Cutting costs

Meggitt has announced first-quarter trading in line with expectations, but warned that the overall outlook for 2009 remains challenging.

In 2008, the Bournemouth-based specialist in aerospace equipment, high-performance sensors, defence training and combat systems recorded double-digit growth in both orders and underlying earnings. Civil aerospace revenues increased by 31 per cent, military revenues by 35 per cent and energy revenues were up 21 per cent.

However, between December 2008 and March 2009 orders increased by less than four per cent following difficult market conditions. The orders for this period came predominantly from the military sector and included air data systems for the Apache attack helicopter, training-systems upgrades for the US Army and follow-on electronic cooling systems for the M1A2SEP Abrams tank.

Given continued economic uncertainties, the group said the year ahead would prove challenging. In civil aerospace, air traffic has been forecast to decline by 5-6 per cent in 2009 and to stay flat or increase slightly in 2010.

As a result, the group has introduced a number of cost-cutting measures, including reductions in overtime, a cut to pension costs, lower discretionary spend and a management pay-freeze.

The group also said that civil headcount will be cut by 600, a 15 per cent reduction of mid-2008 levels.

These initiatives are expected to result in savings of £20m over the year, increasing to annual reductions of £50m by the end of 2010.

Sir Colin Terry, chairman of Meggitt, said: ‘Based on current market indicators and at constant 2008 exchange rates, the group expects revenues in 2009 to be close to those achieved in 2008. The phasing of profit in the year is expected to be similar to 2008, with currency gains helping more in the first half and cost-cutting and easier trading comparators helping more in the second half.

‘There is good forward visibility of financing and significant bank-facility headroom, while Meggitt remains well within its bank covenants. As a consequence, the board is recommending a three per cent increase in the full-year dividend to 8.45p and is confident of delivering full-year results in line with its expectations.’