Interim Results

4th Aug 2009 07:00



For immediate release 4 August 2009

Interim Management Report for the six months ended 30 June 2009

"Good results in challenging times"

Meggitt PLC ("Meggitt" or "the Group"), a leading international company specialising in aerospace equipment, sensing and defence systems, today announces unaudited interim results for the six months ended 30 June 2009.

2009 Half year highlights

	2009	2008
Revenue	£586.4m	£526.6m	+11%
Profit before tax - underlying1	£112.3m	£109.6m	+2%
Profit before tax	£100.1m	£75.8m	+32%
EPS - underlying1	12.1p	12.0p	+1%
EPS	11.1p	8.7p	+28%
Dividend	2.7p	2.7p
Net debt2	£895.1m	£1,047.9m

Revenues up 11% with growth in all three divisions; underlying profit and earnings per share (EPS) also up - operating profit +4%, profit before tax (PBT) +2% and EPS +1%.

Deliveries and utilisation of Meggitt-equipped aircraft broadly in line with the Group's expectations - some impact in first half through destocking and rescheduling of deliveries within civil aerospace.

On-going efficiency programmes including global procurement initiative and K&F integration on track to achieve full year target savings of £11m and £18m respectively - approximately half these amounts delivered in the first half.

Timing of £50m additional cost reduction programme running ahead of schedule. Savings in 2009 now expected to be £25m compared with the original target of £20m. Savings of £10m achieved in first half.

Headcount at end of June 2009 849 (10%) lower than July 2008, including 100 full time equivalent employees on short time working.

Currency, particularly the stronger US dollar, benefited revenue and underlying PBT by £105m and £22m respectively, compared with the same period last year.

Net cash generation and currency translation reduce net debt to £895.1m (December 2008: £1,047.9m); net debt/EBITDA of 2.5x comfortably inside covenants.

Free cash in-flow before dividends and net M&A of £36.6m, up 93%.

  

Terry Twigger, Chief Executive, commented:

"Meggitt had a good first half in challenging market conditions.  The Group is trading as expected, with aggressive cost cutting and currency benefits more than offsetting the impact of the downturn in civil markets.

The outlook remains uncertain but military revenues remain robust and industry data concerning the delivery of new civil aircraft and utilisation of existing aircraft suggest that underlying demand for our products will continue in line with the Group's expectations. Although the impact of destocking looks to be slightly higher than we had anticipated, the impact on 2009 profit will be substantially mitigated through additional cost savings.

Supported by our diversified business portfolio, we continue to invest in the business and win new programmes in order to ensure the Group will emerge from the current downturn poised for future expansion."

Please contact:

Terry Twigger, Chief Executive
Stephen Young, Group Finance Director
Andy Mann, Investor Relations
Meggitt PLC	+44 1202 597597
Charles Ryland or Jeremy Garcia
Buchanan Communications	+44 20 7466 5000

___________________________________________________________

Underlying profit and EPS are used by the Board to measure the trading performance of the Group and exclude certain items, principally operating exceptional items, amortisation of IFRS3 intangibles and the marking to market of financial instruments as set out in notes 4 and 10.

Comparative figure represents net debt at 31 December 2008.

Interim Management Report for the six months ended 30 June 2009

Results

The Group produced a strong set of results in a challenging environment, with aggressive cost cutting and currency benefits more than offsetting the impact of declining civil OE deliveries and lower utilisation of the fleet of civil aircraft fitted with Meggitt equipment.  The order book declined by 2% at constant currency between December 2008 and June 2009.

Group revenue increased by 11% to £586.4m (2008: £526.6m). In aggregate, civil revenues were flat at £254.1m (2008: £255.3m); military revenues increased by 31% to £251.1m (2008: £191.3m) and other revenues, whilst reflecting declines in our automotive and general consumer markets offset by energy, increased by 2% to £81.2m (2008: £80.0m).

Underlying operating profit increased by 4% to £140.8m (2008: £135.5m) and underlying PBT was up 2% to £112.3m (2008: £109.6m).  The underlying tax rate for the Group remains at 28% and underlying EPS was up 1% at 12.1p (2008: 12.0p).

Underlying profit is used by the Board to measure the underlying trading performance of the Group and excludes operating exceptional items, the amortisation of IFRS 3 intangibles and mark to market adjustments on financial instruments amongst others, as detailed in note 4. Including these items, reported PBT increased by 32% to £100.1m (2008: £75.8m) and EPS increased by 28% to 11.1p (2008: 8.7p).

Around two thirds of profits are earned in US dollars and were translated into sterling at an average rate of $1.52 to the pound in the first half of 2009 (2008: $1.98).  The favourable impact of currency in the first half on revenues and underlying PBT was £105m and £22m respectively. If the average rate in the second half is around $1.65 (2008: $1.68) there will be a very minor year on year currency impact in the second half.

The Group has reduced capital expenditure in the first half to £14.9m (2008: £23.2m) in line with reduced activity levels.

Internally funded expenditure on research and development (R&D) increased by 24% to £34.1 million (2008: £27.6m). Total expenditure on R&D, including the customer funded element, increased to £42.5m (2008: £34.8m) or 7% of revenue.  The increase reflects programmes won in recent years which will deliver revenue in future years.

Before M&A activity and dividends, the Group generated free cash of £36.6m, up 93% (2008: £19.0m).

Due to the earlier timing of the AGM, the Group paid the prior year final dividend in May 2009 compared with July last year, adversely impacting first half cash flow. The £38.3m dividend was paid by £20.0m in cash and the balance through the scrip alternative.

After dividends, the Group generated a net cash inflow of £17.0m.

Net debt has decreased from £1,047.9m at 31 December 2008 to £895.1m, a reduction of £152.8m, primarily as a result of currency translation, as most of the borrowings are US dollar denominated.  The net debt/EBITDA ratio (covenant basis) of 2.5 times was comfortably below the covenant of less than 3.5 times.

Interest cover (covenant basis) was a very healthy 7.1 times (December 2008: 6.6 times) compared to a covenant of greater than 3 times. The Group had undrawn, committed bank facilities of £380m at 30 June 2009.  Our balance sheet is in good shape, with ample facilities and covenant headroom and no refinancing needs until March 2012. 

  Whilst the outlook continues to be uncertain, the Board believes that trading continues to be broadly in line with its expectations and has, therefore, declared an unchanged interim dividend of 2.7p per share (2008: 2.7p).

Cost reduction activity

The Group has a number of cost reduction initiatives in place under the broad headings of "business as usual" (the on-going efficiency programmes) and "mitigation of economic downturn" (the additional £50m cost reduction programme). The business as usual activities aim to offset cost increases and include our global procurement programme (£11m of incremental savings in 2009, of which approximately 50% was achieved in the first half), the on-going integration of K&F (£18m savings expected in 2009, of which approximately 50% was achieved in the first half), and our on-going low cost manufacturing activities in Mexico and China, where we opened our second and third factories respectively in the first half.

The Group's response to the economic downturn had been to target a further £50m per annum of cost savings, with £20m to be delivered in 2009 and the full £50m run rate to be achieved by the end of 2010.

The £50m identified savings comprise three elements:

£25m will be achieved through reductions in factory direct and indirect headcount and related costs. This equates to approximately a 600 headcount reduction, 513 of which have already taken place, and short time working.

£20m will be achieved through permanently transforming the way the business is managed, effectively removing a layer of management. Significant changes, including to the Group's IT systems, are required to achieve the full run rate of savings. Nonetheless, an additional 142 headcount reduction took place in the first half.

£5m saved through freezing executive pay, travel, reducing pension benefits, etc. All of these actions have been implemented.

The operating exceptional cost of achieving these savings is estimated to be £25m, of which approximately £18m is expected to be charged in 2009.

With £10m savings achieved in the first half, we expect to exceed our £20m savings target for 2009 by £5m and are highly confident of achieving our targeted £50m per annum run rate by the end of 2010.

To date, our cost reduction initiatives (including K&F integration) have reduced headcount by 749 from July 2008 with another 100 full time equivalents temporarily removed through short time working during the first half (totalling an 849 or a 10% reduction in headcount).

Strategy

Meggitt's strategy is to develop leadership positions in markets with high technology content, with the opportunity to develop sole source positions, where its products have long lives operating in extreme environments.

A key objective is not only to sell the original equipment but also to share in a continuing stream of highly profitable aftermarket revenues over many years, providing long term stable and profitable returns, which are very cash generative. Exposure to industries such as aerospace, where the life of an aircraft is often more than 25 years, defence and energy enable Meggitt to achieve these objectives.  Furthermore the complementary mix of both civil and military, and original equipment and aftermarket, enables Meggitt to balance the business cycles in these markets.

Owning intellectual property is key to maintaining Meggitt's high returns and is based on developing capabilities to match customers' future needs. This strategy is supported by a focussed R&D programme. Total R&D expenditure in the first half, including customer funded, increased by 22% to £42.5m (2008: £34.8m) which is 7% of the Group's revenue.

The largest investments were in Sensing Systems, totalling £15.4m (12% of segment revenue), and Aerospace Equipment, totalling £21.2m (6% of segment revenue). These investments include the development of condition monitoring (for both aerospace and energy markets), braking and fluid control systems, covering recent programme wins as well as new opportunities. Defence Systems invested £5.9 million (8% of segment revenue) in upgrading their virtual training products for the law enforcement and military markets, as well as continuing to develop leading technology in linkless ammunition handling programmes.

The quality of service and delivery performance provided by Meggitt continues to be recognised by its customers, with Gulfstream awarding, for the third year running, their prestigious "Supplier of the Year" award to Meggitt Aircraft Braking Systems.  In addition, Boeing awarded silver performance excellence awards to Meggitt Avionics in the UK and Meggitt Defence Systems in California.

On-going operations excellence initiatives continue to be a central feature of the overall strategy.  Our key focus is on lowering the cost and complexity of procurement for the Group; capturing the K&F synergies and developing our low cost civil manufacturing facilities in Mexico and China.

There was no acquisition or significant disposal activity during the first half of 2009.

Market background

CIVIL

Meggitt operates in three main segments of the civil aerospace market: large jets, regionals and business jets. The large jet fleet size is just over 15,000; the regional aircraft fleet is about 6,000 and business jets nearly 15,000. The Group has product on most of these aircraft and hence a very large installed base.  The split of civil revenues, which account for 43% of the Group total,  is circa 2/3 aftermarket and 1/3 OE.

From around the middle of 2008, the civil aircraft market has moved progressively into a downturn, initially with reduced aircraft utilisation impacting the aftermarket and subsequently reduced demand for new aircraft.  As a result, there has been a negative impact on the Group's civil revenues compounded, to some extent, by destocking.

Manufacturers of large jets are still projecting modest increases in production rates for 2010 and beyond, whilst regional and business jet manufacturers have implemented cuts of up to 30% in 2009 and are planning further cuts in 2010.

Civil air traffic, measured in available seat kilometres, is a key driver of the civil aftermarket and is projected to decline by 5% to 6% in 2009 for large jet and regional aircraft and to stay flat or increase slightly in 2010.  The impact on Meggitt's spares volumes is likely to be marginally higher as new aircraft replace older aircraft in the fleet, based on forecast OE deliveries.

Encouragingly, utilisation of our higher value regional aircraft is holding up well and business jet usage has been stable in recent months.

  MILITARY

The global military market is dominated by the US (circa 50% of total market spend) which is by far the most important military market for Meggitt. The US Department of Defense base budget  is up 3% year-on-year in FY09 to $487bn and is projected to increase by a further 5% to $511bn in FY10. Supplemental funding requests to cover current conflicts are on top of that and are approved in phases as the year progresses, with a total of $146bn approved for FY09. 

This market is expected to remain robust over the coming years since, even when the various conflicts end, there is a significant amount of worn and damaged equipment that will need repairing and a pent up demand for training which must be met. 

The Quadrennial Defence Review is due to be published in the second half of 2009 and will highlight the DoD's future spending patterns for the next four years, based on Secretary Gates' plans for the reshaping of the US defence budgets to reflect changing requirements in modern warfare. This could lead to more opportunities for the Group if budgets are focused on upgrading and extending the life of existing platforms where Meggitt has an established aftermarket. Technologies we are developing for new platforms can also be retrofitted into existing platforms. The significant fleet sizes involved could lead to revenue being generated earlier than if fitted to a new platform where volumes build up over time.

Other countries' military budgets are not rising as quickly and some, especially in Europe may only increase by inflation.  With its significant installed base and content on new programmes, the Group expects its military business to continue to grow by around 4% to 5% in the medium term.

OTHER

Other revenues (14% of Group total) come from various end markets such as energy (approximately 50%), automotive, test, consumer goods and medical.

Revenues from these markets were up 2%, helped by the strengthening of the US dollar.  Within the energy market, the offshore oil and gas segment has been hit by cuts in capital expenditure as a result of the fall in oil prices but power generation remains robust. Demand in automotive, test equipment and consumer goods was significantly down.

Operational highlights

AEROSPACE EQUIPMENT (66% of Group revenue)

Revenue increased 10% to £384.9m (2008: £351.3m).

Underlying operating profit increased 7% to £111.3m (2008: £104.5m).

Underlying operating margins reduced from 29.7% to 28.9%.

This division is geared towards the highly profitable civil aftermarket, which has declined more than OE. Currency benefits, aggressive cost cutting and growth in the military market more than offset the negative impact of lower civil aircraft deliveries, fleet utilisation and destocking, leaving net growth in both revenues and operating profit, and margins at a healthy 28.9%.

During the first half of 2009, the Group announced further contract wins, which over the life of the programmes will generate hundreds of millions of dollars of new revenue. Examples of new contracts include:

Meggitt Aircraft Braking Systems (MABS), won the wheels and braking systems on the new Bombardier CRJ1000 aircraft, which extended Meggitt's excellent win rate and consolidated its position as a global leader for military, regional and business jet wheels and brake technology. 

MABS won its first commercial contract for its next generation Ebrake® technology on the new Bombardier CSeries aircraft family. MABS is the only company to have demonstrated and flown a commercial aircraft that relies solely on an electric brake system.

Follow-on production contracts for high pressure and extreme temperature components for the Vulcan 2 and HM7 engines of the Ariane 5 launcher. This continues a long tradition with Meggitt's involvement stretching back through all Ariane programmes since the early 1970s.

Engineered Fabrics Corporation (EFC), the leading supplier of fuel tanks for most US fighters (including F18, F16, F15), military transport aircraft such as KC135 and C130 and most US military helicopters saw strong and growing demand.  It has received over $100m of orders in the first half.

Meggitt Safety Systems' next generation fire detection and extinguishing system has been selected for Bombardier's new Learjet 85 business jet. This is a full ATA Chapter 26 fire protection system which is strategically important to Meggitt.

Our Polymers business has developed and applied for patents for a new lightweight elastomer which offers a weight saving of up to 20% over existing products with no loss of performance. If applied to all seals on an average single aisle aircraft, this would offer a weight saving of around one tonne, a substantial contribution to the industry's drive for better fuel efficiency. By maintaining comparable performance, the material can be used both to replace existing seals and for new aircraft programmes. 

SENSING SYSTEMS (22% of Group revenue)

Revenue increased 6% to £129.2m (2008: £122.2m).

Underlying operating profit decreased by 12% to £19.8m (2008: £22.6m).

Underlying operating margins decreased from 18.5% to 15.3%.

Revenues increased as currency benefits and growth in the military market more than offset the impact of reduced civil revenues. However underlying operating profit reduced, largely due to the division's exposure to the automotive and consumer markets through its Spanish and Californian businesses.  During the second quarter of 2009 there are signs that the automotive market has stabilised.

Sensing Systems (MSS) is a leading player in the development of high technology sensors and electronics. To maintain its position, it spends about 12% of revenue on new product development each year. These efforts are directed at developing sophisticated condition monitoring systems for both aerospace and energy customers as well as continually expanding the range and capability of its sensors.

Larger customers are increasingly looking to deal with fewer but more capable suppliers who take on a system integration role. An excellent example of this is the Rolls-Royce BR725 engine where MSS took on the Tier 1 supplier role enabling it to put together a comprehensive package of sensors including our first aero ignition system. This package has now been qualified on the engine.

This has recently been followed by securing the Tier 1 position with Hamilton Sundstrand on the Pratt & Whitney PurePowerTM PW1000G geared turbofan engine - with a package of sensors including oil monitoring, oil level, temperature, speed and vibration sensors. The package also includes fuel flow monitoring, another first for MSS.

  

The Pratt & Whitney PurePowerTM engine is an important programme which will exclusively power the new Bombardier CSeries and the Mitsubishi regional jet. 

Further successes include:

Airbus has selected several of the division's products for the A350 XWB, including inertial sensors for measuring movements, angular rate and acceleration to provide the data to the primary flight control systems. In addition, the division has been awarded a substantial package of linear variable displacement transducers (LVDTs) for the primary flight control system hardware.

On rotary aircraft, MSS's dynamic monitoring acquisition unit (DMAU) was selected by Eurocopter as part of its helicopter HUMS system, and the division won follow-on contracts for air data systems for the Apache attack helicopter.

MSS has signed a long term agreement with Honeywell Aerospace for the development and supply of the data acquisition unit (DAU) within the Primus Apex® avionics suite selected by Viking Aircraft for their Series 400 platform.

The division has also successfully completed aircraft certification of its next generation fuel gauging system, with its initial launch customer, Cessna. This system, based on the principles of time domain reflectometry, exhibits substantial benefits over traditional gauging methods, including increased accuracy and reliability, and enhanced reporting capabilities to the aircraft avionics suite.

Subsequent to this successful introduction into the commercial aviation market, MSS has signed a second customer.  Both contracts will be worth tens of millions of dollars over the lifetime of the aircraft.  The technology should also be applicable to other platforms. 

DEFENCE SYSTEMS (12% of Group revenue)

Revenue increased 36% to £72.3m (2008: £53.1m).

Underlying operating profit increased 15% to £9.7m (2008: £8.4m).

Underlying operating margins declined from 15.8% to 13.4%.

Growth of 11% in revenues and 1% in underlying operating profit at constant exchange rates increased to 36% and 15% respectively at actual exchange rates.  Operating margins declined due to a higher mix of fixed price development work and lower margin international contracts, as well as set up costs for the new Middle East office.

Defence Systems is well positioned to capture funding from retrofit upgrades, equipment reset and training resulting from the current conflicts.

Recent developments and wins include:

Strong demand for electronics cooling systems for both air and land platforms, including a follow-on order for the M1A2SEP Abrams tank (second increment of a $65m multi-year contract) and the environmental control unit for the F/A-18E/F Super Hornet fighter Infra Red Search and Track (IRST) system.

Extended applications of the linkless feed ammunition handling system to 35mm and 40mm calibre having won study contracts with US and non-US prime contractors.

Successful commercial launch of our next generation virtual training system (XVT) into the law enforcement market to multiple customers in the US and Australia, which will position us to address their growing homeland security markets.

Contract wins for new and enhanced training systems for US Army National Guard and US Forces, including Combat Skill Marksmanship Trainers and Indirect Fire Forward Air Controller (IFACT).

Continued growth in international markets. For example, we have won all of the small arms trainers for the UAE land forces and navy for the past five years including a recent contract for the reserves and training schools.

Successful commissioning of our Integrated Tactical Training Centre (ITTC) in Singapore for the Police Coast Guard. This system is a world first which provides increased realism in training and gives the customer annual savings of more that $5m on fuel and vessel maintenance. It positions us well for growth in coastguard training, particularly in the light of an increase in international piracy.

Outlook

Civil aerospace markets remain uncertain. However, industry data concerning the delivery of new civil aircraft and utilisation of existing aircraft suggest that underlying demand for our products will continue in line with the Group's expectations. Rescheduling and destocking has had a disproportionate effect in the first half but any impact on profit will be at least partially mitigated by the better than expected progress on the cost reduction activities.

The outlook for the military market is positive, with Meggitt expecting to grow its military revenues by around 4% to 5% per annum in the medium term.

The financial position of the Group remains robust and net debt has decreased. There is good forward visibility of financing, out to March 2012, with significant borrowing headroom, and the Group remains well within its bank covenants.

Supported by our diversified business portfolio, we continue to invest in the business and win new programmes in order to ensure the Group will emerge from the current downturn poised for future expansion.

Against this background, the Board has maintained the interim dividend at 2.7p.

CONSOLIDATED UNAUDITED INCOME STATEMENT

For the six months ended 30 June 2009

	Notes	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Continuing operations
Revenue	3	586.4	526.6
Cost of sales		(337.4)	(288.1)
Gross profit		249.0	238.5
Net operating costs		(120.4)	(136.8)
Operating profit*	4	128.6	101.7
Finance income	7	14.5	15.9
Finance costs	8	(43.0)	(41.8)
Net finance costs		(28.5)	(25.9)
Profit before tax from continuing operations**		100.1	75.8
Tax	9	(25.5)	(18.3)
Profit for the period from continuing operations attributable to equity holders		74.6	57.5
Earnings per share:
Basic	10	11.1p	8.7p
Diluted	10	11.1p	8.7p
* Underlying operating profit	4	140.8	135.5
** Underlying profit before tax	4	112.3	109.6

  CONSOLIDATED UNAUDITED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2009

	Notes	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Profit for the period		74.6	57.5
Other comprehensive income/(expense) for the period:
Currency translation (losses)/gains, net of tax		(108.6)	1.5
Currency translation loss transferred to income statement	13	-	1.0
Actuarial losses, net of tax		(20.0)	(29.8)
Gains/(losses) on cash flow hedges, net of tax		4.8	(0.2)
Other comprehensive expense for the period, net of tax		(123.8)	(27.5)
Total comprehensive (expense)/income for the period attributable to equity holders		(49.2)	30.0

  CONSOLIDATED UNAUDITED BALANCE SHEET

As at 30 June 2009

	Notes	30 June 2009 £m	31 December 2008 Restated £m	30 June 2008 Restated £m
Non-current assets
Goodwill	14	1,240.9	1,382.7	1,075.5
Development costs	14	99.9	97.8	68.3
Programme participation costs	14	169.2	180.4	130.2
Other intangible assets	14	773.8	901.6	718.6
Property, plant and equipment	15	220.2	245.2	201.3
Trade and other receivables		16.8	19.3	15.0
Deferred tax assets		96.6	112.4	48.7
		2,617.4	2,939.4	2,257.6
Current assets
Inventories		256.8	273.1	224.3
Trade and other receivables		231.1	286.9	226.0
Derivative financial instruments		13.3	2.6	4.4
Current tax recoverable		0.4	0.7	8.4
Cash and cash equivalents	17	46.0	67.3	64.0
		547.6	630.6	527.1
Total assets	3	3,165.0	3,570.0	2,784.7
Current liabilities
Trade and other payables		(243.8)	(314.6)	(230.9)
External dividend payable		-	-	(37.9)
Derivative financial instruments		(17.0)	(57.2)	(2.2)
Current tax liabilities		(59.2)	(37.1)	(57.9)
Obligations under finance leases	17	(0.9)	(1.0)	(0.7)
Bank and other borrowings	16	(11.9)	(13.5)	(11.0)
Provisions	18	(38.3)	(45.3)	(14.3)
		(371.1)	(468.7)	(354.9)
Net current assets		176.5	161.9	172.2
Non-current liabilities
Trade and other payables		(10.4)	(9.3)	(8.6)
Derivative financial instruments		(31.5)	(39.8)	(13.3)
Deferred tax liabilities		(309.4)	(359.9)	(259.4)
Obligations under finance leases	17	(4.9)	(6.2)	(4.8)
Bank and other borrowings	16	(923.4)	(1,094.5)	(833.8)
Provisions	18	(51.7)	(64.0)	(65.3)
Retirement benefit obligations	19	(242.6)	(241.2)	(188.5)
		(1,573.9)	(1,814.9)	(1,373.7)
Total liabilities		(1,945.0)	(2,283.6)	(1,728.6)
Net assets		1,220.0	1,286.4	1,056.1
Equity
Share capital		34.0	33.3	33.0
Share premium		816.4	798.8	783.3
Other reserves		14.1	14.1	14.1
Hedging and translation reserves		91.9	195.7	(4.5)
Retained earnings		263.6	244.5	230.2
Total equity attributable to equity holders		1,220.0	1,286.4	1,056.1

  

CONSOLIDATED UNAUDITED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2009

	Share capital	Share premium	Other reserves	Hedging and translation reserves	Retained earnings	Total equity
	£m	£m	£m	£m	£m	£m
At 1 January 2008	32.9	781.6	14.1	(6.8)	241.6	1,063.4
Profit for the period	-	-	-	-	57.5	57.5
Currency translation gains*	-	-	-	1.5	-	1.5
Currency translation loss transferred to income statement	-	-	-	1.0	-	1.0
Actuarial losses*	-	-	-	-	(29.8)	(29.8)
Losses on cash flow hedges*:
Movement in fair value	-	-	-	(2.0)	-	(2.0)
Transferred to income statement	-	-	-	1.8	-	1.8
Total comprehensive income for the period	-	-	-	2.3	27.7	30.0
Employee share option schemes:
Value of services provided	-	-	-	-	(1.2)	(1.2)
Proceeds from shares issued	0.1	1.7	-	-	-	1.8
Dividends	-	-	-	-	(37.9)	(37.9)
At 30 June 2008	33.0	783.3	14.1	(4.5)	230.2	1,056.1
At 1 January 2009	33.3	798.8	14.1	195.7	244.5	1,286.4
Profit for the period	-	-	-	-	74.6	74.6
Currency translation losses*	-	-	-	(108.6)	-	(108.6)
Actuarial losses*	-	-	-	-	(20.0)	(20.0)
Gains on cash flow hedges*:
Movement in fair value	-	-	-	0.1	-	0.1
Transferred to income statement	-	-	-	4.7	-	4.7
Total comprehensive (expense)/income for the period	-	-	-	(103.8)	54.6	(49.2)
Employee share option schemes:
Value of services provided	-	-	-	-	2.8	2.8
Dividends	0.7	17.6	-	-	(38.3)	(20.0)
At 30 June 2009	34.0	816.4	14.1	91.9	263.6	1,220.0

* Net of tax

  CONSOLIDATED UNAUDITED CASH FLOW STATEMENT

For the six months ended 30 June 2009

	Notes	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Cash inflow from operations before exceptional operating items		140.9	112.2
Cash outflow from exceptional operating items	5	(12.7)	(9.2)
Cash inflow from operations	23	128.2	103.0
Interest received		1.0	1.1
Interest paid		(25.3)	(25.5)
Tax paid		(9.3)	(12.1)
Tax equalisation swap paid*		(11.4)	-
Cash inflow from operating activities		83.2	66.5
Purchase of subsidiaries		-	(8.1)
Proceeds from disposal of businesses		0.4	18.7
Capitalised internal development costs	14	(16.2)	(10.1)
Capitalised programme participation costs	14	(15.8)	(14.6)
Purchase of other intangible assets	14	(3.0)	(1.9)
Purchase of property, plant and equipment		(11.9)	(21.3)
Proceeds from disposal of property, plant and equipment		0.3	0.4
Cash outflow from investing activities		(46.2)	(36.9)
Dividends paid to Company's shareholders		(20.0)	-
Issue of equity share capital		-	1.8
Proceeds from borrowings	16	48.0	13.0
Repayments of borrowings		(79.3)	(46.2)
Cash outflow from financing activities		(51.3)	(31.4)
Net decrease in cash and cash equivalents		(14.3)	(1.8)
Cash and cash equivalents at start of period		67.3	64.9
Exchange (losses)/gains on cash and cash equivalents		(7.0)	0.9
Cash and cash equivalents at end of period	17	46.0	64.0

* Represents settlement paid under a tax equalisation swap designed to hedge the Group's tax exposure on foreign exchange movements.

NOTES TO THE INTERIM MANAGEMENT REPORT

For the six months ended 30 June 2009

1. General information

The condensed consolidated financial information presented in this document has not been audited or reviewed and does not constitute Group statutory accounts as defined in section 434 of the Companies Act 2006. Group statutory accounts for the year ended 31 December 2008 were approved by the Board of Directors on 2 March 2009 and delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under Section 237 of the Companies Act 1985.

2. Basis of preparation

The condensed consolidated financial information for the six months ended 30 June 2009 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union. The condensed consolidated financial statements should be read in conjunction with the Group's financial statements for the year ended 31 December 2008.

Except as disclosed below the condensed consolidated financial statements have been prepared using the same accounting policies adopted in the Group's financial statements for the year ended 31 December 2008.

The tax charge for the interim period has been calculated using the expected effective tax rates for each tax jurisdiction for the year ended 31 December 2009. These rates have been applied to the pre-tax profits made in each jurisdiction for the six months ended 30 June 2009. 

The following accounting standard became effective during the current period:

•  IFRS 8, 'Operating segments' (effective from 1 January 2009). IFRS 8 replaces IAS 14 and requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. Management has reassessed the operating segments in the light of IFRS 8 and concluded that the existing segments reported remain appropriate. The adoption of the standard has, however, resulted in additional disclosures for the six months ended 30 June 2009 and further additional disclosures will be required in the Group's financial statements for the year ended 31 December 2009.

The following amendment to an existing accounting standard became effective during the current period:

•  IAS 1 (Revised), 'Presentation of financial statements' (effective from 1 January 2009). The revised standard prohibits the presentation of items of income and expenses (that is 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from 'owner changes' in equity. All 'non-owner changes in equity' are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present two statements: an income statement and a statement of comprehensive income. The interim financial statements have been prepared under the revised disclosure requirements. In addition, IAS 1 (Revised) requires that certain derivative financial instruments which are not hedge accounted, be disclosed as current assets or liabilities as appropriate and not be classified as current or non-current according to their maturities. Accordingly, prior period balance sheets have been restated to reflect this reclassification.

  

2. Basis of preparation (continued)

The following amendments to existing standards and new interpretations became effective during the current period, but have had no significant impact on the Group's financial statements:

•  IFRS 1 (Revised), 'First time adoption of IFRS';

•  IFRS 2 (Revised), 'Share-based payment';

•  IAS 23 (Revised), 'Borrowing costs';

•  IAS 32 (Revised), 'Financial instruments: Presentation';

• IAS 39 (Revised), 'Financial instruments: Recognition and measurement';

•  IFRIC 13, 'Customer loyalty programmes';

•  IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction';

•  IFRIC 15, 'Agreements for construction of real estates';

•  IFRIC 16, 'Hedges of a net investment in a foreign operation'.

The following amendment to an existing standard has been published and is mandatory for the Group's future accounting periods. It has not been early adopted in these financial statements, but may have an impact on future financial statements when adopted:

•  IFRS 3 (Revised), 'Business combinations' and consequential amendments to IAS 27 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31 'Interests in joint ventures'. The revision to IFRS 3 will require the Group to record contingent consideration at fair value at the acquisition date and in subsequent periods remeasure such consideration at fair value through the income statement. The Group will also be required to expense certain transaction costs rather than include them as part of the consideration paid. The standard is applicable to business combinations occurring in accounting periods beginning on or after 1 July 2009.

The following amendments to existing standards and new interpretations have been published and are mandatory for the Group's future accounting periods. They have not been early adopted in these financial statements and are not expected to have a significant impact on future financial statements when adopted:

• IFRS 7 (Revised), 'Financial Instruments: Disclosures'. The amendment to the standard is still subject to endorsement by the European Union;

•  IAS 27 (Revised), 'Consolidated and separate financial statements' (Effective for annual periods beginning on or after 1 July 2009);

•  IAS 39 (Revised), 'Financial instruments: Recognition and measurement on eligible hedged items' (Effective for annual periods beginning on or after 1 July 2009);

•  IFRIC 17, 'Distributions of non-cash assets to owners' (Effective for annual periods beginning on or after 1 July 2009);

•  IFRIC 18, 'Transfers of assets from customers' (Effective prospectively to transfers of assets from customers received on or after 1 July 2009).

  

3. Segmental analysis

The Group's primary segments are its business segments.

	Aerospace Equipment £m	Sensing Systems £m	Defence Systems  £m	Total £m
Six months ended 30 June 2009:
Gross segment revenue	387.7	131.4	72.3	591.4
Inter-segment revenue	(2.8)	(2.2)	-	(5.0)
Revenue	384.9	129.2	72.3	586.4
Underlying operating profit*	111.3	19.8	9.7	140.8
Six months ended 30 June 2008:
Gross segment revenue	351.6	123.7	53.1	528.4
Inter-segment revenue	(0.3)	(1.5)	-	(1.8)
Revenue	351.3	122.2	53.1	526.6
Underlying operating profit*	104.5	22.6	8.4	135.5

* The reconciliation of underlying operating profit to statutory operating profit is shown in note 4.

	30 June 2009 £m	31 December 2008 £m	30 June 2008 £m
Aerospace Equipment	2,510.1	2,810.9	2,207.2
Sensing Systems	320.7	365.9	301.3
Defence Systems	175.6	205.8	149.8
Unallocated*	8.3	7.0	5.3
Total operating assets	3,014.7	3,389.6	2,663.6
Deferred tax assets	96.6	112.4	48.7
Fair value of tax equalisation swap	7.3	-	-
Current tax recoverable	0.4	0.7	8.4
Cash and cash equivalents	46.0	67.3	64.0
Total assets	3,165.0	3,570.0	2,784.7

* Unallocated operating assets primarily relate to software and property, plant and equipment of Meggitt PLC the parent company. 

  

4. Reconciliations between profit and underlying profit

Underlying profit is used by the Board to measure and monitor the underlying trading performance of the Group. It excludes certain items as shown below:

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Operating profit	128.6	101.7
Exceptional operating items (note 5)	11.5	6.0
Amortisation of intangibles acquired in business combinations (note 14)	35.2	28.7
Disposal of inventory revalued in business combinations	-	0.3
Financial instruments (note 6)	(34.5)	(1.2)
Adjustments to operating profit	12.2	33.8
Underlying operating profit	140.8	135.5
Profit before tax	100.1	75.8
Adjustments to operating profit per above	12.2	33.8
Underlying profit before tax	112.3	109.6
Profit for the period	74.6	57.5
Adjustments to profit before tax per above	12.2	33.8
Tax effect of adjustments to profit before tax	(5.9)	(12.4)
Adjustments to profit for the period	6.3	21.4
Underlying profit for the period	80.9	78.9

5. Exceptional operating items

Items which are significant by virtue of their size or nature and which are considered non-recurring are classified as exceptional items.

The Group announced as part of its 2008 annual results that, in response to the impact on its civil aerospace markets of declining air travel and difficulties for customers in obtaining finance for new commercial aircraft, it would take appropriate action to reduce costs. This cost reduction programme has commenced and is on track to deliver the expected savings of £50m annually by the end of 2010 at a one-off cost of £25m. Costs to date associated with the programme are treated as an exceptional operating item.

The integration of K&F Industries Holdings Inc ("K&F") has also continued during the period in line with expectations. 

Total cash spend in the period on all exceptional operating items was £12.7m (2008: £9.2m).

  

5. Exceptional operating items (continued)

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Group cost reduction programme	9.4	-
Integration of K&F Industries Holdings, Inc. ("K&F")	2.0	3.0
Integration of other businesses	0.2	4.4
Profit on disposal of businesses (note 13)	(0.1)	(1.4)
Total	11.5	6.0

6. Financial instruments

Although the Group uses foreign currency forward contracts to hedge against foreign currency exposures it has decided that the costs of meeting the extensive documentation required to be able to apply hedge accounting under IAS 39 ("Financial Instruments: Recognition and Measurement") are not merited. The Group's underlying profit figures exclude amounts which would not have been recorded if hedge accounting had been applied.

Where interest rate derivatives do not qualify to be hedge accounted, movements in the fair value of these derivatives are excluded from underlying profit. Where interest rate derivatives do qualify to be accounted for as fair value hedges, any difference between the movement in the fair values of the derivatives and in the fair value of fixed rate borrowings is excluded from underlying profit. Any gains or losses arising from the requirement to continue to measure fixed rate borrowings at fair value after the associated interest rate derivatives have matured or have been cancelled are also excluded from underlying profit.

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Movement in the fair value of foreign currency forward contracts	36.9	1.2
Retranslation of net foreign currency assets and liabilities at spot rate	(3.5)	(0.8)
Movement in the fair value of interest rate derivatives not hedge accounted	2.7	-
Movement in the fair value of associated fixed interest rate borrowings	(1.6)	0.8
Total gain	34.5	1.2

7. Finance income

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Interest on bank deposits	0.5	0.3
Unwinding of interest on other receivables	0.6	0.5
Expected return on retirement benefit scheme assets	13.1	15.0
Other finance income	0.3	0.1
Total	14.5	15.9

  

8. Finance costs

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Interest on bank borrowings	17.4	19.1
Interest on USD 250 million senior notes	4.5	3.4
Interest on finance lease obligations	0.2	0.2
Unwinding of interest on provisions (note 18)	0.6	0.8
Unwinding of interest on retirement benefit scheme liabilities	19.7	17.6
Other finance costs	0.6	0.7
Total	43.0	41.8

9. Tax

The tax charge for the period has been calculated using the expected tax rate for the year for each tax jurisdiction. These rates have been applied to the pre-tax profits made in each jurisdiction for the six months to 30 June 2009.

10. Earnings per share

The calculation of earnings per ordinary share is based on profits of £74.6m (2008: £57.5m) and on the weighted average 669.9m (2008: 658.7m) ordinary shares in issue during the six months to 30 June 2009.

The calculation of diluted earnings per ordinary share is based on the same profits as used in the calculation of basic earnings per ordinary share. The weighted average number of ordinary shares of 670.0m (2008: 660.3m) used in the calculation is based on the weighted average number used in the calculation of basic earnings per share adjusted for the effect of options.

Underlying earnings per share is based on underlying profit (see note 4) and is calculated below:

	Six months ended 30 June 2009 pence	Six months ended 30 June 2008 pence
Basic earnings per share	11.1	8.7
Add back effects of:
Exceptional operating items	1.3	0.6
Amortisation of intangibles acquired in business combinations	3.4	2.8
Financial instruments	(3.7)	(0.1)
Adjustments to basic earnings per share	1.0	3.3
Underlying earnings per share	12.1	12.0

  

11. Dividends

The Directors have declared an interim net dividend of 2.70 pence per ordinary share (2008: 2.70 pence) which will be paid on 2 October 2009 to shareholders on the register on 14 August 2009. A scrip dividend will be available for shareholders who wish to take the dividend in the form of shares rather than cash and the last date for receipt of forms of election for the scrip dividend will be 18 September 2009. As the dividend was approved by the Directors after 30 June 2009 the dividend cost of £18.4m (2008: £17.9m) is not recorded as a liability at 30 June 2009.

12. Related party transactions

 

The remuneration of the key management personnel of the Group including executive directors is set out below:

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Wages and salaries	2.0	1.9
Social security costs	0.5	0.3
Pension costs	0.2	0.1
Share based payments	1.5	1.0
Total	4.2	3.3

13. Disposal of businesses

On 16 January 2009 the Group sold a small product line within its Aerospace Equipment segment for a consideration of £0.4m. On 3 January 2008 the Group completed the disposal of S-TEC Corporation for a net consideration of £15.6m.

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Net assets disposed of	0.3	13.2
Currency translation loss transferred from equity	-	1.0
	0.3	14.2
Net consideration	0.4	15.6
Profit on disposal of businesses (note 5)	0.1	1.4

  

14. Intangible assets

	Goodwill	Development costs	Programme participation costs	Other intangible assets
	£m	£m	£m	£m
At 1 January 2008	1,067.8	57.7	121.8	741.7
Exchange rate adjustments	2.6	2.0	(0.1)	0.7
Businesses acquired	5.1	-	-	4.3
Additions	-	10.1	14.6	1.9
Amortisation charge (note 23)	-	(1.5)	(6.1)	(30.0)*
At 30 June 2008	1,075.5	68.3	130.2	718.6
At 1 January 2009	1,382.7	97.8	180.4	901.6
Exchange rate adjustments	(141.8)	(10.5)	(18.0)	(94.1)
Additions	-	16.2	15.8	3.0
Amortisation charge (note 23)	-	(3.6)	(9.0)	(36.7)*
At 30 June 2009	1,240.9	99.9	169.2	773.8

* Amortisation of other intangible assets includes £35.2m (2008: £28.7m) of amortisation of intangible assets arising in business combinations which has been excluded from underlying profit (note 4).

Goodwill is tested for impairment annually or more frequently if there is any indication of impairment. A full impairment review was conducted for the year ended 31 December 2008 and no impairment charge was required.

15. Property, plant and equipment

	30 June 2009 £m	30 June 2008 £m
At 1 January	245.2	191.2
Exchange rate adjustments	(20.6)	1.9
Businesses acquired	-	0.7
Additions	10.5	20.0
Disposals	(0.3)	(0.4)
Depreciation charge (note 23)	(14.6)	(12.1)
At 30 June	220.2	201.3

  

16. Bank and other borrowings

	30 June 2009 £m	30 June 2008 £m
At 1 January	1,108.0	874.8
Exchange rate adjustments	(141.7)	8.7
Businesses acquired	-	0.8
Proceeds from bank and other borrowings	48.0	13.0
Repayments of bank and other borrowings	(78.6)	(46.2)
Other non-cash movements	(0.4)	(6.3)
At 30 June	935.3	844.8
Disclosed as:
Current	11.9	11.0
Non-current	923.4	833.8
At 30 June	935.3	844.8

17. Net debt

	30 June 2009 £m	30 June 2008 £m
Bank and other borrowings (note 16)	935.3	844.8
Obligations under finance leases - current	0.9	0.7
Obligations under finance leases - non-current	4.9	4.8
Less: Cash and cash equivalents	(46.0)	(64.0)
Total	895.1	786.3

18. Provisions

	30 June 2009 £m	30 June 2008 £m
At 1 January	109.3	92.0
Exchange rate adjustments	(10.9)	0.1
Businesses acquired	-	0.1
Charge to income statement - net operating costs	0.2	0.9
Charge to income statement - finance costs (note 8)	0.6	0.8
Utilised	(9.2)	(14.3)
At 30 June	90.0	79.6
Disclosed as:
Current	38.3	14.3
Non-current	51.7	65.3
At 30 June	90.0	79.6

  19. Retirement benefit obligations

	30 June 2009 £m	30 June 2008 £m
The amounts recognised in the balance sheet are as follows:
Fair value of scheme assets	435.7	441.0
Fair value of scheme liabilities	(678.3)	(629.5)
At 30 June	(242.6)	(188.5)
Analysis of retirement benefit obligations:
Pension schemes	(180.9)	(138.5)
Healthcare schemes	(61.7)	(50.0)
At 30 June	(242.6)	(188.5)
Key financial assumptions:
UK Schemes:
Discount rate	6.30%	6.20%
Salary inflation rate	4.30%	4.90%
Current life expectancy - Male aged 65 (years)	20.1 to 21.5	20.1 to 21.5
US Schemes:
Discount rate	6.50%	6.75%
Salary inflation rate	4.00%	4.00%
Current life expectancy - Male aged 65 (years)	18.8	18.8

Healthcare cost increases for US schemes are assumed to be 8.5% for 2009 trending down to 5.0% by 2016 (2008: 9.5% for 2008 trending down to 5.0% by 2013). There have been no changes to mortality or healthcare assumptions from those used at 31 December 2008.

The current service cost recognised in the income statement for the period was £6.1m (2008: £6.8m). Employer cash contributions paid during the period were £17.2m (2008: £15.6m).

20. Contingent liabilities

The Company has given guarantees in respect of uncommitted credit facilities for certain of its subsidiaries, some property leases, other leasing arrangements and the performance by some current and former subsidiaries of certain contracts. Also, there are similar guarantees given by certain of the management companies. The fair value of these guarantees is not considered to be significant.

The Company and various of its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of business. The directors do not anticipate that the outcome of these proceedings, actions and claims, either individually or in aggregate, will have a material adverse effect upon the Group's financial position.

21. Share capital

	30 June 2009 No. m	30 June 2008 No. m
Allotted and fully paid:
At 1 January	665.6	658.3
Issued on exercise of executive and sharesave options	-	1.1
Scrip dividends	14.7	-
At 30 June	680.3	659.4

22. Capital commitments

	30 June 2009 £m	30 June 2008 £m
Intangible assets	0.9	1.2
Property, plant and equipment	5.1	6.1
Total	6.0	7.3

23. Cash inflow from operations

	Six months ended 30 June 2009 £m	Six months ended 30 June 2008 £m
Profit for the period	74.6	57.5
Adjustments for:
Tax	25.5	18.3
Depreciation (note 15)	14.6	12.1
Amortisation (note 14)	49.3	37.6
Profit on disposal of businesses (note 13)	(0.1)	(1.4)
Finance income (note 7)	(14.5)	(15.9)
Finance costs (note 8)	43.0	41.8
Financial instruments (note 6)	(34.5)	(1.2)
Retirement benefit deficit payments	(11.1)	(8.8)
Changes in working capital	(18.6)	(37.0)
Total	128.2	103.0

24. Approval of interim management report

The interim management report was approved by the Board of Directors on 3 August 2009.

25. Availability of interim management report

The interim management report will be available on our website www.meggitt.com from 4 August 2009. Paper copies of the report will be available to the public from the Company's registered office at Atlantic House, Aviation Park West, Bournemouth International Airport, Christchurch, Dorset, BH23 6EW.

Risks and uncertainties

The Group disclosed in its 2008 Annual Report the principal risks and uncertainties which the Group is exposed to. These are expected to continue to be relevant for the remaining six months of the year.

The risks include those arising from reduced demand for the Group's products, market competition, legal and regulatory matters, environmental obligations, equipment fault, fixed price contracts, exchange rate movements, credit risk, interest rate risk, retirement benefit plan funding, acquisitions, supply chain management, renewal of debt facilities and the maintenance of key employees. Further details can be found in the "Risks and Uncertainties" section of the Annual Report 2008 on pages 15 to 17 together with details of certain strategies adopted to mitigate any exposures.

  

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors confirm that to the best of their knowledge:

this condensed consolidated interim financial information has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union;

the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

An indication of important events that have occurred during the six months ended 30 June 2009 and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

Material related party transactions in the six months ended 30 June 2009 and any material changes in the related party transactions described in the last annual report.

By order of the Board:

T Twigger	S Young
Chief Executive	Group Finance Director
3 August 2009	3 August 2009

- E N D S -

ENDIR BLGDIXSGGGCX

---

Related Shares:

MGGT.L