23rd Apr 2020 08:51
(Alliance News) - Meggitt PLC on Thursday said it booked a single-digit revenue rise in its first quarter, though it has begun to see a "softening" in trading in its civil aerospace division.
The company announced cost cuts of as much as GBP450 million, including salary and job cuts.
Shares in the aerospace and defence contractor climbed 6.7% to 264.72 pence each in London's FTSE 100 index on Thursday morning.
Revenue in the three months to March 31 rose 5% on an organic basis, Meggitt said, with the company seeing growth in the defence division but "softer" trading in civil aerospace and energy.
"While trading in the first quarter of 2020 was ahead of the comparative period, in the last few weeks we have started to see a softening in our civil aerospace business both in terms of revenue and the forward order book," Meggitt explained.
"Civil aerospace revenue was slightly ahead of the comparative period on an organic basis, within which original equipment revenue decreased by 1% and aftermarket revenue grew by 2%."
Defence revenue surged 15% on an organic basis, though in energy, it was down 3%.
Meggitt added: "Covid-19 will result in a significant reduction in demand across our civil aerospace business in 2020 in both original equipment and after market, as our customers adapt and scale back their activities to reflect the reduction in global air traffic.
"We have modelled a number of scenarios for planning purposes based on a combination of actual and anticipated customer demand signal changes and external industry forecasts, including those of IATA. We have also assumed that demand remains robust across our defence business, which represented 36% of the group's revenues in 2019, of which over 70% is derived from the US."
Meggitt said that to mitigate the likely slump in demand, it will use furlough schemes. It has also taken the "difficult decision" to cut 15% of its workforce.
Meggitt added: "This action will ensure that our internal capacity across our civil aerospace business reflects the reduction in demand and positions us appropriately as we enter 2021.
"We are also implementing a number of other measures to reduce our operating cost base in 2020. These include: a freeze on all new hiring and removal of annual salary increases for all employees."
The company's chief executive officer, chief financial officer, non-executives and executive committee members will take a 20% salary cut.
"In addition, we are also taking a number of cash specific actions including significant reductions in both capital expenditure and inventory. This is in addition to the cancellation of our final dividend payment for 2019," Meggitt said.
Meggitt back in March pulled a planned 11.95p payout.
These measures will save about GBP400 million to GBP450 million in cash in 2020.
"Meggitt continues to work within the VentilatorChallengeUK consortium to increase the supply of intensive care medical ventilators needed to treat patients hospitalised with Covid-19," the company said.
"In light of a highly fluid market and global macro-economic situation, it remains the board's position that it is too early to provide forward looking guidance at the current time."
By Eric Cunha; [email protected]
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