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Meggitt says coronavirus, 737 Max suspension to slow growth

By Sean Farrell

Date: Tuesday 25 Feb 2020

Meggitt says coronavirus, 737 Max suspension to slow growth

(Sharecast News) - Meggitt said the suspension of Boeing's 737 Max aircraft and the impact of coronavirus would slow revenue growth in 2020 as the aerospace-focused engineer reported an 11% increase in 2019 profit.
Underlying pretax profit for the year to the end of December rose to ?370.3m from ?334.8m as organic revenue increased 8% to ?2.28bn. Statutory pretax profit rose 33% to ?286.7m as reported revenue rose 9%.

Meggitt said organic revenue growth would be between 2% and 4% in 2020 because of the production halt to Boeing's 737 Max and the impact of coronavirus, also known as COVID-19, on supply chains and the wider economy.

The FTSE 100 company said its 2019 results reflected strong performance in its markets. Organic revenue rose 8% in civil aerospace, 11% in defence and 10% in energy. Meggitt increased its annual dividend by 5% to 17.5p a share.

Meggitt became the latest UK company to warn about the effects of coronavirus after a global selloff of equities on Monday. The company also said Chairman Nigel Rudd would step down after five years.

"A number of headwinds have emerged in recent months as we look ahead to 2020 and beyond: the halting of production of the 737 Max and uncertainty on the timing of its return to service is set to dampen OE growth in 2020," Meggitt said. "In the second half of 2019 the rate of air traffic growth, an important driver of our aftermarket business, started to soften and the forecast for 2020 is below the growth trend in recent years ... Noting the impact of SARS in 2003 and H1N1 in 2009, the outbreak of COVID-19 is likely to soften global air traffic growth."

Meggitt shares fell 4.6% to 567p at 08:22 GMT.

Free cash flow increased by ?100m to ?267.8m based on operating performance, proceeds from property transactions and a pension payment in 2018. Free cashflow will lower in 2020 because of spending on a new headquarters and tax and the non-recurrence of 2019 property-related cash.

Meggitt said it expected 2021 organic revenue growth in the low to mid single digits and operating margins between 18.5% and 19% based on a gradual return to service and production of the 737 Max.

Rudd is stepping down as chairman to spend more time on his business and other interests. He will stay on until his replacement is appointed but will not stand for elections at the 2021 annual meeting.


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