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UPDATE 2-Engineering group Meggitt axes dividend as profit slumps

Tue, 8th Sep 2020 07:49

* Suspends 2020 interim dividend

* Overall sales drop 14%, but defence sales grows 7%

* Expects to be free cash flow neutral for full year

* Shares down about 3% after having earlier risen 5%
(Adds analyst comment, details on defence business)

By Pushkala Aripaka

Sept 8 (Reuters) - British engineering company Meggitt
cancelled its interim dividend on Tuesday as it posted
a 37% drop in first-half profit after the coronavirus crisis hit
its business supplying parts to aerospace manufacturers.

The COVID-19 pandemic, which dragged the airline industry to
a standstill, led to a 27% drop in sales at Meggitt's civil
aerospace business, which counts planemakers Airbus and
Boeing as customers.

However the company's defence business, which accounted for
43% of group sales, saw a 7% organic growth in sales on strong
demand for aeroplane and helicopter parts to customers in the
United States.

Meggitt, which paid an interim dividend of 5.55 pence last
year, said the decision to scrap the current payout would help
it retain cash, manage its debt and preserve flexibility.

Its shares, which have more than halved in value this year,
were down 2.9% at 291.1 pence at 0828 GMT, having risen as much
as 5% earlier.

"While it's too early to precisely predict the trajectory of
the return to prior levels of activity in civil aerospace, we
continue to focus on ensuring that the business is well
positioned to benefit from the recovery," Chief Executive
Officer Tony Wood said.

Meggitt, which supplies jet parts such as braking systems,
sensors and fuel systems, and provides follow-on services, has
been on a cost-cutting drive early this year. It said in April
it would axe about 1,800 jobs.

On Tuesday, it said the job cuts were "substantially"
completed, adding that it still expected to deliver cash savings
of 400-450 million pounds ($524-590 million) this year.

However, the Coventry-based company said it expects to be
free cash flow neutral for the full year as some of its
equipment would remain unsold into early 2021.

"We regard the inventory reduction slipping into FY21
largely as a matter of timing. A possible long-term negative is
a potential increase in pension-deficit funding," Jefferies
analysts said.

Meggitt's underlying operating profit fell to 102 million
pounds in the six months to June, while overall revenue dropped
14% to 917 million pounds.

($1 = 0.7631 pounds)

(Reporting by Pushkala Aripaka in Bengaluru; Editing by
Subhranshu Sahu and Pravin Char)

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