Annual Financial Report

Date: 27 March 2020

Meggitt PLC

("the Company")

Publication of Annual Report and Accounts 2019 and the Notice of the 2020 Annual General Meeting

The Company has today published the following documents:

- Annual Report and Accounts for the year ended 31 December 2019; and

- Notice of the 2020 Annual General Meeting ("AGM").

In compliance with LR 9.1.7R, the Annual Report and Accounts for the year ended 31 December 2019 and the Notice of the 2020 Annual General Meeting have been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for public inspection at www.morningstar.co.uk/uk/NSM. Both documents are available on the Group's website at https://www.meggitt.com/investors/.

As announced this morning, the directors of the Company are no longer recommending a final dividend for the year ended 31 December 2019 and therefore intend to withdraw resolution number 4 as set out in the Notice of AGM.

Shareholders should continue to monitor the Company's website and announcements for updates in relation to the AGM.

Annual General Meeting

When we approved our AGM notice and went to print earlier this month, we had anticipated being able to convene our AGM in a way which would have allowed shareholders attend in person (albeit with certain measures in place to protect our shareholders and employees). However, in light of the coronavirus (COVID-19) pandemic and, in particular, following the announcement by the UK Prime Minister on 23 March 2020 prohibiting public gatherings, the Company advises that only the formal business set out in the notice of meeting will be considered at the AGM and attendance will be limited to a bare quorum comprised of three officers or employees of the Company. The Company regrets that these are necessary steps to take, but it is important to comply with the law and take the steps necessary to slow the spread of coronavirus (COVID-19) and protect the health and safety of shareholders, employees and the wider community, while maintaining the efficient functioning of the Company in these challenging times. 

The directors of the Company strongly encourage shareholders to vote by proxy on all of the matters of business by appointing the Chairman of the Meeting as their proxy by submitting a proxy appointment in accordance with the instructions in the notice of meeting. Questions can be sent to [email protected] and the answers will appear in the AGM section of our shareholder centre https://www.meggitt.com/investors/shareholder-centre/ as soon as practicable after the meeting.

The results of the AGM will also be announced as soon as practicable following the meeting.

The directors of the Company hope that all its members and stakeholders remain safe and well and thank you for your co-operation and understanding during these challenging and unprecedented times.

Additional information

The appendices to this announcement contain further information required by Disclosure Guidance and Transparency Rule 6.3.5. This information is drawn entirely from Meggitt's full-year results for the year ended 31 December 2019/Annual Report and Accounts for 2019 which are available at https://www.meggitt.com/investors/ and were published on 25 February 2020, and consequently did not address all of the risks associated with coronavirus (COVID-19). References in the appendices below refer to the page and note references in the Annual Report and Accounts for 2019.

Enquiries:

Meggitt PLC

Marina Thomas, Group Company Secretary ([email protected])

Katie Lewis, Senior Assistant Company Secretary ([email protected])

Simon Grant, Assistant Company Secretary ([email protected])

APPENDIX A

Principal risks and uncertainties (reproduced from Meggitt's Annual Report and Accounts for 2019)

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.

Strategic priorities

1 Strategic Portfolio

2 Customers

3 Competitiveness

4 Culture

Change in risk

- Increase

- 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 (organic revenue growth, underlying operating profit, ROTA, ROCE, underlying EPS growth and free cash flow)

· R&D investment

· TRIR (total recordable incident rate)

· Inventory turns

Strategic risks

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 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 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 2019 and up to the date of approval of the Annual Report:

· Reviews of the risk management process, risk register and risk appetite;

· 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 Executive Director, Commercial and Corporate Affairs;

· Regular reports on the state of the business from the Chief Executive and Chief Financial Officer;

· A presentation on IT security activities and plans;

· Strategy reviews, review of the ten-year financial plan and review and approval of the 2020 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.

Assessment of prospects

The Board continues to believe that the prospects for the Group are favourable in the medium to long term.

We supply into a growing sector

· Aviation is growing at 4-5%; we provide equipment to all major new platforms entering service in the near future;

· The Group has equipment on over 73,000 in service aircraft; and

· With an average aircraft lifespan of 25 years, our aftermarket annuity will be providing meaningful revenues to the Group for decades to come.

We are diversified by end market and by customer

· We supply into both civil (54% revenue) and defence (36%) aircraft markets, and into selected energy markets (10%);

· Our revenues are split evenly between equipment sales and aftermarket; and

· We work with a diverse group of customers from across the globe. Our top 10 customers generate less than 50% of our revenue.

We invest for the long-term and protect our know-how

· We invest in market leading technology. We spend, on average, 5-7% of revenue on R&D through the cycle;

· Our physical capital base is renewed regularly. Around 20% of underlying operating profit is re-invested into the physical capital base of the Group each year;

· We grow, manage and defend our intellectual property portfolio robustly;

· We invest in next generation technologies to support a sustainable future for aviation; and

· 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 MPS, a tiered improvement programme, providing a roadmap to best in class Legal and compliance failure is, again, a risk which has a significant manufacturing; and

· We operate a globally distributed manufacturing infrastructure, producing both in the OECD and in lower cost locations.

We have a strong financial position

· The Group is growing revenues above market rates, whilst continuing to deliver post tax-cash conversion in line with peers;

· Gearing, at < 2x EBITDA, is in line with expectations for sustainable debt levels; and

· We have £1.6bn of committed facilities as at 31 December 2019; we delivered post tax free cash flow of £268m in 2019.

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 be likely to be resolved:

· Global aviation fleet: By when will a substantial portion of new A220, A321neo and 737 MAX jets be flying?

· Evolution of Meggitt: By when will the Group's current change initiatives be expected to be finished?

· Refinancing: By when will the Group have refinanced the majority of its private placement portfolio (USD700m) and its USD750m revolving credit facility?

· Programme investment: Over what timeframe would the Group typically expect to see investments into new aircraft platform generating cash?

The Board concluded that these four major activities would be largely resolved within five years and as such, this was the correct timeframe over which to assess viability and risk impact.

Assessment of viability and risk stress tests

Using the output of the Group's long-term planning activity, the Group created two materially adverse downside scenarios which were unlikely but plausible, and modelled the financial impact should a number of risks within those scenarios actually crystallise within a five- year period.

1. Major business disruption event:

As has been observed in the past, the aviation sector is exposed to events which have a material adverse impact on the world's willingness to fly. Events such as the 9/11 attacks in 2001, SARS outbreak in 2003 and the global financial crisis in 2008-9 all saw a material drop off in flight demand and aircraft deliveries which in turn impacted both OE deliveries and aftermarket sales.

On the Group's risk matrix, business disruption is one of the highest impacting risks on the Group's financial performance, and also can impact the way in which the Group's business model works, trigger major M&A events and disrupt relationships with both major customers and suppliers.

The Group used knowledge of previous business disruption events to model the impact on the Group's future plans.

2. Loss of a major customer

The aviation sector is reliant on a well-developed system of global regulations and equipment qualifications to ensure confidence in the sector's functioning. In addition, particularly when working with the defence arms of governments, security of data and adherence to military protocols is critical.

The Group has modelled the impact of a significant loss of revenue following a regulatory or compliance failure from Meggitt. Censure for non-compliance is severe, whether through the loss of access to government contracts, or the grounding of fleet which are deemed to be unsafe.

Legal and compliance failure is, again, a risk which has a significant impact on the Group's financial performance. In addition, customer satisfaction, the Group's change management programme and its people strategy would all be impacted by such an event.

The Group has also modelled the above scenarios at the same time as assuming a partial inability to refinance a proportion of its debt up for renewal, in order to fully understand the impact of these events should the Group ever be unable to access debt markets.

When modelling the above, the Group has considered mitigating levers available to it such as materially cutting its investment in capital equipment or R&D, sharply reducing its level of indirect expenditure, or reducing or suspending its dividend for a short period of time in such atypical and unplanned circumstances. Given the Group's business model, its long-dated aftermarket annuity, diverse technology and customer base, and the scale of the potential mitigating levers available to it in the event of either of these events occurring, the Group is reassured that it could mitigate the impact of these scenarios.

Statement of viability

Based on the results of the analysis, the Board has a reasonable expectation that the Group will continue in operation and be able to meet its liabilities as they fall due over the five-year period of assessment.

APPENDIX B

Statement of directors' responsibilities in respect of the financial statements (reproduced from Meggitt's Annual Report and Accounts for 2019)

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and 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 the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company 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 IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;

· make judgements and accounting estimates that are reasonable and prudent; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group 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 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

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

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy. Each of the directors, whose names and functions are listed in the Board of directors confirm that, to the best of their knowledge:

· the Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Strategic report and this Directors' Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

In the case of each director in office at the date the Directors' Report is approved:

· so far as the director is aware, there is no relevant audit information of which the Group and Company's auditors are unaware; and

· they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Company's auditors are aware of that information.

Fair, balanced and understandable

The directors as at the date of this report consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy. The Board has made this assessment on the basis of a review of the accounts process, a discussion on the content of the Annual Report assessing its fairness, balance and understandability, together with the confirmation from executive management that the Annual Report is fair, balanced and understandable.

APPENDIX C

16. Related party transactions (reproduced from Meggitt's Annual Report and Accounts for 2019)

During the year, the Group made sales to the joint venture of £2.9m (2018: £3.3m) and purchases from the joint venture of £0.1m (2018: £0.2m). 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 2019 as members of the Board and the Group Executive Committee, is set out below.

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 92 to 116 which forms part of these consolidated financial statements.