Meggitt, the aerospace and defence components supplier, signalled growing uncertainty over the second half of the year by suspending its interim dividend after swinging to a first-half loss.
Tony Wood, chief executive, said the outlook for any recovery in air passenger traffic was more uncertain now than a few weeks ago as airlines were being forced to cancel planned capacity increases due to new outbreaks of the coronavirus. The aerospace industry could take little comfort from the recent return to flying in China, the first country to ground its jets as a result of the pandemic.
In Europe and the US “it is becoming more uncertain on a daily basis,” he said in an interview with the Financial Times. “If I had been guiding investors a month or six weeks ago I would have been more positive than I am today.”
However, he insisted that Meggitt was on track to deliver the £400m to £450m in cost savings announced earlier this year. “We are bang on target,” he said. Despite the uncertainty, the group had been “focused very much on those things we can control”.
By the end of 2020, Meggitt expected to have shed more than 20 per cent of its global workforce, against a target of 15 per cent. This was expected to deliver an annual recurring reduction in the cost base of £130m to £140m.
The comments came as the group on Tuesday reported a pre-tax loss of £368.4m for the first six months against a profit of £72.6m a year earlier, after it was hit by one-off charges of £373.2m in impairment charges and asset writedowns.
Excluding these charges, underlying profit fell 41 per cent to £85.5m, with earnings per share down a similar level to 8.7p. Underlying operating profit of £102m was ahead of market expectations.
Orders fell close to a third amid a virtual halt in global air travel prompted by the pandemic, with deliveries from Airbus and Boeing — the world’s two largest aircraft makers and big Meggitt customers — down by 50 per cent and 71 per cent respectively.
Group revenues were down 14 per cent to £917m.
Meggitt said its defence business, accounting for 43 per cent of revenue, had been more resilient and helped to offset the impact of the coronavirus crisis on the civil aerospace division.
The decision not to pay an interim dividend — on top of suspending the final dividend for 2019 earlier this year — was made to preserve cash.
The aim was to deliver a cash neutral performance by the end of this year, stemming the free cash outflow recorded in the first half of £122m, which was below market expectations. This compared with an inflow of £49m in the first half of last year and was offset by an inflow of £110m from the disposal of Meggitt Training Systems.
Mr Wood said achieving a neutral cash performance would be “the first milestone . . . that leads you back to our ability to start considering paying a dividend again”.
Analysts had been expecting Meggitt to be marginally cash positive this year and the revision helped to push the shares down in mid-day trading by 6.5 per cent to 280p. However, analysts said the cash neutral target was reassuring and had helped to assuage balance sheet concerns.
While debt increased from £911m to just over £1bn in the first half, it was marginally lower than the £1.12bn in the same period of last year.
The group also said that under its worst-case scenario — involving a 15 per cent reduction in civil aerospace revenues next year — the group had sufficient financing to meet its covenants and interest cover obligations. Mr Wood rejected speculation that Meggitt would need to raise new equity in the near future.
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