MEGGITT PLC Company information Meggitt PLC Atlantic House ANNUAL REPORT AND ACCOUNTS| Aviation Park West Bournemouth International Airport Christchurch Dorset BH23 6EW United Kingdom T +44 (0) 1202 597 597 F +44 (0) 1202 597 555 www.meggitt.com 2014 Registered in England and Wales Company number 432989 Smart engineering is second nature to us. ANNUAL REPORT AND ACCOUNTS 2014 93987_Cover.indd 1 04/03/2015 16:10 Quick reference Contents What is Meggitt? How did we 01-41 Strategic report 01 Introduction perform in 2014? 02 Group overview 03 Capabilities 04 Financial highlights 05 Chairman’s statement 02 04 06-07 Chief Executive’s review 31 08-09 Group strategy 10-12 Market review 13-17 Meggitt divisions 18-19 The Meggitt Production System 20-21 Talent What is our What are our 22-23 Technology strategy and markets and 24-26 Principal risks and uncertainties 27-30 Key performance indicators business model? what drives 31-37 Chief Financial Officer’s review them? 38-41 Corporate responsibility 06 10 08 42-79 Governance reports 43 Chairman’s introduction 44-45 Board of directors 46-50 Corporate governance report How do we What are our key 51-53 Audit Committee report 54 Nominations Committee report manage risk? performance 55-75 Directors’ remuneration report indicators? 76-79 Directors’ report 24 27 80-140 Financial statements Group financial statements 80-84 Independent auditors’ report to the members of Meggitt PLC 85 Consolidated income statement How do we Who runs Meggitt 86 Consolidated statement of comprehensive income perform as and how do we 87 Consolidated balance sheet 88 Consolidated statement of changes in equity corporate reward them? 89 Consolidated cash flow statement citizens? 90-132 Notes to the consolidated financial statements 38 44 Company financial statements 55 133 Independent auditors’ report to the members of Meggitt PLC 134 Company balance sheet 135-140 Notes to the financial statements of the Company Smart engineering is second nature to us High pressure air travelling through the geometry of bleed air valves cast or 141-144 Supplementary information machined in the traditional way is 141 Five-year record Designed by Hybrid Creative extremely noisy, something that will be 142 Investor information Typeset by Whitehouse Associates familiar to those who live near airports. 143-144 Glossary Printed by Pureprint In future, air could flow more quietly The papers used for the production of this report are through a radical new concept from certified by the Forestry Stewardship Council® and are Meggitt based on a fir-cone design, an elemental chlorine free. They are produced at paper organic structure made possible through mills certified to ISO 14001 and registered to EMAS. additive layer manufacturing. The bold use of innovative processes forms part of Meggitt’s centrally coordinated and highly Download the 2014 Meggitt PLC annual report focused technology strategy. and accounts from www.meggitt.com 93987_Cover.indd 2 04/03/2015 16:10 STRATEGIC REPORT GOVERNANCE REPORTS FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 1 Meggitt’s smart engineering for Operations excellence at the core extreme environments attracted Across the Group, MPS has strengthened the an unprecedented number of foundations for greater operations excellence, giving us a comprehensive but flexible framework programme wins in the current civil for continuous improvement. On-time-delivery and aerospace cycle of new platform quality are up in many of our businesses as a result. launches, making 2014 a year of MPS’ new global standards make our core stronger, accelerating new product creating a secure platform for growth. (See page 18). introduction ready to meet the manufacturing ramp-up that will Making more of our talent drive financial returns for the next MPS is also reshaping our culture. Our new operating system has renewed employee decade and more. confidence and commitment. Increasing numbers of operators, supervisors and managers have the We will continue to focus on the industrialisation of tools and processes they need to make a very new products in 2015, supported by the widening personal contribution to improving the business implementation of the Meggitt Production System and leaders now have more time to lead, spotting (MPS). This combination of tried-and-tested opportunities for growth and innovation. business improvement methodologies tailored to (See page 20). Meggitt is fundamental to defining how we work throughout the Group. A new wave of technology The operational savings and productivity The system consists of six demanding phases, with improvements won by MPS will allow us the final Silver and Gold certifications delineating to invest more in innovation—what we make operations excellence as a defining, sustainable and how we make it. competitive advantage. While achieving gains in productivity and employee engagement wherever We’re looking ahead not only to product MPS has been introduced, we are at the beginning innovation but advances in how we make products. of a journey that will extend from the factory floor We are already investigating a new approach to into every function and that will touch every manufacturing engineering, taking the first steps Meggitt employee. toward developing the factories of the future. (See page 22). 93987_p01-04.indd 1 04/03/2015 16:21 2 MEGGITT PLC REPORT AND ACCOUNTS 2014 Group overview Headquartered in the UK, Meggitt PLC is a global Revenue by market Total revenue (£ millions) engineering group specialising in smart engineering for extreme environments— components and sub-systems providing critical Civil aerospace functionality in challenging applications within 741.2 | 48% civil aerospace, military and energy markets. Military 1,553.7 539.4 | 34% Over 10,500 people are employed across Energy and other manufacturing facilities in Asia, Europe and 273.1 | 18% North America and in sales offices in Brazil, India and the Middle East. Our civil aerospace interests cover large commercial jets, regional aircraft, business jets, Revenue by destination Total revenue (£ millions) helicopters and general aviation. USA Our military markets encompass all aircraft types, 771.1 | 49% land systems, naval platforms and aerial, land- UK based and marine threat simulation for personnel 152.4 | 10% training and weapons systems development. 1,553.7 Rest of Europe Training extends to law enforcement and security 338.1 | 22% organisations. Rest of World 292.1 | 19% The Group’s growing presence in energy is driven by core capabilities in control valves for industrial gas turbines; heat transfer engineering for oil and gas platforms and offshore gas processing and Employees by region Number of employees storage; and sensing and monitoring capabilities deployed in rotating power generation equipment. USA These promote safety and reduce maintenance 5,385 | 50% costs, fuel consumption and carbon emissions. UK 2,847 | 26% The transfer of Meggitt’s core technologies to 10,823 Mainland Europe other markets includes sensing materials for 1,554 | 14% breakthrough medical devices and the test and Rest of World measurement industry worldwide. 1,037 | 10% Total R&D as a % of revenue 14 9.5 13 8.2 12 7.6 11 7.6 10 7.2 93987_p01-04.indd 2 04/03/2015 16:21 STRATEGIC REPORT GOVERNANCE REPORTS FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 3 Capabilities Just some of the smart sub-systems and critical components created by Meggitt. PR TECT For the full picture, take our Meggitt-in-a-Minute e-tour. Aircraft safety and security Avionics Combat support www.meggitt.com/e-tour BULLET Composites Fire protection Fuel containment USA 771.1 | 49% UK Pressure up to 152.4 | 10% Rest of Europe 338.1 | 22% Rest of World 292.1 | 19% Heat transfer engineering Ice protection Polymer seals Power products Precision micro metal Sensing and health engineering monitoring STRUCTURAL DESIGN MATERIALS THERMAL TECHNOLOGY MANAGEMENT Small arms training systems Thermal management Wheels, brakes and and fluid control brake control 93987_p01-04.indd 3 04/03/2015 16:21 4 MEGGITT PLC REPORT AND ACCOUNTS 2014 Financial highlights Meggitt’s 2014 results continued to demonstrate the breadth and resilience of its portfolio during a period when our suite of products is being substantially refreshed. Our equipment is installed on over 63,000 aircraft worldwide—a growing fleet— with a predictable aftermarket revenue stream stretching out for many decades. Our excellent win rate on the many new aircraft programmes entering service, which drove our investment in research and development of £148.3m (9.5% of revenue), gives us confidence in making good progress in the years to come. Revenue Underlying profit before tax Free cash flow (£ millions) (£ millions)1 (£ millions) 1,553.7 328.7 146.8 14 1,553.7 14 328.7 14 146.8 13 1,637.3 13 377.8 13 110.4 12 1,605.8 12 366.0 12 182.4 11 1,455.3 11 325.3 11 193.0 10 1,162.0 10 263.7 10 163.0 i See page 31 i See page 32 i See page 35 Underlying earnings per share Dividends per share Return on trading assets (pence)1 (pence) (%) 32.4 13.75 26.5 14 32.4 14 13.75 14 26.5 13 37.5 13 12.75 13 36.0 12 36.5 12 11.80 12 40.8 11 32.1 11 10.50 11 39.4 10 28.6 10 9.20 10 35.4 i See page 34 i See page 34 i See page 28 1 The definition of ‘underlying’ is provided in notes 10 and 15 to the consolidated financial statements on pages 103 and 106 respectively. 93987_p01-04.indd 4 04/03/2015 16:21 STRATEGIC REPORT GOVERNANCE REPORTS FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION 5 Chairman’s statement Meggitt was one of the first UK companies to commit to “comprehensive ethics policies.