amount has been allocated to each cash-
generating unit (CGU) or group of CGUs using the relative
value-in-use of each CGU.
The value-in-use model 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 rates applied to extrapolate forecasts beyond
the plan; and
• The discount rates applied to future cash flows.
Our audit focused on the risk that the carrying value of
goodwill could be overstated.
Refer also to note 17 of the consolidated financial
statements (pages 202 to 203).
We have performed the following procedures over the
FVLCOD used to determine the recoverable amount for the
impairment review:
• Recalculated FVLCOD using information from the Scheme
Document, including the offer price per ordinary share and
the estimated costs of disposal;
• Tested the mathematical accuracy of management’s
allocation of FVLCOD to each CGU or group of CGUs; and
• Compared management’s allocation of FVLCOD based on
value-in-use with alternative allocations based on revenue
and underlying profitability.
We did not identify any indication of management bias or any
material exceptions in these tests, with significant headroom
across all CGUs or groups of CGUs.
We have performed the following procedures over the value-
in-use model used to by management to allocate the FVLCOD
to each CGU or group of CGUs:
• 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 forecasts used to the five-year plan presented
to the Board;
– Identified the key assumptions applied, which we
determined to be revenue growth and margins.
We compared these assumptions against historical
actuals and management’s prior year value-in-use model;
and
– Assessed the appropriateness of the alternative scenarios
and 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; and
• 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,
with one exception, which does not materially impact the
level of headroom.
We have not identified any impairment triggers which would
require an updated impairment assessment in the intervening
period to year end.
We have assessed the related disclosures in the consolidated
financial statements and consider them to be appropriate.
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
162
Key audit matter
How our audit addressed the key audit matter
Development costs impairment assessments (Group)
The Group holds a significant amount of development
costs (£524.7m) on the balance sheet. These 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 £3.7m 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.
We focused our audit procedures on those programmes
against which management holds 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.
The impact of climate change is specifically related to the
time that a platform (e.g. aircraft or aero engine on which
the Group has content) will remain in service and thus
generate revenue either through sales to the aircraft or
engine OEM or to the Operators and MRO companies in
the aftermarket. We considered the impact climate change
is anticipated to have on future cash flows and assessed
the appropriateness of how management had considered
these in programme impairment assessments. We also
considered management’s assessment of programme
useful economic lives in the context of risks posed by
climate change.
Refer also to note 4 and 18 of the consolidated financial
statements (pages 190 to 191 and page 204).
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, with
two exceptions, which do not materially impact the level of
headroom; and
• Agreed fleet forecast data used in calculating the programme
forecast cash flow up to 2035 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.
We compared management’s assumptions to external industry
benchmarks and reports, including forecasts for OE fleet sizes
(fleet forecast data, see above) and civil aerospace passenger
traffic forecasts measured using RPKs. We also considered the
estimated weighted average remaining useful economic life
of the development costs and the average period over which
the carrying value will be recovered. The audit evidence that
we obtained supports management’s judgement that the fleet
lives of the aircraft to which the development costs relate are
not expected to reduce significantly. On this basis we have not
identified an additional impairment as a result of the impact
of climate change and consider the amortisation charge to be
materially accurate.
Based on the procedures described above, we consider the
impairment charge recognised to be materially accurate.
We evaluated and concluded that the assets, including
significant estimates and judgements, were appropriately
disclosed in the consolidated financial statements.
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163
Financial Statements
Key audit matter
How our audit addressed the key audit matter
Environmental provisions (Group)
The Group has liabilities of £93.6m 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 £15.0m. We focused on the required
asset recognition criteria being met and recoverability of
these receivables.
Refer also to note 4 and 34 of the consolidated financial
statements (pages 190 to 191 and page 218).
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. In addition, we have held discussions with
management’s external experts for the most significant sites
to further understand the cost estimates provided;
• 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 these
changes 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;
• In respect of the matter set out in the ‘Environmental
provisions and associated recoveries from insurers and
other third parties’ section of note 4 of the consolidated
financial statements, we obtained a letter from the Group’s
external legal advisors and a copy of the jury verdict form.
The evidence obtained supported the amounts recorded in
the financial statements in respect of this matter; 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, including significant
estimates, were appropriately disclosed in the consolidated
financial statements.
Independent auditors’ report
to the members of Meggitt PLC continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
164
Key audit matter
How our audit addressed the key audit matter
Retirement benefit obligation liabilities and complex
pension scheme assets (Group and Company)
The Group has retirement benefit obligations with gross
liabilities of £1,355.1m, of which £899.3m 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
and the Company’s retirement benefit obligation could
have a material impact on the calculation of the liability.
These include:
• Discount rates;
• Inflation rates; and
• Mortality.
Of the £1,228.0m of pension plan assets (of which £839.9m
is recognised by the Company), there is a significant
amount of complex pooled investment vehicles (PIVs).
This is as a result of complex issues such as an element
of the underlying investments being classified as level
2 or 3 of the fair value hierarchy, transfer restrictions,
infrequent pricing and/or investments in less regulated
markets. As the nature of these assets is more complex; the
valuation of these PIVs could have a material impact on the
valuation of the pension assets.
Our audit procedures focused on the risk that the
retirement benefit obligations could be understated.
Refer also to note 36 of the consolidated financial
statements (pages 221 to 226) and note 12 of the Company
financial statements (pages 241 to 242).
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 management’s
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; 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.
Our work on the valuation of complex pension assets
comprised the following:
• Obtained an understanding of the nature of the
complex assets;
• Obtained third party confirmations and Service Organisation
Control (SOC) reports from investment and fiduciary managers
and found that the evidence obtained supported the valuation
of the complex assets; and
• Considered the extent to which there was any evidence
available which might contradict the valuation. No such
contradictory evidence was identified.
We evaluated and concluded that the pension assets
and liabilities, including significant estimates, were
appropriately disclosed in the consolidated and Company
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.
Meggitt PLC Annual Report and Accounts 2021
165
Financial Statements
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 six 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 six 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 two reporting units to address specific risk
characteristics or to provide sufficient overall Group coverage of particular revenue streams.
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 right-of-use assets and lease liabilities, environmental and other provisions and related receivables,
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.
These audit procedures covered 62% of Group profit before tax; 63% of Group underlying profit before tax; and 79% 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.
We considered the Group’s climate change risk assessment and this, together with involvement of our own climate change
experts, provided us with an understanding of the potential impact of climate change on the financial statements. We assessed
that the key financial statement line items and estimates which are more likely to be materially impacted by climate risks are those
associated with future cash flows, given the more notable impacts of climate change on the business are expected to arise in
the medium to long term. These include the impairment assessments of the Group’s goodwill and development costs, including
the specific consideration of the impact of climate change on likely aircraft lives, and the related impact on annual amortisation
charges, and the Company’s investments in subsidiaries. For the impairment assessments of the Group’s goodwill and the
Company’s investments in subsidiaries, the proposed acquisition by Parker provided a reliable estimate of fair value less costs
of disposal (FVLCOD), and this has been used to determine the recoverable amount for the impairment review. This is a market
based measure and factors in the buyer’s assessment of climate change. Therefore our audit response for these areas did not
require additional climate change considerations. Our ‘development costs impairment assessments’ key audit matter further
explains how we evaluated the impact of climate change on the other risks identified.
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
£13.2m (2020: £15.2m)
£35.0m (2020: £35.0m)
How we determined it
A five-year average of 5% of underlying profit before tax
1% of total assets
Rationale for
benchmark applied
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 such, we
have used a five-year average benchmark, consistent with
the benchmark applied in 2020.
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.
Independent auditors’ report
to the members of Meggitt PLC continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
166
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 £0.89m and £11.88m. 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% (2020: 75%) of overall materiality, amounting to £9.9m
(2020: £11.4m) for the Group financial statements and £26.25m (2020: £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 £0.66m
(Group audit) (2020: £0.8m) and £1.75m (Company audit) (2020: £1.75m) 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 included in the Group’s base case scenario (as described in note 1 of the consolidated financial
statements), 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; and
– Margin – We compared these assumptions to historical margins and considered the feasibility of margin improvements
throughout the assessment period.
• 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 2021 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;
• Assessing management’s reverse stress test (as described in note 1 of the consolidated financial statements) 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. We concurred with the Directors’ conclusion that the likelihood of such a set of circumstances
occurring to be remote and significantly outside any severe but plausible scenarios the Group has modelled;
• On 21 September 2021, the shareholders of the Group approved an all-cash offer of 800 pence per share for the Group by Parker.
In the event the acquisition by Parker is completed within the going concern assessment period, the directors considered the
impact on the Group’s going concern assessment. We have performed the following audit procedures on this scenario:
– Examining documentation regarding Parker’s ability to finance the proposed acquisition, including bridge credit and term
loan agreements and recent financial results published by Parker. We did not identify any evidence to suggest that Parker
could not finance the proposed acquisition, including the repayment of Meggitt liabilities falling due on a change of control;
and
– Examining intention statements outlined in the Scheme Document, including commitments by Parker to continue to run
the Meggitt business in line with how it currently operates. In addition, we held discussions with management at Parker
who, based on publicly available information, re-confirmed the intention statements and ability of Parker to finance the
proposed acquisition.
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.
Meggitt PLC Annual Report and Accounts 2021
167
Financial Statements
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 Directors’ 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, which includes reporting based on the Task Force on climate-
related financial disclosures (TCFD) recommendations. 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 2021 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 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.
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
Independent auditors’ report
to the members of Meggitt PLC continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
168
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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, 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 legislation, bribery and corruption legislation, US Government contracting
regulations, US environmental regulations, aviation regulations including the Federal Aviation Agency and Civil Aviation Authority,
data protection legislation and competition/antitrust laws, 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
financial statements such as the Companies Act 2006 and international tax legislation. 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 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 above.
• Identified and tested journal entries based on our risk assessment and evaluated whether there was evidence of management bias
that represented a risk of material misstatement due to fraud.
• Incorporated elements of unpredictability into the audit procedures performed.
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.
Meggitt PLC Annual Report and Accounts 2021
169
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.
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 19 years, covering the years ended 31 December 2003 to 31 December 2021.
Other matter
As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements
form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance
over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.
John Ellis (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Reading
2 March 2022
Independent auditors’ report
to the members of Meggitt PLC continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
170
Notes
2021
£’m
2020
£’m
Revenue
5
1,489.2
1,684.1
Non-GAAP measures
Exceptional impairment losses and other asset write-downs
10
–
(8.6)
Other cost of sales
(1,016.8)
(1,192.0)
Cost of sales
7
(1,016.8)
(1,200.6)
Gross profit
472.4
483.5
Non-GAAP measures
Exceptional impairment losses and other asset write-downs
10
–
(365.6)
Other operating costs
(435.7)
(452.7)
Operating costs
7
(435.7)
(818.3)
Operating income
7
26.7
37.5
Net operating costs
(409.0)
(780.8)
Operating profit/(loss)1
5,7
63.4
(297.3)
Finance income
11
0.5
0.5
Finance costs
12
(32.6)
(37.2)
Net finance costs
(32.1)
(36.7)
Profit/(loss) before tax2
31.3
(334.0)
Tax (charge)/credit
13
(0.1)
19.8
Profit/(loss) for the year attributable to equity owners of the Company
31.2
(314.2)
Earnings/(loss) per share:
Basic3
14
4.0p
(40.4)p
Diluted4
14
4.0p
(40.4)p
Non-GAAP measures
1 Underlying operating profit
9
177.3
190.5
2 Underlying profit before tax
9
149.3
159.5
3 Underlying basic earnings per share
14
15.4p
16.5p
4 Underlying diluted earnings per share
14
15.4p
16.2p
Consolidated income statement
For the year ended 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
171
Financial Statements
Notes
2021
£’m
2020
£’m
Profit/(loss) for the year attributable to equity owners of the Company
31.2
(314.2)
Items that may be reclassified to the income statement in subsequent years:
Currency translation movements
(6.9)
(79.9)
Movements in fair value of financial liabilities arising from changes in credit risk
(1.3)
1.8
Tax effect
13
3.2
1.6
(5.0)
(76.5)
Items that will not be reclassified to the income statement in subsequent years:
Remeasurement of retirement benefit obligations
36
115.4
(42.6)
Tax effect
13
(21.8)
10.8
93.6
(31.8)
Other comprehensive income/(expense) for the year
88.6
(108.3)
Total comprehensive income/(expense) for the year attributable to equity owners of the Company
119.8
(422.5)
Financial Statements
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
172
Notes
2021
£’m
2020
£’m
Non-current assets
Goodwill
17
1,531.8
1,519.5
Development costs
18
524.7
531.9
Programme participation costs
18
19.0
18.7
Other intangible assets
19
306.6
401.1
Property, plant and equipment
20
478.6
458.8
Investments
21
18.7
20.8
Other receivables
24
18.8
16.5
Contract assets
25
55.8
59.6
Derivative financial instruments
33
10.0
15.0
Deferred tax assets
35
–
19.2
2,964.0
3,061.1
Current assets
Inventories
23
455.4
426.9
Trade and other receivables
24
294.5
251.1
Contract assets
25
53.7
48.8
Derivative financial instruments
33
4.8
5.4
Current tax recoverable
8.1
11.5
Cash and cash equivalents
26
190.8
178.6
Assets classified as held for sale
22
–
14.7
1,007.3
937.0
Total assets
5
3,971.3
3,998.1
Current liabilities
Trade and other payables
27
(317.9)
(296.5)
Contract liabilities
28
(62.7)
(50.8)
Derivative financial instruments
33
(3.2)
(21.6)
Current tax liabilities
29
(34.2)
(56.9)
Lease liabilities
30
(15.6)
(14.7)
Bank and other borrowings
31
(105.3)
(10.5)
Provisions
34
(55.8)
(32.6)
Liabilities directly associated with assets classified as held for sale
22
–
(3.7)
(594.7)
(487.3)
Net current assets
412.6
449.7
Non-current liabilities
Other payables
27
(3.7)
(8.5)
Contract liabilities
28
(72.6)
(73.9)
Derivative financial instruments
33
(1.3)
(0.3)
Deferred tax liabilities
35
(70.9)
(93.4)
Lease liabilities
30
(153.4)
(129.6)
Bank and other borrowings
31
(696.0)
(796.8)
Provisions
34
(80.3)
(80.3)
Retirement benefit obligations
36
(136.4)
(295.4)
(1,214.6)
(1,478.2)
Total liabilities
(1,809.3)
(1,965.5)
Net assets
2,162.0
2,032.6
Equity
Share capital
37
39.1
39.0
Share premium
1,227.8
1,226.6
Other reserves
15.7
15.7
Hedging and translation reserves
343.9
348.9
Retained earnings
535.5
402.4
Total equity attributable to owners of the Company
2,162.0
2,032.6
The financial statements on pages 171 to 231 were approved by the Board of Directors on 2 March 2022 and signed on its behalf by:
Consolidated balance sheet
At 31 December 2021
A Wood
Director
L Burdett
Director
Meggitt PLC Annual Report and Accounts 2021
173
Financial Statements
Equity attributable to owners of the Company
Notes
Share
capital
£m
Share
premium
£m
Other
reserves*
£m
Hedging and
translation
reserves**
£m
Retained
earnings
£m
Total
equity
£m
At 1 January 2020
38.8
1,226.5
15.7
425.4
750.4
2,456.8
Loss for the year
–
–
–
–
(314.2)
(314.2)
Other comprehensive (expense)/income for the year:
Currency translation movements:
Arising in the year
–
–
–
(35.9)
–
(35.9)
Currency translation gain transferred from equity
–
–
–
(44.0)
–
(44.0)
Movements in fair value of financial liabilities arising
from changes in credit risk
–
–
–
1.8
–
1.8
Remeasurement of retirement benefit obligations
36
–
–
–
–
(42.6)
(42.6)
Other comprehensive expense before tax
–
–
–
(78.1)
(42.6)
(120.7)
Tax
13
–
–
–
1.6
10.8
12.4
Other comprehensive expense for the year
–
–
–
(76.5)
(31.8)
(108.3)
Total comprehensive expense for the year
–
–
–
(76.5)
(346.0)
(422.5)
Employee share schemes:
Value of services provided
–
–
–
–
(1.7)
(1.7)
Issue of equity share capital
0.2
0.1
–
–
(0.3)
–
At 31 December 2020
39.0
1,226.6
15.7
348.9
402.4
2,032.6
Profit for the year
–
–
–
–
31.2
31.2
Other comprehensive (expense)/income for the
year:
Currency translation movements:
Arising in the year
–
–
–
(6.9)
–
(6.9)
Movements in fair value of financial liabilities arising
from changes in credit risk
32
–
–
–
(1.3)
–
(1.3)
Remeasurement of retirement benefit obligations
36
–
–
–
–
115.4
115.4
Other comprehensive (expense)/income before tax
–
–
–
(8.2)
115.4
107.2
Tax
13
–
–
–
3.2
(21.8)
(18.6)
Other comprehensive (expense)/income for the
year
–
–
–
(5.0)
93.6
88.6
Total comprehensive (expense)/income for the
year
–
–
–
(5.0)
124.8
119.8
Employee share schemes:
Value of services provided
–
–
–
–
9.6
9.6
Issue of equity share capital
0.1
1.2
–
–
(1.3)
–
At 31 December 2021
39.1
1,227.8
15.7
343.9
535.5
2,162.0
*
Other reserves relate to capital reserves of £14.1m (2020: £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 (2020: £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 £1.9m (2020: £2.9m) and a credit balance on the translation reserve of
£342.0m (2020: £346.0m).
Financial Statements
Consolidated statement of changes in equity
For the year ended 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
174
Notes
2021
£’m
2020
£’m
Non-GAAP measures
Cash inflow from operations before business disposal expenses and exceptional operating items
200.6
282.9
Cash outflow from business disposal expenses
44
(3.5)
(5.2)
Cash outflow from exceptional operating items
10
(25.9)
(49.3)
Cash inflow from operations
42
171.2
228.4
Interest received
0.5
0.1
Interest paid
(28.7)
(32.2)
Tax paid
(37.7)
(42.1)
Cash inflow from operating activities
105.3
154.2
Investment acquired
21
(0.9)
(7.6)
Deferred consideration paid in respect of business acquired in prior year
(1.0)
–
Businesses disposed
44
16.7
117.0
Capitalised development costs
18
(27.6)
(41.4)
Capitalised programme participation costs
(1.7)
(1.6)
Purchase of intangible assets
(10.7)
(11.0)
Purchase of property, plant and equipment
(66.4)
(80.8)
Government grants received in respect of purchase of property, plant and equipment
20
7.4
2.1
Proceeds from disposal of property, plant and equipment
36.4
1.3
Cash outflow from investing activities
(47.8)
(22.0)
Issue of equity share capital
1.3
0.3
Proceeds from bank and other borrowings
1.2
618.6
Repayments of bank and other borrowings
(30.5)
(705.8)
Debt issue costs paid
(1.9)
(2.4)
Reverse lease premium received
42
–
3.5
Repayments of lease liabilities
30
(14.9)
(15.4)
Cash outflow from financing activities
(44.8)
(101.2)
Net increase in cash and cash equivalents
12.7
31.0
Cash and cash equivalents at start of the year
178.6
155.3
Exchange losses on cash and cash equivalents
(0.5)
(7.7)
Cash and cash equivalents at end of the year
26
190.8
178.6
Consolidated cash flow statement
For the year ended 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
175
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.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted
International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board.
The Group transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January
2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or
disclosure in the year reported as a result of the change in framework.
The consolidated financial statements of the Group have been prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
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 Company have adequate resources to continue in operational existence for a period of at least 12 months from
the date of approval of the 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 2023. In reaching this
judgement, the Directors considered:
Existing financing
During 2021, the Group arranged a new USD410m revolving credit facility maturing in 2024, to replace a USD575m forward start
revolving credit facility which was due to mature in September 2022. Following this refinancing, the Group has committed credit
facilities with its relationship banks and private placement investors of £1,183.1m at the balance sheet date. With the exception of
one tranche of USD125m private placement debt, which is due for repayment in June 2022, no other facilities mature during the
going concern assessment period.
Current liquidity
At 31 December 2021, the Group had significant headroom against its committed credit facilities, as set out below, and no new
financing is required to meet the repayment of the USD125m private placement debt in June 2022.
Total
£’m
Committed credit facilities
1,183.1
Bank and other borrowings (see note 31)
801.3
Less: cash (see note 26)
(190.8)
Net borrowings excluding lease liabilities
610.5
Headroom
572.6
Covenants
The Group’s committed credit facilities contain two financial ratio covenants – net debt/EBITDA and interest cover (EBITA/net
finance costs). 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 each of EBITDA, net debt,
EBITA and net finance costs 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 2021, net debt/EBITDA was 1.9x, well within the Group’s target range of 1.5x to 2.5x and only marginally
higher than that in the three years prior to the COVID-19 outbreak (2019: 1.5x, 2018: 1.8x and 2017: 1.9x). Interest cover at
31 December 2021 was 11.3x. No covenant waivers have ever been sought by the Group, including during the period since the
COVID-19 outbreak.
Financial Statements
Notes to the consolidated financial statements
Meggitt PLC Annual Report and Accounts 2021
176
1. General information and basis of preparation continued
Going concern continued
Base case scenario
The Group has developed a base case scenario, using its budget for 2022 and forecasts for Q1 2023. It assumes the recovery in
civil aerospace markets continues and the outlook for defence markets is stable. As the Group is under an offer period under the
UK Takeover Code, it is not providing financial guidance for 2022 and accordingly the base case scenario assumptions have not
been disclosed. However, under this scenario, the Group has significant headroom under its existing committed facilities to meet
its obligations as they fall due and does not breach either of its financial covenant ratios.
Reverse stress test scenario
The Group has performed a reverse stress test scenario to determine the conditions under which it would be close to breaching either of
its financial covenant ratios during the going concern assessment period. Under this stressed scenario, the following conditions (which are
stated on an organic basis i.e. excluding the impacts of currency and M&A) would all need to occur in the assessment period:
• Civil aerospace revenue in 2022 is flat compared to 2021, which would represent a 10% reduction compared to the Group’s
annualised H2 2021 revenue.
• Defence revenue reduces by approximately 20% compared to 2021, significantly greater in percentage terms than the 11%
decline seen in 2021, which was off a strong comparator in 2020.
• Direct material cost inflation of 15%.
• The Group takes no action to reduce its cost base from the levels assumed in the base case scenario, in response to the lower
revenues modelled in the stressed scenario; and.
• The Group takes no additional actions to preserve cash.
The Group considers the likelihood of such a set of circumstances occurring to be remote and significantly outside any severe but
plausible scenarios the Group has modelled.
Principal risks
The Group has also considered whether its principal risks (as described on pages 50 to 54 of the Strategic Report) have been
appropriately reflected in its going concern 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 Board has regularly reviewed these risks throughout
the year and up to the date of the financial statements and maintains a risk appetite statement with associated risk tolerances to
ensure that identified risks are managed within acceptable limits. The Group has concluded that its going concern assessment has
been appropriately adjusted to reflect these risks.
Proposed acquisition of the Group by Parker-Hannifin Corporation (Parker-Hannifin)
On 21 September 2021, the shareholders of the Group approved an all-cash offer of 800 pence per share for the Group by Parker-
Hannifin. In the event the proposed acquisition by Parker-Hannifin is completed within the going concern assessment period, the
Directors considered the intention and ability of Parker-Hannifin to be able to:
• finance the equity purchase of the Group;
• repay those liabilities of the Group which would immediately become due on a change of control; and
• continue to operate the Group as a going concern for the remainder of the assessment period, post completion.
The Directors believe that Parker-Hannifin will be able to meet these obligations, having taken into account publicly available
information including:
• The Scheme Document, published on 16 August 2021, and approved by the Group’s shareholders on 21 September 2021,
which included:
– the binding commitments given by Parker-Hannifin to HM Government;
– the intentions of Parker-Hannifin regarding the Group’s business, employees, pension schemes, locations and research and
development; and
– a statement from Citibank Global Markets Limited, acting as financial advisor to Parker-Hannifin, that it was satisfied Parker-
Hannifin had sufficient resources to meet in full the cash consideration payable to the Group’s shareholders.
• Recent financial results published by Parker-Hannifin including its Annual Report (10K) for the year ended 30 June 2021 (published on
25 August 2021) and its Q2 results (10Q) for the six months ended 31 December 2021 (published on 4 February 2022), which include
disclosures regarding its profit and cash generation, existing committed financing facilities and headroom against those facilities.
Conclusion
Based on the above, the Directors have 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 the financial statements.
Meggitt PLC Annual Report and Accounts 2021
177
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 years 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.
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 recognised in the income statement 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. Additionally in 2021, they include amounts incurred in respect of the
proposed acquisition of the Group by Parker-Hannifin Corporation. 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.
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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
178
2. Summary of significant accounting policies continued
Foreign currencies continued
Foreign subsidiaries
The results of foreign subsidiaries are translated at average exchange rates for the year. 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 104 of the Corporate governance report). The Group has determined that its segments for the year ended 31 December
2021, which are unchanged from the prior year, 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.
• 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.
Meggitt PLC Annual Report and Accounts 2021
179
Financial Statements
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 year. 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 year.
Net transaction price
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, 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 and the financing element of the contribution
is significant, it is separately identified and recognised within finance costs over the period beginning with receipt of the
contribution and ending when the goods and services are provided 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 within contract assets 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 and the
financing element of the contribution is significant, it is separately identified and recognised within finance income over the period
beginning with payment of the contribution and ending when the goods and services are provided to the customer. Other than
such contributions, the Group does not typically incur significant incremental costs to obtain contracts.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
180
2. Summary of significant accounting policies continued
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; incremental income and expenditure directly attributable
to the COVID-19 pandemic; and in 2021, given their significance, costs in respect of historical environmental matters relating to
businesses disposed of by Whittaker Corporation prior to its acquisition by the Group in 1999. In 2020, given their significance,
impairment losses and other asset write-downs arising from the uncertainty facing the commercial aerospace industry were also
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 was adopted in 2020 in respect of the
impairment losses and other asset write-downs as they were in aggregate of such a significance, that the Group considered
separate presentation to have been 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.
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 customer 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 such that the Group expects
the contributions to be recovered, contributions are initially recognised within contract assets (see Revenue from external
customers policy). These amounts are amortised to revenue as a reduction in the transaction price of those IFRS 15 revenue
contracts over the period the relevant performance obligations are satisfied by the Group, typically up to 15 years.
• Where the contribution is made to a third party other than a customer, 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.
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181
Financial Statements
2. Summary of significant accounting policies continued
Intangible assets continued
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:
Customer relationships
Up to 20 years
Technology
Up to 20 years
Trade names and trademarks
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 ten years. Residual values and useful lives are reviewed annually and
adjusted if appropriate.
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
Up to 50 years
Right-of-use assets
Shorter of the useful economic life of the asset and the lease term
Plant and machinery
3 to 10 years
Furnaces
Up to 20 years
Fixtures and fittings
3 to 10 years
Motor vehicles
4 to 5 years
Residual values and useful lives are reviewed annually and adjusted if appropriate. When items of 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. When items of property, plant and equipment are disposed of through a sale and leaseback transaction, the
Group retains a right-of-use asset following the transaction. In these situations, the amount recognised in the income statement
on disposal is reduced by the portion of the gain or loss related to those retained rights. The amount not recognised in the
income statement is recognised as an adjustment to the right-of-use asset.
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.
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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
182
2. Summary of significant accounting policies continued
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. Production overheads relating to abnormal variations between actual volumes and normal operating capacity are
excluded from the costs 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 and their recovery is considered virtually certain, typically when a signed binding agreement exists,
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.
Impairment of financial assets
The Group’s financial assets, which are subject to the expected credit loss (ECL) model, are:
• trade receivables;
• other receivables; and
• cash and cash equivalents.
For trade receivables, the simplified method has been applied whereby ECLs are measured using a lifetime expected loss
allowance. 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 and other third parties in respect of
environmental matters, 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.
Meggitt PLC Annual Report and Accounts 2021
183
Financial Statements
2. Summary of significant accounting policies continued
Taxation
Current tax is based on taxable profit for the year, 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
are in a fair value hedge relationship with the Group’s interest rate swaps. Such borrowings are measured at amortised cost but
have a fair value adjustment recognised as a result of the fair value hedge relationship. 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.
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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
184
2. Summary of significant accounting policies continued
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.
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 probable 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). The Group typically uses a single most likely
outcome approach to determine the provision recognised unless, for instance in the case of product warranty claims, a weighted
average of all possible outcomes is considered more appropriate. 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.
Meggitt PLC Annual Report and Accounts 2021
185
Financial Statements
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
and curtailment gains and losses 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 assets of a scheme exceed its defined benefit obligations, a retirement benefit
asset is recognised equal to the lower of this surplus and the asset ceiling. The asset ceiling represents the present value of any
economic benefits available in the form of refunds from the scheme or reductions in future contributions to the scheme and
to which the Group has an unconditional right to. Changes in the asset ceiling are recognised in other comprehensive income,
except for any related interest which is recognised in finance costs. 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 year 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
186
2. Summary of significant accounting policies continued
Adoption of new and revised accounting standards
Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform
The phase 2 amendments relating to interest rate benchmark reform address issues arising due to the replacement of one
benchmark rate with an alternative one. The following financial instruments held by the Group are impacted by IBOR reform:
Carrying value at 31 December 2021
Interest rate
benchmark impacted
Transitioned to
alternative rate
Assets
£’m
Liabilities
£’m
Bank and other borrowings (see note 31):
Syndicated credit facility (USD410m) – GBP borrowings
GBP LIBOR
SONIA*
–
–
Syndicated credit facility (USD410m) – USD borrowings
USD LIBOR
Not yet transitioned*
–
–
Bilateral facility: Caixabank (GBP30m)
GBP LIBOR
SONIA**
–
(30.0)
Bilateral facility: SMBC (GBP50m)
GBP LIBOR
SONIA**
–
–
Bilateral facility: Bank of America (USD50m)
USD LIBOR
SOFR**
–
–
Derivative financial instruments (see note 33):
Interest rate swaps (USD125m)
USD LIBOR Not yet transitioned***
1.7
–
Total financial instruments exposed to IBOR reform
1.7
(30.0)
*
The Group refinanced its syndicated credit facility in November 2021; the facility was and remains undrawn. The updated facility amended the interest calculation
methodology from referencing GBP LIBOR to compounded SONIA in the first utilisation after execution and from USD LIBOR to SOFR on a future date to be
agreed (long-stop 30 June 2023); until this date, a USD drawing would continue to reference USD LIBOR.
**
The Group refinanced its three bilateral facilities in December 2021 to adopt the same interest calculation methodology as that in the refinanced syndicated credit
facility. Only the Caixabank facility is drawn; the first rollover of the drawing subsequent to the refinancing will reference SONIA. The SMBC facility and the Bank of
America facility are undrawn. If and when amounts are drawn under these facilities they would reference SONIA and SOFR respectively.
*** The Group’s interest rate swaps are in a fair value hedge relationship with the Group’s USD fixed rate 2010 senior notes. Both the hedged items and hedging
instruments mature in June 2022, prior to when the referenced USD LIBOR interest rate is expected to cease being published.
There are no changes to the Group’s risk management strategy as a result of IBOR reform. Changes to IT systems, specifically
the treasury management system, are in progress to enable the new reference rates to be used in calculations of interest on
external borrowings.
No other 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 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. The Group is in the process of finalising the impact of these amendments, but currently estimates the amendments
will result in the recognition of new onerous contract provisions of approximately £20.0m (in respect of contracts which are
not onerous on an incremental direct cost basis), an increase in the measurement of existing onerous contract provisions of
approximately £5.0m and an increase in the measurement of existing product warranty claims of approximately £5.0m.
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.
Meggitt PLC Annual Report and Accounts 2021
187
Financial Statements
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 45 and 47 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.
2021
2020
Income
statement
£’m
Equity
£’m
Income
statement
£’m
Equity
£’m
US dollar/sterling exchange rate +/- 10%
25.0
79.0
37.8
80.3
US yield curve +/- 1%
2.9
–
6.3
–
The impact on equity from movements in the exchange rate comprises £78.3m (2020: £78.3m) in respect of US dollar net
borrowings, and £0.7m (2020: £2.0m) 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 and other receivables and contract assets is spread across a large number
of customers and third parties 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
188
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:
2021
Less
than
1 year
£’m
Between 1
and
5 years
£’m
Greater
than
5 years
£’m
Total
£’m
Trade and other payables*
305.5
2.9
0.8
309.2
Derivative financial instruments (Inflows)**
(4.8)
(1.5)
–
(6.3)
Lease liabilities
21.1
67.4
133.1
221.6
Bank and other borrowings (see note 31)
95.5
698.6
0.2
794.3
Interest payments on borrowings
24.6
55.0
0.2
79.8
Total
441.9
822.4
134.3
1,398.6
2020
Less
than
1 year
£’m
Between 1
and
5 years
£’m
Greater
than
5 years
£’m
Total
£’m
Trade and other payables*
285.8
7.7
0.8
294.3
Derivative financial instruments (Inflows)**
(3.9)
(1.7)
–
(5.6)
Lease liabilities
19.5
61.4
112.1
193.0
Bank and other borrowings (see note 31)
2.2
576.1
219.8
798.1
Interest payments on borrowings
26.7
71.0
7.9
105.6
Total
330.3
714.5
340.6
1,385.4
*
Excludes social security and other taxes of £12.4m (2020: £10.7m) (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:
2021
£’m
2020
£’m
Net debt (see note 43)
779.5
773.0
Total equity
2,162.0
2,032.6
Debt/equity %
36.1%
38.0%
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 45 and 47 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.
Meggitt PLC Annual Report and Accounts 2021
189
Financial Statements
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 114
to 121.
Critical accounting estimates
Environmental provisions and associated recoveries from insurers and other third parties
The Group is involved in the investigation and remediation of environmental contamination at certain 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.
During the latter part of 2021, a jury determined that Whittaker Corporation was responsible to a third party for certain material
amounts. These material amounts have been attributed by the jury to environmental pollution resulting from past operations at
one of Whittaker Corporation’s former sites, which it had sold prior to its acquisition by the Group in 1999. The adverse jury finding
has resulted in Whittaker concluding that, when the relevant court issues its final ruling, it is probable Whittaker will need to
contribute to the third-party costs, with the amounts recognised based on its best estimate of the most likely outcome, resulting
in a charge to the income statement in the year of £29.5m.
The liability, for which the Group may ultimately be responsible is however subject to a number of significant uncertainties, which
may be resolved through mediation or alternatively end up in a court appeal process. It is therefore reasonably foreseeable that
material adjustments (either increases to, or reductions in) the amounts recognised as a provision may be required in the next
12 months. The Group has not quantified its estimate of the adjustments that may be required as it could be seriously prejudicial
to the outcome.
The Group has insurance arrangements in place which, together with other agreements with third parties, mitigate the ongoing
impact of historical environmental events on the Group. A receivable has been established to the extent amounts are virtually
certain to be recoverable from these parties, typically when there is a signed binding agreement between the parties.
With regards to the matter for which the liability of £29.5m referred to above has been recognised in the year, the Group is
currently seeking recovery from a number of historic insurers and third parties, including litigation with the historic insurers.
The Group expects to receive material amounts in respect of these recoveries but, in the absence of signed binding settlement
agreements with the parties, has not recognised these as meeting the virtually certain threshold. It is reasonably foreseeable
however, that material amounts will meet this threshold for recognition within the next 12 months. The amounts the Group expects
to recover are not disclosed as it could be seriously prejudicial to the outcome.
The Group had not previously considered it to be reasonably foreseeable that there would be a material impact on the income
statement in 2021 arising from the specific matter referred to above, based on conditions that existed at that time. However,
subsequent to the date this assessment was last made, Whittaker received adverse pre-trial motions as to the nature of the costs it
could be considered liable for, a material increase in the amounts claimed by the third party, together with the adverse jury finding
described above.
Capitalised development costs: Irkut MC-21
The Group’s capitalised development costs include £40.9m (2020: £39.6m) relating to the Irkut MC-21 aircraft, which is due to
enter service in 2022. The capitalised amount is supported by an impairment test performed by the Group in Q4 2021, taking into
account third-party estimates of fleet volumes and utilisation.
During 2022, tensions between Russia and the West have escalated and, in the period immediately preceding the date of
this Annual Report, has seen Russian troops enter Ukraine with Western countries imposing a number of sanctions on Russia
in response. It is impracticable at the date of these consolidated financial statements to determine the possible effects this
escalation of the conflict will have on the future of the aircraft programme or the ability of the Group to access benefits from
it. However, it is reasonably foreseeable that a material impairment loss on the programme could be recognised in the next
12 months.
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 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
190
4. Critical accounting estimates and judgements continued
Critical accounting estimates continued
Area no longer considered a critical accounting estimate
The Group previously disclosed in its 2020 Annual Report, a critical accounting estimate relating to significant estimation
uncertainty in its forward-looking assessments of cash flows used in assessing goodwill for impairment, following the COVID-19
pandemic and the dramatic impact on the commercial aerospace industry. As set out in note 17, the Group no longer believes that
any reasonably foreseeable changes in estimates would result in a material impairment of goodwill in the next 12 months.
Critical accounting judgements
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, it 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.
Estimates of aircraft or engine volumes reflect the Group’s judgement as to the extent to which the impacts of climate change
may impact the future OE and aftermarket revenues it will derive from the aerospace programme. This takes into account its
assessment of the likelihood that programme lives will be maintained by multiple technical upgrades over their lifetime, to boost
fuel efficiency and support the move to the use of growing fractions of Sustainable Aviation Fuel, rather than programme lives
being significantly shortened.
During 2021, the Group recognised £27.6m (2020: £41.4m) of development costs as an intangible asset (see note 18).
Area no longer considered a critical accounting judgement
The Group previously disclosed in its 2020 Annual Report, a critical accounting judgement relating to the Directors’ assessment
that the adoption of the going concern basis in the Group’s consolidated financial statements was appropriate. For the reasons set
out in note 1, this is no longer considered a critical judgment for the current year.
Meggitt PLC Annual Report and Accounts 2021
191
Financial Statements
5. Segmental analysis
Analysis by operating segment – current year
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 34 to 41 of the Strategic Report.
Transactions between divisions are reflected in the segmental information below, are measured at arm’s length and are eliminated
on consolidation.
Year ended 31 December 2021: 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.
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
Total
£’m
Gross segment revenue
863.6
289.6
281.4
278.8
1,713.4
Inter-segment revenue
(126.6)
(81.8)
(10.7)
(5.1)
(224.2)
Revenue from external customers
737.0
207.8
270.7
273.7
1,489.2
At a point in time
696.1
202.8
119.7
268.7
1,287.3
Over time: Power by the hour/cost per brake landing
24.1
4.1
–
5.0
33.2
Over time: Other
16.8
0.9
151.0
–
168.7
Revenue from external customers by basis of recognition
737.0
207.8
270.7
273.7
1,489.2
Civil OE
170.8
89.4
–
–
260.2
Civil aftermarket
201.8
3.4
–
219.5
424.7
Defence
343.5
96.6
126.5
53.4
620.0
Energy
11.6
1.7
121.4
0.3
135.0
Other
9.3
16.7
22.8
0.5
49.3
Revenue from external customers by end market
737.0
207.8
270.7
273.7
1,489.2
Underlying operating profit/(loss) (see note 9)*
120.2
(16.5)
42.1
31.5
177.3
Items not affecting underlying operating profit (see note 9)
(113.9)
Operating profit (see note 9)
63.4
Finance income (see note 11)
0.5
Finance costs (see note 12)
(32.6)
Net finance costs
(32.1)
Profit before tax
31.3
Tax charge (see note 13)
(0.1)
Profit for the year
31.2
Exceptional operating items**
2.7
10.8
1.3
(0.1)
14.7
Amortisation and impairment of intangible assets (see notes 18 and 19)***
101.5
26.8
8.8
2.0
139.1
Depreciation (see note 20)****
27.1
16.3
7.9
3.4
54.7
*
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 £43.2m (see note 10), central items of £28.5m were not included in segmental exceptional operating items
reviewed by the CODM.
*** Excludes impairment losses of £1.1m charged to exceptional operating items. Of the total amortisation and impairment in the year, £59.0m has been charged to
underlying operating profit as defined in note 9.
**** Excludes depreciation of £1.2m charged to exceptional operating items.
The Group’s largest customer accounts for 8.1% of revenue (£120.9m). Revenue from this customer arises across the Airframe
Systems, Engine Systems and Services & Support segments. Revenue recognised in the current year relating to performance
obligations satisfied or partially satisfied in the prior year was £3.6m.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
192
5. Segmental analysis continued
Year ended 31 December 2021: Analysis of additions to non-current assets
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
Total
£’m
Development costs (see note 18)
15.9
3.9
7.5
0.3
27.6
Programme participation costs (see note 18)
1.4
–
–
–
1.4
Other purchased intangible assets*
0.1
0.7
0.1
1.6
2.5
Property, plant and equipment*
38.4
16.5
6.5
4.5
65.9
Total
55.8
21.1
14.1
6.4
97.4
*
Relate to those non-current assets included within segmental trading assets reviewed by the CODM.
At 31 December 2021: Analysis of segmental trading assets
Total
£’m
Airframe Systems
1,071.0
Engine Systems
384.0
Energy & Equipment
218.7
Services & Support
119.7
Total segmental trading assets
1,793.4
Centrally managed trading assets*
163.0
Goodwill (see note 17)
1,531.8
Other intangible assets excluding software assets
250.7
Investments (see note 21)
18.7
Derivative financial instruments – non-current (see note 33)
10.0
Derivative financial instruments – current (see note 33)
4.8
Current tax recoverable
8.1
Cash and cash equivalents (see note 26)
190.8
Total assets
3,971.3
*
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, including the Group’s Ansty Park facility.
Analysis by geography
2021
£’m
2020
£’m
UK
110.0
129.7
Europe
255.0
270.8
United States of America
911.9
1,027.6
Rest of World
212.3
256.0
Revenue
1,489.2
1,684.1
Revenue is based on the location of the customer.
2021
£’m
2020
£’m
UK
610.2
617.6
Europe
166.5
184.0
United States of America
2,051.3
2,094.3
Rest of World
32.7
34.1
Non-current assets
2,860.7
2,930.0
Segmental non-current assets are based on the location of the assets. They exclude investments, other receivables, contract
assets and derivative financial instruments.
Meggitt PLC Annual Report and Accounts 2021
193
Financial Statements
5. Segmental analysis continued
Analysis by operating segment – prior year
Year ended 31 December 2020 (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 a
number of product lines from the Energy & Equipment division to the Engine Systems division with effect from 1 January 2021.
The restatement comprised external revenue of £19.7m and underlying operating profit of £3.0m. In addition, gross segment
revenue and inter-segment revenue have both been reduced by £58.2m.
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
Total
£’m
Gross segment revenue
936.5
352.2
323.9
325.8
1,938.4
Inter-segment revenue
(143.4)
(98.9)
(8.6)
(3.4)
(254.3)
Revenue from external customers
793.1
253.3
315.3
322.4
1,684.1
At a point in time
754.2
239.6
141.5
315.2
1,450.5
Over time: Power by the hour/cost per brake landing
22.2
4.4
–
7.2
33.8
Over time: Other
16.7
9.3
173.8
–
199.8
Revenue from external customers by basis of recognition
793.1
253.3
315.3
322.4
1,684.1
Civil OE
207.8
98.2
–
–
306.0
Civil aftermarket
176.7
4.0
–
238.9
419.6
Defence
377.7
128.8
179.4
82.5
768.4
Energy
13.9
2.2
114.4
0.6
131.1
Other
17.0
20.1
21.5
0.4
59.0
Revenue from external customers by end market
793.1
253.3
315.3
322.4
1,684.1
Underlying operating profit/(loss) (see note 9)*
120.5
(16.2)
45.4
40.8
190.5
Items not affecting underlying operating profit (see note 9)
(487.8)
Operating loss (see note 9)
(297.3)
Finance income (see note 11)
0.5
Finance costs (see note 12)
(37.2)
Net finance costs
(36.7)
Loss before tax
(334.0)
Tax credit (see note 13)
19.8
Loss for the year
(314.2)
Impairment losses on goodwill and other intangible assets (see notes 17
and 18)**
145.5
201.1
14.7
–
361.3
Other exceptional operating items***
27.3
22.3
4.0
3.4
57.0
Amortisation of intangible assets (see notes 18 and 19)****
104.6
24.5
9.7
1.8
140.6
Depreciation (see note 20)
28.6
16.6
8.3
3.2
56.7
*
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.
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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
194
5. Segmental analysis continued
Year ended 31 December 2020 (restated): Analysis of additions to non-current assets*
Airframe
Systems
£’m
Engine
Systems
£’m
Energy &
Equipment
£’m
Services &
Support
£’m
Total
£’m
Development costs (see note 18)
28.4
3.1
9.7
0.2
41.4
Programme participation costs (see note 18)
2.6
–
–
–
2.6
Other purchased intangible assets**
0.7
0.3
0.6
0.9
2.5
Property, plant and equipment**
36.9
23.6
6.1
3.5
70.1
Total
68.6
27.0
16.4
4.6
116.6
*
Prior year figures have been restated to reflect the transfer of a number of product lines from the Energy & Equipment division to the Engine Systems division with
effect from 1 January 2021. The restatement comprised additions to non-current assets of £10.2m.
**
Relates to those non-current assets included within segmental trading assets reviewed by the CODM.
At 31 December 2020 (restated): Analysis of segmental trading assets*
Total
£’m
Airframe Systems
1,036.5
Engine Systems
390.1
Energy & Equipment
200.4
Services & Support
90.4
Total segmental trading assets
1,717.4
Centrally managed trading assets**
167.4
Goodwill (see note 17)
1,519.5
Other intangible assets excluding software assets
328.6
Investments (see note 21)
20.8
Derivative financial instruments – non-current (see note 33)
15.0
Deferred tax assets (see note 35)
19.2
Derivative financial instruments – current (see note 33)
5.4
Current tax recoverable
11.5
Cash and cash equivalents (see note 26)
178.6
Assets classified as held for sale (see note 22)
14.7
Total assets
3,998.1
*
Prior year figures have been restated to reflect the transfer of a number of product lines from the Energy & Equipment division to the Engine Systems division with
effect from 1 January 2021. The restatement comprised segmental trading assets of £33.9m.
** 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, including the Group’s Ansty Park facility.
6. Auditors’ remuneration
Payable to PricewaterhouseCoopers LLP and its associates:
2021
£’m
2020
£’m
For the audit of the Company and consolidated financial statements in respect of the current year
2.2
2.2
For the audit of the accounts of any subsidiary of the Company in respect of the current year
0.7
0.6
Auditors’ remuneration
2.9
2.8
Non-audit fees payable to PricewaterhouseCoopers LLP were £0.1m (2020: £0.1m), consisting of other assurance services.
Meggitt PLC Annual Report and Accounts 2021
195
Financial Statements
Financial Statements
Notes to the consolidated financial statements
continued
7. Operating profit/(loss)
Operating profit/(loss) is stated after charging/(crediting):
2021
£’m
2020
(restated)*
£’m
Raw materials and consumables used
443.8
457.1
Employee costs (see note 8)
568.2
659.3
Site related costs**
109.7
118.3
Change in inventories of finished goods and work in progress
(20.9)
38.5
Capitalisation of development costs (see note 18)
(27.6)
(41.4)
Free of charge/deeply discounted manufactured parts
49.2
53.4
Amortisation and impairment of capitalised development costs (see note 18)***
35.6
32.6
Amortisation of programme participation costs (see note 18)
1.2
1.2
Amortisation of intangible assets acquired in business combinations (see note 9)
80.1
88.2
Amortisation and impairment of software and other intangible assets (see note 19)
22.2
19.7
Depreciation (see note 20)***
54.7
52.9
Loss on disposal of property, plant and equipment
–
1.4
Exceptional operating items (see note 10)
43.2
428.7
Financial instruments – loss (see note 9)
–
2.9
Net foreign exchange loss
5.4
8.1
Amounts arising on the acquisition, disposal and closure of businesses (see note 9)****
3.3
–
Share of loss after tax of joint ventures (see note 21)
0.4
3.2
Other costs*****
84.0
94.8
Total
1,452.5
2,018.9
*
Prior year figures have been restated on a comparable basis to 2021. As a result, prior year figures for raw materials and consumables used has reduced by £10.9m,
amortisation and impairment of capitalised development costs has increased by £1.1m, depreciation has reduced by £3.8m, net foreign exchange losses has
increased by £8.1m and other costs has increased by £5.5m.
**
Site related costs comprise business insurance, energy, establishment and other factory costs.
***
Excludes amounts recorded as exceptional operating items.
**** Excludes £4.0m of costs related to the proposed acquisition of the Group by Parker-Hannifin Corporation which are included within employee costs.
***** Other costs principally comprise engineering materials of £22.4m (2020: £16.8m), freight costs of £20.5m (2020: £22.8m) and professional fees of £32.4m (2020: £27.7m).
Disclosed as:
2021
£’m
2020
£’m
Cost of sales
1,016.8
1,200.6
Operating costs
435.7
818.3
Total
1,452.5
2,018.9
Total research and development expenditure in the year is £70.7m (2020: £97.9m) of which £14.5m (2020: £20.8m) is charged to cost
of sales or manufacturing work in progress, £28.6m (2020: £35.7m) is charged to net operating costs and £27.6m (2020: £41.4m) is
capitalised as development costs (see note 18).
Operating profit/(loss) is stated after crediting:
2021
£’m
2020
£’m
Gain on disposal of property, plant and equipment
5.3
–
Amounts arising on the acquisition, disposal and closure of businesses (see note 9)
–
32.0
Financial instruments – gain (see note 9)
16.7
–
Other income
4.7
5.5
Operating income
26.7
37.5
Meggitt PLC Annual Report and Accounts 2021
196
8. Employee information
2021
£’m
2020
£’m
Wages and salaries
460.0
530.2
Social security costs
42.8
53.0
Retirement benefit costs (see note 36)
25.1
35.2
Share-based payment expense/(credit) (see note 38)
5.5
(2.5)
Other benefits including US medical costs
34.8
43.4
Employee costs including Executive Directors
568.2
659.3
2021
Average
Monthly
Number
2020
Average
Monthly
Number
Airframe Systems
4,793
5,324
Engine Systems*
1,773
2,013
Energy & Equipment*
1,133
1,479
Services & Support
520
543
Corporate including shared services**
705
510
Total persons employed including Executive Directors
8,924
9,869
Other persons providing similar services
261
651
Total
9,185
10,520
*
A number of product lines from the Energy & Equipment division were transferred to the Engine Systems division with effect from 1 January 2021. If this transfer was
reflected in 2020, it would result in an increase to Engine Systems average monthly headcount of 141, with a corresponding decrease to Energy & Equipment.
**
Corporate headcount has increased as a result of further centralisation of activity previously performed at a divisional level.
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.
Notes
2021
£’m
2020
£’m
Operating profit/(loss)
63.4
(297.3)
Amounts arising on the acquisition, disposal and closure of businesses
a
7.3
(32.0)
Amortisation of intangible assets acquired in business combinations
b
80.1
88.2
Financial instruments – (gain)/loss
c
(16.7)
2.9
Exceptional operating items (see note 10)
43.2
428.7
Adjustments to operating profit/(loss)*
113.9
487.8
Underlying operating profit
177.3
190.5
Profit/(loss) before tax
31.3
(334.0)
Adjustments to operating profit/(loss) per above
113.9
487.8
Net interest expense on retirement benefit obligations (see note 36)**
4.1
5.7
Adjustments to profit/(loss) before tax
118.0
493.5
Underlying profit before tax
149.3
159.5
Profit/(loss) for the year
31.2
(314.2)
Adjustments to profit/(loss) before tax per above
118.0
493.5
Tax effect of adjustments to profit before tax***
(28.7)
(51.2)
Adjustments to profit/(loss) for the year
89.3
442.3
Underlying profit for the year
120.5
128.1
*
Of the adjustments to operating profit/(loss), £9.2m (2020: £39.0m) relating to exceptional operating items has been charged to cost of sales, with the balance of
£104.7m (2020: £448.8m) 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/(loss) before tax, £10.4m (2020: £32.5m) relates to exceptional operating items (see note 10).
Meggitt PLC Annual Report and Accounts 2021
197
Financial Statements
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. Additionally in 2021, it includes amounts incurred in respect
of the proposed acquisition of the Group by Parker-Hannifin Corporation.
2021
£’m
2020
£’m
Loss/(gain) on disposal of businesses before disposal expenses
0.6
(37.1)
Costs related to disposal of businesses in the current year (see note 44)
1.8
3.8
Loss/(gain) on disposal of businesses in the current year (see note 44)
2.4
(33.3)
Costs related to the proposed acquisition of the Group by Parker-Hannifin Corporation
5.1
–
Amounts recognised in respect of disposals in prior years
(0.2)
1.3
Amounts arising on the acquisition, disposal and closure of businesses
7.3
(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.
2021
£’m
2020
£’m
Amortisation of other intangible assets (see note 19)
100.3
107.9
Less: amortisation of software and other intangible assets (see note 19)
(20.2)
(19.7)
Amortisation of intangible assets acquired in business combinations
80.1
88.2
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 derivatives or treasury lock derivatives (see 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.
2021
£’m
2020
£’m
Movement in fair value of foreign currency forward contracts
10.0
(15.9)
Impact of retranslating net foreign currency assets and liabilities at spot rate
(1.8)
6.5
Movement in fair value of interest rate derivatives
3.4
1.6
Movement in fair value of fixed rate borrowings due to interest rate risk (see note 32)
(3.3)
(1.6)
Movement in fair value of cross-currency derivatives
(24.5)
12.8
Movement in fair value of treasury lock derivative
(0.5)
(0.5)
Financial instruments – (gain)/loss
(16.7)
2.9
Notes to the consolidated financial statements
continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
198
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 2021,
given their significance and that they relate to historical environmental matters in respect of businesses disposed of by Whittaker
Corporation prior to its acquisition by the Group in 1999, costs recognised have been treated as operating exceptional items.
In 2020, the impact of the global COVID-19 pandemic, and the resulting uncertainty facing the commercial aerospace industry,
gave rise to significant non-recurring impairment losses and asset write-downs which were treated as exceptional operating items.
Note
Income statement
Cash flow
2021
£’m
2020
£’m
2021
£’m
2020
£’m
(Reversals)/impairment losses and other asset write-downs
a
(3.8)
374.2
–
–
COVID-19 incremental non-recurring costs net of income
b
3.8
22.0
3.3
18.9
Site consolidations
c
14.7
33.5
22.6
31.6
Environmental clean-up costs
d
29.5
–
–
–
Business restructuring costs and other items
e
(1.0)
(1.0)
–
(1.2)
Exceptional operating items
43.2
428.7
25.9
49.3
a. In 2020, the Group recognised material impairment losses and other reductions in asset values arising from the uncertainty
facing the commercial aerospace industry that arose during the COVID-19 pandemic as an exceptional operating item.
Given their significance, they were presented separately on the face of the income statement as the Group considered it relevant
to an understanding of the Group’s financial performance. In 2021, £3.8m of the impairment losses and other asset write-downs
originally recognised in 2020 were reversed. Given the reversals were not significant, they have not been separately presented
on the face of the income statement, but have been treated consistently with 2020 as an exceptional operating item. Of the
amounts classified as exceptional operating items, a £2.4m credit has been recognised within cost of sales, with the remaining
£1.4m credit recognised within other operating costs. The tax charge in respect of these items was £0.3m.
b. The Group continues to exclude incremental income and expenditure directly attributable to the global COVID-19 pandemic,
and which is not expected to recur in future years, from its underlying profit measures. In 2021, this principally relates to
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, £2.1m has been recognised
within cost of sales, with the balance of £1.7m recognised within other operating costs. The tax credit in respect of these items
was £0.7m.
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. This project was substantially complete at the end of 2021, but costs in respect of projects commenced in 2021
will be incurred in subsequent years as these projects are completed. Cumulative costs since the announcement are £111.9m.
In 2021, costs are principally in respect of the move to the new facility at Ansty Park in the West Midlands, UK which has enabled
the Group to consolidate a range of manufacturing, engineering and support operations into a single centre of excellence.
Of the amounts classified as exceptional operating items, £10.5m has been recognised within cost of sales with the balance of
£4.2m recognised within other operating costs. The tax credit in respect of these items was £3.6m.
d. During the year, the Group recognised a provision for £29.5m (2020: £nil) in respect of environmental matters relating to a
former site operated by Whittaker Corporation, prior to its acquisition by the Group in 1999. See note 4 for further details.
Amounts classified as exceptional operating items have been recognised within net operating costs. The tax credit in respect
of this item was £6.8m.
e. This principally relates to the reversal of amounts previously recognised as exceptional operating items. Amounts classified as
exceptional operating items have been recognised within cost of sales. The tax charge in respect of these items was £0.4m.
Meggitt PLC Annual Report and Accounts 2021
199
Financial Statements
11. Finance income
2021
£’m
2020
£’m
Interest on bank deposits
–
0.1
Unwinding of interest on other receivables (see note 34)
0.2
0.2
Other finance income
0.3
0.2
Finance income
0.5
0.5
12. Finance costs
2021
£’m
2020
£’m
Interest on bank borrowings
0.6
1.3
Interest on senior notes
21.4
24.5
Interest on lease liabilities
5.7
6.0
Unwinding of discount on provisions (see note 34)
0.6
0.7
Net interest expense on retirement benefit obligations (see note 36)
4.1
5.7
Amortisation of debt issue costs
1.5
0.8
Less: amounts capitalised in the cost of qualifying assets (see note 18)
(1.3)
(1.8)
Finance costs
32.6
37.2
13. Tax
2021
£’m
2020
£’m
Current tax – current year
29.3
29.3
Current tax – adjustment in respect of prior years
(5.2)
(10.5)
Deferred tax – origination and reversal of temporary differences
(26.3)
(44.6)
Deferred tax – adjustment in respect of prior years
2.3
6.0
Tax charge/(credit)
0.1
(19.8)
The Finance Act 2021 introduced legislation to increase the main rate of corporation tax in the UK from 19% to 25% from 1 April
2023. The legislation was substantively enacted in 2021 and has resulted in an additional current year tax charge of £5.7m, arising
from the impact of the change in tax rate on net deferred tax liabilities.
Reconciliation of tax charge/(credit)
A reconciliation based on the weighted average tax rate applicable to the profit/(loss) of the Group’s consolidated businesses is
as follows:
2021
£’m
2020
£’m
Profit/(loss) before tax at weighted average tax rate of 9.6%* (2020: 24.7%)
3.0
(82.4)
Effects of:
Impact of impairment losses on intangible assets
–
67.9
Deferred tax – effects of changes in other statutory tax rates
1.8
0.3
Tax effect of share-based payments
–
1.5
Non-taxable gain on disposal of businesses
(0.5)
(4.8)
Tax losses not recognised
(1.0)
0.5
Tax credits and incentives
(1.4)
(2.7)
Provision for/(release of) uncertain tax positions
(1.1)
1.3
Other permanent differences
2.2
3.1
Current tax – adjustment in respect of prior years
(5.2)
(10.5)
Deferred tax – adjustment in respect of prior years
2.3
6.0
Tax charge/(credit)
0.1
(19.8)
*
Calculated as the weighted average tax rate applicable to profits 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 years. 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 charge for 2021 to
increase, or reduce respectively, by approximately £4.3m of which £3.2m arises from the impact of the change in tax rate on net deferred tax liabilities.
The tax reconciliation for 2021 includes £1.4m (2020: £2.7m) in respect of tax credit and incentives in the US for items such as
research and development and certain foreign derived income, and a release of £1.1m (2020: £1.3m charge) in respect of various
uncertain tax positions in the Group (see note 29).
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
200
13. Tax continued
Tax relating to components of other comprehensive income/(expense)
2021
2020
Before
tax
£’m
Tax
(charge)/
credit
£’m
After
tax
£’m
Before
tax
£’m
Tax
(charge)/
credit
£’m
After
tax
£’m
Current tax – currency translation movements
(6.9)
2.9
(4.0)
–
–
–
Current tax – movements in fair value of financial liabilities
arising from changes in credit risk
(1.3)
0.3
(1.0)
–
–
–
Deferred tax – currency translation movements
–
–
–
(79.9)
2.0
(77.9)
Deferred tax – movements in fair value of financial liabilities
arising from changes in credit risk
–
–
–
1.8
(0.4)
1.4
Deferred tax – remeasurement of retirement benefit
obligations
115.4
(21.8)
93.6
(42.6)
10.8
(31.8)
Other comprehensive income/(expense)
107.2
(18.6)
88.6
(120.7)
12.4
(108.3)
Tax relating to items recognised directly in equity
2021
£’m
2020
£’m
Current tax relating to share-based payment expense
1.4
(0.2)
Deferred tax relating to share-based payment expense (see note 35)
1.3
(2.0)
Total credit/(charge)
2.7
(2.2)
14. Earnings/(loss) per share
Earnings per 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 2.3m shares (2020: 3.6m 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.
2021
2020
Profit*
£’m
Shares
Number ’m
EPS
Pence
Loss*
£’m
Shares
Number ’m
EPS
Pence
Basic EPS
31.2
780.2
4.0
(314.2)
777.8
(40.4)
Potential effect of dilutive ordinary shares
–
4.2
–
–
11.6
–
Diluted EPS
31.2
784.4
4.0
(314.2)
789.4
(40.4)
*
Profit/(loss) for the year attributable to equity owners of the Company.
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:
2021
Pence
2020
Pence
Basic EPS
4.0
(40.4)
Adjust for effects of:
Amounts arising on the acquisition, disposal and closure of businesses
0.6
(4.2)
Amortisation of intangible assets acquired in business combinations
8.0
9.2
Financial instruments – (gain)/loss
(1.8)
0.3
Exceptional operating items
4.2
51.0
Net interest expense on retirement benefit obligations
0.4
0.6
Underlying basic EPS
15.4
16.5
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 15.4 pence (2020: 16.2 pence).
Meggitt PLC Annual Report and Accounts 2021
201
Financial Statements
15. Dividends
The Directors did not recommend the payment of a dividend in respect of 2020. In line with the terms of the previously announced
proposed transaction with Parker-Hannifin, the Group is not paying a final dividend for 2021.
16. Related party transactions
During the year, the Group made sales to the joint ventures of £0.4m (2020: £0.7m) and purchases from the joint ventures of £1.0m
(2020: £0.6m). 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 2021 as members of the Board and the Group
Executive Committee, is set out below.
2021
£’m
2020
£’m
Salaries and other short-term employee benefits
7.6
4.7
Share-based payment expense/(credit)
1.3
(0.5)
Total
8.9
4.2
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 126 to 155 which forms part of these consolidated
financial statements.
17. Goodwill
2021
£’m
2020
£’m
At 1 January
1,519.5
1,966.6
Exchange rate adjustments
12.3
(22.9)
Businesses disposed
–
(84.8)
Transferred to assets classified as held for sale
–
(3.7)
Impairment losses
–
(335.7)
At 31 December
1,531.8
1,519.5
The net book amount at 31 December 2021 comprises cost of £1,856.5m (2020: £1,841.4m) and accumulated impairment losses of
£324.7m (2020: £321.9m).
An analysis of goodwill by CGU or group of CGUs is shown below:
2021
£’m
2020
£’m
Airframe Systems
1,115.0
1,105.3
Engine Systems*
130.5
115.3
Services & Support
207.7
206.6
Defence Systems
30.6
30.2
Other*
48.0
62.1
Total
1,531.8
1,519.5
*
As a result of the transfer of a number of product lines from the Energy & Equipment division to the Engine Systems division on 1 January 2021, the related goodwill
of £13.9m has been reclassed from Other to the Engine Systems group of CGUs.
Impairment testing
Under the Group’s annual impairment testing cycle, goodwill is tested for impairment at 30 June each year. During 2021, the
Group did not identify any trigger events indicating the carrying value of goodwill attributable to any of the Group’s CGUs was
impaired and accordingly no additional impairment testing was performed.
No changes were made in 2021 to the level at which impairment testing was performed.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
202
17. Goodwill continued
Impairment testing continued
For the purpose of impairment testing, the Group historically used value-in-use calculations to determine recoverable amounts
as it had not considered there to be reliable estimates of fair value less costs of disposal (FVLCOD). However, following approval
by the Group’s shareholders on 21 September 2021 of the proposed acquisition of the Group by Parker-Hannifin Corporation,
FVLCOD has been determined to be £6,200.0m based on the all-cash offer of 800 pence per share and estimated costs of
disposal of £55.0m. This is higher than the Group’s calculation of its estimated value-in-use which, by restricting cash flows to a
five-year period and capping growth in subsequent periods to long-term inflation estimates, does not fully capture the extent of
the anticipated civil aerospace recovery. Accordingly, for the purposes of impairment testing recoverable value has been based
on FVLCOD.
FVLCOD for each CGU has been estimated by allocating the FVLCOD of the Group using the relative value-in-use of each CGU.
The key assumptions used in the value-in-use calculations were as follows:
Cash flows covered by management estimates
Estimates of cash flows prepared and approved by management covering a five-year period from the date of the impairment
testing were used. Cash flow estimates covering three potential scenarios were prepared and probability weighted to derive an
expected value for the cash flows to be used. The scenarios modelled reflected a range of 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, together with different assumptions on the level of gross margin improvement over the five-
year period.
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; and the impacts of climate
change and other potential structural changes in markets. 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 were as follows:
2021
%
2020
%
Airframe Systems
2.2
2.0
Engine Systems
1.7
1.3
Services & Support
2.2
2.1
Defence Systems
2.3
2.2
Other
1.1-2.3
0.7-2.2
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:
2021
%
2020
%
Airframe Systems
9.9
10.7
Engine Systems
8.5
9.1
Services & Support
9.5
10.4
Defence Systems
9.9
10.6
Other
7.3-10.2
8.1-11.0
As a result of the impairment test, no impairment of any CGU or group of CGUs was identified. With the exception of Airframe
Systems, headroom measured in percentage terms for each of the CGUs and groups of CGUs was greater than 100% of the
carrying value of the CGU’s assets, including goodwill. For Airframe Systems, headroom was £1,474.0m (71% of the carrying
value of the CGU’s assets, including goodwill). Having modelled a number of sensitivities, it was concluded that no reasonably
foreseeable change in key assumptions used in the impairment model would result in a significant impairment charge being
recognised in the consolidated financial statements.
Meggitt PLC Annual Report and Accounts 2021
203
Financial Statements
18. Development costs and programme participation costs
Development
costs
£’m
Programme
participation
costs
£’m
At 1 January 2020
Cost
814.4
38.4
Accumulated amortisation
(238.5)
(20.4)
Net book amount
575.9
18.0
Year ended 31 December 2020
Opening net book amount
575.9
18.0
Exchange rate adjustments
(7.6)
(0.7)
Additions – Internal development costs
41.4
–
– Cash payments
–
2.6
Transfers to contract assets
(1.8)
–
Disposals
(1.0)
–
Interest capitalised (see note 12)
1.8
–
Businesses disposed
(19.7)
–
Impairment losses*
(25.6)
–
Amortisation – net operating costs
(31.5)
(1.2)
Net book amount
531.9
18.7
At 1 January 2021
Cost
800.0
39.6
Accumulated amortisation
(268.1)
(20.9)
Net book amount
531.9
18.7
Year ended 31 December 2021
Opening net book amount
531.9
18.7
Exchange rate adjustments
3.1
0.2
Additions – Internal development costs
27.6
–
– Cash payments
–
1.4
Transfers to contract assets
(2.5)
(0.1)
Interest capitalised (see note 12)
1.3
–
Impairment losses*
(3.7)
–
Amortisation – net operating costs
(33.0)
(1.2)
Net book amount
524.7
19.0
At 31 December 2021
Cost
824.6
44.9
Accumulated amortisation
(299.9)
(25.9)
Net book amount
524.7
19.0
*
Of the impairment losses, £1.1m (2020: £24.5m) has been charged to operating exceptional items (see note 10).
The net book amount of development costs includes £419.3m (2020: £423.3m) in respect of Airframe Systems which have an
estimated weighted average remaining life of 12.7 years (2020: 12.7 years). Interest has been capitalised using the average rate
payable on the Group’s floating rate borrowings of 0.9% (2020: 1.2%). Tax relief claimed on interest capitalised in the year is
£0.3m (2020: £0.3m).
The Group has individually material balances capitalised on the Airbus A220, Airbus A321NEO, Bombardier Global 7500/8000,
Embraer 450/500, Irkut MC-21, Gulfstream G500/G600, LEAP-X, Dassault Falcon 6X, Boeing 787 and Boeing 737 programmes.
These programmes have an aggregate net book amount of £333.4m (at 31 December 2020 these programmes had an aggregate
net book amount of £331.8m). Of this net book amount, £67.6m (2020: £59.0m) relates to aircraft programmes not yet in service.
In note 4, the Group discloses a critical accounting estimate in respect of the MC-21 programme. In respect of the other
programmes with individually material capitalised balances, the Group does not believe there is a significant risk of an OEM
bankruptcy, programme cancellation or other event in the next 12 months which would give rise to material loss in 2022.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
204
19. Other intangible assets
Acquired in business combinations*
Customer
relationships
£’m
Technology
£’m
Trade
names and
trademarks
£’m
Software
and other
assets
£’m
Total
£’m
At 1 January 2020
Cost
1,099.9
321.8
30.0
202.4
1,654.1
Accumulated amortisation
(754.5)
(245.6)
(27.6)
(122.8)
(1,150.5)
Net book amount
345.4
76.2
2.4
79.6
503.6
Year ended 31 December 2020
Opening net book amount
345.4
76.2
2.4
79.6
503.6
Exchange rate adjustments
(6.1)
(1.1)
–
(0.1)
(7.3)
Businesses disposed
–
–
–
(0.1)
(0.1)
Additions
–
–
–
13.2
13.2
Disposals
–
–
–
(0.4)
(0.4)
Amortisation – net operating costs
(67.0)
(20.5)
(0.7)
(19.7)
(107.9)
Net book amount
272.3
54.6
1.7
72.5
401.1
At 1 January 2021
Cost
1,056.9
282.5
21.7
212.2
1,573.3
Accumulated amortisation
(784.6)
(227.9)
(20.0)
(139.7)
(1,172.2)
Net book amount
272.3
54.6
1.7
72.5
401.1
Year ended 31 December 2021
Opening net book amount
272.3
54.6
1.7
72.5
401.1
Exchange rate adjustments
1.8
0.4
–
–
2.2
Additions
–
–
–
9.5
9.5
Disposals
–
–
–
(3.9)
(3.9)
Impairment losses – net operating costs
–
–
–
(2.0)
(2.0)
Amortisation – net operating costs
(63.6)
(15.8)
(0.7)
(20.2)
(100.3)
Net book amount
210.5
39.2
1.0
55.9
306.6
At 31 December 2021
Cost
1,067.2
284.6
21.7
217.2
1,590.7
Accumulated amortisation
(856.7)
(245.4)
(20.7)
(161.3)
(1,284.1)
Net book amount
210.5
39.2
1.0
55.9
306.6
*
Amortisation of these items is excluded from the Group’s underlying profit figures (see note 9).
The net book amount of customer relationships includes £129.8m (2020: £182.8m) in respect of Airframe Systems and £70.6m
(2020: £77.3m) in respect of Engine Systems. These have estimated weighted average remaining lives of 3.6 years (2020: 4.3 years)
and 11.2 years (2020: 12.0 years), respectively.
The net book amount of technology includes £20.0m (2020: £32.0m) in respect of Airframe Systems and £18.0m (2020: £20.6m)
in respect of Engine Systems. These have estimated weighted average remaining lives of 2.7 years (2020: 3.3 years) and 6.7 years
(2020: 7.7 years), respectively.
Meggitt PLC Annual Report and Accounts 2021
205
Financial Statements
20. Property, plant and equipment
Land and
buildings
£’m
Plant,
equipment
and
vehicles
£’m
Right-of-use
assets:
property
£’m
Right-of-use
assets:
other
£’m
Total
£’m
At 1 January 2020
Cost
221.7
570.3
203.8
4.6
1,000.4
Accumulated depreciation
(95.6)
(363.0)
(90.3)
(2.1)
(551.0)
Net book amount
126.1
207.3
113.5
2.5
449.4
Year ended 31 December 2020
Opening net book amount
126.1
207.3
113.5
2.5
449.4
Exchange rate adjustments
(1.7)
(3.4)
(1.6)
(0.1)
(6.8)
Businesses disposed
(0.4)
(2.4)
(4.0)
–
(6.8)
Additions
30.8
40.8
10.4
1.0
83.0
Transfer to assets classified as held for sale
–
(0.8)
(0.9)
–
(1.7)
Disposals
(0.2)
(1.2)
–
(0.2)
(1.6)
Transfers
1.9
(1.9)
–
–
–
Depreciation*
(8.3)
(32.4)
(14.8)
(1.2)
(56.7)
Net book amount
148.2
206.0
102.6
2.0
458.8
At 1 January 2021
Cost
233.2
567.5
188.2
5.0
993.9
Accumulated depreciation
(85.0)
(361.5)
(85.6)
(3.0)
(535.1)
Net book amount
148.2
206.0
102.6
2.0
458.8
Year ended 31 December 2021
Opening net book amount
148.2
206.0
102.6
2.0
458.8
Exchange rate adjustments
0.2
1.2
0.5
–
1.9
Businesses disposed (see note 44)
–
(0.3)
(0.2)
–
(0.5)
Additions
25.8
35.1
25.8
0.8
87.5
Transfer from inventory**
–
6.4
–
–
6.4
Disposals
(17.7)
(1.6)
(0.2)
(0.1)
(19.6)
Transfers
2.4
(2.4)
–
–
–
Depreciation*
(11.2)
(30.3)
(13.5)
(0.9)
(55.9)
Net book amount
147.7
214.1
115.0
1.8
478.6
At 31 December 2021
Cost
235.1
592.5
209.7
5.0
1,042.3
Accumulated depreciation
(87.4)
(378.4)
(94.7)
(3.2)
(563.7)
Net book amount***
147.7
214.1
115.0
1.8
478.6
*
The depreciation charge includes £1.2m which has been charged to exceptional operating items (2020: £3.8m).
**
Arises from the reclassification of amounts relating to rotable asset pools, which are used by the Group to improve turnaround times in relation to
aftermarket services.
*** Included within the net book amount are assets under construction of £12.6m (2020: £9.2m) relating to land and buildings and £42.1m (2020: £26.9m) relating to
plant, equipment and vehicles.
The Group received £7.4m (2020: £2.1m) under the Coronavirus Aid, Relief, and Economic Security (CARES) Act from the US
Department of Defense to sustain critical industrial base capability for military grade fuel bladders at its Rockmart facility in
the US. 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
206
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:
2021
£’m
2020
£’m
At 1 January
20.8
14.1
Exchange rate adjustments
0.2
(0.5)
Additions
–
10.4
Adjustment to contingent consideration*
(1.9)
–
Share of loss after tax
(0.4)
(3.2)
At 31 December
18.7
20.8
*
During 2021, £0.9m in contingent consideration relating to HiETA was paid. The remaining contingent consideration payable of £1.9m was reassessed and
determined to no longer be required and was therefore adjusted against the investment value.
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
2021
2020
UTC Aero
£’m
HiETA
£’m
Total
£’m
UTC Aero
£’m
HiETA
£’m
Total
£’m
Revenue
12.6
2.4
15.0
10.6
2.4
13.0
Operating profit/(loss)
0.9
(2.3)
(1.4)
(2.9)
(3.1)
(6.0)
Finance costs
(0.2)
(0.2)
(0.4)
(0.2)
(0.2)
(0.4)
Profit/(loss) before tax
0.7
(2.5)
(1.8)
(3.1)
(3.3)
(6.4)
Tax charge
(0.1)
–
(0.1)
(0.1)
–
(0.1)
Profit/(loss) after tax
0.6
(2.5)
(1.9)
(3.2)
(3.3)
(6.5)
Total comprehensive income/(expense)
0.6
(2.5)
(1.9)
(3.1)
(3.3)
(6.4)
Summarised balance sheet
2021
2020
UTC Aero
£’m
HiETA
£’m
Total
£’m
UTC Aero
£’m
HiETA
£’m
Total
£’m
Property, plant and equipment
2.5
1.1
3.6
2.8
2.8
5.6
Cash and cash equivalents
2.7
0.2
2.9
4.3
0.3
4.6
Other current assets
6.8
0.3
7.1
7.3
0.6
7.9
Total assets
12.0
1.6
13.6
14.4
3.7
18.1
Financial liabilities (excluding trade payables)
(4.0)
(5.5)
(9.5)
(4.1)
(6.6)
(10.7)
Other liabilities
(5.8)
(1.6)
(7.4)
(8.7)
(1.0)
(9.7)
Total liabilities
(9.8)
(7.1)
(16.9)
(12.8)
(7.6)
(20.4)
Net assets/(liabilities)
2.2
(5.5)
(3.3)
1.6
(3.9)
(2.3)
Reconciliation of summarised financial information
2021
2020
UTC Aero
£’m
HiETA
£’m
Total
£’m
UTC Aero
£’m
HiETA
£’m
Total
£’m
Net assets/(liabilities) at 1 January
1.6
(3.9)
(2.3)
4.7
(0.6)
4.1
Total comprehensive income/(expense)
0.6
(2.5)
(1.9)
(3.1)
(3.3)
(6.4)
Adjustment to equity*
–
0.9
0.9
–
–
–
Net assets/(liabilities) at 31 December
2.2
(5.5)
(3.3)
1.6
(3.9)
(2.3)
Group’s interest in joint venture
1.5
(1.8)
(0.3)
1.1
(1.3)
(0.2)
Goodwill
10.6
8.4
19.0
10.4
10.6
21.0
Group’s investment at 31 December
12.1
6.6
18.7
11.5
9.3
20.8
*
Resulting from payment by the Group of contingent consideration relating to the acquisition of HiETA.
There are no contingent liabilities relating to the Group’s interest in the joint ventures.
Meggitt PLC Annual Report and Accounts 2021
207
Financial Statements
22. Assets classified as held for sale
On 30 January 2021, the Group completed the disposal 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, previously classified as held for sale (see note 44).
Assets
classified as
held for sale
£’m
Liabilities
directly
associated
with assets
classified as
held for sale
£’m
Total
£’m
At 1 January 2021
14.7
(3.7)
11.0
Change in carrying value up to date of disposal
0.6
0.1
0.7
Business disposed (see note 44)
(15.3)
3.6
(11.7)
At 31 December 2021
–
–
–
23. Inventories
2021
£’m
2020
£’m
Raw materials and bought-in components
173.4
163.3
Manufacturing work in progress
183.5
160.3
Finished goods and goods for resale
98.5
103.3
Total
455.4
426.9
The cost of inventories recognised as an expense and included within cost of sales is £923.8m (2020: £1,080.9m). The cost of
inventories recognised as an expense includes £9.1m (2020: £13.4m) in respect of write-downs of inventory to net realisable value.
The cost of inventories recognised as an expense has been reduced by £4.1m (2020: £3.3m) in respect of the reversal of write-
downs of inventory to net realisable value made in previous years.
24. Trade and other receivables
2021
£’m
2020
£’m
Trade receivables
248.0
198.8
Prepayments
14.5
12.5
Other receivables
32.0
39.8
Current portion
294.5
251.1
Other receivables
18.8
16.5
Non-current portion
18.8
16.5
Total
313.3
267.6
As at 31 December 2021, £4.9m was due from one of the joint ventures (2020: £7.9m) and is included within trade receivables.
Other receivables include £15.0m (2020: £18.8m) 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 £2.8m (2020: £5.0m)
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:
2021
£’m
2020
£’m
Sterling
39.1
46.1
US dollar
243.9
189.3
Euro
18.1
19.3
Other
12.2
12.9
Total
313.3
267.6
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
208
25. Contract assets
2021
£’m
2020
£’m
Conditional rights to consideration on over time contracts
50.6
45.7
Programme participation cash payments
3.1
3.1
Current portion
53.7
48.8
Conditional rights to consideration on over time contracts
22.3
24.6
Programme participation cash payments
33.5
35.0
Non-current portion
55.8
59.6
Total
109.5
108.4
Amortisation of programme participation cash payments of £3.1m (2020: £3.1m) has been recognised as a reduction in revenue in
the year. 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 assets were £1.6m (2020: £0.4m).
Contract assets are also subject to the impairment requirements of IFRS 9, however the identified impairment loss was
not significant.
26. Cash and cash equivalents
2021
£’m
2020
£’m
Cash at bank and on hand
190.8
178.6
Total
190.8
178.6
Cash and cash equivalents are subject to interest at floating rates.
27. Trade and other payables
2021
£’m
2020
£’m
Trade payables
132.4
131.4
Social security and other taxes
12.4
10.7
Accrued expenses
64.3
58.5
Other payables
108.8
95.9
Current portion
317.9
296.5
Other payables
3.7
8.5
Non-current portion
3.7
8.5
Total
321.6
305.0
Other payables include £26.3m (2020: £23.5m) 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 (2020: £Nil).
Meggitt PLC Annual Report and Accounts 2021
209
Financial Statements
28. Contract liabilities
2021
£’m
2020
£’m
Contributions received from customers during development phase of programmes
2.4
1.7
Cost per brake landing/power by the hour contracts
7.9
4.9
Other consideration received in advance of performance
52.4
44.2
Current portion
62.7
50.8
Contributions received from customers during development phase of programmes
44.9
45.1
Cost per brake landing/power by the hour contracts
4.1
5.2
Other consideration received in advance of performance
23.6
23.6
Non-current portion
72.6
73.9
Total
135.3
124.7
Revenue recognised in the year relating to amounts recognised as a contract liability at the beginning of the year was £31.0m
(2020: £36.1m). 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 £2.2m (2020: £0.7m).
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partly satisfied at
31 December 2021 is £369.1m (2020 (restated): £387.2m). Of this aggregate amount, the Group expects to recognise £130.6m
(2020 (restated): £174.0m) as revenue during 2022, with the balance recognised in more than one year but not more than five years.
Prior year figures have been restated to incorporate the full contract life of a number of power by the hour contracts resulting
in an increase in the aggregate amount of £178.6m and an increase in the amount expected to be recognised in 2021 of £12.6m.
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.
29. Current tax liabilities
Note
2021
£’m
2020
£’m
UK Controlled Foreign Company (CFC) regime
a
1.9
18.3
Other liabilities in respect of uncertain tax positions
b
29.6
30.8
Other current tax liabilities
2.7
7.8
Current tax liabilities
34.2
56.9
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 was held at 31 December 2020.
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. The Group received tax assessments during 2021
from the UK authority in this regard of £16.9m, for which a liability was held at 31 December 2020. The £16.9m was paid by the
Group in the year. Separately, the Group is 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 and while this issue largely overlaps with the State Aid benefit
now repaid, a residual liability is held in this regard at 31 December 2021. The Group does not consider there to be a significant
risk of a material adjustment to the residual liability recognised within the next 12 months.
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 year 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
210
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:
2021
£’m
2020
£’m
Depreciation charge for right-of-use assets (see note 20)
14.4
16.0
Additions to right-of-use assets (see note 20)*
26.6
11.4
Net book amount of right-of-use assets (see note 20)
116.8
104.6
Interest on lease liabilities (see note 12)
5.7
6.0
Expense related to short-term leases and low-value assets
1.0
0.6
Net cash outflow for leases**
20.6
17.9
*
In 2021, this includes £6.8m relating to the sale and leaseback of the Group’s Engine Systems facility in North Hollywood, USA which has a lease term of 15 years and
£8.3m relating to a ten-year lease extension of the Group’s Airframe Systems facility in Portland, USA.
**
Comprises capital payments of £14.9m (2020: £15.4m) and interest payments of £5.7m (2020: £6.0m), less a reverse lease premium received of £Nil (2020: £3.5m)
relating to the new Ansty Park site.
Analysis of lease liabilities
Present value
of minimum
lease payments
2021
£’m
2020
£’m
In one year or less
15.6
14.7
In more than one year but not more than five years
50.0
45.4
In more than five years
103.4
84.2
Present value of lease liabilities
169.0
144.3
Current portion
15.6
14.7
Non-current portion
153.4
129.6
31. Bank and other borrowings
2021
£’m
2020
£’m
Bank loans
2.8
2.2
Other loans
102.5
8.3
Current portion
105.3
10.5
Bank loans
28.2
43.7
Other loans
667.8
753.1
Non-current portion
696.0
796.8
Total
801.3
807.3
Analysis of bank and other borrowings repayable:
In one year or less
105.3
10.5
In more than one year but not more than five years
695.8
577.4
In more than five years
0.2
219.4
Total
801.3
807.3
Analysis of bank and other borrowings:
Drawn under committed facilities
791.6
795.9
Drawn under uncommitted facilities
2.7
2.2
Less unamortised debt issue costs
(2.7)
(2.4)
Fair value adjustment to fixed rate borrowings
1.2
3.3
Interest accruals
8.5
8.3
Total
801.3
807.3
Debt issue costs are amortised over the period of the facility to which they relate. The Group has no secured borrowings.
Meggitt PLC Annual Report and Accounts 2021
211
Financial Statements
31. Bank and other borrowings continued
Committed facilities
The Group has the following committed facilities at notional value:
2021
2020
Drawn
£’m
Undrawn
£’m
Total
£’m
Drawn
£’m
Undrawn
£’m
Total
£’m
2010 Senior notes : USD125.0m
92.8
–
92.8
91.6
–
91.6
2016 Senior notes: USD600.0m
445.4
–
445.4
439.5
–
439.5
2020 Senior notes: USD300.0m
222.7
–
222.7
219.8
–
219.8
Syndicated credit facilities: USD410.0m (2020: USD 750.0m)
–
304.4
304.4
–
549.4
549.4
Bilateral facility: USD50.0m (2020: USD125.0m)
–
37.1
37.1
–
91.5
91.5
Bilateral facility: GBP50.0m (2020: GBP100.0m)
–
50.0
50.0
–
100.0
100.0
Bilateral facility: GBP30.0m (2020: GBP45.0m)
30.0
–
30.0
45.0
–
45.0
Other: EUR0.8m
0.7
–
0.7
–
–
–
Committed facilities
791.6
391.5
1,183.1
795.9
740.9
1,536.8
The Group issued USD400m of loan notes to private placement investors in 2010, of which USD125m remains outstanding.
The outstanding notes carry an interest rate of 5.12% and are due for repayment in June 2022. These loan notes are in a fair value
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 November 2021, the Group secured a three-year USD410m syndicated multi-currency revolving credit facility maturing in
November 2024, which replaced the previous USD750m facility. At 31 December 2021, the amounts drawn under the facility
are £Nil (2020: £Nil). Borrowings under the new facility are subject to interest at floating rates which are linked to SONIA
(GBP), EURibor (EUR) and USD LIBOR (USD), until such future date to be agreed between the Group and the banks when USD
borrowings will be linked to SOFR.
During 2021, the Group amended the three committed term loan bilateral facility agreements with its relationship banks.
They now comprise a USD50m facility with Bank of America, a GBP50m facility with Sumitomo Mitsui Banking Corporation
and a GBP30m facility with Caixabank. The USD facility now matures in December 2023 and the two GBP facilities mature in
January 2024. Borrowings under the USD and GBP facilities are subject to interest at floating rates which are linked to SOFR
and SONIA respectively.
Committed facilities expire as follows:
2021
2020
Drawn
£’m
Undrawn
£’m
Total
£’m
Drawn
£’m
Undrawn
£’m
Total
£’m
In one year or less
92.8
–
92.8
–
128.2
128.2
In more than one year but not more than five years
698.6
391.5
1,090.1
576.1
612.7
1,188.8
In more than five years
0.2
–
0.2
219.8
–
219.8
Committed facilities
791.6
391.5
1,183.1
795.9
740.9
1,536.8
The Group also has various uncommitted facilities with its relationship banks. At 31 December 2021, £2.7m (2020: £2.2m) was
drawn under these facilities.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
212
31. Bank and other borrowings continued
Interest rate exposure
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:
At 31 December 2021:
Fixed rate borrowings
Floating
£’m
Fixed
£’m
Total
£’m
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
US dollar
93.0
452.4
545.4
Swiss franc
–
148.8
148.8
Euro
–
79.8
79.8
Sterling
30.0
–
30.0
Gross bank and other borrowings
123.0
681.0
804.0
2.9
3.1
Less: unamortised debt issue costs
(1.8)
(0.9)
(2.7)
Bank and other borrowings
121.2
680.1
801.3
At 31 December 2020:
Fixed rate borrowings
Floating
£’m
Fixed
£’m
Total
£’m
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
US dollar*
(133.1)
672.9
539.8
Swiss franc
–
166.4
166.4
Euro
–
58.5
58.5
Sterling
45.0
–
45.0
Gross bank and other borrowings
(88.1)
897.8
809.7
2.4
3.1
Less: unamortised debt issue costs
(1.4)
(1.0)
(2.4)
Bank and other borrowings
(89.5)
896.8
807.3
*
Part of the proceeds from the issue of USD300m senior notes at fixed interest rates in 2020, was 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 matured during 2021, and which converted USD floating rate borrowings
into fixed rate borrowings denominated in Swiss francs and euros. At 31 December 2020, the notional amounts of these cross-currency swaps exceeded 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.
The weighted average interest rate reflects the relative impact of interest rates based on the principal amounts and the duration
of borrowings.
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.
2021
£’m
2020
£’m
Carrying value at 1 January
446.3
461.1
Loss/(gain) recognised in net finance costs due to movements in accrued interest and debt costs
0.3
(0.1)
Loss/(gain) recognised in other comprehensive income due to exchange rate movements
5.9
(14.7)
Carrying value at 31 December
452.5
446.3
Cumulative translation adjustments recognised in other comprehensive income in relation to continuing net investment hedge
loans are a gain of £9.9m (2020: £15.8m gain).
The Group also uses the notional principal from cross-currency swaps in its net investment hedge which resulted in a £14.1m loss
recognised in other comprehensive income.
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 2021 or 2020.
Meggitt PLC Annual Report and Accounts 2021
213
Financial Statements
32. Financial instruments
At 31 December 2021:
Held at fair value
Held at amortised cost
Through
profit
& loss
£’m
Derivatives
designated
for
hedging
£’m
Assets
£’m
Liabilities
£’m
Total
book
value
£’m
Total
fair
value
£’m
Non-current:
Other receivables (see note 24)
–
–
18.8
–
18.8
18.8
Derivative financial instruments (see note 33)
10.0
–
–
–
10.0
10.0
Current:
Trade and other receivables*
–
–
280.0
–
280.0
280.0
Derivative financial instruments (see note 33)
3.1
1.7
–
–
4.8
4.8
Cash and cash equivalents (see note 26)
–
–
190.8
–
190.8
190.8
Financial assets
13.1
1.7
489.6
–
504.4
504.4
Current:
Trade and other payables**
–
–
–
(305.5)
(305.5)
(305.5)
Derivative financial instruments (see note 33)
(3.2)
–
–
–
(3.2)
(3.2)
Lease liabilities (see note 30)
–
–
–
(15.6)
(15.6)
(15.6)
Bank and other borrowings (see note 31)***
–
–
–
(105.3)
(105.3)
(105.3)
Non-current:
Other payables (see note 27)
–
–
–
(3.7)
(3.7)
(3.7)
Derivative financial instruments (see note 33)
(1.3)
–
–
–
(1.3)
(1.3)
Lease liabilities (see note 30)
–
–
–
(153.4)
(153.4)
(153.4)
Bank and other borrowings (see note 31)
–
–
–
(696.0)
(696.0)
(692.6)
Financial liabilities
(4.5)
–
–
(1,279.5)
(1,284.0)
(1,280.6)
Total
8.6
1.7
489.6
(1,279.5)
(779.6)
(776.2)
*
Excludes prepayments of £14.5m (see note 24).
**
Excludes social security and other taxes of £12.4m (see note 27).
*** Current bank and other borrowings includes loan notes with a carrying amount of £94.2m which are designated as in a fair value hedge relationship (see note 31).
This carrying amount includes a fair value hedge adjustment of £1.2m.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
214
32. Financial instruments continued
At 31 December 2020:
Held at fair value
Held at amortised cost
Through
profit
& loss
£’m
Derivatives
designated
for
hedging
£’m
Assets
£’m
Liabilities
£’m
Total
book
value
£’m
Total
fair
value
£’m
Non-current:
Other receivables (see note 24)
–
–
16.5
–
16.5
16.5
Derivative financial instruments (see note 33)
9.9
5.1
–
–
15.0
15.0
Current:
Trade and other receivables*
–
–
238.6
–
238.6
238.6
Derivative financial instruments (see note 33)
5.4
–
–
–
5.4
5.4
Cash and cash equivalents (see note 26)
–
–
178.6
–
178.6
178.6
Financial assets
15.3
5.1
433.7
–
454.1
454.1
Current:
Trade and other payables**
–
–
–
(285.8)
(285.8)
(285.8)
Derivative financial instruments (see note 33)
(21.6)
–
–
–
(21.6)
(21.6)
Lease liabilities (see note 30)
–
–
–
(14.7)
(14.7)
(14.7)
Bank and other borrowings (see note 31)
–
–
–
(10.5)
(10.5)
(10.5)
Non-current:
Other payables (see note 27)
–
–
–
(8.5)
(8.5)
(8.5)
Derivative financial instruments (see note 33)
(0.3)
–
–
–
(0.3)
(0.3)
Lease liabilities (see note 30)
–
–
–
(129.6)
(129.6)
(129.6)
Bank and other borrowings (see note 31)***
–
–
–
(796.8)
(796.8)
(813.1)
Financial liabilities
(21.9)
–
–
(1,245.9)
(1,267.8)
(1,284.1)
Total
(6.6)
5.1
433.7
(1,245.9)
(813.7)
(830.0)
*
Excludes prepayments of £12.5m (see note 24).
**
Excludes social security and other taxes of £10.7m (see note 27).
*** Non-current bank and other borrowings includes loan notes with a carrying amount of £95.0m which are designated as in a fair value hedge relationship (see note
31). This carrying amount includes a fair value hedge adjustment of £3.3m.
Fair value measurement and hierarchy
For trade and other receivables, cash and cash equivalents, trade and other payables and floating rate bank and other borrowings,
fair values approximate to book values primarily due to the short maturity periods of these financial instruments. For trade and
other receivables, 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.
Meggitt PLC Annual Report and Accounts 2021
215
Financial Statements
32. Financial instruments continued
Impairment of financial assets
Trade receivables are stated after a loss allowance. Movements in the loss allowance during the year are as follows:
2021
£’m
2020
£’m
At 1 January
12.4
6.1
Exchange rate adjustments
0.1
(0.2)
Businesses disposed
–
(0.2)
Utilised
(1.4)
(1.1)
(Credit)/charge to income statement – net operating costs*
(0.3)
7.8
At 31 December
10.8
12.4
*
Includes £2.5m (2020: £5.4m charge) which has been credited to exceptional operating items (see note 10). This relates, in 2021, to a partial reversal of the additional
credit loss allowances recognised as an exceptional operating item in 2020 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 2021 is as follows:
2021
£’m
2020
£’m
Current
203.6
165.4
Up to 1 month past due
20.6
20.7
Up to 2 months past due
11.2
7.3
Up to 3 months past due
5.8
4.1
More than 3 months past due
17.6
13.7
Gross balances
258.8
211.2
Loss allowance
(10.8)
(12.4)
Total
248.0
198.8
Impairment of other financial assets
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:
2021
£’m
2020
£’m
Moody’s rating:
Aa
81.5
176.1
A
107.7
2.2
Baa
1.6
0.3
Total (see note 26)
190.8
178.6
33. Derivative financial instruments
At 31 December 2021:
Contract or underlying
principal amount
Fair value
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
Interest rate swaps – fair value hedges
92.8
–
1.7
–
Cross-currency swaps – not hedge accounted
–
(87.6)
–
(1.1)
Foreign currency forward contracts – not hedge accounted
89.6
(77.3)
3.1
(2.1)
Current portion
182.4
(164.9)
4.8
(3.2)
Cross-currency swaps – not hedge accounted
228.6
–
6.5
–
Foreign currency forward contracts – not hedge accounted
76.1
(50.6)
3.5
(1.3)
Non-current portion
304.7
(50.6)
10.0
(1.3)
Total
487.1
(215.5)
14.8
(4.5)
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
216
33. Derivative financial instruments continued
At 31 December 2020:
Contract or underlying
principal amount
Fair value
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
Cross-currency swaps – not hedge accounted
–
(299.5)
–
(20.0)
Foreign currency forward contracts – not hedge accounted
182.6
(40.3)
5.4
(1.6)
Current portion
182.6
(339.8)
5.4
(21.6)
Interest rate swaps – fair value hedges
91.6
–
5.1
–
Foreign currency forward contracts – not hedge accounted
172.0
(85.7)
9.9
(0.3)
Non-current portion
263.6
(85.7)
15.0
(0.3)
Total
446.2
(425.5)
20.4
(21.9)
Credit quality of derivative financial assets
The credit quality of derivative financial assets is as follows:
2021
£’m
2020
£’m
Moody’s rating:
Aa
9.0
8.1
A
5.8
12.3
Total
14.8
20.4
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 2021 is USD125m (2020: USD125m)
which will expire in 2022. The weighted average floating rate payable on the swap contracts in 2021 was LIBOR +1.1% (2020: LIBOR
+1.1%). As the critical terms of the interest rate swaps match the underlying hedged loan, there is an expectation that the value
of the hedging instrument and the value of the hedged item will move in the opposite direction. The hedge ratio is therefore
expected to be 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. The fair value hedge ineffectiveness recognised in the year was a
£0.1m charge (2020: £Nil) (see note 9). Possible sources of ineffectiveness arise from changes in the credit risk of either party to the
derivative contract and timing differences on cash flows between the derivative and hedged item.
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:
2021
2020
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
Fair value:
US dollar/sterling forward sales
6.4
(2.6)
12.7
(1.7)
Forward sales denominated in other currencies
0.3
(0.7)
2.6
(0.2)
Total
6.7
(3.3)
15.3
(1.9)
Meggitt PLC Annual Report and Accounts 2021
217
Financial Statements
34. Provisions
Provisions
Environmental
(a)
£’m
Onerous
contracts
(b)
£’m
Warranty
costs
(c)
£’m
Other
(d)
£’m
Total
£’m
Environmental
receivables
(a)
£’m
At 1 January 2021
72.7
13.0
16.0
11.2
112.9
(18.8)
Exchange rate adjustments
1.3
0.1
(0.1)
(0.1)
1.2
(0.3)
Additional provisions*
29.5
8.2
8.9
3.7
50.3
–
Unused amounts reversed*
(1.0)
(4.3)
(0.3)
(5.8)
(11.4)
1.0
Charge/(credit) to net finance costs (see notes 12 and
11 respectively)
0.6
–
–
–
0.6
(0.2)
Transfers from trade and other payables
–
1.2
–
1.6
2.8
–
Amounts (utilised)/settled
(9.5)
(3.1)
(5.3)
(2.4)
(20.3)
3.3
At 31 December 2021
93.6
15.1
19.2
8.2
136.1
(15.0)
2021
£’m
2020
£’m
Current
55.8
32.6
Non-current
80.3
80.3
At 31 December
136.1
112.9
*
Amounts in respect of warranty costs, a £5.0m charge in respect of onerous contract provisions and a £2.3m credit in respect of other provisions have been
recognised in cost of sales. All other amounts have been recognised within net operating costs. Additional provisions of £29.5m in respect of environmental
matters have been charged to exceptional operating items (see note 10).
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. Note 4 describes the Group’s critical accounting estimate in respect of
the £29.5m recorded as a provision in the year.
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, typically when
there is a binding signed agreement in place. Movements in the receivable are shown in the table above (see also note 24).
Note 4 describes the Group’s critical accounting estimate in respect of amounts recoverable from historic insurers and other
third parties relating to the matter for which £29.5m has been recorded as a provision in the year.
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 and accordingly
the impact would be immaterial.
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 and accordingly the impact would
be immaterial.
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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
218
35. Deferred tax
Movements in deferred tax assets and liabilities without taking into consideration the offsetting of balances, are analysed below:
Assets
£’m
Liabilities
£’m
Net
£’m
At 1 January 2020
124.2
(256.2)
(132.0)
Exchange rate adjustments
(3.1)
5.2
2.1
Businesses disposed
(0.7)
7.4
6.7
Reclassifications
(1.9)
1.9
–
Credit to income statement (see note 13)
6.7
31.9
38.6
Credit to other comprehensive income (see note 13)
12.4
–
12.4
Charge to equity (see note 13)
(2.0)
–
(2.0)
At 31 December 2020
135.6
(209.8)
(74.2)
Exchange rate adjustments
1.5
(1.6)
(0.1)
Credit to income statement (see note 13)
4.3
19.7
24.0
Charge to other comprehensive income (see note 13)
(21.8)
–
(21.8)
Credit to equity
1.2
–
1.2
At 31 December 2021
120.8
(191.7)
(70.9)
Movements in gross deferred tax assets are analysed as follows:
Assets
Provisions
£’m
Retirement
benefit
obligations
£’m
Contract
liabilities
£’m
Other
(*)
£’m
Total
£’m
At 1 January 2020
30.8
52.2
15.5
25.7
124.2
Exchange rate adjustments
(1.1)
(0.4)
(2.0)
0.4
(3.1)
Businesses disposed
(0.5)
–
(0.9)
0.7
(0.7)
Reclassifications
–
–
–
(1.9)
(1.9)
Credit/(charge) to income statement
4.9
(1.7)
4.6
(1.1)
6.7
Credit to other comprehensive income
–
12.4
–
–
12.4
Charge to equity
–
(1.9)
–
(0.1)
(2.0)
At 31 December 2020
34.1
60.6
17.2
23.7
135.6
Exchange rate adjustments
0.8
0.1
0.2
0.4
1.5
Credit/(charge) to income statement
5.9
(9.5)
0.9
7.0
4.3
Charge to other comprehensive income
–
(21.8)
–
–
(21.8)
Credit to equity
–
–
–
1.2
1.2
At 31 December 2021
40.8
29.4
18.3
32.3
120.8
*
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.
Meggitt PLC Annual Report and Accounts 2021
219
Financial Statements
35. Deferred tax continued
Movements in gross deferred tax liabilities are analysed as follows:
Liabilities
Intangible
assets
£’m
Contract
assets
£’m
Accelerated
tax
depreciation
£’m
Total
£’m
At 1 January 2020
(222.4)
(10.9)
(22.9)
(256.2)
Exchange rate adjustments
4.2
0.4
0.6
5.2
Businesses disposed
7.3
–
0.1
7.4
Reclassifications
2.1
–
(0.2)
1.9
Credit/(charge) to income statement
30.4
(1.1)
2.6
31.9
At 31 December 2020
(178.4)
(11.6)
(19.8)
(209.8)
Exchange rate adjustments
(1.4)
(0.1)
(0.1)
(1.6)
Credit/(charge) to income statement
13.7
0.5
5.5
19.7
At 31 December 2021
(166.1)
(11.2)
(14.4)
(191.7)
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:
2021
£’m
2020
£’m
Deferred tax assets
–
19.2
Deferred tax liabilities
(70.9)
(93.4)
Net balance at 31 December
(70.9)
(74.2)
Deferred tax liabilities all fall due after more than one year. Deferred tax assets are analysed as follows:
2021
£’m
2020
£’m
To be recovered within one year
–
4.4
To be recovered after more than one year
–
14.8
Total
–
19.2
The Group has unrecognised tax losses of £8.0m (2020: £8.0m) 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.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
220
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. This scheme is closed to new members and, following
conclusion of a consultation process with active members of the scheme, the scheme was 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, each of which is closed to future accrual for all members.
The schemes are tax-qualified pension schemes regulated by the US Internal Revenue Service and the Department of Labor,
and are insured by the Pension Benefit Guarantee Corporation up to certain limits. They are established under, and governed
by, the US Internal Revenue Code of 1986 and the Employee Retirement Income Security Act 1974, including the Pension
Protection Act of 2006. Meggitt is a named fiduciary and plan administrator with the authority to manage the operation of the
schemes. The Group also operates two small unfunded schemes.
• 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 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 dependent on salary at the date of closure
to future accrual or average salary over employment in the final years leading up to the date of closure to future accrual, together
with inflation linked to CPI for the period from closure to future accrual 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 made.
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
2021
£’m
2020
£’m
Total charge in respect of defined contribution pension schemes
26.5
19.9
Service cost
6.5
14.5
Past service (credit)/cost
(0.2)
0.1
Curtailment gain
(8.0)
–
Administrative expenses borne directly by schemes
2.5
2.6
Net interest expense on retirement benefit obligations
3.2
4.3
Total charge in respect of defined benefit pension schemes
4.0
21.5
Service cost
0.3
0.7
Net interest expense on retirement benefit obligations
0.9
1.4
Total charge in respect of healthcare schemes
1.2
2.1
Total charge
31.7
43.5
Of the total charge, £25.1m (2020: £35.2m) is included in employee costs (see note 8), of which £14.8m (2020: £19.2m) has been
recognised in cost of sales and £10.3m (2020: £16.0m) in net operating costs. Of the remaining charge, £2.5m (2020: £2.6m) has
been recognised in net operating costs in respect of scheme administration expenses and £4.1m (2020: £5.7m) is recognised in
finance costs (see note 12).
Meggitt PLC Annual Report and Accounts 2021
221
Financial Statements
36. Retirement benefit obligations continued
Amounts recognised in the income statement continued
Following closure of the UK scheme to future accrual, a curtailment gain of £8.0m was recognised in the year (2020: £Nil), which
arises from the reduction in scheme liabilities as a result of breaking the salary and career average revalued earnings revaluation
link for members in service at the date of closure.
The Group has estimated, with the advice of its actuary, that the impact of the High Court ruling in 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.
Amounts recognised on the balance sheet
2021
2020
UK
pension
scheme
£’m
Overseas*
pension
schemes
£’m
US
healthcare
schemes
£’m
Total
£’m
UK
pension
scheme
£’m
Overseas*
pension
schemes
£’m
US
healthcare
schemes
£’m
Total
£’m
Present value of liabilities
899.3
417.3
38.5
1,355.1
961.1
456.1
46.7
1,463.9
Fair value of assets
(839.9)
(388.1)
–
(1,228.0)
(774.5)
(394.0)
–
(1,168.5)
Effect of asset ceiling**
–
9.3
–
9.3
–
–
–
–
Retirement benefit obligations
59.4
38.5
38.5
136.4
186.6
62.1
46.7
295.4
*
Includes £36.1m (2020: £46.8m) in respect of US schemes.
**
The asset ceiling relates to surpluses in one of the Group’s US defined benefit schemes and its Swiss defined benefit scheme, which have not been recognised as
future economic benefits are not available to the Group in the form either of a reduction in contributions or a refund.
Of the total deficit of £136.4m (2020: £295.4m), £52.3m (2020: £61.7m) is in respect of unfunded schemes.
Changes in the present value of retirement benefit obligations
2021
2020
Liabilities
£’m
Assets
£’m
Asset
ceiling
£’m
Total
£’m
Liabilities
£’m
Assets
£’m
Total
£’m
At 1 January
1,463.9
(1,168.5)
–
295.4
1,347.5
(1,079.6)
267.9
Exchange rate adjustments
0.8
(0.7)
–
0.1
(4.0)
2.2
(1.8)
Service cost
6.8
–
–
6.8
15.2
–
15.2
Past service (credit)/cost
(0.2)
–
–
(0.2)
0.1
–
0.1
Curtailment gain
(8.0)
–
–
(8.0)
–
–
–
Net interest expense (see note 12)
24.6
(20.5)
–
4.1
28.4
(22.7)
5.7
Contributions – Group
–
(48.9)
–
(48.9)
–
(36.9)
(36.9)
Contributions – Members
2.8
(2.8)
–
–
2.5
(2.5)
–
Benefits paid
(58.3)
58.3
–
–
(60.8)
60.8
–
Settlements
–
–
–
–
(1.1)
1.1
–
Administrative expenses borne directly by schemes
–
2.5
–
2.5
–
2.6
2.6
Remeasurement of retirement benefit obligations:
Experience gain
(9.4)
–
–
(9.4)
(7.8)
–
(7.8)
Gain from change in demographic assumptions
(20.7)
–
–
(20.7)
(2.4)
–
(2.4)
(Gain)/loss from change in financial assumptions
(47.2)
–
–
(47.2)
146.3
–
146.3
Return on schemes’ assets excluding amounts
included in finance costs
–
(47.4)
–
(47.4)
–
(93.5)
(93.5)
Change in the effect of asset ceiling
–
–
9.3
9.3
–
–
–
Total remeasurement (gain)/loss
(77.3)
(47.4)
9.3
(115.4)
136.1
(93.5)
42.6
At 31 December
1,355.1
(1,228.0)
9.3
136.4
1,463.9
(1,168.5)
295.4
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
222
36. Retirement benefit obligations continued
Analysis of pension scheme assets
2021
2020
Quoted
£’m
Unquoted
£’m
Total
£’m
%
Quoted
£’m
Unquoted
£’m
Total
£’m
%
Equities
199.1
–
199.1
23.7
208.5
–
208.5
26.9
Government bonds
371.9
–
371.9
44.3
314.5
–
314.5
40.6
Corporate bonds
85.5
0.3
85.8
10.2
102.4
0.5
102.9
13.3
Hedge funds
–
41.6
41.6
4.9
–
54.3
54.3
7.0
Property funds
–
47.7
47.7
5.7
–
41.6
41.6
5.4
Cash
42.0
–
42.0
5.0
24.4
–
24.4
3.1
Derivative assets/(liabilities)
15.9
23.7
39.6
4.7
8.1
(2.1)
6.0
0.8
Other assets*
–
12.2
12.2
1.5
9.0
13.3
22.3
2.9
UK pension scheme
714.4
125.5
839.9
100.0
666.9
107.6
774.5
100.0
Equities
39.3
0.9
40.2
10.4
35.1
4.5
39.6
10.1
Government bonds
81.1
–
81.1
21.0
87.6
–
87.6
22.2
Corporate bonds
187.5
–
187.5
48.2
203.3
–
203.3
51.6
Property funds
31.2
2.8
34.0
8.8
28.6
3.7
32.3
8.2
Cash
18.0
–
18.0
4.6
9.0
–
9.0
2.3
Derivative assets
7.8
–
7.8
2.0
5.3
–
5.3
1.3
Other assets*
19.5
–
19.5
5.0
16.9
–
16.9
4.3
Overseas pension schemes
384.4
3.7
388.1
100.0
385.8
8.2
394.0
100.0
Equities
238.4
0.9
239.3
19.5
243.6
4.5
248.1
21.2
Government bonds
453.0
–
453.0
36.9
402.1
–
402.1
34.4
Corporate bonds
273.0
0.3
273.3
22.2
305.7
0.5
306.2
26.2
Hedge funds
–
41.6
41.6
3.4
–
54.3
54.3
4.6
Property funds
31.2
50.5
81.7
6.6
28.6
45.3
73.9
6.3
Cash
60.0
–
60.0
4.9
33.4
–
33.4
2.9
Derivative assets/(liabilities)
23.7
23.7
47.4
3.9
13.4
(2.1)
11.3
1.0
Other assets*
19.5
12.2
31.7
2.6
25.9
13.3
39.2
3.4
Total pension schemes’ assets
1,098.8
129.2
1,228.0
100.0
1,052.7
115.8
1,168.5
100.0
*
Other assets principally comprise annuities, mortgages and emerging market debt, 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
2021
2020
UK
pension
scheme
%
US
pension
schemes
%
US
healthcare
schemes
%
UK
pension
scheme
%
US
pension
schemes
%
US
healthcare
schemes
%
Discount rate*
1.8
2.8
2.8
1.4
2.3
2.3
Inflation rate (RPI)
3.4
n/a
n/a
3.0
n/a
n/a
Increases to deferred benefits during deferment**
2.7
n/a
n/a
2.3
n/a
n/a
Increases to pensions in payment**
3.2
n/a
n/a
2.9
n/a
n/a
Salary increases***
n/a
n/a
n/a
2.8
n/a
n/a
*
The discount rate for the Swiss scheme was 0.34% (2020: 0.08%).
**
To the extent not overridden by specific scheme rules.
*** No longer relevant following closure of the UK scheme to future accrual with effect from 6 April 2021.
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.
In the UK, mortality assumptions are based on the most recently published Continuous Mortality Investigation model (the
CMI_20 model) using the default model parameter that since the long-term impacts of COVID-19 on mortality improvements
are still largely unknown, no weighting is applied to actual mortality experience in 2020. Assumptions are adjusted to reflect the
profile of the membership of the scheme, which includes the results of a refreshed analysis of the scheme’s membership used
to support the 2021 triennial actuarial valuation. Allowance has been made for rates of mortality to continue to fall at the rate of
1.25% per annum.
Meggitt PLC Annual Report and Accounts 2021
223
Financial Statements
36. Retirement benefit obligations continued
Financial assumptions used to calculate scheme liabilities continued
In the US, mortality assumptions are based on the PriH-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 2021 Social Security
Administration’s Intermediate-Cost Projections scale.
In Switzerland, mortality assumptions are based on the BVG/LPP 2020 (Generational) tables with an allowance for rates of mortality
to continue to fall at the rate of 1.25% per annum.
2021
2020
UK
scheme
Years
US
schemes
Years
Swiss
scheme
Years
UK
scheme
Years
US
schemes
Years
Swiss
scheme
Years
Member age 45 (life expectancy at age 65) – male
22.9-24.8
21.0-21.9
23.3
23.1-25.0
21.0-21.9
24.5
Member age 45 (life expectancy at age 65) – female
25.5-26.9
23.5-23.7
25.0
25.6-26.9
23.4-23.6
26.5
Member age 65 (current life expectancy) – male
21.6-23.4
19.8-20.7
22.8
21.7-23.6
19.7-20.6
22.7
Member age 65 (current life expectancy) – female
24.0-25.5
22.3-22.6
24.9
24.2-25.5
22.3-22.5
24.8
Details on the sensitivity of scheme liabilities to changes in key assumptions are provided below:
• The impact of either a 50 basis point reduction or increase in discount rate, the average annual movement in discount rates
observed over the last five years, would cause scheme liabilities at 31 December 2021 to either increase by approximately
£114.0m or decrease by approximately £101.0m respectively.
• The impact of a 50 basis point increase in inflation rates would cause scheme liabilities at 31 December 2021 to increase by
approximately £50.0m.
• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December
2021 to increase by approximately £51.0m.
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. The sensitivity for inflation has been increased
from 10 basis points in 2020 to 50 basis points in 2021, given the increases experienced in the current year. No changes have been
considered necessary to any other sensitivity levels.
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 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 30% of the total
equities held by the schemes and have an average remaining life of 0.7 years at 31 December 2021. 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 invested in cash flow matching credit assets and interest rate derivatives to provide
additional hedging against interest risk exposures. At 31 December 2021, approximately 85% of the interest rate risk on the UK
scheme’s liabilities, measured on a funding basis, is hedged (2020: 80%). In the US, across the three funded schemes, hedging
levels range from 90% to 98% of scheme liabilities measured on a funding basis (2020: 80% to 90%).
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
224
36. Retirement benefit obligations continued
Risks continued
Inflation risk
Following closure of the UK scheme to future accrual with effect from 6 April 2021, it is no longer exposed to salary inflation risk.
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 2021, these assets cover approximately 85% of liabilities measured on a funding basis (2020: 80%).
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 scheme, 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 this 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 trustees to defer four months’ deficit
contributions originally due to be made in 2020 amounting to £9.6m and which are being 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
make deficit contributions of £40.2m in 2022 and £29.9m in the period to August 2023.
The 2021 triennial valuation at 5 April 2021 is substantially complete and is expected to be finalised in H1 2022. The draft valuation
results indicate an additional funding shortfall, not covered by the deficit payments being made under the existing amended
recovery plan, of approximately £60.0m. This additional shortfall principally arises due to a significant reduction in gilt rates
between the two valuation dates and is equivalent to approximately 1.5 years of additional deficit contributions, based on the
annual deficit payments being made under the existing 2018 recovery plan. Discussions with the trustees to agree the timing of
contributions to meet the additional funding shortfall have not yet been concluded.
The buy-out valuation at the 2018 valuation date was measured at £467.9m. The draft 2021 valuation results indicate an equivalent
buy-out valuation at the 2021 valuation date of approximately £380.0m. These buy-out valuations assume the Group were to
transfer responsibility of the scheme to an insurance company, the Group has no current plans to make such a transfer.
To the extent the present value of future deficit payments agreed as part of the actuarial valuation exceed the scheme accounting
deficit at the balance sheet date, such amounts would be recoverable by the Group under the scheme rules once the last member
has died and accordingly no additional minimum funding liability arises.
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 2021, the three funded schemes had funding levels of 81%, 93% and 98% respectively. Absent any
changes in legislation, no deficit contributions are currently expected to be required until 2025. Deficit contributions are expected
to be £0.8m in 2025 and £1.5m in 2026. The present value of deficit payments due under legislation does not exceed the schemes’
deficits at 31 December 2021 and accordingly no additional minimum funding liability arises.
The Swiss scheme has a surplus on a funding basis of £30.0m and no additional minimum funding liability arises.
Estimated total Group contributions expected to be paid to the schemes during 2022 are £47.2m.
The weighted average duration of the schemes’ defined benefit obligations are 18.7 years (UK scheme), 10.5 years (US schemes)
and 17.8 years (Swiss scheme).
Meggitt PLC Annual Report and Accounts 2021
225
Financial Statements
36. Retirement benefit obligations continued
Other information continued
The expected maturity of undiscounted pension and healthcare benefits at 31 December 2021 is as follows:
Pension
schemes
£’m
Healthcare
schemes
£’m
Total
£’m
To be made in 2022
49.3
2.9
52.2
To be made in 2023
50.1
2.8
52.9
To be made in 2024 to 2026
153.3
7.7
161.0
To be made in 2027 to 2031
269.3
10.8
280.1
To be made in 2032 to 2036
271.9
8.5
280.4
To be made in 2037 to 2041
253.4
6.4
259.8
To be made in 2042 to 2046
223.1
4.7
227.8
To be made from 2047 onwards
549.0
7.8
556.8
Total expected benefit payments
1,819.4
51.6
1,871.0
37. Share capital
Ordinary
shares of
5p each
Number ‘m
Nominal
value
£’m
Net
consideration
£’m
Allotted and fully paid:
At 1 January 2020
777.5
38.8
Issued on exercise of Sharesave awards
3.7
0.2
–
At 31 December 2020
781.2
39.0
Issued on exercise of Sharesave awards
0.8
0.1
–
At 31 December 2021
782.0
39.1
The Company does not have an authorised share capital.
38. Share-based payment
The Group operates a number of share schemes for the benefit of its employees. The total expense recognised in net operating
costs in respect of such schemes (see note 8) is analysed as follows:
2021
£’m
2020
£’m
Meggitt Long-Term Incentive Plan 2014 – Equity-settled
3.8
(3.0)
Meggitt Long-Term Incentive Plan 2014 – Cash-settled
–
(0.1)
Deferred Share Bonus Plan – Equity-settled
0.8
0.3
Deferred Share Bonus Plan – Cash-settled
0.2
–
Sharesave Plans – Equity-settled
0.7
0.3
Total expense/(credit)
5.5
(2.5)
Meggitt Long-Term Incentive Plan 2014: Equity-settled
Under this plan, an annual award of shares may be made to certain senior executives. Two different awards can be granted under
the Plan – Performance Share Awards (PSAs) and Restricted Share Awards (RSAs). The number of shares, if any, that an executive
ultimately receives in respect of a PSA, 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. For RSAs, vesting is subject to a general assessment
by the Remuneration Committee of overall Group performance, together with any wider considerations it considers appropriate.
For both PSAs and RSAs, 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 awards made in 2021 has been estimated at the market price of the share on the date of grant, which was
433.2 pence (2020: 579.6 pence).
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
226
38. Share-based payment
continued
Meggitt Long-Term Incentive Plan 2014: Equity-settled continued
Movements in the number of outstanding shares that may potentially be released to employees are as follows:
2021
Number of
shares
under
award
outstanding
‘m
2020
Number of
shares
under
award
outstanding
‘m
At 1 January
14.7
16.0
Awarded
3.6
4.1
Exercised
(1.0)
(2.4)
Lapsed
(6.5)
(3.0)
At 31 December
10.8
14.7
At 31 December 2021, there are 9.4m PSAs outstanding (2020: 14.7m) and 1.4m RSAs (2020: Nil). At 31 December 2021, 0.6m PSAs
are eligible for release. The remaining 10.2m shares under award have a weighted average life of 385 days until they are eligible
for release.
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 126 to 155. At December 2021, the trust holds 2.0m ordinary shares
(2020: 3.8m 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 2021, 0.8m were issued during 2021 and 1.2m were issued during 2020.
Their market value at 31 December 2021 is £14.4m (2020: £17.6m), representing 0.25% of the issued share capital of the Company
(2020: 0.48%).
40. Contractual commitments
Capital commitments
2021
£’m
2020
£’m
Contracted for but not incurred:
Intangible assets
0.8
3.8
Property, plant and equipment
6.8
24.0
Total
7.6
27.8
Other financial commitments
The Group enters into long-term arrangements with aircraft and original equipment manufacturers for the design and
development of products. 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. The future estimated expenditure under contractual commitments to incur development costs
at 31 December 2021, is shown in the table below.
2021
£’m
2020
£’m
In one year or less
34.3
33.4
In more than one year but not more than five years
18.2
17.8
In more than five years
10.7
8.9
Total
63.2
60.1
As part of the Scheme Document issued by the Group on 16 August 2021 in connection with the proposed acquisition of the
Group by Parker-Hannifin Corporation, the Group estimated its aggregate fees relating to financial and corporate broking advice
would be £43.0m, which are dependent on whether the acquisition is completed. These amounts have not been recognised in the
consolidated financial statements, but represent a financial commitment of the Group in the event the acquisition is completed.
Meggitt PLC Annual Report and Accounts 2021
227
Financial Statements
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, regulatory investigations
and claims which arise in the ordinary course of business. The Directors do not anticipate that the outcome of these
proceedings, investigations and claims, either individually or in aggregate, will have a material adverse effect upon the Group’s
financial position.
42. Cash inflow from operations
2021
£’m
2020
£’m
Profit/(loss) for the year
31.2
(314.2)
Adjustments for:
Finance income (see note 11)
(0.5)
(0.5)
Finance costs (see note 12)
32.6
37.2
Tax charge/(credit) (see note 13)
0.1
(19.8)
Depreciation (see note 20)
55.9
56.7
Amortisation (see notes 18 and 19)
134.5
140.6
Impairment losses (see notes 17, 18 and 19)
5.7
361.3
(Gain)/loss on disposal of property, plant and equipment
(5.3)
1.4
Loss/(gain) on disposal of businesses (see note 9)
7.3
(32.0)
Costs arising on disposal of businesses
(6.7)
(3.8)
(Gain)/loss on financial instruments (see note 9)
(16.7)
2.9
Impact of retranslating net foreign currency cash at spot rate
0.5
(0.4)
Share of loss after tax of joint venture (see note 21)
0.4
3.2
Retirement benefit obligation deficit payments
(42.1)
(21.7)
Share-based payment expense/(credit) (see note 38)
5.5
(2.5)
Changes in working capital:
Inventories
(32.8)
39.8
Trade and other receivables
(43.5)
115.0
Contract assets
(2.7)
(4.3)
Trade and other payables
16.4
(146.2)
Contract liabilities
12.6
1.7
Provisions
18.8
14.0
Cash inflow from operations
171.2
228.4
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:
2021
£’m
2020
£’m
Cash inflow from operating activities
105.3
154.2
Add back cash outflow from business disposal expenses
3.5
5.2
Add back impact of retranslating net foreign currency cash at spot rate
(0.5)
0.4
Capitalised development costs (see note 18)
(27.6)
(41.4)
Capitalised programme participation costs
(1.7)
(1.6)
Purchase of intangible assets
(10.7)
(11.0)
Purchase of property, plant and equipment (net of grants received)
(59.0)
(78.7)
Proceeds from disposal of property, plant and equipment*
36.4
1.3
Reverse lease premium received
–
3.5
Free cash inflow
45.7
31.9
*
In 2021, includes £19.4m relating to proceeds from the sale and leaseback of the Group’s Engine Systems facility in North Hollywood, USA and £12.7m relating to
proceeds from the sale and leaseback of the Group’s Airframe Systems facility in Loughborough, UK.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
228
43. Movements in net debt
Bank and
other
borrowings:
Current
£’m
Bank and
other
borrowings:
Non-current
£’m
Lease
liabilities:
Current
£’m
Lease
liabilities:
Non-
current
£’m
Total
debt
£’m
Cash and
cash
equivalents
£’m
Net
debt
£’m
At 1 January 2020
219.4
694.5
16.4
136.2
1,066.5
(155.3)
911.2
Cash inflow from operating activities
–
–
–
–
–
(154.2)
(154.2)
Cash outflow from investing activities
–
–
–
–
–
22.0
22.0
Cash outflow from financing activities*
(215.1)
125.5
(11.9)
–
(101.5)
101.2
(0.3)
Lease liabilities entered
–
–
–
11.4
11.4
–
11.4
Businesses disposed or classified as held for sale
–
–
(1.7)
(3.9)
(5.6)
–
(5.6)
Exchange rate adjustments
9.1
(22.2)
(0.3)
(1.9)
(15.3)
7.7
(7.6)
Other movements
(2.9)
(1.0)
12.2
(12.2)
(3.9)
–
(3.9)
At 31 December 2020
10.5
796.8
14.7
129.6
951.6
(178.6)
773.0
Cash inflow from operating activities
–
–
–
–
–
(105.3)
(105.3)
Cash outflow from investing activities
–
–
–
–
–
47.8
47.8
Cash outflow from financing activities*
0.4
(31.6)
(14.9)
–
(46.1)
44.8
(1.3)
Lease liabilities entered
–
–
4.0
34.7
38.7
–
38.7
Businesses disposed
–
–
(0.1)
–
(0.1)
–
(0.1)
Exchange rate adjustments
0.2
25.5
0.2
0.8
26.7
0.5
27.2
Other movements**
94.2
(94.7)
11.7
(11.7)
(0.5)
–
(0.5)
At 31 December 2021
105.3
696.0
15.6
153.4
970.3
(190.8)
779.5
*
Cash flows relating to bank and other borrowings are disclosed in the cash flow statement as proceeds from borrowings of £1.2m (2020: £618.6m), repayments of
borrowings of £30.5m (2020: £705.8m) and debt issue costs paid of £1.9m (2020: £2.4m).
**
Other movements includes reclassification of bank and other borrowings from non-current to current of £92.8m, as their maturity date is now less than 12 months
from the balance sheet date.
44. Business disposals
During 2020, the Group agreed the disposal of the trade and assets of its aircraft ducting business, based in Dunstable, UK,
together with a small product line from one of the Group’s other businesses. The related assets were classified as a disposal group
held for sale at 31 December 2020, together with the directly associated liabilities. The disposal subsequently completed on
30 January 2021 for a consideration of £20.4m. Additionally, on 31 August 2021, the Group disposed of a number of product lines
from its power and sensing business based in Toulouse, France for a consideration of 1 euro. In addition, a commercial subsidy
payment by the Group of 9.8m euros was agreed to provide assistance to the buyer to integrate the business; this is payable by
the Group in instalments. The businesses disposed were not major lines of business or geographical areas of operation of the
Group. The net assets of the businesses at the date of disposal were as follows:
Dunstable
operations
£’m
Toulouse
product
lines
£’m
Total
£’m
Property, plant and equipment (see note 20)
–
0.5
0.5
Inventories
–
0.6
0.6
Lease liabilities – current
–
(0.1)
(0.1)
Assets classified as held for sale (see note 22)
11.7
–
11.7
Net assets disposed
11.7
1.0
12.7
Consideration receivable/(payable)
20.4
(8.3)
12.1
Business disposal expenses payable
(1.0)
(0.8)
(1.8)
Consideration receivable/(payable) net of business disposal expenses
19.4
(9.1)
10.3
Gain/(loss) on disposal
7.7
(10.1)
(2.4)
Consideration receivable/(payable)
20.4
(8.3)
12.1
Less deferred consideration payable in future years
–
4.6
4.6
Consideration received/(paid) in cash
20.4
(3.7)
16.7
Business disposal expenses paid
(1.0)
(0.8)
(1.8)
Total cash inflow/(outflow) relating to disposals in the year
19.4
(4.5)
14.9
Expenses paid relating to the proposed acquisition of the Group by Parker-Hannifin Corporation
(1.1)
Expenses paid relating to disposals in prior years
(0.6)
Total cash inflow
13.2
Meggitt PLC Annual Report and Accounts 2021
229
Financial Statements
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
Subsidiaries – indirectly owned
Aero-Tech Composites de Mexico, S. de R.L.
de C.V. (Mexico)2
Carretera a Zacatecas 5570-1, Parque Industrial Amistad
Sur, Saltillo, Coahuila, 25070
Aircraft Braking Systems Europe Limited
Aircraft Braking Systems Services Limited
Alston Properties, LLC (USA)7
1955 N. Surveyor Ave., Simi Valley, California, 93063
Artus SAS (France)
Chemin du Champ des Martyrs, 49240 Avrillé
Atlantic House Pension Trustee 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 Limited
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 et d’Etudes
Technologiques SAS (France)
196 rue Louis Rustin, Archamps Technopole,
74160 Archamps
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)6
1400 Jamike Avenue, Erlanger, Kentucky, 41018
Meggitt (France) SAS (France)
196 rue Louis Rustin, Archamps Technopole,
74160 Archamps
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
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 N. Surveyor Ave., 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
#7 Road 16A. Bienhoa Industrial Zone 2
Meggitt (Xiamen) Sensors & Controls Co., Ltd.
(China)9
No.230, South 5 Gaoqi Road, Huli District, Xiamen City,
Fujian Province
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, 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, Colon,
Qro., C.P. 76270
Meggitt Asia Pacific Pte. Ltd. (Singapore)
1A Seletar Aerospace Link, 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)12
6140 boul. Henri-Bourassa O, Montréal (Québec) H4R3A6
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 Holdings (France) SAS (France)
Chemin du Champ des Martyrs, 49240 Avrillé
Meggitt Holdings (USA) Inc. (USA)6
1955 N. Surveyor Ave., Simi Valley, California 93063
Meggitt India Private Limited (India)
901, Brigade Rubix, No.20, HMT Main Road, HMT
Township, Bangalore 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)
Route de Moncor 4, 1752 Villars-sur-Glâne
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 N. Surveyor Ave., Simi Valley, California 93063
Miller Insulation and Engineering Limited
(Scotland)
125 West Regent Street, Glasgow, Lanarkshire, G2 2SA
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
1955 N. Surveyor Ave., 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
Tri-scan Limited
Vibro-Meter Limited
Vibro-Meter S.a.r.l (Switzerland)
Route de Moncor 4, 1752 Villars-sur-Glâne
Wallaby Grip (NSW) Ltd (in liquidation) (Australia)
PKF, Level 8, 1 O’Connell Street, Sydney, New South
Wales 2000
Wallaby Grip Australia Pty Limited (in liquidation)
(Australia)
PKF, Level 8, 1 O’Connell Street, Sydney, New South
Wales 2000
Wallaby Grip B.A.E. Ltd (in liquidation) (Australia)
PKF, Level 8, 1 O’Connell Street, Sydney, New South
Wales 2000
45. Related undertakings
In accordance with Section 409 of the Companies Act 2006, a full list of related undertakings as at 31 December 2021 is disclosed
below. Unless otherwise stated, undertakings are incorporated in England & Wales, have their registered office at Pilot Way,
Ansty Business Park, Coventry, England, CV7 9JU, England, and have a single class of ordinary shares with 100% of the equity and
votings rights owned by the Group. No material subsidiaries have been excluded from the consolidation.
Financial Statements
Notes to the consolidated financial statements
continued
Meggitt PLC Annual Report and Accounts 2021
230
45. Related undertakings continued
Subsidiaries – indirectly owned
continued
Wallaby Grip Industries Australia Pty Ltd
(in liquidation) (Australia)
PKF, Level 8, 1 O’Connell Street, Sydney, New South
Wales 2000
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 N. 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
Registered branches
Meggitt (Korea) Limited has a branch in
South Korea
Meggitt (Xiamen) Sensors & Controls Co., Ltd.
has a branch in Shanghai
Equity accounted investments
Meggitt UTC Aerospace Systems, LLC (USA)13
1400 Jamike Avenue, Erlanger, Kentucky 41018
Parkway-Hamilton Sundstrand Mexico S.
de R.L. de C.V. (Mexico)14
Carretera 54 a Zacatecas 5690, Parque Industrial
Amistad Sur Saltillo, Coahuila 25070
HiETA Technologies Limited11
Entities not included in the
consolidation
Private company limited by
guarantee without share capital
Meggitt Pension Plan Trustees Limited
Registered charity
Evershed Ayrton Fund
Joint venture
Valley Association Corporation (USA)10
1204 Massillon Road, Akron, Ohio 44306
Notes
1 Ownership held as ordinary B shares (50%).
2 Ownership held as quota interest (100%).
3 Entity has taken the audit exemption under Section
479A of the Companies Act 2006 for the financial year
ended 31 December 2021.
4 Ownership held as deferred shares (55.55%) and
ordinary shares (44.45%).
5 Ownership held as ordinary A shares (60%) and
ordinary B shares (40%).
6 Ownership held as common stock (100%).
7 Ownership held as membership interest (100%).
8 Ownership held as owner’s capital (100%).
9 Ownership held as registered capital (100%).
10 Ownership held as common stock (33.33%).
11 Ownership held as ordinary shares (33.33%).
12 Ownership held as class A common shares (100%).
13 Ownership held as membership interest (70%).
14 Subsidiary of Meggitt UTC Aerospace Systems which
holds a quota interest (99.97%).
Meggitt PLC Annual Report and Accounts 2021
231
Financial Statements
Notes
2021
£’m
2020
£’m
Non-current assets
Intangible assets
4
25.1
36.1
Property, plant and equipment
5
3.6
0.4
Investments
6
2,082.5
2,078.8
Derivative financial instruments
10
10.1
15.1
Deferred tax assets
11
20.3
37.8
2,141.6
2,168.2
Current assets
Other receivables
7
1,481.1
1,451.4
Derivative financial instruments
10
6.4
5.2
Current tax recoverable
–
0.1
Cash and cash equivalents
57.2
27.7
1,544.7
1,484.4
Total assets
3,686.3
3,652.6
Current liabilities
Trade and other payables
8
(171.6)
(99.0)
Derivative financial instruments
10
(5.4)
(29.2)
Current tax liabilities
(6.9)
(8.4)
Lease liabilities
(0.1)
(0.5)
Bank and other borrowings
9
(7.5)
(7.4)
(191.5)
(144.5)
Net current assets
1,353.2
1,339.9
Non-current liabilities
Derivative financial instruments
10
(3.0)
(6.2)
Lease liabilities
(0.3)
–
Bank and other borrowings
9
(444.1)
(439.0)
Provisions
–
(0.2)
Retirement benefit obligations
12
(59.4)
(186.6)
(506.8)
(632.0)
Total liabilities
(698.3)
(776.5)
Net assets
2,988.0
2,876.1
Equity
Share capital
13
39.1
39.0
Share premium
1,227.8
1,226.6
Capital redemption reserve
1.6
1.6
Other reserves
17.5
17.5
Retained earnings:
At 1 January
1,591.4
1,460.3
Profit for the year attributable to owners of the Company
31.5
177.0
Other changes in retained earnings
79.1
(45.9)
Total equity attributable to owners of the Company
2,988.0
2,876.1
The financial statements on pages 232 to 242 were approved by the Board of Directors on 2 March 2022 and signed on its
behalf by:
A Wood
L Burdett
Director
Director
Financial Statements
Company balance sheet
At 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
232
Notes
Equity attributable to owners of the Company
Share
capital
£’m
Share
premium
£’m
Capital
redemption
reserve
£’m
Other
reserves*
£’m
Retained
earnings
£’m
Total
equity
£’m
At 1 January 2020
38.8
1,226.5
1.6
17.5
1,460.3
2,744.7
Profit for the year
–
–
–
–
177.0
177.0
Other comprehensive expense for the year:
Remeasurement of retirement benefit obligations
12
–
–
–
–
(54.1)
(54.1)
Other comprehensive expense before tax
–
–
–
–
(54.1)
(54.1)
Tax credit
11
–
–
–
–
12.1
12.1
Other comprehensive expense for the year
–
–
–
–
(42.0)
(42.0)
Total comprehensive income for the year
–
–
–
–
135.0
135.0
Employee share schemes:
Value of subsidiary employee services
–
–
–
–
(3.0)
(3.0)
Value of services provided
–
–
–
–
(0.6)
(0.6)
Issue of equity share capital
0.2
0.1
–
–
(0.3)
–
At 31 December 2020
39.0
1,226.6
1.6
17.5
1,591.4
2,876.1
Profit for the year
–
–
–
–
31.5
31.5
Other comprehensive income for the year:
Remeasurement of retirement benefit obligations
12
–
–
–
–
84.3
84.3
Other comprehensive income before tax
–
–
–
–
84.3
84.3
Tax charge
11
–
–
–
–
(15.8)
(15.8)
Other comprehensive income for the year
–
–
–
–
68.5
68.5
Total comprehensive income for the year
–
–
–
–
100.0
100.0
Employee share schemes:
Value of subsidiary employee services
–
–
–
–
10.0
10.0
Value of services provided
–
–
–
–
1.9
1.9
Issue of equity share capital
0.1
1.2
–
–
(1.3)
–
At 31 December 2021
39.1
1,227.8
1.6
17.5
1,702.0
2,988.0
*
Other reserves relate to the cancellation of the Company’s share premium account in 1988, which was transferred to a non-distributable capital reserve.
Company statement of changes in equity
For the year ended 31 December 2021
Meggitt PLC Annual Report and Accounts 2021
233
Financial Statements
1. Basis of preparation
The financial statements of the Company have been prepared in accordance with Financial Reporting Standard 101, “Reduced
Disclosure Framework” (FRS 101). In preparing these financial statements, the Company applies the recognition, measurement
and disclosure requirements of International Financial Reporting Standards as adopted by the UK (UK adopted international
accounting standards), but makes amendments where necessary in order to comply with the Companies Act 2006 and has taken
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 under the historical cost convention, as modified by the revaluation of derivative
financial assets and liabilities measured at fair value through profit or loss, and in accordance with the Companies Act 2006.
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 2023. Further details on the
considerations made by the Directors are disclosed in note 1 to the Group’s consolidated financial statements on pages 176 to 177.
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 years presented unless stated otherwise.
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.
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 items of 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.
Financial Statements
Notes to the financial statements of the Company
Meggitt PLC Annual Report and Accounts 2021
234
2. Summary of significant accounting policies continued
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 are impaired. 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.
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.
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 year, 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.
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 and curtailment gains and losses 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 assets of a scheme exceed its
liabilities, the surplus recognised is restricted to the lower of this amount and the future economic benefits to which the Company
has an unconditional right to receive either in the form of reduced contributions or a cash refund. 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 year in which they arise in other comprehensive income.
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.
Meggitt PLC Annual Report and Accounts 2021
235
Financial Statements
2. Summary of significant accounting policies continued
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.
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.
Adoption of new and revised accounting standards
Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform became effective in the
year. The effect of these amendments on the Company’s committed syndicated credit facility and interest rate swaps is disclosed in
note 2 to the Group’s consolidated financial statements on page 187.
In addition, some of the Company’s intercompany loan agreements which are used to manage liquidity between the UK and
overseas subsidiaries referenced LIBORs at 31 December 2020. For GBP, CHF, EUR and USD loans, these have been amended
in the year to reference SONIA, SARON, EURIBOR and SOFR respectively. For GBP, CHF and EUR loans the rate switch date is
specified as 31 December 2021, for USD loans the rate switch date is to be a date to be agreed between the parties with a long
stop date of 30 June 2023.
No other accounting standards, amendments or revisions to existing standards, or interpretations have become effective or
have been published as mandatory for future accounting periods which had or will have a significant effect on the Company’s
financial statements.
Notes to the financial statements of the Company
continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
236
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 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
There are no critical judgements for the current year. The Company previously disclosed in its 2020 Annual Report, a critical
accounting judgement relating to the Directors’ assessment that the adoption of the going concern basis in the financial statements
was appropriate. For the reasons set out in note 1, to the Group’s consolidated financial statements on pages 176 to 177, this is no
longer considered a critical judgment for the current year.
4. Intangible assets
Software
£’m
At 1 January 2020
Cost
89.4
Accumulated amortisation
(46.0)
Net book amount
43.4
Year ended 31 December 2020
Opening net book amount
43.4
Additions
2.9
Disposals
(0.3)
Amortisation
(9.9)
Net book amount
36.1
At 1 January 2021
Cost
92.0
Accumulated amortisation
(55.9)
Net book amount
36.1
Year ended 31 December 2021
Opening net book amount
36.1
Additions
3.6
Disposals
(2.8)
Amortisation
(9.8)
Impairment losses
(2.0)
Net book amount
25.1
At 31 December 2021
Cost
95.1
Accumulated amortisation
(70.0)
Net book amount
25.1
Meggitt PLC Annual Report and Accounts 2021
237
Financial Statements
5. Property, plant and equipment
2021
2020
Plant,
equipment
and vehicles
£’m
Other
£’m
Total
£’m
Plant,
equipment and
vehicles
£’m
Other
£’m
Total
£’m
Cost
9.5
1.5
11.0
6.2
1.9
8.1
Accumulated depreciation
(6.3)
(1.1)
(7.4)
(6.2)
(1.5)
(7.7)
Net book amount
3.2
0.4
3.6
–
0.4
0.4
6. Investments
2021
£’m
2020
£’m
Shares in subsidiary undertakings:
At 1 January
2,078.8
2,082.7
Contributions to/(from) subsidiary undertakings
3.7
(3.9)
At 31 December
2,082.5
2,078.8
Each year, the Company carries out impairment tests of its investments which require estimates to be made of the value in use
of its CGUs and groups of CGUs. The value‑in‑use calculations are dependent on estimates of future cash flows, long-term
growth rates and appropriate discount rates to be applied to future cash flows. Having modelled a number of sensitivities, it
was concluded that no reasonably foreseeable change in the key assumptions used in the impairment model would result in a
significant impairment charge being recorded in the financial statements.
A list of all subsidiary undertakings is disclosed in note 45 to the Group’s consolidated financial statements on pages 230 to 231.
7. Other receivables
2021
£’m
2020
£’m
Amounts owed by subsidiary undertakings
1,478.4
1,450.8
Prepayments
1.6
0.4
Other
1.1
0.2
Total
1,481.1
1,451.4
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 £1,401.2m (2020: £1,358.3m) which
are interest bearing, have no fixed date for repayment and are repayable on demand.
Amounts owed by subsidiary undertakings are stated net of a loss allowance of £1.7m (2020: £1.7m). Each year, the Company
performs an assessment of recoverability of amounts owed by subsidiary undertakings in accordance with IFRS 9 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 in the next 12 months.
8. Trade and other payables – current
2021
£’m
2020
£’m
Trade payables
1.3
1.7
Amounts owed to subsidiary undertakings
157.2
90.6
Social security and other taxes
2.3
0.5
Accrued expenses
5.6
4.1
Other payables
5.2
2.1
Total
171.6
99.0
Amounts owed to subsidiary undertakings are unsecured, non-interest bearing, have no fixed date for repayment and are
repayable on demand.
Notes to the financial statements of the Company
continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
238
9. Bank and other borrowings
2021
£’m
2020
£’m
Other loans – current
7.5
7.4
Bank loans – debt costs non‑current
(0.9)
–
Other loans – non‑current
445.0
439.0
Total
451.6
446.4
Analysis of bank and other borrowings repayable:
In one year or less
7.5
7.4
In more than one year but not more than five years
444.1
219.5
In more than five years
–
219.5
Total
451.6
446.4
Analysis of bank and other borrowings:
Drawn under committed facilities
445.4
439.5
Less unamortised debt issue costs
(1.3)
(0.5)
Interest accruals
7.5
7.4
Total
451.6
446.4
Debt issue costs are amortised over the period of the facility to which they relate. The Company has no secured borrowings
(2020: £Nil).
The Company has the following committed facilities at notional value:
2021
2020 (restated)*
Drawn
£’m
Undrawn
£’m
Total
£’m
Drawn
£’m
Undrawn
£’m
Total
£’m
Syndicated credit facility: USD410.0m (2020: USD750.0m)
–
304.4
304.4
–
549.4
549.4
2016 Senior notes: USD600.0m
445.4
–
445.4
439.5
–
439.5
Committed facilities
445.4
304.4
749.8
439.5
549.4
988.9
The committed facilities expire as follows:
In more than one year but not more than five years
445.4
304.4
749.8
219.8
549.4
769.2
In more than five years
–
–
–
219.7
–
219.7
Committed facilities
445.4
304.4
749.8
439.5
549.4
988.9
*
Prior year figures have been restated to incorporate the undrawn USD750.0m syndicated credit facility, under which the Company was an eligible borrower at
31 December 2020.
Further details of the committed facilities are disclosed in note 31 to the Group’s consolidated financial statements on pages 211
to 213.
The Company also has various uncommitted facilities with its relationship banks. No amounts had been drawn under these
facilities at 31 December 2021 (2020: £Nil).
The fair value of bank and other borrowings is as follows:
2021
2020
Book
value
£’m
Fair
value
£’m
Book
value
£’m
Fair
value
£’m
Current
7.5
7.5
7.4
7.4
Non‑current
444.1
443.4
439.0
452.7
Total
451.6
450.9
446.4
460.1
Meggitt PLC Annual Report and Accounts 2021
239
Financial Statements
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:
2021
2020
Total
£’m
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
Total
£’m
Weighted
average
interest
rate
%
Weighted
average
period
for which
rate is fixed
Years
US dollar denominated other loans
452.9
3.5%
3.0
446.9
3.5
4.0
Less unamortised debt issue costs
(1.3)
(0.5)
Bank and other borrowings
451.6
446.4
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
2021
2020
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
Interest rate swaps
1.7
–
–
–
Cross-currency swaps
–
(1.1)
–
(20.0)
Foreign currency forward contracts
4.7
(4.3)
5.2
(9.2)
Current portion
6.4
(5.4)
5.2
(29.2)
Interest rate swaps
–
–
5.1
–
Cross-currency swaps
6.5
–
–
–
Foreign currency forward contracts
3.6
(3.0)
10.0
(6.2)
Non‑current portion
10.1
(3.0)
15.1
(6.2)
Total
16.5
(8.4)
20.3
(35.4)
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 216 to 217).
The gain recorded in the income statement, recognised in net operating costs, arising from the measurement at fair value of
derivative financial instruments, is £23.0m (2020: loss £7.3m).
The contract or underlying principal amount of foreign currency forward contracts in respect of derivative financial assets is
£233.6m (2020: £443.1m) and in respect of derivative financial liabilities is £220.6m (2020: £362.1m).
The fair value of foreign currency forward contracts is analysed as follows:
2021
2020
Assets
£’m
Liabilities
£’m
Assets
£’m
Liabilities
£’m
US dollar forward sales and purchases (USD/£)
7.8
(6.2)
13.0
(11.2)
Forward sales and purchases denominated in other currencies
0.5
(0.9)
2.2
(4.2)
Fair value
8.3
(7.1)
15.2
(15.4)
11. Deferred tax
Deferred tax assets are analysed as follows:
2021
£’m
2020
£’m
To be recovered within one year
16.3
6.8
To be recovered after more than one year
4.0
31.0
Total
20.3
37.8
Notes to the financial statements of the Company
continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
240
11. Deferred tax continued
Movements in deferred tax assets during the year are as follows:
Assets
Retirement
benefit
obligations
£’m
Other
£’m
Total
£’m
At 1 January 2020
25.8
1.6
27.4
Charge to income statement
(2.4)
(0.7)
(3.1)
Credit to other comprehensive income
12.1
–
12.1
Credit to equity
–
1.4
1.4
At 31 December 2020
35.5
2.3
37.8
(Charge)/credit to income statement
(8.0)
5.0
(3.0)
Charge to other comprehensive income
(15.8)
–
(15.8)
Credit to equity
–
1.3
1.3
At 31 December 2021
11.7
8.6
20.3
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 221 to 226 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 £2.6m (2020: £2.0m).
Changes in the present value of retirement benefit obligations are as follows:
2021
2020
Liabilities*
£’m
Assets**
£’m
Total
£’m
Liabilities*
£’m
Assets**
£’m
Total
£’m
At 1 January
961.1
(774.5)
186.6
855.7
(705.1)
150.6
Service cost
1.9
–
1.9
7.8
–
7.8
Past service cost
–
–
–
0.1
–
0.1
Curtailment gain
(8.0)
–
(8.0)
–
–
–
Net interest cost
16.6
(14.4)
2.2
17.3
(14.6)
2.7
Contributions – Company
–
(39.9)
(39.9)
–
(29.6)
(29.6)
Benefits paid
(30.9)
30.9
–
(29.5)
29.5
–
Administrative expenses borne directly by scheme
–
0.9
0.9
–
0.9
0.9
Remeasurement of retirement benefit obligations:
Experience gain
(13.5)
–
(13.5)
–
–
–
Gain from change in demographic assumptions
(4.5)
–
(4.5)
(1.6)
–
(1.6)
(Gain)/loss from change in financial assumptions
(23.4)
–
(23.4)
111.3
–
111.3
Return on scheme assets excluding amounts included in
finance costs
–
(42.9)
(42.9)
–
(55.6)
(55.6)
Total remeasurement (gain)/loss
(41.4)
(42.9)
(84.3)
109.7
(55.6)
54.1
At 31 December
899.3
(839.9)
59.4
961.1
(774.5)
186.6
*
Present value of scheme liabilities.
**
Fair value of scheme assets.
Details on the sensitivity of scheme liabilities to changes in assumptions are provided below:
• The impact of either a 50 basis point reduction or increase in discount rate would cause scheme liabilities at 31 December 2021
to either increase by approximately £86.0m or decrease by approximately £76.0m respectively.
• The impact of a 50 basis point increase in inflation rates would cause scheme liabilities at 31 December 2021 to increase by
approximately £48.0m.
• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December
2021 to increase by approximately £35.0m.
Meggitt PLC Annual Report and Accounts 2021
241
Financial Statements
12. Retirement benefit obligations continued
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. The sensitivity for inflation has been increased from 10 basis
points in 2020 to 50 basis points in 2021, given the increases experienced in the current year. No changes have been considered
necessary to any other sensitivity levels.
The weighted average duration of the defined benefit obligation is 18.7 years. The expected maturity of undiscounted pension
benefits at 31 December 2021 is as follows:
Total
£’m
To be made in 2022
24.4
To be made in 2023
25.4
To be made in 2024 to 2026
82.6
To be made in 2027 to 2031
161.0
To be made in 2032 to 2036
180.0
To be made in 2037 to 2041
181.2
To be made in 2042 to 2046
170.2
To be made from 2047 onwards
458.0
Total
1,282.8
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 226.
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 126 to 155. Disclosure is also made
in the Group’s consolidated financial statements in note 38 on pages 226 to 227.
15. Commitments and contingencies
The Company has no capital commitments (2020: Nil). Details of contingent liabilities impacting the Company are disclosed in
note 41 to the Group’s consolidated financial statements on page 228.
16. Other information
Directors’ remuneration
Details of the remuneration paid to Directors of the Company are provided in the Directors’ remuneration report on pages 126
to 155.
Auditors’ remuneration
Remuneration payable to PricewaterhouseCoopers LLP for the audit of the Company was £29,800 (2020: £27,000).
Employee information
2021
£’m
2020
£’m
Wages and salaries
26.3
21.0
Social security costs
4.6
4.2
Retirement benefit (credit)/expense
(3.5)
9.9
Share‑based payment expense/(credit)
1.9
(0.6)
Employee costs including Executive Directors
29.3
34.5
The average number of persons employed by the Company in the year was 327 (2020: 278).
Notes to the financial statements of the Company
continued
Financial Statements
Meggitt PLC Annual Report and Accounts 2021
242
2021
£’m
2020
£’m
2019
£’m
2018
£’m
2017
£’m
Revenue and profit
Revenue
1,489.2
1,684.1
2,276.2
2,080.6
1,994.4
Underlying profit before tax
149.3
159.5
370.3
334.8
320.2
Amounts arising on the acquisition, disposal and closure of businesses
(7.3)
32.0
23.5
25.1
25.3
Amortisation of intangible assets acquired in business combinations
(80.1)
(88.2)
(89.8)
(91.5)
(93.5)
Financial instruments
16.7
(2.9)
15.0
(10.1)
60.7
Exceptional operating items
(43.2)
(428.7)
(26.2)
(34.2)
(73.1)
Net interest expense on retirement benefit obligations
(4.1)
(5.7)
(6.1)
(8.0)
(11.3)
(Loss)/profit before tax
31.3
(334.0)
286.7
216.1
228.3
Earnings and dividends
(Loss)/earnings per share – basic
4.0p
(40.4)p
28.8p
23.2p
37.8p
Earnings per share – underlying
15.4p
16.5p
37.3p
34.2p
32.0p
Dividends per ordinary share in respect of the year
–
–
5.55p
16.65p
15.85p
Gearing ratio
Net debt as a percentage of total equity
36.1%
38.0%
37.1%
43.1%
45.9%
Five-year record
Meggitt PLC Annual Report and Accounts 2021
243
Other Information
Contacts
Investor relations
E: investors@meggitt.com
Information on Meggitt PLC, including the latest share price: www.meggitt.com
Shareholder enquiries
Registrar:
Computershare Investor
Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
T: 0370 703 6210
W: www.investorcentre.co.uk/
contactus
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.
Other useful contacts
Share dealing services are provided for shareholders by Computershare Investor Services PLC.
These services are provided online, to access these services shareholders should have their SRN
and log onto www.computershare.com/dealing/uk.
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.
Other Information
Investor information
Meggitt PLC Annual Report and Accounts 2021
244
FAQs on the impact of the proposed acquisition of Meggitt by Parker-Hannifin
How will the proposed
acquisition affect the
ordinary shares I hold
in Meggitt?
On completion of the acquisition, all Meggitt share certificates will become invalid and should
be destroyed.
Shareholders will automatically receive payment for their shares, by cheque or direct into their
bank account if the distribution payment is £250,000 or more (bank details must be registered with
Computershare for direct payments).
Alternatively, shareholders who hold their shares in Crest will receive their payment electronically
directly through the Crest payment system.
I have lost my share
certificate, do I need to
get a new one before the
acquisition completes?
No. On completion shareholders will automatically receive payment for their Meggitt shares.
Shareholders only need to obtain a new share certificate if they are planning to sell or transfer the
shares to someone else before the acquisition completes.
When will payment
be made?
Completion is currently expected to occur in Q3 2022 and payment is expected approximately
14 days from the effective date.
If shareholders do not receive payment within 14 days from completion they should contact
Computershare on 0370 703 6210.
Do I need to take
any action?
Yes.
1. Shareholders should ensure that their details registered with Computershare are accurate and
up-to-date.
– Shareholders can update their details online at www.investorcentre.co.uk. To access this site
shareholders will need their Shareholder Reference Number which can be found on their share
certificate or a recent dividend confirmation voucher. Alternatively they can call Computershare
on 0370 703 6210.
– Shareholders who will receive a distribution payment of £250,000 or more will need to provide
consent for Computershare to use their bank details to make the payment. Computershare will
contact affected shareholders separately to obtain consent.
2. Capital gains taxes could accrue in certain jurisdictions between the value of the shares when
originally purchased/exercised an award and the value of the shares when Parker-Hannifin buys
them. For capital gains purposes, shareholders should check their records of all transactions in
Meggitt shares to make sure they can calculate any capital gains tax due. This is a personal tax
liability and Meggitt cannot make this calculation for you.
Shareholders should seek independent financial advice if they are unsure as to their tax position.
Meggitt is not authorised to provide tax advice in any form.
I’m an overseas
shareholder, will I get
a cheque in GBP?
Yes, shareholders will receive a cheque in GBP or payment direct into their bank account if
the distribution payment is £250,000 or more (and if their bank details have been registered
with Computershare).
Meggitt PLC Annual Report and Accounts 2021
245
Other Information
Other Information
401(k)
An employer-sponsored defined-
contribution pension in the
United States
ADS
Aerospace, Defence, Security and
Space Organisation
Aftermarket (AM)
Spares and repairs
AGM
Annual General Meeting
AR&T
Applied research and technology
ASK
Available seat kilometres
AOG
Aircraft on ground
BAME
Black, Asian, and Minority Ethnic
Basis point
One-hundredth of a percent
Board
Board of Directors
Book to bill
The ratio of orders received to revenue
recognised in a period
BSI
British Standards Institution
Business jets
Aircraft used for non-commercial
operations
CAA
Civil Aviation Authority
CAGR
Compound annual growth rate
Capability
Expertise in technology and
manufacturing
CARES act
Coronavirus Aid, Relief and Economic
Security act
CFC
Controlled Foreign Company
CGU
Cash-generating unit
CHF
Swiss franc
CI
Continuous improvement
CO2
Carbon dioxide
2018 Code
UK Corporate Governance Code 2018
CODM
Chief operating decision maker
Company
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
CR
Corporate Responsibility
CREST
Certificateless Registry for Electronic
Share Transfer
D&A
Depreciation and amortisation
DECC
Department of Energy & Climate
Change
DEFRA
Department for Environment, Food &
Rural Affairs
DFARS
(US) Defense Federal Acquisition
Relation Supplement
DLA
Daily layered accountability, the
nervous system of Meggitt’s High
Performance 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
(United States) Department of Defense
DPPM
Defective parts per million, a measure
of quality
DRIP
Dividend reinvestment plan
DGTR
Disclosure Guidance and Transparency
Rules
EBITA
Earnings Before Interest, Tax
and Amortisation
EBITDA
Earnings Before Interest, Tax,
Depreciation and Amortisation
E&C
Ethics & Compliance
ECR
(US) Export Controls Reform
ECL
Expected Credit Loss
EPS
Earnings per Share
ERG
Employee Resource Group
ESG
Environment, Social & Governance
ETES
Electro-thermal Energy Storage
EU
European Union
eVTOL
Electric vertical take-off and landing
Executive Committee
Assists the Chief Executive to develop
and implement the Group’s strategy,
manage operations and discharge
responsibilities delegated by the Board
FCA
Financial Conduct Authority
FIFO
First‑in first‑out
FIRST
For Inspiration and Recognition of
Science and Technology
FOC
Free of charge
FVLCOD
Fair Value Less Cost of Disposal
FRC
Financial Reporting Council
FRS
Financial Reporting Standard
FTSE
Share index of companies listed on the
London Stock Exchange
GAAP
Generally Accepted Accounting
Practice
GBP
British pound or pound sterling
GDP
Gross domestic product
GDPR
General Data Protection Regulation
GHG
Greenhouse gas
Group
Meggitt PLC and its subsidiaries
HMRC
HM Revenue & Customs
HSE
Health, Safety & Environment
HPC
High Performance Culture (HPC) – our
chosen culture, with a particular focus
on diversity & inclusion and improved
employee engagement, to accelerate
execution of our strategy
HPS
High Performance System (HPS) –
our new Emerging Stronger plan for
Outstanding Operations, which
replaced the Meggitt Production
System (MPS) in 2021
IAS
International Accounting Standards
IATA
The International Air Transport
Association
IBOR
Inter Bank Offered Rate
IET
Institution of Engineering and
Technology
IFBEC
International Forum on Business Ethical
Conduct
Glossary
Meggitt PLC Annual Report and Accounts 2021
246
IFRS
International Financial Reporting
Standards
Installed base
The sum total of the Meggitt products
and sub‑systems installed on
customers’ equipment
IR
Investor Relations
IP
Intellectual property
ISA
International Standards on Auditing
Jet Zero Council (JZC)
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
KPI
Key performance indicator
Large jets
Commercial aircraft with greater than
100 seats
Lean
A method for the continual elimination
of waste within a manufacturing system
LIBOR
London Inter‑Bank Offered Rate
LNG
Liquefied Natural Gas
LTIP
Long-Term Incentive Plan
M&A
Mergers and acquisitions
MPS
Meggitt Production System (MPS) –
Replaced by our High Performance
System in 2021
Mix
The impact on performance of
revenue streams with higher or lower
profitability growing at differing rates
MoD
UK Ministry of Defence
MPP
Meggitt Pension Plan
MRO
Maintenance, repair and overhaul
NBAA
National Business Aviation Association
Net borrowings
Net debt adjusted to exclude lease
liabilities
NHS
National health Service
NPI
New product introduction
O&M
Operations and monitoring
OE
Original equipment
OECD
Organisation for Economic
Cooperation and Development
OEM
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
Organic growth
Growth excluding the impact of
currency and acquisitions and disposals
of businesses
OSHA
Occupational Safety and Health
Administration
OTD
On‑time delivery
PBT
Profit before tax
PCHE
Printed circuit heat exchanger – a block
of flat, diffusion bonded plates on to
which fluid flow channels have been
chemically milled
PFEP
Plan for every part
Platform
Aircraft or ground vehicle model
incorporating Meggitt products
PMO
Project management office
PPC
Programme Participation Cost
Programme
The production and utilisation lifecycle
of an aircraft model or ground vehicle
PwC
PricewaterhouseCoopers LLP
RDT&E
Research Development Test and
Evaluation
R&D
Research and development
RCF
Revolving Credit Facility
REACH
Registration, Evaluation and
Authorisation of Chemicals
RECs
Renewable Energy Credits
Regional aircraft
Commercial aircraft with fewer than
100 seats
Registrar
Computershare Investor Services PLC
RIDDOR
The Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations
RMU
Retrofit, modification and upgrade
RNS
Regulatory News Service
announcement
ROCE
Return on capital employed
ROTA
Return on trading assets
RPH
Retirement Plan Headcount
RPK
Revenue Passenger Kilometers
SAP
The Group’s selected enterprise
management system
SAF
Sustainable Aviation Fuels
Sell-side
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
Shipset
Value of Meggitt’s content on
aircraft platforms
SIP
Share Incentive Plan
SOC
Service Organisation Control
SRN
Shareholder Reference Number
STIP
Short-Term Incentive Plan
TCFD
Taskforce on Climate-related Financial
Disclosures
TRIR
Total recordable injury rate
TSR
Total shareholder return
UAV
Unmanned aerial vehicle
UN SDG
United Nations Sustainable
Development Goals
UKLA
UK Listing Authority
USD
United States dollar
Ventilator Challenge
A consortium led rapid production of
ventilators to help patients hospitalised
with COVID-19
WACC
Weighted average cost of capital
WBCSD
World Business Council for Sustainable
Development
WIP
Work in Progress
WRI
World Resources Institute
Meggitt PLC Annual Report and Accounts 2021
247
Other Information
Notes
Meggitt PLC Annual Report and Accounts 2021
248
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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