0900 Meggitt A&R Covers AW - AnnualReports.co.uk€¦ · An international live-ﬁ re and simulation training and combat systems business positioned to meet the challenges of modern

01_RUNNING HEADER

02_Intro Paragraph

ANNUAL REPORT AND ACCOUNTS 2008

MEGGITT PLC REGISTERED OFFICE

Meggitt PLC

Atlantic House

Aviation Park West

Bournemouth International Airport

Christchurch

Dorset BH23 6EW

United Kingdom

T +44 (0) 1202 597 597

F +44 (0) 1202 597 555

EUROFIGHTER TYPHOON

Eurofi ghter Typhoon, the world’s most advanced

swing-role combat aircraft, is fl own by the air

forces of Britain, Germany, Italy, Spain and

Austria and has been ordered by the Kingdom

of Saudi Arabia. The aircraft carries Meggitt

sensors, seals, ducts and connectors, engine

fi re detectors and pneumatics, air data

transducers, crash survivable memory unit and

wheels and carbon brakes. Meggitt integrated

the aircraft landing gear sub-systems, including

control and comprehensive monitoring.

ME

GG

ITT

PL

C A

NN

UA

L R

EP

OR

T A

ND

AC

CO

UN

TS

20

08

Overall revenues increased by 32% to £1,162.6 million (2007: £878.2 million) refl ecting strong organic1

growth of 10%, favourable currency movements and the inclusion of a full year of the K&F businesses.

The Board’s preferred measure of the trading performance of the Group is underlying profi t. Underlying

operating profi t for the year was up 37% at £296.4 million (2007: £216.3 million) and underlying return on

sales increased to 25.5% (2007: 24.6%). On an organic basis, underlying operating profi t increased by10%.

Underlying profi t before tax increased by 36% to £243.3 million (2007: £179.0 million).

Cash fl ow from operations before exceptional operating costs was 100% of underlying operating profi t at

£295.4 million (2007: 99% at £214.3 million).

After tax at 28.0% (2007: 27.5 %), underlying earnings per share increased 20% to 26.5 pence (2007: 22.1 pence).

On a statutory basis, profi t before tax increased by 13% to £119.3 million (2007: £105.4 million) and earnings

per share increased by 3% to 15.0 pence (2007: 14.6 pence). The recommended fi nal dividend of 5.75 pence

(2007: 5.75 pence) represents a total dividend for the year of 8.45 pence (2007: 8.20 pence), an increase of 3%.

The defi nition of “underlying” is provided in

note 10 to the fi nancial statements on page 66.

1 Organic growth is calculated throughout this

report by including K&F results (unaudited) in

2007 for the period prior to acquisition and by

adjusting 2008 results to 2007 exchange rates

to give a like-for-like comparison.

2 Comparative data for dividends and earnings

per share in 2004, 2005 and 2006 has been

adjusted for the bonus element of the rights

issue approved by shareholders in 2007.

1,162.6

8.45 26.5

243.3 295.4REVENUE (£ MILLIONS)

DIVIDENDS PER SHARE (PENCE)2 UNDERLYING EARNINGS PER SHARE (PENCE)2

UNDERLYING PROFIT BEFORE TAX (£ MILLIONS) CASH INFLOW FROM OPERATIONS BEFORE

EXCEPTIONAL OPERATING COSTS (£ MILLIONS)

FINANCIAL HIGHLIGHTS

MEGGITT AT A GLANCE OVERLEAF

1,162.6

878.2

670.3

616.3

476.604

05

06

07

08

8.45

8.20

7.36

6.59

5.9904

05

06

07

08 26.5

22.1

19.1

17.1

14.904

05

06

07

08

243.3

179.0

132.7

116.3

90.304

05

06

07

08 295.4

214.3

140.3

138.4

111.004

05

06

07

08

01_RUNNING HEADER

02_Intro Paragraph



Meggitt PLC

Atlantic House

Aviation Park West


Christchurch

Dorset BH23 6EW

United Kingdom

T +44 (0) 1202 597 597

F +44 (0) 1202 597 555

EUROFIGHTER TYPHOON












ME

GG

ITT

PL

C A

NN

UA

L R

EP

OR

T A

ND

AC

CO

UN

TS

20

08
























1,162.6

8.45 26.5







1,162.6

878.2

670.3

616.3

476.604

05

06

07

08

8.45

8.20

7.36

6.59

5.9904

05

06

07

08 26.5

22.1

19.1

17.1

14.904

05

06

07

08

243.3

179.0

132.7

116.3

90.304

05

06

07

08 295.4

214.3

140.3

138.4

111.004

05

06

07

08

MEGGITT AT A GLANCE

AEROSPACE EQUIPMENT SENSING SYSTEMS DEFENCE SYSTEMS

CAPABILITIES

• Wheels, brakes and brake control systems

• Thermal management

• Fluid control

• Safety systems

• Polymer solutions

CAPABILITIES

• High performance sensing in extreme

environments

• Aero-engine and industrial gas turbine condition-

monitoring systems

CAPABILITIES

• Integrated training systems

• Precision-mechanical combat systems

MARKETS

• Civil aerospace: large, regional and business

jets and general aviation

• Military: fi xed wing and rotary aircraft, ground

vehicles, ships, unmanned air vehicles

• Energy

• 37% of sales to OEMs, 63% to the aftermarket

READ MORE ON PAGE 20

MARKETS

• Civil aerospace: large, regional and business jets,

general aviation and space

• Military: fi xed wing and rotary aircraft, ships

• Energy

• Medical, automotive, general industrial



MARKETS

• Military aircraft and ground vehicles

• Armed forces, law enforcement and security

organisations



GROUP STRATEGY

Deliver sustainable returns through focused leadership positions in aerospace,

defence, energy and other specialist extreme environments

Be the leading provider of smart engineering for extreme environments

GROUP STRATEGIC OBJECTIVES

Invest in components and

sub-systems with high

technology content and

aftermarket positions

Leverage Group capabilities Achieve operational excellence Satisfy our customers and

strengthen our partnerships

Maintain a culture of strong

performance

66% 23% 11%PERCENTAGE OF GROUP REVENUE

A group of leading electro-mechanical engineering

businesses whose products are on virtually

every western aircraft in service, ensuring stable

aftermarket revenues over the long term.

PERCENTAGE OF GROUP REVENUE

One of the world’s leading providers of high

performance sensing and condition-monitoring

solutions for high value rotating machinery and

other assets.


An international live-fi re and simulation training

and combat systems business positioned to meet

the challenges of modern confl ict.

51%ORIGINAL EQUIPMENT


49%AFTERMARKET


• Strong market and technology positions

• Continued investment in the business

• No major exposure to any single platform

or customer

• Broad geographic footprint

Headquartered in the United Kingdom, Meggitt PLC is an

international group specialising in extreme environment products

for the aerospace, defence and energy sectors and related markets.

It employs over 8,000 people.

Our consistent record of strong fi nancial performance comes

from businesses balanced across market segments; innovative

products that generate stable, long-term aftermarket revenues;

organic growth reinforced by acquisitions; and investment in

people, facilities, operations and strategic technology development.

Our companies have access to an evolving Group infrastructure

that enables them to work together, combining talent and resources

to benefi t customers and operations.

EMPLOYEES BY GEOGRAPHICAL

LOCATION

2,341 UK

4,371 North America

1,179 Mainland Europe

252 Rest of world

8,143

BALANCED PORTFOLIO

46%CIVIL


39%MILITARY


15%SPECIALIST OTHER


Location of Meggitt facility

Financial statements 105Meggitt PLC Report and accounts 2008

KEY DATES

3 March 2009

Preliminary results

23 April 2009

AGM and interim

management statement

4 August 2009

Interim results

30 October 2009

Interim management statement

CONTACT US

01202 597 597Andy Mann, Head of Communications & Investor Relations

[email protected]

www.meggitt.comLatest Meggitt share price with a 25-minute time delay

Design SAS sasdesign.co.uk

Print St. Ives Westerham Press

Paper This report is printed on paper that

meets international environmental standards,

contains elemental chlorine-free virgin pulp,

obtained from sustainably managed forests

Images: Eurofighter Typhoon courtesy of BAE

Systems. Irsching 4 test power plant courtesy

of Siemens. Gulfstream G650 courtesy of

Gulfstream Aerospace Corporation. Abrams

tank courtesy of General Dynamics.

ADVISORS

Principal clearing bankers

HSBC Bank plc

Barclays Bank PLC

Bank of America

Merchant bankers

N M Rothschild & Sons Limited

Auditors

PricewaterhouseCoopers LLP

Solicitors

Clifford Chance LLP

Brokers

Merrill Lynch International

Registrars

Computershare Investor Services PLC

FINANCIAL CALENDAR

Year-end 31 December

Interim management statement 30 October

Interim dividend payment 2 October

Interim scrip dividend

elections by 18 September

Interim dividend record date 14 August

Interim dividend ex-dividend 12 August

Interim results 4 August

Interim period end 30 June

Final dividend payment 8 May

AGM 23 April

Interim management statement 23 April

Final scrip dividend elections by 21 April

2008 annual report published End March

Final dividend record date 13 March

Final dividend ex-dividend 11 March

Preliminary results for year

ended 31 December 2008 3 March

Company registered number

432989

0900_Meggitt A&R_p104-105.indd 105 9/3/09 13:11:33

MEGGITT AT A GLANCE

AEROSPACE EQUIPMENT SENSING SYSTEMS DEFENCE SYSTEMS

CAPABILITIES

• Wheels, brakes and brake control systems


• Fluid control

• Safety systems


CAPABILITIES


environments

• Aero-engine and industrial gas turbine condition-

monitoring systems

CAPABILITIES



MARKETS

• Civil aerospace: large, regional and business

jets and general aviation

• Military: fi xed wing and rotary aircraft, ground

vehicles, ships, unmanned air vehicles

• Energy



MARKETS

• Civil aerospace: large, regional and business jets,

general aviation and space


• Energy




MARKETS


• Armed forces, law enforcement and security

organisations



GROUP STRATEGY

Deliver sustainable returns through focused leadership positions in aerospace,

defence, energy and other specialist extreme environments

Be the leading provider of smart engineering for extreme environments

GROUP STRATEGIC OBJECTIVES

Invest in components and

sub-systems with high

technology content and

aftermarket positions

Leverage Group capabilities Achieve operational excellence Satisfy our customers and

strengthen our partnerships

Maintain a culture of strong

performance

66% 23% 11%PERCENTAGE OF GROUP REVENUE

A group of leading electro-mechanical engineering

businesses whose products are on virtually

every western aircraft in service, ensuring stable

aftermarket revenues over the long term.


One of the world’s leading providers of high

performance sensing and condition-monitoring

solutions for high value rotating machinery and

other assets.


An international live-fi re and simulation training

and combat systems business positioned to meet

the challenges of modern confl ict.

51%ORIGINAL EQUIPMENT


49%AFTERMARKET


• Strong market and technology positions

• Continued investment in the business

• No major exposure to any single platform

or customer

• Broad geographic footprint

Headquartered in the United Kingdom, Meggitt PLC is an

international group specialising in extreme environment products

for the aerospace, defence and energy sectors and related markets.

It employs over 8,000 people.

Our consistent record of strong fi nancial performance comes

from businesses balanced across market segments; innovative

products that generate stable, long-term aftermarket revenues;

organic growth reinforced by acquisitions; and investment in

people, facilities, operations and strategic technology development.

Our companies have access to an evolving Group infrastructure

that enables them to work together, combining talent and resources

to benefi t customers and operations.

EMPLOYEES BY GEOGRAPHICAL

LOCATION

2,341 UK

4,371 North America


252 Rest of world

8,143

BALANCED PORTFOLIO

46%CIVIL


39%MILITARY


15%SPECIALIST OTHER


Location of Meggitt facility


KEY DATES

3 March 2009

Preliminary results

23 April 2009

AGM and interim


4 August 2009

Interim results

30 October 2009


CONTACT US

01202 597 597Andy Mann, Head of Communications & Investor Relations

[email protected]

www.meggitt.comLatest Meggitt share price with a 25-minute time delay












ADVISORS


HSBC Bank plc

Barclays Bank PLC

Bank of America

Merchant bankers


Auditors


Solicitors

Clifford Chance LLP

Brokers


Registrars


FINANCIAL CALENDAR











AGM 23 April









432989

0900_Meggitt A&R_p104-105.indd 105 9/3/09 13:11:33

Introduction 1Meggitt PLC Report and accounts 2008

103-105 INVESTOR INFORMATION

Financial calendar and supplementary information

103 Five-year record

104 Supplementary information

105 Financial calendar and advisors

51-102 FINANCIAL STATEMENTS

Statutory fi nancial statements including the

independent auditors’ report

51 Independent auditors’ report to

the members of Meggitt PLC

52-94 Group accounts

52 Consolidated income

statement

53 Consolidated balance sheet

54 Consolidated cash fl ow

statement

55 Consolidated statement of

recognised income and

expense

56-94 Notes to the fi nancial

statements

95-102 Company accounts

95 Independent auditors’ report to

the members of Meggitt PLC

96 Company balance sheet


statements of the Company

Meggitt continued to make excellent progress in 2008. Orders, revenues and

underlying earnings have all shown signifi cant double-digit increases. The Group

remains well balanced and saw good growth in each of its three main market

segments: civil aerospace revenues increased by 31%; military revenues increased

by 35% and our energy revenues increased by 21%.

As we enter 2009, the global economic outlook remains uncertain. Military and

energy revenues are expected to increase, partially offsetting declining air traffi c

and diffi cult credit conditions for fi nancing new aircraft which will impact our civil

aerospace revenues.

With its large installed fl eet, spread across both military and civil platforms, the

signifi cant cost reduction plans in place and its sound fi nancial position, the Group

is well placed to respond effectively to current challenges and to position the

business for the long term.

1-33 BOARD REPORTS

Reports on key strategic, operational and fi nancial

developments during the year

Cover: Meggitt at a glance and

fi nancial highlights

1 Overview

2 Chairman’s statement

3 Group strategy

4-5 Strategy implementation

6-9 Market review

10–29 Business review

15-17 Risks and uncertainties

18-21 Aerospace equipment

22-25 Sensing systems

26-29 Defence systems

30-33 Corporate responsibility

34-50 CORPORATE

GOVERNANCE

34-35 Board of directors

37-40 Report of the directors

41-43 Directors’ statement on

corporate governance

44-50 Remuneration report

OVERVIEW

CHAIRMAN’S STATEMENT

2 Chairman’s statement

Meggitt PLC Report and accounts 2008

I would like to take this opportunity to

thank them for yet another outstanding year

of hard work and commitment to building

our increasingly successful Group.

Outlook

Meggitt is broadly balanced and well

fi nanced. We delivered an excellent fi nancial

performance in 2008. We will roll out

signifi cant cost reduction measures in

2009 and we have plenty of headroom

within our bank facilities and covenants.

With these great strengths, we are

well-placed to address the economic

uncertainties of 2009. 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 Board has recommended a fi nal

dividend of 5.75 pence, with the total dividend

for the year increasing by 3% to 8.45 pence.

In 2008, we won virtually every major

braking systems bid we entered and

manufacturing increased substantially to

meet demand. Our US carbon facility in

Kentucky doubled its capacity as we

shared the best of friction materials

technology and practice from our dual

facilities in the UK and US. We exceeded

2008’s synergy target of £10 million and we

are on track to achieve our goal of annual

savings of £22 million by 2010.

K&F’s Engineered Fabrics Corporation (EFC)

continued to enhance Meggitt’s military

sales to helicopters and jets with a variety

of products. Its ballistically-resistant and

crashworthy fuel tanks received a record

follow-on order valued at $41 million for the

KC-135 aircraft programme, underpinning

its order book for the next fi ve years.

During the year, we closed our UK-based

fuelling products facility, transferring the

product lines to our facilities in China and

the United States.

We also consolidated our US live-fi re and

virtual training businesses into one new

facility in Atlanta and two UK polymers

factories onto a single site in Loughborough.

Our people

Meggitt people continue to meet the

Group’s ambitious goals, spurred on by

the excitement of being part of a growing

business with a clear vision and strategy

and opportunities for professional

development at all levels.

I continue to be impressed by the drive,

enthusiasm and fl air of our people and

Meggitt’s excellent performance continued

in 2008. Revenues increased 32% to £1,162.6

million and underlying profi t before taxation

was up 36% to £243.3 million. Cash fl ow was

again strong with 100% of underlying

operating profi t converted to operating cash.

Investing for the future

We continued to invest signifi cant sums

in 2008: £120 million in our facilities and

the development of intellectual property.

This included new regional offi ces in India

and Abu Dhabi and expanded low-cost

manufacturing facilities in Mexico and

China. Advances in intellectual property

included developments in electric braking

and control technologies and next

generation training products for our law

enforcement customers.

Acquisitions and disposals

In 2008, we disposed of S-TEC, our non-core

autopilot business, for a net consideration

of £17.2 million and acquired Ferroperm,

a supplier of advanced sensing materials for

up to £9.8 million. This acquisition extends

the ability of our sensing systems division to

respond to customers’ requirements for

more data from cryogenic and higher

temperature environments.

Integration and rationalisation

The integration of the K&F Industries

Holdings (K&F) acquisition continues to

progress well. Meggitt’s combined wheels,

brakes and brake control systems business

now has a leading position in the regional,

business jet and military aircraft markets.

Another year of strong revenue growth, consistent investment,

integration successes, organisational alignment and hard

work from all employees.

SIR COLIN TERRY

Chairman

stent investment,

ent and hard

Group strategy 3Meggitt PLC Report and accounts 2008

GROUP STRATEGY

on recruitment and management pay and

a review of all discretionary costs, current

overhead structures, headcount and back

offi ce and administrative activity. We have

also strengthened our fi nancial position by

renegotiating bank facilities so we require

no new fi nancing before 2012 and have

signifi cant facilities and covenant headroom.

While we are also seeing the benefi ts

of the rising US dollar and larger than

anticipated K&F and strategic sourcing

synergies, we continue to identify

additional cost savings to ensure Meggitt

remains competitive and that any impact

from a civil sales decline is minimised.

For 2009, we have identifi ed potential

cost-savings of a further £20 million, rising

to £50 million annually by the end of 2010.

The operating exceptional cost of achieving

these savings is estimated at £25 million.

However, we will maintain investment in

strategically-important capital projects

and R&D. Our business will emerge from

this recession lean and competitive with

products customers want and best value

manufacturing options worldwide.

low-cost manufacturing, which enhances

our competitiveness.

We continued to invest in organisational

infrastructure and leadership, making our

increasingly integrated Group more

focused, more effi cient and more effective.

In 2008, we saw a good fl ow of contract

wins in all business segments and

executed several major factory

consolidations successfully. Other

highlights included Bombardier selecting

us to fl y a full set of electric brakes on its

commercial demonstrator—an industry

fi rst—and acquiring a hi-tech materials

and components business to improve our

high temperature sensing capability.

With our customers, BAE Systems, Boeing

and Rolls-Royce, we sponsored research

at Cranfi eld University into integrated

vehicle health management to extend our

market-leading diagnostics and

prognostics capabilities.

And we are no less ambitious for 2009.

The way ahead

We expect demand in our military and

energy markets to remain healthy. The

commercial aerospace market is expected

to be affected by declining air travel and

diffi culties in obtaining fi nance for new

aircraft, which should lead to a reduction

in Meggitt revenues from this segment.

In response, Meggitt is reviewing its cost

base, exercising its low-cost manufacturing

options and taking appropriate action to

reduce costs. This has included a freeze

Delivering our strategy

In 2008, Meggitt delivered another

excellent set of fi nancial results.

A performance based on a strategy that

enables us to grow consistently in a

favourable economic climate and hold

up well when times are tough.

The diverse nature of our portfolio again

proved its worth. Meggitt is not dependent

on any one market segment, customer or

economy. We offset variation in demand

by spreading risk, balancing exposure to

civil markets with military and energy

business; and sales to original equipment

manufacturers with sales of aftermarket

products and services. We have product on

virtually every western aircraft and have a

growing presence in combat vehicles.

We also supply our products to land-based

gas and steam power plants. Our revenues

are spread across North America, Europe

and Asia and our manufacturing capability

is global, including low-cost facilities in

China and Mexico.

We maintained investment in product

development to ensure a full pipeline.

Our continued investment was the

source of profi table repair, replacement

and upgrade activity during the year and

contract wins on new platforms that will

deliver aftermarket revenues for decades

to come.

We sustained our commitment to

operations excellence, driving cost out

of our businesses with modern

manufacturing tools and techniques

and investing in strategic sourcing and

Meggitt’s goal is to continue to deliver sustainable returns to

our shareholders. We do this through smart engineering for

extreme environments, focusing on selected markets where

we can occupy profi table leadership positions. These include

our primary aerospace, defence and energy markets and

related fi elds where our core technologies are a natural fi t.

TERRY TWIGGER

Chief Executive

4 Strategy implementation


Focused investment

We focus on smart engineering for

extreme environments, investing in

highly engineered components and

sub-systems. These provide important

functionality in aircraft, ships, industrial

gas turbines and land vehicles and

enable civil, armed services and security

organisations to deploy judgement and

skill in extreme situations.

Our intellectual property secures strong

positions on current platforms, often as

sole supplier. Many products deliver

long-term revenues worth hundreds of

millions of pounds as a result of lifelong

repair, replacement and upgrade

opportunities.

We grow organically and by acquisition.

We invest internally to maintain our

product leadership positions and extend

our capabilities into larger packages

and integrated sub-systems. We buy

companies to acquire technology,

fast-track product development and

strengthen market positions.

• In 2008, we fully consolidated two

substantial aircraft braking systems

businesses and became the world’s

leading supplier of wheels, brakes and

brake control systems to regional,

business and military aircraft. We

exceeded initial synergy targets.

• Our thermal systems businesses

realigned themselves around their core

environmental control and ice protection

capabilities to serve general aviation,

business jet and helicopter markets.

• Integrating our ground-based live-fi re

and virtual training businesses enabled

Meggitt Training Systems to launch an

innovative low-cost, portable classroom

simulator and a state-of-the-art

wireless live target presentation system

for law enforcement organisations.

New military training products included

an attack helicopter target; a new

engine, avionics and airframe to qualify

Banshee aerial targets for the MoD’s

combined aerial target service; and a

fast in-shore attack marine simulator.

• Meggitt Sensing Systems acquired

Ferroperm, a producer of piezo-ceramic

materials that will enable us to deliver

the higher temperature sensing needed

to help control emissions in aero-

engines and industrial turbines.

STRATEGY IMPLEMENTATION

FOCUSED INVESTMENT

• Components and value-added sub-systems

• High technology content

• Aftermarket value

• Growth by organic investment and acquisition

SMART ENGINEERING FOR EXTREME ENVIRONMENTS

LEVERAGE GROUP CAPABILITIES

• Adding value with cross-business solutions

• Leveraging scale of operations

• Strengthening central functions

• Sharing services and best practice

ACHIEVE OPERATIONAL EXCELLENCE

• Lean manufacturing and continuous improvement

• Strategic sourcing

• Low-cost manufacturing

SATISFY OUR CUSTOMERS

• Develop strategic supplier relations

• Strengthen our customer and industry partnerships

• Be easier to do business with

MAINTAIN A CULTURE OF STRONG PERFORMANCE

• Delivering against targets

• Leadership development

• Financial rigour

Strategy implementation 5Meggitt PLC Report and accounts 2008

the potential for systems sales in our

energy and aerospace markets.

• Product breadth, programme

management, logistics and supply

chain integration expertise enabled

us to become the lead sensing and

ignition integrator on Rolls-Royce’s

BR725 engine for the Gulfstream

G650. Our ability to include low-cost

elements from our facility in China has

made us very cost-competitive in this

market segment.

• In 2008, Meggitt performance reaped

customer satisfaction awards from

Gulfstream, Embraer, AVIC1

Commercial Aircraft Company, the

Defense Supply Center Richmond

and others.

• We sponsored Cranfi eld University’s

integrated vehicle health management

research centre with Boeing, BAE

Systems and Rolls-Royce, an industry

partnership that will help develop

Meggitt’s holistic approach to

machinery diagnostics.

Maintain a culture of strong performance

We maintain a culture of strong

performance based on delivery against

targets. This is conditioned by rigorous

fi nancial discipline and sound ethical

practice. In turn, we provide competitive

reward and incentive schemes and

professional development and training.

• Our fi rst leadership training programme,

developed with Oxford University,

facilitated group collaboration and

delivered specifi c projects of strategic

importance to Meggitt.

• In 2008, our second management

conference reinforced the strategic

alignment of top managers and

consolidated working relationships.

• We aligned professional development

reviews with a new management

model that feeds into recruitment

and selection.

• Education and development initiatives

continued to gather momentum

throughout the Group.

• Meggitt Polymer Solutions developed

a lightweight polymer weighing 20 per

cent less than the industry standard with

no decline in performance. The potential

savings of around 100 kilograms from

the half tonne of elastomer used on the

average commercial aircraft could make

a signifi cant contribution to reducing

fuel consumption.

• We achieved an industry fi rst when

Bombardier fl ew a commercial

demonstrator aircraft fully equipped

with our pioneering compact, high

performance electric brakes.

• We won numerous high value civil and

military contracts that will deliver

substantial aftermarket revenues.

Meggitt products were on the fi rst fl ights

of the Cessna CJ4, Phenom 300,

Aermacchi M346, Gripen demonstrator,

Tranche 2 Eurofi ghter Typhoon and F35

STOVL aircraft. On the ground, we won

new ammunition autoloader contracts

for the Abrams tank, Stryker and Future

Combat Systems land vehicles.

Leverage Group capabilities

We continue to integrate our Group.

Strong central coordinating and advisory

functions help our businesses work

together, sharing expertise, services and

best practice.

• Group strategy and marketing formed

a cross-division group to spearhead

a higher level of investment in all

Meggitt’s energy-related products and

technologies. The initiative resulted

in the opening of Meggitt’s fi rst offi ce

in India.

• Our IT infrastructure continues to evolve

towards common solutions that enable

shared services.

• Group programme management is

helping to sustain complex multi-

business programmes and standardise

new product introduction.

• Health, safety and environment offi cers

now have a Group champion to establish

standards and share expertise.

• Group export compliance continues

its cycle of review and corrective

action planning.

• Group ethics launched a revitalised

sales representative policy and protocol.

Achieve operational excellence

We continue to optimise Meggitt’s

competitiveness through lean

manufacturing and continuous

improvement initiatives, strategic

sourcing at Group and business level

and low-cost manufacturing.

• Meggitt Polymer Solutions consolidated

its UK base and created new factory

layouts for its transatlantic operations to

enable lean and continuous improvement

activities to be implemented. Meggitt

Defence Systems consolidated its

training facilities in a new factory

in Atlanta.

• Group-based strategic sourcing

continues to drive down costs and

optimise the competitiveness of

Meggitt’s contract bids.

• We continued to develop our low-cost

facility in Mexico to complement wheel

and brake operations in the United

States and United Kingdom. Our

Chinese factory expanded substantially

with a third building, adding polymers

and ground fuelling equipment to its

sensors and controls production lines.

Our Singapore maintenance facility now

provides local support for multiple

Group products.

Satisfy our customers

We deliver broad-based solutions by

developing strategic relationships with

customers and suppliers and

participating in industry initiatives.

• Key customer relationship managers

help businesses meet customers’

expectations, respond to current

opportunities and align R & D activity

with customers’ technology roadmaps.

• Complementary Meggitt businesses

continue to combine product marketing

and management, making procurement

for customers easier and adding value

with more integrated sub-systems and

larger packages. Meggitt Fluid

Controls—fi ve businesses that have

combined forces—had a major success,

winning a high value bleed air sub-

system on the Embraer Legacy 450/500

series. Based on modular control

technology, it can be customised quickly

for almost any application.

This minimises risk and maximises

convenience for airframers and unlocks

6 Market review


CIVIL AEROSPACE

In total, 51% of Meggitt’s civil aerospace

revenues come from large jets, 24% from

regional aircraft and 25% from business

jets, general aviation and rotorcraft. Of

Meggitt’s total civil aerospace revenues,

sales to civil OE manufacturers accounted

for 32% and the civil aftermarket 68%.

Our civil aerospace revenues grew by 31%

in 2008, despite a turbulent economic

background. While the 2009 economic

outlook remains uncertain, most industry

analysts expect demand for air travel to

weaken and demand for new aircraft to

slow. Meggitt has developed a cost plan

to take into account a further decline

in deliveries than current consensus

estimates. Air traffi c growth, as measured

by available seat kilometres, is projected

to decline by 3 to 5% in 2009 due to a

slowdown in GDP and a tightening of

consumer spending. Available seat

kilometres is a key indicator of aircraft

usage and, therefore, the demand for

spares and repairs. The aftermarket will

be affected by the resulting reduced

utilisation of the fl eet. OE order books,

for example, are very healthy but reduced

demand for air travel and diffi culty in

fi nancing new aircraft is expected to lead

to delays and cancellations.

OVERVIEW

Meggitt has a balanced portfolio. 15% of

Group revenue comes from civil original

equipment (OE) manufacturers and 31%

from the civil aftermarket. Military OE

revenues account for 22% (signifi cantly

more than civil OE revenues) and military

aftermarket revenues 17%. The remaining

15% comes from other markets. In total,

51% of total revenues relate to OE and

49% to the aftermarket.

Meggitt has a good geographic spread,

making revenues resilient to regional

trends. In 2008, 52% of revenues were

from North America, 35% from Europe

(including the UK) and 13% from the rest

of the world.

Our business model combines high-tech,

leading edge technologies, with established

electro-mechanical products for markets

where certifi cation requirements are

high and track records important. By

establishing a presence in the OE market,

preferably as a single source supplier,

Meggitt aims to benefi t from the 20 to

40-year recurring aftermarket.

Continual aircraft usage provides

opportunities for Meggitt to replace and

repair its products. As long as aircraft fl y,

Meggitt has a strong and steady revenue

stream.

Meggitt’s strong proprietary OE positions,

large installed fl eet, diverse platform mix

and strong performance track record

confi rmed by a number of signifi cant

supplier awards leaves us well placed as

we enter 2009.

Meggitt’s smart engineering for extreme environments is

well-known in aerospace and defence markets and has a

growing presence in energy, where its core capabilities can

be deployed in innovative applications.

The civil aerospace market is divided between large jet,

regional aircraft, business jets and general aviation.

Meggitt’s military markets cover fi xed and rotary wing; land

and sea; and training and targets. Our industrial segments

are predominantly energy market applications.

MARKET REVIEW

TOTAL SPLIT OF REVENUES

CHART 1

46% Civil aerospace

39% Military

15% Other

CIVIL AEROSPACE REVENUE

16% Large jet OE

35% Large jet

aftermarket

4% Regional aircraft

OE

20% Regional aircraft

aftermarket

12% Business jet,

GA and

rotorcraft OE

13% Business jet,

GA and

rotorcraft

aftermarket

CHART 2

LARGE JET DELIVERIES

CHART 3

200

400

600

800

1000

20

00

20

08

20

04

20

12

F

20

02

20

10

F

20

06

20

01

20

09

F

20

05

20

13

F

20

03

20

11

F

20

07

20

14

F

Meggitt view of consensus forecasts

0

Market review 7Meggitt PLC Report and accounts 2008

Business jets

The pattern of demand in this market is

changing. Today, the US accounts for

about 70% of the world fl eet but only 30%

of the order book. Business jet utilisation

is becoming increasingly linked to global,

rather than US, GDP. Until 2008, total

business jet fl ying hours had been

increasing steadily since 1992 driven

particularly by the growth in fractional

ownership.

Business jet utilisation in the US as

measured by take-offs and landings

started to decline during the second

quarter of 2008 and in December was

21% down on a year ago. The decline is

likely to continue in 2009, resulting in

fewer deliveries and a reduction in

aftermarket revenues.

During 2008, there were several new

model launches, including the Gulfstream

G250 and G650, Embraer Legacy 450 and

500, Cessna Columbus, Learjet 85 and the

Hawker Beechcraft Premier II. Meggitt’s

equipment will be installed on all these

platforms, amounting to hundreds of

millions of dollars of potential aftermarket

revenues.

Maturity profi le

Meggitt is on virtually every aircraft in the

western fl eet and its fl eet has a healthy

overall maturity profi le. 44% of the aircraft

that feature Meggitt products are on

average under ten years old and account

for 36% of revenues. 35% of aircraft using

Meggitt products are on average between

ten and 20 years old and account for 48%

of revenues.

Large jets

Airbus and Boeing have excellent order

books and backlogs of more than 7,000

aircraft, which continued to grow in 2008.

Although deliveries of large jets are expected

to peak in 2009 due to cancellations and

deferrals, Meggitt’s OE product revenues are

well spread, helping to mitigate the risk of

any single platform reduction.

The return of the oil price to below $50 per

barrel and the diffi culty of fi nancing new

aircraft may encourage airlines to continue

to fl y older aircraft for longer. This will help

mitigate the decline in our civil aftermarket

business as a result of reduced aircraft

usage.

Regional aircraft

Meggitt is very well positioned in this

market. These aircraft are among the

most highly utilised in the fl eet, typically

taking off and landing several times a day

and order books for regional aircraft are

still strong. So far, where park-ups have

occurred, the smaller 30 to 50-seaters

where Meggitt has minimal exposure have

borne the brunt. In contrast, Meggitt is on

every platform in the growing 70 to 90-seat

segment and because of their better fuel

effi ciency, these aircraft have continued to

stay in the active fl eet.

If the overall regional fl eet grows in the

next decade as predicted, Meggitt will

benefi t due to its enhanced position on

70 to 90 seaters.

REVENUE BY GEOGRAPHICAL DESTINATION

CHART 5

52% North America

22% Mainland Europe

13% UK

13% Rest of World

BALANCED PORTFOLIO

CHART 4

15% Civil OE

31% Civil aftermarket

22% Military OE

17% Military aftermarket

15% Energy and other

specialist markets

CHART 6

50

100

150

200

250

300

350

400

20

00

20

08

20

04

20

12

F

20

02

20

10

F

20

06

20

14

F

20

01

20

09

F

20

05

20

13

F

20

03

20

11

F

20

07

REGIONAL AIRCRAFT DELIVERIES


0

CHART 7

200

400

600

800

1000

1200

20

00

20

08

20

04

20

12

F

20

02

20

10

F

20

06

20

14

F

20

01

20

09

F

20

05

20

13

F

20

03

20

11

F

20

07


0

BUSINESS JET DELIVERIES Excludes GA

8 Market review


MARKET REVIEW CONTINUED

Quadrennial Defense Review, which has

been brought forward to August 2009.

Meggitt has signifi cant systems and

components content on key platforms

supporting deployments and training.

This positions us well to capture growth

in base funding and reset.

Fixed wing

Meggitt’s components and sub-systems

are installed on virtually every western

military aircraft in service. Fighter aircraft

are a major driver of medium-term DoD

spending, led by the Super Hornets (F18

E/F). This balance will eventually shift

towards Joint Strike Fighter (F35), whilst

in Europe Eurofi ghter Typhoon continues

to be the major programme.

We are the number one wheels and brakes

supplier for the global military aircraft

market and have strong positions in

secondary fl ight displays, fuel tanks, seals,

fi re detection and control systems, towed

countermeasures, pneumatic controls,

air data transducers and speed probes.

Our military aftermarket is an important

and profi table business, especially since

key transformational aircraft such as the

F35 and Eurofi ghter Typhoon are predicted

to grow signifi cantly in fl eet size between

2008 and 2017.

Rotary, land and sea

The Black Hawk (H60), Osprey (V22) and

Apache (AH 64) helicopters are particularly

important platforms for Meggitt products

such as air data sensors, ammunition-

The 21% of Meggitt-equipped fl eets over

20 years old, accounts for only 16% of

revenues, refl ecting the lower utilisation

of older, less effi cient aircraft. Since 79%

of the fl eet on which Meggitt’s products

are installed are under 20 years old, this

bodes well for our long-term aftermarket

potential.

MILITARY

Meggitt’s military business, which

represents 39% of Group revenues,

is signifi cant, secure and growing. Of this,

22% of total revenues comes from military

OE revenues and 17% from military

aftermarket revenues. By segment, 51%

comes from fi xed wing; 20% from rotary;

8% from land and sea; and 21% from

training and targets.

The US Department of Defense (DoD) and

its prime contractors are Meggitt’s largest

defence customers.

Overall defence spending is coming under

increasing pressure from the current

economic climate. However, the base

budget will grow by 3% in fi scal year 2009

and is expected to grow by up to 10% in

fi scal year 2010 to cover the reset and

repair of equipment. Supplemental

funding levels are expected to reduce with

the gradual withdrawal from Iraq and the

shift of repair and reset to the base budget.

Overall DoD spending is expected to

remain relatively fl at. No substantial

budget changes are expected until fi scal

year 2011 following completion of the

CIVIL AFTERMARKET MATURITY PROFILE

TOTAL FLEET BY AGE

44% 0 –10 years

35% 10 – 20 years

21% 20+ years

CHART 9

TOTAL REVENUE BY AGE

36% 0 –10 years

48% 10 – 20 years

16% 20+ years

US DEPARTMENT OF DEFENSE BUDGET OUTLOOK ($BN)

CHART 8

0

100

200

300

400

500

600

700

20

02

20

01

20

03

20

08

20

04

20

10

(E)

20

06

20

09

20

05

20

07

32

8

30

2

37

5

47

2

37

7

53

4

41

9

48

7

38

5

43

6

14

17

69

18

7

66

13

0

11

5

76

66

10

0

16

3

Base budget Supplemental

Source: Defense Appropriations Act, OMB and estimates based on President’s request

Market review 9Meggitt PLC Report and accounts 2008

BEYOND AEROSPACE AND DEFENCE

These markets comprise 15% of Meggitt’s

total revenues and growing, with energy

the biggest single component at 7% of

total revenues.

The opportunity for Meggitt’s condition-

monitoring systems, fl uid controls and

heat exchangers in the energy market

is signifi cant since they help reduce

maintenance costs, conserve fuel and

control carbon emissions. Our revenues

in this market have nearly doubled over

the last few years and we will see

continued growth, particularly in the

power generation market in Asia, building

on recent retrofi t successes in China

and the opening of regional bases in

India and Abu Dhabi.

While market conditions are tough, the

Group continues to be active in providing

sensors for the consumer goods and other

specialist diverse markets.

handling equipment, ice protection systems

for engine air intakes, health and usage

monitoring systems and ballistically-

resistant and crashworthy fuel tanks.

They are strongly represented in both the

US and international defence markets.

In the UK, key programmes for Meggitt

include the Lynx family, EH101 and the

Apache attack helicopters.

Meggitt’s revenues in the land and sea

segment are primarily from combat

support systems such as sensors,

targetry, linkless ammunition-handling

equipment and mission-critical cooling

systems for high-density electronics.

Helicopters and land vehicles are the

workhorses of the US armed forces. Many

of our products are deployed in current

confl icts on platforms such as the Abrams

tank and the Stryker land vehicle and

active combat aircraft such as the Black

Hawk and Apache helicopter. This

positions the Group strongly for future

reset programmes.

Training and target systems

Meggitt’s live-fi re and virtual simulation

training products are market leaders,

with over 10,000 Meggitt-supplied live-fi re

ranges and 5,200 virtual systems providing

training to the armed forces, law

enforcement and security organisations.

Meggitt played an important part in

preparing the UK and US armed forces for

current operations in Iraq and Afghanistan

and is well-positioned for any post-confl ict

revival in training budgets.

ENERGY REVENUE BY DIVISION

CHART 11

53% Aerospace equipment

47% Sensing systems

OTHER REVENUE

48% Energy

16% Consumer goods

36% Other

CHART 10

MILITARY REVENUE BY DIVISION

54% Aerospace equipment

17% Sensing systems

29% Defence systems

CHART 12

MILITARY REVENUE BY PLATFORM

51% Fixed wing

20% Rotary wing

8% Land and sea

21% Training and target systems

10 Business review


KEY PERFORMANCE INDICATORS (KPIs)

REVENUE GROWTH

Percentage change in Group revenue from

previous fi nancial year. Target compound

organic growth: 7% across the cycle

UNDERLYING PBT GROWTH

Percentage change in Group underlying

profi t before tax from previous fi nancial

year. Target compound organic growth: 9%

across the cycle

UNDERLYING EPS GROWTH

Percentage change in Group underlying

earnings per share from previous fi nancial

year. Target compound organic growth: 8%

across the cycle

RETURN ON SALES

Underlying operating profi t as a

percentage of revenue. Target growth in

line with revenue and PBT growth

R&D AS PERCENTAGE OF REVENUE

Research and development expenditure

as a percentage of revenue. Target gross

spend: 6-8% across the cycle

CASH CONVERSION

Cash infl ow from operations before

exceptional operating costs as a percentage

of underlying operating profi t. Target

conversion: 100%

REVENUE

The Board’s preferred measure of the

Group’s trading performance is underlying

profi t. This was up 37% for the year at

£296.4 million (2007: £216.3 million) and

the underlying return on sales increased to

25.5% (2007: 24.6%). On an organic basis,

revenues increased by a very healthy 10%

whilst underlying operating profi t also

increased by 10%.

Net fi nance costs increased to £53.1 million

(2007: £37.3 million) due to the full-year

effect of the additional fi nancing required

to support the K&F acquisition and an

increase in non-cash pension interest to

£4.7 million (2007:£1.2 million). Underlying

PBT increased therefore by 36% to £243.3

million (2007: £179.0 million).

After a tax charge of 28.0% (2007: 27.5%),

underlying EPS increased 20% to 26.5 pence

(2007: 22.1 pence).

On a statutory basis, PBT increased by 13%

to £119.3 million (2007: £105.4 million) and

EPS increased by 3% to 15.0p (2007: 14.6p).

The recommended fi nal dividend of 5.75p

(2007: 5.75p) represents a total dividend

for the year of 8.45p (2007: 8.20p), up 3%.

Integration update

The integration of our largest acquisition,

K&F (acquired 22 June 2007) has

progressed very well. The larger part of

K&F’s business (wheels and brakes) was

merged with Meggitt’s existing UK wheels

and brakes business on 1 January 2008 to

form Meggitt Aircraft Braking Systems

(MABS). This merger has established

MABS as the world leader in wheel and

BUSINESS REVIEW

1,162.6REVENUE 2008

(£ MILLION)

+32%REVENUE INCREASE ON 2007


2008 2007 % £’m £’m change

Revenue 1,162.6 878.2 +32%

Underlying1:

Operating profi t 296.4 216.3 +37%

Profi t before tax (“PBT”) 243.3 179.0 +36%

Earnings per share (“EPS”) 26.5p 22.1p +20%

Statutory:

Operating profi t 172.4 142.7 +21%

Profi t before tax (“PBT”) 119.3 105.4 +13%

Earnings per share (“EPS”) 15.0p 14.6p +3%

Cash fl ow from operations before exceptionals 295.4 214.3 +38%

Cash conversion2 100% 99%

1 Underlying profi t and EPS are defi ned and reconciled to statutory measures in notes 10 and 16

respectively.

2 Cash conversion is the ratio of cash fl ow from operations to underlying operating profi t. Cash fl ow from

operations is before exceptional operating costs, interest, tax and investing activities.

TABLE 1

With its large installed fl eet, spread across

both military and civil platforms, the

signifi cant cost reduction plans in place

and its sound fi nancial position, the Group

is well placed to respond effectively to

current challenges and to position the

business for the long term.

Overall revenues increased by 32% to

£1,162.6 million (2007: £878.2 million)

refl ecting strong organic growth of 10%,

favourable currency movements and the

inclusion of a full year of the K&F businesses.

The Group’s order intake in 2008 was up

26% and our closing order book at

31 December 2008 was £814 million (2007:

£660 million).

Overall performance

Meggitt continued to make excellent

progress in 2008. Orders, revenues and

underlying earnings have all shown

signifi cant double-digit increases. The Group

remains well balanced and saw good growth

in each of its three main market segments:

civil aerospace revenues increased by 31%;

military revenues increased by 35% and our

energy revenues increased by 21%.

As we enter 2009, the global economic

outlook remains uncertain. Military and

energy revenues are expected to increase,

partially offsetting declining air traffi c and

diffi cult credit conditions for fi nancing new

aircraft which will impact our civil

aerospace revenues.

Business review 11Meggitt PLC Report and accounts 2008

PIONEERING TECHNOLOGYCONTROLLING ELECTRIC BRAKES

With my First in Mathematics and a control technology doctorate in hand,

my fi rst mission at Meggitt Aircraft Braking Systems was to develop control

strategies and algorithms for Ebrake® through simulation modelling. With

hydraulics, the pilot presses the pedal and brake pressure is transmitted

through the system. It’s a straightforward process. With electric braking,

control, timing and sequencing can be much more complex. There are multiple

signals and communications to get right.

But we succeeded. Meggitt was the fi rst to fl y an electric brake successfully

on a fully autonomous UAV with EADS—a triumph of control technology—and

the fi rst to fl y a full complement on a civil aircraft with Bombardier—a triumph

of brake design. In today’s competitive business environment, innovation isn’t

enough. Through the Ebrake® programme, we have proved we can create state-

of-the art technology and have the engineers who can turn that technology into

tangible, saleable results.

DR JANE MINIHAN

Manager, Systems Engineering, Meggitt Aircraft Braking Systems

(2007: 99%) of underlying profi t to operating

cash. After taking into account net investment,

fi nance costs, tax and dividends, the Group

generated net cash of £75.0 million.

We hold the majority of net debt in

currencies other than sterling as a hedge

against our overseas investments. The

weakening of sterling against, in particular,

the US dollar, Euro and Swiss franc in the

latter part of 2008 led to adverse currency

translation movements of £312.0 million

on net debt. As a result, net debt increased

to £1,047.9 million at 31 December 2008.

The currency-related increase in net debt

barely impacts our key covenant ratios. This

is because our credit agreements contain

a provision that net debt is translated to

sterling at the average exchange rates for

the year, rather than the period-end spot

rates. This is described further in the

covenant risk section starting on page 13.

Capital structure

Meggitt’s operations are fi nanced by a

combination of equity (share capital and

retained earnings) and debt. We seek to

increased by 13% to £78.8 million (2007:

£70.0 million), of which approximately

25% is funded by customers.

As a proportion of revenues, the largest

relative investment was once again in

sensing systems at £30.9 million (12% of

segment revenues), followed by defence

systems at £11.3 million (9% of segment

revenues) and, fi nally aerospace equipment

at £36.6 million (5% of segment revenues).

Meggitt also invested £35.7 million (2007:

£20.1 million) in supplying equipment free of

charge to new aircraft coming into the fl eet

and in making programme participation

contributions, mostly in MABS.

Capital expenditure on property, plant and

equipment and other intangibles reduced

to £40.9 million (2007: £43.8 million).

Cash fl ow

Meggitt’s excellent cash generation track

record continued with cash infl ow from

operations before exceptional operating

costs of £295.4 million (2007: £214.3 million).

This represented cash conversion of 100%

brake systems for regional aircraft,

business jets and military aircraft.

Engineered Fabrics Corporation (EFC),

the smaller part of K&F and the leading

supplier of fuel tanks to the US DoD,

also became part of Meggitt Aerospace

Equipment. Both former K&F businesses

traded well in 2008.

Rationalisation of the MABS facilities is on

track with the closure of the Slough, Atlanta

and Liège repair and distribution centres.

The Group has now completed just over half

the identifi ed integration projects and, in

2008, exceeded its synergy target of £10

million by £2.5 million. This restructuring has

been achieved with minimal disruption to

production schedules and customer support.

Meggitt is well on track to achieve the

targeted synergy savings of £18 million in

2009 and £22 million in 2010. This will be

achieved at a one-off cost of £29 million, of

which £15 million has been incurred to date.

Investing for the future

On 7 January 2008, Meggitt acquired

Ferroperm, a leading manufacturer of

piezoceramic materials for specialist

sensor applications, for up to Danish

Kroner 100 million (£9.8 million). S-TEC,

a general aviation autopilots specialist,

was identifi ed as no longer core to the

Group and sold on 3 January 2008 for a

net consideration of £17.2 million.

Developing and owning intellectual

property is an important part of Meggitt’s

successful strategy. Total product

development expenditure in 2008

ANALYSIS OF R&D COSTS

2008 2008 2008 2008 Aerospace Sensing Defence Group equipment systems systems

R&D expenditure 78.8 36.6 30.9 11.3

% of revenue 7% 5% 12% 9%

Customer-funded R&D (19.4) (4.0) (8.3) (7.1)

Capitalised (23.7) (12.6) (9.6) (1.5)

Amortisation 3.5 1.5 1.7 0.3

P&L charge 39.2 21.5 14.7 3.0

TABLE 2

12 Business review


BUSINESS REVIEW CONTINUED

An element of the interest charge relates to

the difference between the expected return

on retirement benefi t scheme assets and

the interest rate applied to scheme

liabilities. This is not a cash charge but the

amount is subject to volatility.

CURRENCY PROFILE OF

NET DEBT (£’M)

2008 2007

Sterling (23.5) (11.9)

US dollars 993.4 765.5

Euro 22.3 5.7

Swiss franc 58.8 53.8

Other (3.1) 2.3

Total net debt 1,047.9 815.4

Exchange rates – balance sheet

To mitigate the exchange rate exposures

arising from the retranslation of the net

assets of our overseas subsidiaries, net

debt is held, where cost effective and

practical, in the currencies of those

subsidiaries.

TABLE 7

facility. The USD 500 million facility runs

until July 2013. We will continue to use

the USD 680 million facility to maturity.

We retain, therefore, nearly USD 2 billion

of committed credit facilities until 2012.

Interest charge

Meggitt seeks to reduce the volatility in

interest expense from rate fl uctuations.

Our US private placement is at fi xed rates

whereas drawings under the bank credit

facilities are at fl oating rates. To reduce

our exposure to interest rate movements,

we have entered into a number of interest

rate swaps to fi x a proportion of our bank

borrowings. At 31 December 2008, the

percentage of net debt at fi xed rates was

70% and the weighted average period to

maturity was 3.0 years. Both exceed our

treasury policy minimum criteria of 25%

and two years respectively.

minimise the cost of capital while

recognising the constraints of the debt and

equity markets and the risks associated with

high levels of gearing. Our post-tax average

cost of capital is approximately 8%.

Debt structure

We entered 2008 with committed credit

facilities totalling USD 2.1 billion

comprising USD 250 million of private

placement notes with maturities in 2013

and 2015, and two multi-currency revolving

bank credit facilities—USD 680 million

maturing in May 2010 and USD 1,170

million maturing in March 2012. Despite

the USD 680 million facility having nearly

two years to run, in July 2008 we secured

a new extension facility amounting to

USD 500 million available on maturity or

early cancellation of the USD 680 million

MOVEMENT IN NET DEBT (£’M)

Opening net debt (815.4)

Cash fl ow from operations before exceptional operating costs 295.4

Exceptional operating costs paid (16.5)

Net interest/tax paid (76.5)

Capitalised development costs/programme participation costs (59.4)

Net capital expenditure (40.5)

Businesses disposed/acquired 10.7

Net amounts paid to shareholders (38.2)

Reduction in net debt 75.0

Currency translation differences (312.0)

Other non-cash movements 4.5

Closing net debt (1,047.9)

TABLE 5

GOOD COVENANT (NET DEBT/EBITDA) HEADROOM

TABLE 4

Sensitivity scenario assumes that 2008 results in currency are repeated

in 2009. This is for illustrative purposes only and is not a forecast.

Calculations per credit agreement defi nitions.

EBITDA (before exceptionals)

Ne

t d

eb

t (F

X s

en

sit

ivit

y)

Avge $1.50

Avge $1.25

Avge $1.00

-10% -20% -30%

2.3

2.4

2.5

2.6

2.7

2.9

3.0

3.2

3.3

3.5

3.7

3.8

PROFILE OF TOTAL COMMITTED CREDIT

FACILITIES (YEAR END US $’M)

2008 2007

2009 2,100 2,100

2010 1,920 1,420

2011 1,920 1,420

2012 750 250

2013 70 70

2014 70 70

TABLE 6

MATURITY PROFILE OF CREDIT FACILITIES (£’M)

0

200

400

600

800

1000

1200

1400

1600

20

10

20

09

20

11

20

12

20

14

20

15

20

13

Oc

t

Ap

r

Ma

y

Ju

n-J

ul

Ma

r

Committed facilities:

Net debt Dec 08 – £1,048 million

£412 million headroom

Fixed rate Floating rate

TABLE 3


STRATEGIC SOURCINGSAVING COSTS, WINNING NEW BUSINESS

I am a production guy at heart. I understand overheads, labour and material content

and that’s the perspective I’m bringing to Meggitt’s global sourcing programme.

With full-time teams in the US, Europe and Asia, we exceeded our goals this

year. Some 35 business units act in unison now, exercising their combined

spending power. Group specialists in the core Meggitt technologies of casting,

forgings, machining, cabling, metal fabrication and PCB assemblies have

helped them save up to 70% on some packages this year.

Many companies struggle with strategic sourcing but our success comes from

looking at it as a way to win new business as well as cut the cost of existing

programmes. Strategic sourcing is not just about ‘purchasing’. It is also about

sales and quality. We are winning contracts because we are cost competitive

and we are ensuring the best suppliers of service and technology work with us.

We bring it all together with the superior project management skills needed to

migrate Meggitt businesses between supply chains, delivering acceptable fi rst

articles on time and establishing the right inventory models.

DAVID HORNER

Head of Strategic Sourcing (USA)

dollar, we have extended cover as the

dollar strengthened during the latter part

of 2008. At 31 December 2008, cover for

the next 12 months was 95% ($/£ rate of

1.82) and we have covered roughly half our

anticipated exposures for the following

four years at a $/£ rate of around 1.74.

Compared to 2007, the Group’s underlying

profi t before taxation for the year was

adversely affected by £5 million as a result

of transaction exposure. Hedged rates for

2009 are similar to those achieved in 2008.

EFFECTIVE TRANSACTION RATES

2008 2007

US dollar/£ 1.84 1.82

US dollar/Euro 1.48 1.21

Swiss franc/US dollar 1.11 1.20

Covenants

The Group’s committed credit facilities

contain two fi nancial ratio covenants—

interest cover and net debt to EBITDA. The

covenant calculations are drafted to protect

Meggitt from the effects of accounting

standard changes, sudden exchange rate

movements and exceptional items. As defi ned

in the credit agreements, interest cover as at

31 December 2008 was 6.6 times (must

exceed 3.0) and net debt to EBITDA was 2.4

times (must not exceed 3.5). There is

therefore considerable headroom on both

measures. Table 4 shows the sensitivity of the

key net debt/EBITDA ratio to changes in profi t

and average exchange rates. The ratio is

relatively insensitive to currency movements

and there is considerable profi t headroom. At

TABLE 9

current exchange rates, EBITDA would have

to fall by close to 30%, without mitigation,

before this covenant measure is breached.

COVENANTS

Covenant Actual*

Net debt/EBITDA <–3.5x 2.4x

Interest cover >–3.0x 6.6x

*As calculated in accordance with covenants.

Minimising debt fi nancing risks

We seek to minimise debt fi nancing risk

as follows:

a. Concentration of risk

We raise funds through private placement

issuances and bank loans to reduce

reliance on any one market. Bank

fi nancing is sourced from over 20 major

international institutions spread across

North America, Europe and Asia. No one

bank accounts for more than 10% of the

Group’s total credit facilities and our

largest fi ve lenders are Bank of America,

Barclays, BNP Paribas, HSBC and Lloyds.

b. Set-off arrangements

We seek to use set-off and netting

arrangements where possible to reduce

the effect of counterparty defaults. All

treasury transactions are settled on a net

basis where possible and surplus cash is

deposited with our lenders up to the

level of their current exposure to us.

c. Refi nancing risk

We ensure that the maturity of our facilities

is staggered and refi nancings are concluded

in good time. Our new USD 500 million

TABLE 10

Exchange rates – income statement

The results of overseas operations are

translated into sterling at the weighted

average exchange rates shown in Table 8.

Currency denominated net assets are

translated at year end rates.

EFFECTIVE TRANSLATION RATES

2008 2007

Average rates


Euro 1.23 1.45

Year-end rates


Euro 1.03 1.36

Compared to 2007, the Group’s underlying

profi t before tax for the year was positively

affected by £20 million as a result of

currency translation. If exchange rates

remain at 31 December 2008 levels, there

will be further signifi cant year-on-year

benefi t in 2009. Each one cent strengthening

of the US dollar versus the 2008 average

rate of £1 = $1.83 improves underlying profi t

before tax by approximately £1 million.

Our policy on transactional currency

exposure is to hedge known, and some

anticipated, exposures based on historical

experience and projections. At least 70% of

the next 12 months’ anticipated exposure

must be hedged at any time and we can

place cover up to fi ve years ahead.

Because our level of cover has been at or

near our policy minimum for some time

due to the prolonged weakness in the US

TABLE 8

14 Business review


forward start facility (2010), arranged

nearly two years before expiry of the

USD 680 million facility it replaces,

demonstrates this approach.

d. Headroom risk

As our borrowings are principally in US

dollars, our credit facilities are denominated

in this currency to avoid headroom erosion

due to foreign exchange movements.

We also model various forward fi nancial

scenarios to ensure available headroom in

our committed facilities will be suffi cient.

As at 31 December 2008 we had undrawn,

committed credit facilities in excess of

£400 million after taking account of

surplus cash.

e. Covenant risk

We reduce the risk of covenant breach

using frozen UK GAAP to insulate against

accounting rule changes, inclusion of

pre-acquisition profi ts in the year of

acquisition, exclusion of exceptional items

in calculations and use of average

exchange rates for net debt calculations

(to match rates used for profi t translation).

The impact of this last provision has been

dramatic this year with covenanted net

debt/EBITDA calculated in accordance with

our credit agreements of 2.4 compared to

3.1 on an accounting basis.

As a result of this approach, Meggitt

believes it has credit facilities suffi cient

for its ongoing operations until at least

2012 when the next signifi cant bank facility

renewal is due, on terms that are

accommodating even in turbulent times

and from creditors highly likely to meet

their obligations to us.

Taxation

The Group’s underlying tax rate increased

from 27.5% to 28.0% this year, refl ecting the

full- year impact of the acquisition of K&F

which results in more of the Group’s profi ts

being taxed in higher rate jurisdictions.

Dividends

Meggitt delivered another strong

performance in the year and, whilst

recognising the economic uncertainties

that exist, believes it is well placed to face

the challenges of the current global

economic environment. Accordingly,

we have increased the full year dividend

by 3% to 8.45 pence (2007: 8.20 pence).

The recommended fi nal dividend was held

fl at at 5.75 pence (2007: 5.75 pence).

Retirement benefi t schemes

The Group has a number of defi ned benefi t

pension schemes. The principal schemes

are closed to new members with the

exception of certain schemes arising on

the acquisition of K&F.

Overall, the schemes’ defi cits increased to

£172.0 million (2007: £102.1 million). The

main driver was the impact of the global

economic downturn on equity and bond

markets, which resulted in the reduction in

the value of assets held by the schemes.

The currency impact of retranslating

defi cits held by overseas subsidiaries also

contributed £25.6 million to the increase in

defi cits. The schemes’ funding positions

were partly mitigated by the increased

defi cit reduction payments made by the

Group and favourable movements in

assumptions used to determine schemes’

liabilities arising from reductions in

infl ation rates and higher yields on

corporate bonds.

Regulations in the UK and US require

repayment of defi cits over time. Following

agreement with the schemes’ trustees,

defi cit reduction payments were increased

in 2008 to £21.1 million (2007: £1.8 million)

and are expected to increase to

approximately £25.0 million (pre-tax) in

2009. The next fi nancial valuations in the

UK are likely to take place in 2009.

Meggitt’s two other principal post-

retirement benefi t schemes provide

medical and life assurance benefi ts to

certain overseas employees. These

schemes are unfunded and have a

combined defi cit of £69.2 million (2007:

£51.2 million) with the increase arising

primarily due to currency translation.

Defi cit reduction payments in the year

were £1.4 million (2007: £0.6 million).

Accounting standards

Meggitt’s results were not affected by changes

to fi nancial reporting standards in 2008.

Restatement of prior year results

Meggitt restated its 2007 net assets after

fi nalising the fair values of K&F acquired

in 2007. The adjustments did not affect the

income statement of the Group for the year

ended 31 December 2007.

BUSINESS REVIEW CONTINUED

DEFINED BENEFIT PENSION SCHEMES SUMMARY (£’M)

2008 2007

Opening net defi cits 102.1 97.2

Service cost 12.3 11.6Employer contributions (33.4) (13.4)

Net defi cit reduction payments (21.1) (1.8)Net fi nance costs/(income) 1.3 (0.4)Businesses acquired – 31.5Net actuarial losses/(gains) 64.1 (24.3)Currency movements 25.6 (0.1)

Closing net defi cits 172.0 102.1

Assets 451.9 471.4Liabilities 623.9 573.5

Closing net defi cits 172.0 102.1

Funding status 72% 82%

TABLE 11


RISKS AND UNCERTAINTIES

03_Subhead 1

03b_Subhead 2

04_Body Copy

02_Intro Paragraph

03_Subhead 1

03b_Subhead 2

04_Body Copy

02_Intro Paragraph

RISK DESCRIPTION

MITIGATION ACTION

PRODUCT DEMAND

Spreading our activities across the civil

aerospace, military and energy markets.

Generating revenues from original equipment

manufacturers and aftermarket services.

Operating across different geographical

regions.

Maintaining, where practical, a fl exible

cost base.

Reducing costs to partially mitigate any

reduction in demand.

COMPETITION Protecting our positions by maintaining

a broad customer base.

Maintaining diverse products and

operations to reduce the effect of action

by any single competitor.

Maintaining a competitive manufacturing

base.

Developing proprietary intellectual

property and products in markets that

demand high levels of technology, quality

and service and strong, long-term

relationships with customers.

Maintaining a robust intellectual property

protection programme.

Maintaining the highest manufacturing and

quality standards and attending to individual

customer certifi cation requirements.

Ensuring good operational cash fl ow and

available fi nance.

POTENTIAL IMPACT

Military spending and priorities, particularly those of

the US government, our largest customer, affects our

revenues. Conditions in the air travel industry are also

important to our revenues. A signifi cant or prolonged

downturn, due to recession, commodity prices, terrorist

attack or aerospace regulations would decrease demand

for the Group’s products. Several airlines have, at the

time of publishing, announced plans to park a number

of aircraft and defer new deliveries. This and the impact

of the current economic climate on our airline customers,

will adversely affect our revenues.

We compete in a highly competitive global market that

has experienced signifi cant consolidation in recent years.

Losing contracts to competitors, many of whom have

greater fi nancial, technological and marketing resources,

or being forced to accept lower margins, would have an

adverse effect on the Group’s results.

The loss of key intellectual property or the failure to

enforce its rights could hinder the Group’s development

and provide an advantage to competitors.

The competitive position of the Group would suffer if it

were unable to meet future investment requirements;

continue research and development; or provide cash

or equipment incentives to original equipment

manufacturers. Such investments, which decrease the

Group’s cash fl ow in the short term, need to be recovered

through future revenues.

LEGAL AND REGULATORY

We are subject to litigation in the ordinary course of business

and provide for such costs. However, there is a risk that

successful claims or costs could exceed the provisions made.

For example, a number of asbestos-related claims have been

made against acquired subsidiary companies. To date, the

amount connected with such claims in any year has not been

material and many claims are covered fully or partly by

existing insurance and indemnities.

The Group is subject to the laws and regulations of the

countries in which it operates, including health and safety,

environmental, export compliance and government

contracting regulations. In the USA there is a system of

voluntary disclosure to the relevant authorities to deal with

any breach of export laws. Any reported or unreported breach

may be investigated and, depending upon its seriousness,

result in criminal, civil or administrative penalties, including

suspension or debarment. In 2000, the US Government

Maintaining a legal and compliance

function to oversee the management of

these risks.

Providing for claims which cannot be

recovered from insurers.

Introducing a health and safety

programme across all of our businesses.

Investing signifi cant resources in

implementing best practice export

compliance and ethics programmes which

are reviewed quarterly by the Board’s

Ethics and Export Compliance Committee.

Risks and uncertainties affecting the Group’s civil aerospace, military and other markets could have a

material impact on the Group’s performance and cause actual results to differ materially from expected

and historic performance. Meggitt’s risk management programme covers identifi cation, impact

assessment, likely occurrence and mitigation action. Some level of risk, however, will always be present.

03_Subhead 1

03b_Subhead 2

04_Body Copy

02_Intro Paragraph

RISKS AND UNCERTAINTIES CONTINUED

16 Business review


03_Subhead 1

03b_Subhead 2

04_Body Copy

RISK DESCRIPTION

MITIGATION ACTION

LEGAL AND REGULATORYCONTINUED

POTENTIAL IMPACT

ENVIRONMENTAL Meggitt’s operations and facilities are subject to laws

and regulations that govern the discharge of pollutants

and hazardous substances into air and water as well as

the handling, storage and disposal of such materials and

other environmental matters. Failing to comply with our

obligations potentially exposes the Group to serious

consequences, including fi nes, other sanctions and

limitations on operations.

We are involved in the investigation and remediation

of current and former sites for which we have been

identifi ed as a potentially responsible party under US law.

Designing processes that minimise the effect

of the Group’s operations on the environment.

Commissioning independent third-party

audits of our sites.

Carrying out extensive environmental due

diligence on potential acquisitions and

purchasing environmental insurance for

all new sites.

Providing for the expected costs arising from

these sites based on information currently

available and establishing a receivable to the

extent these costs are recoverable under the

Group’s environmental insurance policies.

EQUIPMENT FAULT

Our products generally operate in extreme environments

where a serious incident arising from failure could result

in liabilities for personal injury or death and damage to

the Group’s reputation. The Group may be subject to

material product warranty obligations to third parties for

equipment it manufactures and services.

Designing manufacturing processes that

ensure stringent quality and reliability

standards.

Protecting the Group from future product

liability claims subject to coverage limits

with liability insurance.

EXCHANGE RATES

We operate in, and sell products to, a range of countries

with different currencies, resulting in exchange rate

exposure.

Transaction risk arises where revenues are denominated

in currencies different from those of the costs of

manufacture.

Translation risk arises on the translation of net assets

and income statements of overseas subsidiaries.

Addressing longer-term risk of exposure to

exchange rate fl uctuations by sourcing goods

and services in currencies which match the

revenue exposure where cost-effective.

Hedging short-term transaction risk.

Managing translation risk where possible by

the partial currency matching of borrowings

with the net assets of overseas subsidiaries.

started to investigate the alleged violations of US export

control laws by a US Meggitt subsidiary and is also

investigating alleged breaches by three other subsidiaries,

one of which is in the UK. These investigations are likely

to lead to fi nancial penalties for which provision has been

made. Criminal charges, suspension or debarment and

denial of export privileges are also possible.

The aerospace industry is highly regulated so the Group

would be adversely affected if a material certifi cation,

authorisation or approval were revoked or suspended.

CREDIT Credit risk exists in relation to customers, banks and

insurers.

Maintaining rigorous credit control

procedures.

Maintaining a wide customer base.

Maintaining a wide bank group.

Monitoring relationships with banks and

other counterparty risks through our

treasury function.

Selecting insurers with good credit ratings.

CONTRACTS Multi-year, fi xed price contracts with original equipment

manufacturing customers expose us to the upside and

downside of decreases and increases in production costs.

The Group is subject to contracting risks with the US

government which has a range of sanctions available to it

in the event of violations.

Ensuring estimates of cost are based on

reliable historic data and, where possible,

by entry into multi-year, fi xed price

contracts with major suppliers.

Maintaining guidelines for doing business with

the US Government as part of the Group’s

Ethics and Business Conduct Programme.

02_Intro Paragraph

03_Subhead 1

03b_Subhead 2

04_Body Copy


RISK DESCRIPTION

POTENTIAL IMPACT

MITIGATION ACTION

INTEREST RATES

Fluctuations in rates affect the interest the Group is

required to pay on our external borrowings.

Using the underlying character of the debt

instruments and interest rate derivatives

such as interest rate swaps.

RETIREMENT BENEFITS FUNDING

The funding position of the Group’s post-retirement benefi t

schemes may be adversely affected by poor investment

performance, changes in interest and infl ation rates,

improved mortality rates and changes in the regulatory

environment. The income statement and the level of cash

contributions required to be made to the schemes may be

positively or negatively affected by the amounts the Group

is required to record for our retirement benefi t obligations.

See note 35 to the Financial Statements and page 14 of the

Business Review..

Closing the defi ned benefi t schemes in the

UK and USA to new members, with the

exception of certain schemes inherited on

the acquisition of K&F.

Agreeing defi cit recovery plans with the

trustees based on actuarial advice and the

results of scheme valuations.

Changing future service benefi ts to

contain cost.

ACQUISITIONS Meggitt continues to pursue acquisitions as part of our

growth strategy. Such acquisitions may not realise the

benefi ts anticipated.

Undertaking due diligence.

Implementing comprehensive business

integration processes.

Obtaining representations, warranties and

indemnities from vendors where possible.

Maintaining signifi cant investment in

modernising facilities and improving

production processes to develop leading

manufacturing operations.

Maintaining a supplier risk assessment

programme.

Subjecting robust business continuity

plans to regular testing to manage the risk

of a loss of a major facility or supplier.

SUPPLY CHAIN We rely on our own manufacturing operations and

independent suppliers for key raw materials and

components, some of which may be available only from

a limited number of suppliers. Any disruption to the

supply chain could have an impact on our ability to

meet customer requirements and adversely affect the

Group’s results.

Negotiating debt facility extensions.

The Group believes it has credit facilities

suffi cient for our ongoing operations until

at least March 2012.

Basing covenant calculations on frozen

UK GAAP to reduce volatility arising from

certain fair value measurements and

future accounting rule changes.

Including covenant clauses that enable

net debt and EBITDA to be retranslated

to sterling at similar exchange rates to

reduce exchange movement volatility.

Monitoring our actual and forecast results

against covenant ratios regularly.

Maintaining development and succession

programmes, competitive remuneration

packages and good communications at

all levels.

FINANCING

PEOPLE

The Group’s long term fi nancing is provided by

shareholders in the form of equity and by banks and

other institutions in the form of debt.

Debt facilities are provided for fi nite periods of time

and need to be renewed periodically, unless repaid out

of cash fl ow. Such renewal could be affected by any

structural issues in the credit markets.

Debt facilities contain covenants which, if breached,

could result in the facilities being withdrawn.

The success of the Group depends upon the efforts,

abilities, experience and expertise of certain senior and

specialist employees. Failure to retain them or recruit

alternatives would have an adverse effect.

Work stoppages or slowdowns at the Group’s facilities

or those of our key customers or suppliers would affect

the Group.

A group of leading electro-mechanical engineering businesses specialising in smart engineering for extreme environments. Their products are on virtually every aircraft in service, ensuring stable aftermarket revenues over the long term.

AEROSPACE EQUIPMENT

GULFSTREAM G650

The recently launched long range

Gulfstream G650 jet, which will become

the fastest civil aircraft, will carry Meggitt

wheels, brakes and integrated brake-

by-wire, fl uid control and sensing and

ignition systems.

MARKETS

• Civil aerospace: large, regional and

business jets and general aviation

• Military: fi xed wing and rotary aircraft,

ground vehicles, ships, unmanned

air vehicles

• Energy

PERCENTAGE OF

GROUP REVENUE

REVENUE£ MILLIONS

230.6

UNDERLYING OPERATING PROFIT£ MILLIONS

CAPABILITIES

• Wheels, brakes and brake

control systems


• Fluid control

• Safety systems


763.7

65.7

20 Business review


fuel tanks to the KC-135 aircraft. It was

integrated into Meggitt Thermal Systems

as part of an initiative to realign assets and

resources around primary environmental

control and ice protection sub-system

strategies. Both target the business jet

and general aviation and helicopter

markets, with attractive opportunities

in ice protection being pursued in some

commercial aviation segments. Meggitt

Thermal Systems’ new electro-thermal

ice protection system, in line with

developments in More Electric aircraft,

addresses commercial and regulatory

pressure to cut aircraft fuel burn and

emissions, using 50% less energy than

traditional bleed air systems while

optimising performance.

Meggitt Polymer Solutions received

numerous orders for seals from customers

as diverse as Alenia Aermacchi, Spirit

AeroSystems, Hawker Beechcraft, Summa

Technologies, Boeing, GKN and Cessna

and continued to develop its composite

materials and manufacturing processes. A

major customer is evaluating a pioneering

Meggitt polymer that weighs up to 20%

less than the industry standard. Meggitt

Polymer Solutions’ site consolidation in

Loughborough UK was completed and,

with the Oregon, USA facility, is benefi ting

from signifi cant operational excellence

initiatives including brand-new factory

layout to enable modern manufacturing

techniques to be implemented.

Meggitt Safety Systems had a record year,

which included securing the contract for

Divisional overview

Meggitt Aerospace Equipment represents

over 65% of total revenues at £763.7 million

and generates 63% of its revenues from

the aftermarket and 37% from original

equipment.

Meggitt’s Aerospace Equipment

businesses had a good year in 2008 with

strong revenue and underlying operating

profi t growth, underpinned by healthy

order intake.

Meggitt Fluid Controls secured contracts

including the gearbox and brake system

for the Future Combat Systems MULE

(Multifunction Utility and Logistics

Equipment vehicle) and fans for the

V22 Osprey rotorcraft.

Winning the pneumatic bleed air system

for Embraer’s Legacy 500 mid-size and

450 mid-light jets validated Meggitt Fluid

Controls’ investment in motor controller

technology. This enables a range of

Meggitt components to be packaged

into sub-systems that increase platform

content. Its modular approach enables

equipment to be customised quickly for

virtually any system in any of its markets—

military aircraft and ground vehicles, civil

aerospace and energy—providing

opportunities worth hundreds of millions

of dollars over a programme lifetime.

EFC, our fl exible bladder fuel tanks

and ice protection business, won

numerous contracts including its record

US$41 million follow-on contract to supply

KEY POINTS

Total revenues up 45% to

£763.7 million (14% organic)

Underlying operating profi t

of £230.6 million, up 46%

(10% organic)

Returns on sales, 30.2%

(2007: 30.0%)

Order intake up 32.6% on 2007

AEROSPACE EQUIPMENT CONTINUED

FINANCIAL HIGHLIGHTS GROWTH STRATEGY

30.2%RETURN ON SALES

32.6%ORDER INTAKE UP

• Invest in component design and

technology to meet next generation

platform requirements and create

enduring value

• Adapt new aftermarket business

models to ensure stable, long-term

revenues

• Develop profi table integrated

solutions and sub-systems that

add value to our customers

• Acquire complementary businesses

that align with strategic intent

• Stabilise product cost base through

astute supply chain management

• Consolidate operations further to

deliver effi ciencies

• Further integrate engineering

resources to increase depth and

breadth of capabilities


Our compact heat exchanger manufacturer,

which serves the oil and gas exploration

market, won multi-million pound orders in

Australia and Malaysia.

Military orders included a multi-million

pound follow-on contract from

AgustaWestland to develop and produce

the differential brake control system

components for the Future Lynx helicopter

and an additional Eurofi ghter Typhoon

order. A contract from BAE Systems for

the wheels, brakes and brake control

system for the Mantis unmanned

technology demonstrator reinforced our

leading position in wheel and brake

technology for unmanned air vehicles.

Meggitt Aircraft Braking Systems products

were tested successfully on the fi rst fl ights

of the Cessna CJ4; Phenom 300; Aermacchi

M346; Gripen demonstrator; Tranche 2

Eurofi ghter Typhoon and the F35 STOVL

aircraft. In October, a Bombardier test

aircraft fl ew entirely equipped with

Meggitt’s electrically actuated carbon

brake system (Ebrake®), a civil aviation

fi rst. Electric braking can improve dispatch

reliability; eliminates the risk of hydraulic

fl uid fi res; reduces aircraft operating and

maintenance costs; and responds to the

fuel-effi cient, fl uid-free aspirations of the

More Electric aircraft. We will continue to

invest in developing Ebrake® technology

and friction materials in 2009.

Meggitt Aircraft Braking Systems continued

to improve its carbon materials – latest

formulations improve longevity by 25%

on the current standard – and it started

developing the friction materials

technologies and know-how of its

combined operations in dual locations

in the US and UK.

the design, development, manufacture

and support of the Airbus A350 fi re

detection systems.

Meggitt Aircraft Braking Systems

continued to win signifi cant contracts on

new aircraft, winning virtually every major

braking system bid it entered. This

included the wheel, brakes and brake

control system on the Gulfstream G650 jet.

This was Meggitt’s biggest business

aviation award to date and could provide

revenues worth hundreds of millions of

dollars over the life of the programme.

In addition, advanced brake control

technology, which includes individual

wheel, brake-by-wire and anti-skid control

for maximum stopping performance,

automatic braking and brake temperature

monitoring was selected for Gulfstream’s

super mid-size G250 in a year in which the

50th anniversary of the Gulfstream I was

celebrated. This aircraft was equipped with

Meggitt equipment and we remain the

exclusive braking system supplier for all

seven of Gulfstream’s current aircraft.

Dassault’s Falcon 900LX derivative will

be equipped with Meggitt’s Falcon 900EX

integrated braking system. Hawker

Beechcraft will be supplied with compact,

long-life, lightweight main wheels and

brakes for the high-performance Premier

II. The integrated braking system win

on the Embraer Legacy 450/500 was the

fi rst programme to be executed by a

team from our newly-integrated US and

UK facilities.

Systems engineering deals with multiple elements and products and making

them work together really drives me. At Meggitt Fluid Controls, I’ve been able

to achieve something more: build a multidisciplinary engineering team capable

of winning systems work based on superior control technology.

This technology consists of a set of modules that can be embedded in Meggitt

products across the Group and customised, quickly, for any system. Whether

for cabin temperature and pressure control in aircraft, fuel management in

industrial power plants or wheel speed and braking in military ground vehicles,

it’s about more convenience and less risk for customers all round.

And that’s why we won the valves and the bleed air system for Embraer’s

Legacy 450 and 500 series aircraft. We added real value, generating a

relationship, not just a transaction. Selling multiple products with this enabling

technology proves that managing and marketing groups of complementary

Meggitt businesses as one not only boosts sales but elevates our professional

standing and delivers stimulating work for our talented people.

STEVE NEEMEH

Controls and Embedded Systems Manager, Meggitt Fluid Controls

SYSTEMS MARKETINGCONTROL TECHNOLOGY FOR SUB-SYSTEMS

One of the world’s leading providers of high performance sensing and condition-monitoring solutions for high value rotating machinery and other assets.

SENSING SYSTEMS

IRSCHING 4 GAS TURBINE

POWER GENERATOR

The Irsching 4 is the test power plant for

Siemens’ SGT-8000H, the world’s most

powerful gas turbine. Meggitt’s condition-

monitoring system is helping to optimise

its operations and reduce emissions.

MARKETS

• Civil aerospace: large, regional

and business jets, general aviation

and space


• Energy


REVENUE£ MILLIONS


CAPABILITIES


environments

• Aero-engine and industrial gas turbine

condition-monitoring systems


267.8 46.7

23.0

24 Business review


Divisional overview

Meggitt Sensing Systems generates 27%

of its revenues from the aftermarket and

73% from original equipment.

The division performed well in 2008 with

continued demand from aerospace and

energy customers for its state-of-the-art

condition-monitoring systems. These

products enable maintenance to be

planned effectively and economically for

critical rotating machinery in aircraft and

land-based power generation, optimising

performance, helping to control emissions,

saving fuel and minimising the risk of

breakdown and brown-outs.

Year-on-year revenue growth was

negatively impacted as expected by the

disposal of S-Tec (partially offset by the

acquisition of Ferroperm) in January 2008.

Revenue growth in MSS’ continuing

businesses was 9%.

The Group boosted its energy interests in

the autumn by opening a new Indian offi ce

in Bangalore. Initially, the offi ce will be

used as a platform from which to market

Meggitt’s Sensing Systems products to

India’s coal-fi red power plants and nuclear

facilities, with condition-monitoring

systems topping the bill. Meggitt India will

also be used to market energy-oriented

products from across the Group.

When its advanced airborne vibration

monitor (AAVM) was selected for all new

Boeing 737 next generation aircraft, the

division maintained its leading position in

engine vibration monitoring technology. It

went on to win the digital monitoring and

acquisition units (DMAU) for Eurocopter,

the engine vibration monitor for the

Learjet LJ85 and several protection and

condition monitoring systems for gas and

steam turbines and compressors in

Russia, India and China.

The division’s UK facility became an

approved supplier to Pratt & Whitney

Canada when it won a ten-year contract

to develop and supply a new exhaust gas

temperature system for the PW200 family

of helicopter engines.

Facilities in the US and Switzerland

continued to contribute to the safety of

troops in Iraq and Afghanistan, providing

sensors to help prevent catastrophic

mechanical failure in helicopters to

Sikorsky and Army Aviation.

Meggitt Avionics received new orders for

its air data system and crash survivable

memory units from Eurofi ghter Typhoon.

An order for an integrated standby fl ight

display with air data sensing for a Korean

Aerospace Industries utility helicopter

could extend to 200-plus rotorcraft over

the next ten years. There was strong

demand for the helicopter air data system

installed on Boeing’s Apache attack

helicopter—the Block III upgrade will

include Meggitt’s secondary fl ight display

from 2011 onwards, substantially

increasing its Apache shipset value.

Meggitt Avionics also delivered its threat

warning indicators and air data computers

to the fi rst of the United States’ Joint

Cargo Aircraft—the twin-engine, mid-

range, medium-lift turboprop cargo plane

known as the C-27J Spartan.

KEY POINTS

• Total revenues up 14% to


• Underlying operating profi t


(9% organic)

• Return on sales, 17.4%

(2007: 17.6%)

• Order intake up 16.2% on 2007

SENSING SYSTEMS CONTINUED




GROWTH STRATEGY

• Continue to invest in high performance

sensing technologies and develop our

centres of excellence

• Combine them with advanced

processing electronics, delivering

condition-monitoring systems that

reduce gas turbine operating costs,

optimise maintenance regimes and

reduce pollution

• Apply our products and expertise to

adjacent aerospace applications and

next-generation integrated vehicle

health management solutions

• Develop our energy segment business

through continued innovation and

expanded geographical presence

• Extend our complete integrated

product and service offering

• Invest in strong programme

management, effective systems

engineering, smooth new product

introduction processes and continuous

improvement initiatives


While market conditions are tough,

MSS continues to be active in providing

sensors for the consumer goods and

other specialist diverse markets.

During the year, Meggitt Sensing Systems

committed £1 million, with Boeing, BAE

Systems and Rolls-Royce, to Cranfi eld

University’s condition-monitoring research

centre for integrated vehicle health

management. The centre aims to advance

existing concepts of vehicle maintenance,

repair and overhaul, offering a total health

check for high-tech, high value vehicles

such as aircraft, ships, high-speed trains

and high-performance cars.

launched its innovative fuel gauging

technology based on time domain

refl ectometry. Primarily used in the

process control industries, this smart fuel

probe with integral self-diagnostic tools is

the fi rst to have been applied successfully

in civil aerospace.

An agreement between the division’s

facility in California and Boeing

Commercial Airplane Group is enabling

it to market its non-invasive pressure

sensors for composite wing and airframe

testing across the aerospace industry.

They are currently being used for testing

on the composite wings of the Boeing 787

and other Boeing models.

Meggitt Sensing Systems’ latest acquisition,

Ferroperm, continued its cutting-edge

developments in high temperature

ceramic sensor material that can function

close to aero-engine hot sections and

deliver the data needed to optimise

performance and control emissions. Its

piezoceramic thick fi lm, the only product

of its kind that can be produced on an

industrial scale, is being integrated with

the division’s microelectronic mechanical

systems (MEMS). This should lead to a new

generation of miniaturised integrated

sensors and distributed sensor networks.

Meggitt Sensing Systems’ French operation

worked with Meggitt Avionics to develop

new generation inertial monitoring units

based on smaller, cost-effective MEMS

technology, extending the market for

Meggitt’s new integrated compact

secondary fl ight displays.

Increasingly tough operational, economic

and environmental constraints continued

to drive demand for smart engineering

solutions from the energy sector. Siemens

adopted Meggitt Sensing Systems’ VM600

monitoring systems for large-scale steam

and gas turbine operations. This included

Irsching 4, the test power plant for the

world’s most powerful gas turbine. The

division remains a major supplier to

energy markets. Sales of sensors, which

are used to detect the onset of mechanical

failure, were particularly strong in the

wind power generation sector.

The year proved productive for new products

and new markets. Meggitt Sensing Systems

provided the advanced engine vibration

monitor for the Sukhoi commercial

Superjet 100’s maiden fl ight and engine

vibration monitoring and engine interface

control units were qualifi ed on the ARJ21,

the new Chinese commercial aircraft. The

engine monitoring units for the Boeing 787/

GEnx engine and the engine vibration

monitoring units for the Boeing 777/GE90

engine were certifi ed. The division also

developed its new InSight® software, which

upgrades the content management system

on the VM600 condition monitor and now

covers applications in oil and gas and

hydro-electric power.

Meggitt Sensing Systems’ sensor and

ignition package for Rolls-Royce’s BR725

engine for the Gulfstream G650 business

jet met the programme requirements with

all units ready on time for the fi rst engine

test. From its facility in New Hampshire,

USA, Meggitt Sensing Systems formally

ENERGY MARKETINGPOWERING UP IN INDIA

As a boy, I loved the old engineering of Bombay – Babcock and Wilcox boilers

and Parsons Marine Steam Company turbines. Today, India has some of the

world’s most modern power plants. Even so, demand is outstripping supply.

To prevent breakdown and brown-out, operators must manage maintenance

economically. That’s where Meggitt’s advanced engine health management

systems come in. From our new facility in Bangalore, we’re selling them direct

to customers, giving them exactly what they need and addressing market

change fi rst and fast. As we control our supply chain – raw materials, process

electronics, control algorithms and support equipment – we can control cost

and quality in a market where value and speed are fundamental to growth.

Every time I go to India, there’s something new – roads, buildings and

sophisticated shopping malls. In the next 15 years, she will be a very different

country and the opportunity for all Meggitt’s energy products – ignition, heat

management and control systems among them – will have grown exponentially.

HITESH SHAH

Director Business Development (Energy), Meggitt Sensing Systems

DEFENCE SYSTEMS

An international training and combat systems business positioned to meet the challenges of modern confl ict.

ABRAMS TANK

Meggitt’s thermal management systems

protect the crew and sensitive electronics

in armoured vehicles such as the M1A2

SEP Abrams tank from heat overload. The

Abrams also carries Meggitt’s precision-

engineered ammunition autoloaders.

MARKETS


• Armed forces, law enforcement and

security organisations

PERCENTAGE OF

GROUP REVENUE

REVENUE£ MILLIONS


19.1CAPABILITIES



131.1

11.3

28 Business review


Meggitt’s UK facility now supplies contract

logistics support for simulation systems

for the UK MoD and has received various

contracts to increase capability for the

Dismounted Close Combat Trainer (DCCT),

the British Army standard for small arms

and combined arms training.

During the year, Meggitt Training Systems

Canada sold its 1,000th avionics unit to

EADS defence and security division after

six years sole supply of fl ight and ground

control systems for this customer’s

advanced jet drones. It also secured

an order from the Canadian Navy for

Hammerhead, a brand-new naval target

that can form part of a swarm threat

simulation of up to 16 vehicles and

replicate asymmetric small-boat attacks

on ships. 2009 will see the introduction

of more new products including a

helicopter drone.

Development of Meggitt’s low-cost

supersonic sea skimming target, the

second phase of which was completed

in 2008, continues with Meggitt taking

the lead role in this three-phase, multi-

national effort.

As Meggitt Training Systems is the

premier weapons training systems

provider in the United States, the United

Kingdom, Canada, Australia and New

Zealand, it aims to use this position as

a platform for international growth in 2009.

Meggitt Training Systems combined its

live-fi re and simulated weapons training

facilities onto one newly constructed site

near Atlanta, Georgia, positioning it for the

Divisional overview

Meggitt Defence Systems represents

around 29% of Meggitt’s overall military

revenues and derives most of its revenues

from the OE market (83%) and retrofi t

contracts.

Following the weak start to 2008 as

anticipated, the division returned to growth

in the second half, a pattern we expect to

repeat in 2009. Meggitt Defence Systems

has also undergone considerable

consolidation in the last two years,

rationalising seven facilities to three to

reduce cost and improve competitiveness.

With Lockheed Martin, Meggitt Training

Systems won the follow-on contract for

the Reconfi gurable Vehicle System (RVS)

which is funded through to 2011. This US

Army standard for virtual convoy training

can simulate up to six military ground

vehicles and is a leadership development

and team-building tool designed to instil

a set of procedural responses to events

in trainees, honing reactions to ambush,

IEDs and other convoy situations.

Meggitt Training Systems in the UK

delivered over 380 free-fl ying aerial

Banshee targets—a record—and provided

a customised model for the UK Ministry

of Defence’s Combined Aerial Target

Service (CATS). The CATS programme

also received fi rst deliveries of Meggitt’s

high-speed Voodoo aerial target, together

with an attack helicopter target from our

Canadian facility and the Microdops

scoring system from our US-based combat

support arm in California.

KEY POINTS

Total revenues up 15% to


Underlying operating profi t


(4% organic)

Return on sales, 14.6%

(2007: 14.5%)

Order intake up 16% on 2007

DEFENCE SYSTEMS CONTINUED

FINANCIAL HIGHLIGHTS GROWTH STRATEGY



• Be the preferred supplier worldwide

for integrated and networked live and

virtual training packages

– supporting the lead systems

integrators implementing armed

forces training doctrine and providing

deployable systems direct to users

– fulfi lling the training needs of police

forces and security organisations

– responding to homeland security

requirements

• Be the preferred supplier worldwide

for precision-mechanical systems for

combat platforms, sustaining leading

positions in electronics cooling and

ammunition-handling and selected

specialist technologies

• Build systems, combining the division’s

core electrical, mechanical, controls

and software capabilities, to pursue

larger contracts in our chosen markets


In 2008, Meggitt Defence Systems opened

an offi ce in Abu Dhabi to support existing

and new business development across

the United Arab Emirates and the wider

Middle East region.

It received a multi-year contract for the

thermal management system on the M1A2

SEP Abrams tank from General Dynamics,

won the thermal management system for

the long-range Infrared Search and Track

(IRST) system for the F/A-18E/F fi ghter and

was awarded the development contract with

potential follow-on production for the

integrated thermal management system

for the US Army’s Multifunction Utility, and

Logistics Equipment (MULE) unmanned

ground vehicle. As our thermal management

systems for military ground vehicles are the

only ones proven in combat, Meggitt Defense

Systems is in a strong position to win

contracts on new platforms.

Meggitt Defense Systems’ automatic

ammunition handling systems continue to

lead the market, winning the development

contract for the 35 mm feed system for

Krauss-Maffei Wegmann; successfully

demonstrating the new Future Combat

System 120 mm autoloader; and test fi ring

the new Cobra helicopter gun feed system.

General Dynamics awarded Meggitt an

$18 million order for Stryker Mobile

Gun System replenishers.

The surface target vector scorer launched

from the combat support side of Meggitt

Defence Systems in 2008 was tested

successfully at the Naval Surface Warfare

Centre at Dahlgren, Virginia. This tracks the

trajectory of projectiles over a large area

during weapons test and evaluation.

development of integrated live and virtual

training packages.

In December, it launched two new lines

targeting the law enforcement market. Its

advanced virtual trainer is a portable system

that fi ts in the trunk of a police cruiser and

supports a wide range of fi rearms training.

The low-cost, high performance, plug-and-

play system is seen as a convenient and

cost-effective way to train large municipal

police forces in the United States and has

international applications.

Meggitt Training Systems’ pioneering

wireless live-fi re target system for indoor

ranges delivers exceptional accuracy and

timing to the presentation of targets while

eliminating pulleys and cabling that are

prone to bullet damage. The product is

highly reliable and creates a superior

training solution to conventional systems.

Both developments, supported by one team

of subject matter experts and engineers

with common operating procedures, meet

the law enforcement and security industry’s

growing interest in creating the optimal

mix of virtual and live-fi re training.

Meggitt Defense Systems’ combat support

systems facility in California is similarly

positioned for success, with a strong

portfolio of contracts for development

programmes that could lead to healthy

production runs and retrofi t work for the

US Army’s fl eet modernisation programme.

In particular, the division’s mission-critical

electronics cooling and automatic

ammunition handling businesses

continued to grow.

There is nothing better for a sales guy than products everybody wants. Now

Meggitt Training Systems has united its live-fi re and virtual capability under

one roof, I’ve got ground-breaking products to sell, like our new portable

fi rearms training simulator. It goes in the trunk of a police cruiser and its

low-cost laser insert fi ts into the barrel of a personal weapon in minutes.

With 42,000 police offi cers in New York City alone, you can see why a low-cost,

high performance plug-and-play trainer hits the spot.

Our wireless live-fi re target system is another pioneering fi rst. It delivers

exceptional accuracy and timing to the movement and presentation of

targets. It’s more reliable than conventional systems and creates a superior

training challenge.

The right mix of virtual and live-fi re training develops the highest standards of

marksmanship and judgement. We cover both, backed by one team of subject

matter experts and engineers and common operating procedures.

DAVID O’MEARA

Director of Law Enforcement Sales, Meggitt Training Systems

INTEGRATIONTRANSFORMING LAW ENFORCEMENT PRODUCTS

30 Corporate responsibility


Governance and compliance

In 2007, Meggitt’s Board approved a

corporate responsibility (CR) policy setting

out the values underpinning the way we

manage social, ethical and environmental

issues. In 2008, it approved a Group policy

encompassing our commitments to health

and safety. This, with the Group

environmental policy adopted in 2006, is

being championed by our recently appointed

Group Health, Safety & Environmental

Manager. These policies are published

on our website, www.meggitt.com.

At Meggitt, effective governance and

compliance are key business enablers.

We devote signifi cant resources to ensuring

our business units comply with our CR

policy. This is supported by a rolling

programme of independent export

compliance, environmental and health and

safety audits which identify and manage

compliance issues across all units.

Our Group Corporate Affairs Director

oversees our CR programme and managing

directors, presidents and general managers

are responsible for local implementation.

Corporate responsibility in action

Health, safety and the environment

• 35% of sites audited by external

environmental consultants in 2008

• 28% of sites audited by external health

and safety consultants in 2008

• 69% of sites certifi ed for environmental

management standard ISO14001 by the

year-end with the remaining sites

planning to achieve accreditation

by 2010

• Meggitt is signatory to the Sustainable

Aviation Strategy of the Society of

British Aerospace Companies and

is represented on its Environmental

Working Group

In January 2008, Meggitt appointed its fi rst

Group Health, Safety & Environmental

Manager to bring a new strategic impetus

to our performance on health, safety and

the environment. Meggitt already has

programmes in place at business unit level

but we must ensure they are conducted

in a Group context and comply with laws

and regulations that can have an impact

beyond individual business boundaries.

Standardising and enhancing our

environmental and health and safety

management systems, policies and

procedures will enable us to improve our

products, processes and performance,

strengthening links in the chain that form

our commitment to achieve the best

environmental, health and safety

performance possible.

In 2008, we convened intra-group health,

safety and environment conferences to

help coordinate business unit preparation

for forthcoming legislation and share

best practice. This was supported by a new

global health, safety and environment

intranet site to increase information-

gathering and sharing. In 2009, we will

pilot new all-employee health and safety

training in the UK, before launching a

global standard for the whole Group.

At Meggitt we recognise our

responsibility to shareholders,

employees, customers, suppliers

and the wider community. We

will comply with all relevant

national laws and regulations

and aim for continual

improvement of our fi nancial,

social and environmental

performance.

CORPORATE RESPONSIBILITY

MEGGITT IS COMMITTED TO:

• Upholding sound corporate

governance principles

• Providing a supportive,

rewarding and safe work

environment

• Conducting business

relationships in an

ethical manner

• Supporting our local

communities

• Minimising the environmental

impact of products and

processes

• Acting as a responsible

supplier and encouraging our

contractors and suppliers to

meet our standards

Corporate responsibility 31Meggitt PLC Report and accounts 2008

Meggitt is committed to maintaining full

compliance with the laws and regulations

governing export control in all the

jurisdictions in which it operates. The

Board formally adopted Meggitt’s export

control policy in 2005 and appointed a

Group Export Compliance Manager to

oversee its implementation. In 2007, we

updated the policy, appointing an export

compliance manager for Europe and

Asia and, in 2009, an export compliance

manager for North America.

Meggitt’s company-wide programme is

based on the globally accepted model of

excellence outlined in the Nunn-Wolfowitz

Task Force Report of 2000—the infl uential

survey of export compliance best practice

—and incorporates the elements

identifi ed in guidance published by the

US Government on effective compliance

programmes. We achieve multiple levels

of accountability using fi ve key process

tools—assessment, compliance

improvement, verifi cation, corrective

action and audit—which are applied in a

continuum. Plans arising from the review

elements enable 16 sub-processes for

39 businesses to be tracked by managers

at all levels, including the executive

leadership team. In turn, Meggitt’s export

control teams receive training and access

to key subject matter experts inside the

Group and from global trade compliance

advisors, JP Morgan Trade Management

Consulting. Meggitt’s own export

compliance website, a customised

database of training modules, forms,

templates, regulations, editorial and

company policy and procedures, is

practices more effi cient, reduced costs

and embodies a more holistic approach

to managing business risk.

We are committed to working with all our

businesses to develop a long-term strategy

to minimise our environmental impacts

and improve health and safety performance,

aided by the data we have collected from

Group business units since 2006. Since the

acquisition of K & F Industries Holdings

in 2007, utilities consumption and waste

generation has risen on an absolute

basis. In 2008, however, we reduced our

environmental impacts relative to rising

production (see Fig. 1).

In line with the development of the Group

health, safety and environment function,

data collection and verifi cation processes

are being improved. Some of our

engineering processes cannot be

substituted for those with less

environmental impact because of the

extreme environments in which our

products are designed to operate.

Our products’ reputation for safety and

reliability is key to sales, so appropriate

environmental targets will be set within

this context.

Export compliance

• 60% of main sites completed

implementation of our export

compliance programme

• 34% of main sites audited by external

export compliance consultants in 2008

• Quarterly North America and Europe

and Asia export compliance councils

convened

Meggitt business units continued to

implement initiatives to reduce environmental

impact and improve health and safety.

• Meggitt Fluid Controls, UK exceeded

its target of reducing trichloroethylene

consumption by 75% to less than one

tonne per year, aided by new automated

aqueous cleaning plants with wash

water recycling systems.

• Meggitt Sensing Systems in New

Hampshire, US, installed a compactor

for corrugated paper products which

should double recycling volumes and

completed a project to reduce liquid

nitrogen consumption by 50%, recouping

the investment in one year.

• Meggitt Aircraft Braking Systems, UK

replaced solvent paint strippers with

aqueous water re-circulating systems,

reducing solvent use since 2007 by

60%. Its waste heat recovery system

should save around £21,000 per year.

New paint spray booths are reducing

potential exposure to spray and

lowering noise levels.

• Meggitt Defense Systems, US achieved

ISO 14001 certifi cation for its

environmental management systems

in September 2008, a substantial

achievement following the consolidation

of three Meggitt businesses into a

single operation.

• Our compact heat exchanger operation

in Poole, UK implemented an integrated

management system for health and

safety, environment and quality. The

combined system has made working

GOVERNANCEDYNAMIC PROGRAMMES IN A GLOBAL CONTEXT

I know what it takes to run a plant safely. My fi rst US Navy role was to ensure

our ship’s steam turbines were always ready and to design safety operating

procedures in line with the United States’ fi rst OSHA regulations. Later, a

career in environmental and maritime law showed me how companies get

into trouble and the penalties that go with it. Some 20 years on, I went in-house

to help an acquisitive corporation establish sustainable health, safety and

environment programmes across the group.

At Meggitt, dynamic programmes are less about reducing liability than ensuring

the safest operations for our employees, raising morale and improving product

quality and effi ciency. Now we have a Group strategy, we will be enlisting the

skills and practices of our best people to deliver uniformly high environmental,

health and safety standards within a global context. Our boundaries extend

beyond individual sites. There must be no weak links in the chain in our quest

for the best performance possible.

GEORGE MARKULIS

Group Health, Safety & Environmental Manager

32 Corporate responsibility


and we continue to receive commendations

and performance awards.

• Meggitt Defence Systems Canada won

an Exporter of the Year award from the

Economic Development Alliance of

Southeast Alberta, Canada.

• A Meggitt Sensing Systems facility in

France was voted Best Quality Supplier

of the Year from Turbomeca for the

“world-class manufacture of sensors

for severe environments”.

• Meggitt Aircraft Braking Systems

continues to set new standards in

performance, reliability and service,

earning Gulfstream Supplier of the Year

awards two years running. Meggitt

Aircraft Braking Systems was also

recognised by Embraer for “outstanding

performance” supporting operators and

developing wheels and brakes for the

Phenom 300, a new light executive jet.

• Meggitt Sensing Systems in Switzerland

was voted Outstanding Supplier on the

ARJ21 programme from the People’s

Republic of China AVIC I Commercial

Aircraft Company for the timely roll-out

of engine monitoring and control equipment.

• A Meggitt Fluid Controls operation in

California and Meggitt Sensing Systems

in New Hampshire were Defense Supply

Center Richmond Best Value Medallists.

Meggitt Fluid Controls won its tenth

consecutive gold medal and Meggitt

Sensing Systems its fi fth silver. Both

medals are awarded for scores of at

least 99 out of 100.

comprehensive and well-respected by

experts in the fi eld.

Ethics

97.5% of employees have completed our

Code of Conduct training and during 2008

we conducted a refresher course,

supported by six “Ethical Moments”

training fi lms on topics including

confi dential information and bullying.

The US-based Ethisphere Institute, which

is dedicated to researching, creating and

sharing best practice in business ethics,

compliance, sustainability, corporate

governance and citizenship, surveyed

1,000 companies worldwide doing business

with the US government. It ranked Meggitt

second of the “Five Best Foreign Company

Ethics Programmes” and number one

in Europe.

In July 2008, Meggitt launched a policy and

protocols to strengthen the management

of sales representatives and intermediaries.

This places Meggitt at the forefront of

anti-corruption thinking and reinforces

the standards set by international treaties

and national legislation.

Customers and suppliers

Supplying safe, mission-critical products

requires the highest standards of

performance, delivery and quality if we

are to sustain and win new business.

We promote a robust quality ethos and are

committed to encouraging our contractors

and suppliers to adopt and implement

this approach.

Our relationships with aerospace and

defence customers are well established

CORPORATE RESPONSIBILITY CONTINUED

KEY ENVIRONMENTAL METRICS FOR 2008

Full corporate responsibility dataset available on www.meggitt.com

2008 2007

Carbon dioxide emitted

tonnes/£’000 revenue 0.10 0.12

Tonnes 111,165 107,389

Volatile organic compounds emitted

tonnes/£’000 revenue 0.0002 0.0003

Tonnes 222 255

Water purchased and abstracted

m3/£’000 revenue 0.76 0.94

m3 879,700 826,280

Non-hazardous waste recycled

Tonnes/£’000 revenue 0.0023 0.0027

Tonnes 2,724 2,379

Hazardous waste generated

Tonnes/£’000 revenue 0.0013 0.0014

Tonnes 1,560 1,193

FIG 1

EMPLOYEES BY REGION

2,341 UK

4,371 North America


252 Rest of world

8,143

EMPLOYEES BY LENGTH OF SERVICE (YEARS)

3,886 Less than 5

1,340 5-10

829 10-15

458 15-20

474 20-25

1,156 Over 25

8,143

EMPLOYEES BY DIVISION

4,892 Aerospace equipment

850 Defence systems

2,319 Sensing systems

82 Group

8,143

FIG 2

Corporate responsibility 33Meggitt PLC Report and accounts 2008

assessed using data collected from

management profi ling. This combination

of on-line psychometrics and aptitude tests

is designed to identify appropriate roles

and opportunities for existing staff and help

select external candidates. During 2008,

many of Meggitt’s senior managers were

assessed and appointments made using

this process. The same management

model forms the basis of the review

process for all professional staff.

During the year, Meggitt’s fi rst leadership

programme was delivered to senior

managers over three week-long events, run

by Oxford University’s Saïd Business School

and supported by Meggitt’s management

board. Content mirrored the primary

elements of the management model—

strategy, operations and the interpersonal

dimension—and resulted in signifi cant

project plans being approved for execution

by the Board. In 2009, a second leadership

programme will take place. Participants

will be selected to achieve a balance of

styles from different divisions, functions,

levels and geographic locations.

Many businesses have implemented

modern manufacturing processes. This

includes the business improvement team

at Meggitt Fluid Controls, UK. It delivered

lean manufacturing awareness training

throughout the factory and worked with

Coventry University to provide accredited

academic modules.

We use E-learning tools to deliver training

across the Group on topics such as ethics

and business conduct and export control

and at business unit level on subjects

relevant to specifi c site requirements.

• Meggitt Safety Systems won the

Westinghouse Nuclear Services

Certifi ed Supplier Award.

Business continuity

• 76% of Group sites have implemented

and embedded business continuity

plans with the remainder in the training

stages of the programme

Recent acquisitions increased the

percentage of sites in the training phase of

our business continuity programme. The

remainder of Meggitt’s sites have implemented

plans and are progressing through the

more advanced stages of the programme.

THE MEGGITT MANAGEMENT MODEL

FIG 3

STRATEGIC

THINKING

STRATEGY

LEADERSHIP

TEAM

WORKING

PLANNING AND

ORGANISING

DELIVERING

RESULTS

ADAPTABILITY

CREATING

ALIGNMENT

OPERATIONAL

CAPABILITYINTERPERSONAL

SKILLS

Training and development

In 2008, Meggitt launched a leadership

development programme. Working with

business psychologists, we developed

a model of management attributes (see

Figure 3) against which individuals are

VALUESSATISFYING EMPLOYEES

Over the year, I will have had a cup of tea with all our employees. I want to know

how they feel about working at Meggitt and I want to improve that experience.

It’s my job to foster and promote the values that make a business successful

but everyone has to be engaged with their teams. We embrace lean

manufacturing and continuous improvement initiatives on the shop fl oor but

this approach should pervade every function. That’s why every manager has

an employee engagement action plan.

Our formal annual appraisals are simply one of the conversations taking place

each week between managers and teams on how best to get things done. It’s

about solving problems with people, not for people. Our next employee survey

will show whether the approach is working but I know already that sales,

attendance and productivity are up. And the business feels better. No one is going

to persuade me that an unhappy person is more productive than a happy one.

BERNIE STEVENS

General Manager, Meggitt Avionics

Meggitt Sensing Systems’ operation in

California gave its employees and their

families free access to over 80 online

courses ranging from supervisory training

to personal fi nance management.

Local communities and

charitable donations

Meggitt makes an important economic

contribution to local communities. Its

facility in Poole UK was recognised by

the South West of England Regional

Development Agency as a ”Beacon”

company signalling its status as a forward

thinking and ambitious business. The award

is given only to those who can demonstrate

outstanding achievement across a range

of criteria. Meggitt scored highly on

innovative approaches to business

processes and design and the use of

human behavioural analysis for all staff.

Each business is responsible for

undertaking local charitable initiatives.

The Meggitt Group supports charities and

organisations relevant to our people and

our businesses. These include local hospitals,

hospices, schools and funding of the

Meggitt Trust, which is administered by

the Community Foundation in Dorset, UK.

In 2008, we continued our sponsorship

under the Arkwright Scholarship Trust,

which encourages high calibre students

into engineering careers by awarding

scholarships over the A-level/Scottish

Higher academic years. There are

numerous examples worldwide of

signifi cant funding for health care and

research raised through the efforts of

dedicated Meggitt volunteers.

34 Board of directors


Stephen was appointed to

the Board in January 2004.

He has held a number of senior

fi nancial positions including,

most recently, Group Finance

Director of Thistle Hotels plc.

Stephen also held the position

of Group Finance Director of

the Automobile Association

and Group Financial Controller

of Thorn EMI plc. He is a

Chartered Management

Accountant.

Sir Colin was appointed to

the Board in February 2003,

becoming Non-Executive

Chairman on 1 July 2004.

He spent 37 years in the Royal

Air Force, where he reached

the rank of Air Marshal. Since

retiring, he has held the

positions of Group Managing

Director of Infl ite Engineering

Services, Chairman of the

Engineering Council (UK),

President of the Royal

Aeronautical Society and the

Council of European Aerospace

Societies. He is President of

the Soldiers, Sailors, Airmen

and Families Association in

Buckinghamshire where he is

also a Deputy Lieutenant. He is

a Chartered Engineer.

BOARD OF DIRECTORS

SIR COLIN TERRY KBE CB

FREng DL

Non-Executive Chairman +

Philip joined Meggitt in 1994

and was appointed to the

Board in January 2001,

responsible for legal and

compliance matters. He

relinquished the role of

Company Secretary during

2006. Previously, Philip spent

14 years at British Aerospace.

He is a Fellow of the Institute

of Chartered Secretaries and

Administrators.

PHILIP GREEN

Group Corporate

Affairs Director

Terry joined Meggitt in 1993

and was appointed to the

Board as Group Finance

Director in 1995, becoming

Chief Executive in January

2001. Before joining Meggitt,

he spent 15 years at Lucas

Aerospace. He is a Chartered

Accountant.

TERRY TWIGGER

Chief Executive +

STEPHEN YOUNG

Group Finance Director

MEMBERSHIP OF COMMITTEES

* Audit

+ Nominations

ø Remuneration

Board of directors 35Meggitt PLC Report and accounts 2008

David was appointed to the

Board in January 2002 and

became Senior Independent

Director on 1 March 2007.

He was, until December 2000,

Chairman and Chief Executive

of ING Barings, before which

he spent 18 years at Phillips

& Drew and UBS, becoming

Executive Vice President and

Regional Head of UBS Europe.

He is Chairman of Henderson

TR Pacifi c Investment Trust

PLC and Oriel Securities Ltd,

a director of two venture

capital-backed companies and

chairman of three charities.

David was appointed to the

Board on 13 December 2006.

He has held a number of

senior fi nancial positions and

in 1991 joined distribution and

outsourcing group Bunzl plc

as Finance Director where he

worked until retirement in

January 2006. He is currently

serving as Senior Independent

Director at Taylor Wimpey Plc

and Mondi plc. He is also a

non-executive director of

Tullow Oil plc and DP World

Limited, chairing the audit

committee at both. David is

a Chartered Accountant.

Peter was appointed to the

Board in January 2004. He is

Chief Executive of Laird PLC.

He previously held senior

management positions with

Invensys plc and BTR plc.

Peter is a non-executive board

member of UK Trade &

Investment (UKTI) and was

a non-executive director of

Oxford Instruments plc from

1999 until May 2004. He is a

Chartered Engineer and holds

an MBA.

Sir Alan was appointed to the

Board in May 1996. He was

previously Chief Executive

of ASW Holdings PLC and

director of The Morgan

Crucible Company plc from

1995 until April 2004. Until

his resignation in July 2008,

he was Chairman of The

Mountview Academy of

Performing Arts. A member

of the Financial Reporting

Council from 1995 to 1999,

Sir Alan is a Chartered

Accountant and Chartered

Management Accountant.

SIR ALAN COX CBE

Non-Executive Director +

DAVID WILLIAMS

Non-Executive Director * + ø

PETER HILL CBE


DAVID ROBINS


36 Financial statements


FINANCIAL STATEMENTS 2008

51 Independent auditors’ report

to the members of Meggitt PLC

52-94 Group accounts

52 Consolidated income statement

53 Consolidated balance sheet

54 Consolidated cash fl ow

statement

55 Consolidated statement of

recognised income and expense


statements

95-102 Company accounts

95 Independent auditors’ report

to the members of Meggitt PLC

96 Company balance sheet


statements of the Company

37-40 Report of the directors

41-43 Directors’ statement on

corporate governance

44-50 Remuneration report

Statutory financial statements including the

independent auditors’ report

Financial calendar and supplementary

information

51-102 FINANCIAL STATEMENTS 103-105 INVESTOR INFORMATION37-50 CORPORATE GOVERNANCE

103 Five-year record

104 Supplementary information

105 Financial calendar and advisors

ACQUISITIONS AND DISPOSALS

On 3 January 2008, Meggitt completed the disposal of S-TEC Inc.

(‘S-TEC’) to Cobham plc for a net consideration of £17.2 million. S-TEC

designs, certifies and manufactures general aviation autopilots, supplying

original equipment manufacturers and the aftermarket. The business

was no longer considered core to Meggitt’s current operations.

On 7 January 2008 Meggitt acquired 100% of the share capital of

Ferroperm Piezoceramics A/S (‘Ferroperm’) for up to £9.8 million.

Ferroperm is located in Kvistgaard, Denmark and is a world leader in

the manufacture of advanced piezo-ceramic materials for a range of

specialist sensor applications, such as vibration, dynamic pressure,

underwater acoustics and medical ultrasound.

SHARE CAPITAL AND CONTROL

The authorised share capital of the Company as at 31 December 2008

together with details of shares issued during the financial year is shown

in note 37 on page 86.

As at 31 December 2008 there were 665,597,284 ordinary shares in issue.

A further 6,126 ordinary shares have been issued between 31 December

2008 and 27 February 2009 as a result of the exercise of a share option.

The ordinary shares are listed on the London Stock Exchange.

The rights and obligations attaching to the Company’s ordinary shares are

set out in the Company’s Articles of Association. A copy of the Articles of

Association is available for inspection at the registered office. The holders

of ordinary shares are entitled to receive the Company’s report and

accounts; to attend and speak at General Meetings of the Company;

to appoint proxies and to exercise full voting rights.

There are no restrictions on transfer, or limitations on the holding of

ordinary shares and no requirements for prior approval of any transfers.

There are no known arrangements under which financial rights are held

by a person other than the holder of the shares and no known agreements

on restrictions on share transfers or on voting rights.

Shares acquired through Company share schemes and plans rank pari

passu with the shares in issue and have no special rights.

The directors submit their annual report and the audited financial

statements for the year ended 31 December 2008. The Group financial

statements have been prepared in accordance with EU endorsed

International Financial Reporting Standards (IFRSs), IFRIC interpretations

and the Companies Acts 1985 and 2006 applicable to companies reporting

under IFRS. The Company financial statements have been prepared in

accordance with UK Generally Accepted Accounting Practice (UK GAAP).

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

Meggitt PLC is a public limited company, listed on the London Stock

Exchange, incorporated in England and Wales with registered number

432989 and its registered office at Atlantic House, Aviation Park West,

Bournemouth International Airport, Christchurch, Dorset, BH23 6EW.

Meggitt PLC is the parent company of a Group whose principal activities

during the year were the design and manufacture of high technology

products and systems for the aerospace, defence and other specialist

markets including energy, medical, industrial, test and automotive.

The information contained in the following sections of the 2008 Report and

Accounts is incorporated into this directors’ report by reference, to the extent

that it meets the requirements of Section 417 of the Companies Act 2006: (i)

Business Review and Market Review (pages 6 to 29) outlining the Group’s

activities and future plans in more detail and its key risks and uncertainties;

and (ii) the Corporate Responsibility Report (pages 30 to 33), which includes

information about environmental matters, the Group’s employees and social

and community issues, including information about the policies the Group

has adopted in these areas.

GROUP RESULTS

Profit before taxation amounted to £119.3 million (2007: £105.4 million).

The profit attributable to ordinary shareholders amounted to £99.1 million

(2007: £89.3 million) which after dividends of £55.8 million (2007: £42.2

million) resulted in a retained profit for the financial year of £43.3 million

(2007: £47.1 million).

DIVIDENDS

The directors recommend the payment of a final dividend of 5.75p net

per ordinary 5p share (2007: 5.75p) to be paid on 8 May 2009 to those

members on the register at close of business on 13 March 2009.

An interim dividend of 2.70p (2007: 2.45p) was paid on 3 October 2008. If

the final dividend as recommended is approved the total ordinary dividend

for the year will amount to 8.45p net per share (2007: 8.20p).

Dividends are paid to shareholders net of a non-refundable tax credit of

10%. Shareholders liable to higher rate income tax will have additional tax

to pay.

Shareholders will be offered a scrip dividend alternative under the share

dividend plan in respect of the proposed final dividend.

During 2008 the Company made available the Meggitt PLC share dividend

plan in respect of the dividends paid in July 2008 (being the final dividend

for 2007) and in October 2008 (being the interim dividend for 2008).

The amount of cash dividend necessary to give an entitlement to one

new ordinary share was fixed at 263.45p and 223.90p respectively.


REPORT OF THE DIRECTORS



REPORT OF THE DIRECTORS Continued

SUBSTANTIAL SHAREHOLDINGS

As at 27 February 2009 the Company had been notified under the

Disclosure and Transparency Rules of the Financial Services Authority

(“FSA”) of the following substantial interests in the issued ordinary shares

of the Company requiring disclosure:

Percentage of

total voting rights

attaching to the

issued ordinary

Direct voting Indirect voting share capital of

rights* rights* the Company

Prudential plc 61,579,428 - 9.25

Bailie Gifford & Co - 34,138,890 5.13

Legal & General Group plc 25,966,967 - 3.90

Standard Life Investments Ltd 22,153,694 3,769,560 3.89

* One voting right per ordinary share.

SHARE INCENTIVE PLAN

The Trustee of the Share Incentive Plan has been allocated £0.7 million

from 2008 profits to acquire ordinary shares in Meggitt PLC for eligible

employees (2007: £0.8 million).

DIRECTORS AND THEIR INTERESTS

The directors who served during the year were: Sir Colin Terry,

Mr T Twigger, Sir Alan Cox, Mr P E Green, Mr P J Hill, Mr D A Robins,

Mr D M Williams and Mr S G Young.

In accordance with Article 75 of the Company’s Articles of Association,

Mr P E Green, Mr P J Hill and Mr S G Young retire by rotation at the

forthcoming Annual General Meeting and being eligible offer themselves

for re-election. Sir Alan Cox retires at the forthcoming Annual General

Meeting in compliance with A.7.2 of the Combined Code (2006), by reason

of his having served as a director for more than 9 years, and being eligible,

offers himself for re-election.

Details of directors’ contracts and their interests in the ordinary shares

of the Company are as shown in the Remuneration Report on page 44.

None of the directors has or has had at any time during the financial year

a beneficial interest in any material contract relating to the business of

the Group other than service contracts.

The directors have the benefit of “qualifying third party indemnity

provisions” for the purposes of section 236 of the Companies Act 2006

pursuant to the Company’s Articles of Association. A copy of the Articles of

Association is available for inspection at the Company’s registered office.

CORPORATE RESPONSIBILITY

The Board takes regular account of the significance of social, environmental

and ethical matters and a report giving a full update on activities and

achievements during 2008 can be found on pages 30 to 33. The following

specific matters fall under the broad definition of corporate responsibility:

SHARE CAPITAL AND CONTROL CONTINUED

The Company has disclosed significant direct or indirect holdings and this

information is published on a Regulatory Information Service and on the

Company’s website.

Rules about the appointment and replacement of directors of the

Company are contained in the Articles of Association and changes

to the Articles of Association must be submitted to the shareholders

for approval. The powers of directors are as set out in the Memorandum

and Articles of Association of the Company and are governed by applicable

legislation in force from time to time. At each Annual General Meeting

of the Company, the shareholders are requested to renew the directors’

powers to allot securities in the Company up to a specified value and also

to renew the directors’ powers to allot securities without the application

of pre-emption rights up to a specified value in accordance with Article 4

of the Articles of Association. The Company may, as and when required,

seek authority from the shareholders at the Annual General Meeting to

purchase its own shares.

The Group has the following significant facility agreements that include

change of control provisions which, in the event of a change in ownership

of the Company, could result in renegotiation or withdrawal of these

facilities: a USD 680m revolving credit agreement dated July 2004, a

USD 1,420m revolving credit agreement dated March 2007 and a USD 500m

revolving credit agreement dated July 2008. There are a number of other

long-term commercial agreements that may alter or terminate upon a

change of control of the Company following a takeover bid. None is

considered to be significant in terms of their potential impact on the

business of the Group as a whole.

The service contracts for the executive directors state that if at any time

during their employment there is a change of control in the Company,

the executive director may elect to terminate their employment within

6 months of that change of control and will be entitled to receive

compensation for loss of office from the Company. The compensation

would be the annual remuneration plus the value of benefits for the

unexpired notice period less 5%.

The Company does not have any agreements with the non executive

directors or any other employees that would provide compensation

for loss of office or employment resulting from a takeover except that

provisions of the Company’s share schemes and plans may cause options

and awards granted to employees under such schemes and plans to vest

on a takeover.

Following the amendment of the Company’s Articles of Association by

a special resolution passed at the Company’s 2008 AGM, the Company

adopted a new procedure for the disclosure, review, authorisation and

management of directors’ conflicts of interest and potential conflicts of

interest in accordance with the provisions of the Companies Act 2006 with

effect from 1 October 2008. The new procedure was summarised in the

explanatory notes to the Notice of the Company’s 2008 AGM, is included

in the Company’s Articles of Association and has been adhered to by the

Board since 1 October 2008. In deciding whether to authorise a conflict

or potential conflict the directors must have regard to their general duties

under the Companies Act 2006. The authorisation of any conflict matter,

and the terms of authorisation, may be reviewed at any time and will be

reviewed formally by the Board on an annual basis.

Ethics and business conduct

The Group has an Ethics and Business Conduct Policy and a Code of

Conduct, which were revised in September 2007. All employees have

received a copy of the Code of Conduct and follow up training, which is

refreshed on a regular basis. Ethics and business conduct is reviewed

regularly by a committee of the Board.

Community relations and charitable donations

Charitable donations made during the year ended 31 December 2008

amounted to £0.1 million (2007: £0.1 million). In addition, Meggitt PLC

gave financial assistance to local organisations amounting to £14,000

(2007: £20,000). There are also many examples throughout the Group

of non-financial assistance being provided to local organisations.

Payment policy

The Company’s policy is to seek to comply with the terms of payment

agreed with a supplier and where terms are not negotiated, the Company

endeavours to adhere to the supplier’s standard terms. The Company’s

creditor days at 31 December 2008 were 27 days (2007: 30 days).

Political contributions

In accordance with the Group’s policy, no contributions were made to

EU political parties or EU political organisations (2007: £Nil) and no

EU political expenditure exceeding £200 was incurred in the year by

the Company or any of its subsidiaries (2007: none above £200).

A contribution to a non-EU organisation with political objectives of

£15,300 (2007: £Nil) was made by a non-EU business during the year

(2007: Nil) and in accordance with the Group’s policy on non-EU

political contributions, was approved by a Committee of the Board.

People

The Company is aware of the importance of two-way communication with

employees. Its business units communicate and consult at site level using

the best methods as determined by local needs and industry practice.

In addition employees receive copies of the Meggitt Review, a magazine

providing details of notable events and achievements in all companies of

the Group. Senior Group executives meet together regularly and additionally

meet both formally and informally with members of the management

teams of other Group business units.

The directors believe that employees should be encouraged to

become shareholders in order to enable their active participation in

and commitment to the Group’s success. This policy has been pursued

for all UK employees through the Share Incentive Plan and the

Sharesave Scheme.

It is estimated that, when the current year’s allocation has been made

by the Trustee under the Share Incentive Plan, approximately 2,000 UK

employees will hold shares in the Company. The number of employees

contributing to the Sharesave Scheme at 31 December 2008 was 1,017.

Senior executives are also granted awards under the Executive Share

Option Scheme and the Equity Participation Plan, both of which operate

throughout the Group, details of which can be found in the Remuneration

Report on page 44.

Health and safety at work

The Company continues to carry out its responsibility for securing the

health, safety and welfare at work of employees of the Company and its

subsidiaries and for protecting other persons against risks to health and

safety arising out of, or in connection with, the activities at work of those

employees. Every reasonable effort is made to provide safe working

conditions and in addition, protective equipment is provided when

necessary and safety training is made available. In January 2008 the

Board approved a new Group Health and Safety Policy, and a Group

Health, Safety and Environmental Manager was appointed.

Equal opportunities

The Group has a policy supporting the principle of equal opportunities in

employment and opposing all forms of unlawful or unfair discrimination.

Disabled employees

It is Group policy to give full and fair consideration to applications made

by disabled people, to continue wherever possible the employment of staff

who become disabled and to provide opportunities for the training, career

development and promotion of disabled employees.






STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The directors are responsible for preparing the Annual Report, the

Directors’ Remuneration Report and the Group’s and the Company’s

financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for

each financial year. Under that law the directors have prepared the

Group’s financial statements in accordance with IFRSs and the Company’s

financial statements and the Directors’ Remuneration Report in

accordance with applicable law and with UK GAAP. The Group’s and

Company’s financial statements are required by law to give a true and fair

view of the state of affairs of the Group and the Company and of the profit

or loss of the Group for that year.

In preparing those financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state that the Group’s financial statements comply with IFRSs, and

with regard to the Company’s financial statements that applicable

UK Accounting Standards have been followed, subject to any material

departures disclosed and explained in the financial statements.

The directors are responsible for keeping proper accounting records that

disclose with reasonable accuracy at any time the financial position of

the Group and the Company and enable them to ensure that the Group’s

financial statements comply with the Companies Acts 1985 and 2006 and

Article 4 of the IAS Regulation and the Company’s financial statements

and the Directors’ Remuneration Report comply with the Companies Act

1985. They are also responsible for safeguarding the assets of the Group

and the Company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the

company’s website. Legislation in the United Kingdom governing the

preparation and dissemination of financial statements may differ from

legislation in other jurisdictions.

Each of the directors, whose names and functions are listed in the Board

of directors on pages 34 and 35 confirms that, to the best of their

knowledge:

• the Group financial statements, which have been prepared in

accordance with IFRSs as adopted by the EU, give a true and fair view

of the assets, liabilities, financial position and profit of the Group; and

• the Directors’ report, Business review on pages 10 to 29, including

Risks and uncertainties on pages 15 to 17 include a fair review of the

development and performance of the business and the position

of the Group, together with a description of the principal risks and

uncertainties that it faces.

By order of the Board

M L Young Company Secretary

2 March 2009

RESEARCH AND DEVELOPMENT

The Group recognises the importance of investing in research and

development programmes which bring innovative improvements to the

Group both in the products supplied to the consumer and in production

techniques. Including amounts funded by customers, expenditure on

research and development amounted to £78.8 million (2007: £70.0

million). Excluding amounts funded by customers, expenditure on

research and development amounted to £59.4 million (2007: £52.9

million), of which £23.7 million (2007: £22.4 million) was capitalised in

accordance with the Group’s accounting policy (see note 2 of the Group’s

financial statements).

FINANCIAL RISK MANAGEMENT

The Group’s policies on financial risk management are set out in note 3

of the Group’s financial statements.

DETAILS OF RESOLUTIONS TO BE PROPOSED AT THE

ANNUAL GENERAL MEETING

Details of the Annual General Meeting to be held on 23 April 2009, and

explanations of the resolutions to be proposed, appear in the separate

Notice of Annual General Meeting enclosed with this report. In addition

to the ordinary business of the meeting, shareholders’ consent will

be sought to: (i) approve the Remuneration Report; (ii) increase the

authorised share capital and renew the authority of the directors to issue

shares under Article 4 of the Company’s Articles of Association in

accordance with latest guidance from the Association of British Insurers;

(iii) approve payments to organisations of no more than £60,000 in total,

which might inadvertently be interpreted as donations to political

organisations under the Political Parties, Elections and Referendums Act

2000 (as amended by the Electoral Administration Act 2006), although it is

not the policy of the Company to make donations to political parties and

the directors have no intention of changing that policy, neither do they

intend to make any such donations; (iv) approve the convening of general

meetings on 14 clear days notice in accordance with the Company’s

Articles of Association, notwithstanding the anticipated implementation

in the UK of the EU Shareholders’ Rights Directive; and (v) amend the

Meggitt 2005 Executive Share Option Scheme.

AUDITORS

PricewaterhouseCoopers LLP have expressed their willingness to

continue in office as auditors and a resolution to reappoint them will be

proposed at the forthcoming Annual General Meeting.

DISCLOSURE OF INFORMATION TO AUDITORS

As at the date of this report, as far as each director is aware, there is no

relevant audit information of which the Company’s auditors are unaware,

and each director has taken all the steps that ought to have been taken as

a director in order to make himself aware of any relevant audit information

and to establish that the Company’s auditors are aware of that information.


The Nominations Committee consists of Sir Colin Terry (Chairman),

Sir Alan Cox, Mr P J Hill, Mr D A Robins, Mr D M Williams and

Mr T Twigger. The Committee considers any new appointments to

the Board but all directors are consulted and the decision to appoint is

taken by the Board as a whole. All directors are subject to election by

shareholders at the first Annual General Meeting after their appointment

and to re-election thereafter at intervals of no more than three years.

In compliance with Combined Code requirements, Sir Alan Cox will be

subject to annual re-election in 2009 and each subsequent year.

The Board has approved written terms of reference for the Committee

which are available on the Company’s website.

THE BOARD, ITS COMMITTEES AND PROCEEDINGS

The full Board met on eight occasions during the year and these meetings

were attended by all directors, except that Mr D M Williams was excused

from one meeting. The Board regularly receives reports from the Chief

Executive on the Group’s activities, from the Group Finance Director on

financial performance and treasury matters and from the Group Corporate

Affairs Director on legal and compliance issues.

Strategic issues and other items (including such matters as capital

structure, financial reporting and controls) are considered in line with

a schedule of matters reserved for the decision of the Board. If a decision

is not reserved for the Board then authority lies, in accordance with an

authorisation policy, with one of the Finance Committee of the Board,

the Chief Executive, an executive director or the managing directors of

the individual business units. There were no circumstances arising during

the year where it was necessary to record unresolved concerns in the

Board’s minutes.

The Chairman talks with and holds meetings on an informal basis with

the other non executive directors without the executives present.

Committee membership, number of formal meetings held during 2008

and attendance is shown in the following table:

No. of meetings No. of during meetings year attended

AuditMr D M Williams (Chairman) 3 3

Mr P J Hill 3 3

Mr D A Robins 3 3

RemunerationMr D A Robins (Chairman) 5 5

Mr P J Hill 5 5

Mr D M Williams 5 4

Nominations

Sir Colin Terry (Chairman) 1 1

Sir Alan Cox 1 1

Mr P J Hill 1 1

Mr D A Robins 1 1

Mr D M Williams 1 1

Mr T Twigger 1 1

STATEMENT OF APPLIANCE OF THE PRINCIPLES IN

THE COMBINED CODE

The Company has applied the Principles of Good Governance set out

in Section 1 of the Combined Code on Corporate Governance (issued in

2006) as reported in the Statement of Compliance on page 43. Further

explanation of how the principles have been applied is set out below and,

in connection with Directors’ remuneration policies, and total packages,

are contained in the Remuneration Report on page 44.

BOARD COMPOSITION

The Board considers it has a good balance of executive and non executive

directors, is of a size and includes the skills and experience appropriate

for the requirements of the business. The Board comprises a non

executive Chairman, Sir Colin Terry, a Chief Executive, Mr T Twigger,

two other executive directors and four non executive directors.

The senior independent non executive director is Mr D A Robins.

The senior independent non executive director is available to shareholders

if they have concerns which contact through the normal channels

has failed to resolve or for which such contact is inappropriate.

The independent non executive directors are considered by the Board

to be Mr P J Hill, Mr D A Robins and Mr D M Williams.

Sir Alan Cox, is not judged to be independent under the Combined Code

by virtue of his having been appointed for longer than nine years. Whilst

Sir Alan Cox is no longer regarded as independent, the Board considers

that his extensive experience in industry and other organisations makes

him a valuable member of the Board. Biographical and other relevant

information on directors submitted for re-election is provided in the

Notice of Annual General Meeting.

The roles of the Chairman and Chief Executive are separate and there is

a clear division of responsibilities which has been approved and agreed

in writing by the Board. Sir Colin Terry met the independence criteria

on appointment as Chairman on 1 July 2004.

The Board of Directors retains full and effective control of the Group and

is collectively responsible for the Group’s success through its leadership.

It sets the strategy, ensures appropriate resources are in place and

reviews performance on a regular basis. The Board is responsible for

setting the Group’s values and standards and for ensuring its obligations

to shareholders, employees and others are met.

The Chairman is responsible for leading the Board and for ensuring

its effectiveness. Accurate, timely and clear information is provided to

all directors and the Chairman is satisfied that effective communication,

principally by the Chief Executive and Group Finance Director, is undertaken

with the shareholders. The Chairman facilitates the contribution of non

executive directors and the relationship between them and the executive

directors. The non executive directors play a full part by constructively

challenging and contributing to the development of strategy.

The performance of management is monitored, as is the integrity of

financial information and effectiveness of financial controls and risk

management systems. The non executive directors are responsible

for determining appropriate levels of remuneration for the executive

directors and have an important role in the appointment of new directors.

The terms and conditions of appointment of non executive directors are

available for inspection. Their letters of appointment set out the expected

time commitment required and, on appointment, their other significant

commitments were disclosed along with the time involved.

DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE



DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE Continued

In order that the Board can review the effectiveness of the system of

internal control, the following procedures are in place:

1. The Board receives regular reports at Board Meetings on the state of

the business from the Chief Executive and the Group Finance Director

and regularly receives a report on legal and compliance activities from

the Group Corporate Affairs Director.

2. The Audit Committee meets regularly and reviews the effectiveness

of the internal control environment of the Group. At these meetings

it receives reports from the external auditors and the internal audit

department. Internal audit visits to operating units are planned using

a risk model.

3. The Board has an Ethics and Export Compliance Committee which

reviews these areas of compliance on a quarterly basis.

4. Annually a review of the risk environment and the Group’s key risks

is presented to the Board for their consideration.

5. Every month, each business submits detailed operating and financial

reports covering all aspects of their performance. These are reviewed

and, subject to materiality, issues are communicated to the

Management Board and the Board.

6. On an annual basis, the managing director of each business provides

written confirmation that the business for which he is responsible has

been in compliance with the Group Procedures Manual.

7. Annually, the Board receives a report on the insurance coverage in

place and the risks which remain uninsured.

The process for identifying, evaluating and managing the significant risks

faced by the Group is as follows:

1. Following a series of risk workshops facilitated by risk professionals

at business, divisional and Group level to identify and analyse the key

risks faced by the Group, the Board reviewed the list of those risks

and the mitigation plans. These risks are regularly reviewed by the

individual operating businesses, by divisional management and then,

by exception, by the Management Board.

2. There is a regular review of the performance of each business

undertaken by the executive directors and senior Group management.

3. There is a Group Procedures Manual, the purpose of which is to

establish appropriate authority levels throughout the Group to cover

certain items of expenditure, financial commitments and other

matters, which are regarded as essential in order to ensure that

overall financial control is maintained throughout the Group.

The Group Procedures Manual is subject to regular review and update.

4. There is a comprehensive insurance programme.

5. There are programmes for business continuity, health and safety,

environment, export compliance and ethics.

6. There is an on-going programme of assurance activities including

internal audit, external audit, external tax compliance review,

environmental audits, health and safety audits, property risk reviews

and buildings surveys and export regulation compliance reviews.

INFORMATION AND PROFESSIONAL DEVELOPMENT

The Board is supplied in a timely manner with information in a form and

of a quality appropriate to enable it to discharge its duties.

On joining the Board new directors receive an appropriate induction to

the business. Major shareholders have the opportunity to meet new

non executive directors should they wish to do so.

Directors are encouraged to update their skills regularly and their

knowledge and familiarity with the Group is facilitated by access to senior

management, receiving reports on the business and visits to the Group’s

operating facilities. Resources are available to directors for developing

and updating their knowledge and capabilities.

The Board of Directors has established a procedure for all directors to

take independent professional advice at the Company’s expense where

they judge it necessary. Committees are provided with sufficient resources

to undertake their duties. All directors have access to the advice and

services of the Company Secretary who is responsible to the Board for

ensuring that Board procedures are complied with and that there is a

good information flow within the Board. The appointment and removal

of the Company Secretary is a matter for the Board as a whole. The

Company maintains appropriate Directors’ and Officers’ insurance.

PERFORMANCE EVALUATION

In January 2009 the Board conducted a self-evaluation assessment.

The Chairman led a review and discussion to consider the Board’s

performance against some high level objectives and its own terms of

reference and its performance against these. The Board was satisfied

with its effectiveness. The Audit and Remuneration Committees have also

considered their own performance during the year. The performance of

individual directors has been considered by the Chairman and Chief

Executive in discussion with other non executive directors. The non

executive directors have considered the performance of the Chairman,

taking into account the views of the executive directors.

FINANCIAL REPORTING

These financial statements contain an explanation of the directors’

responsibility for the preparation of the accounts and a statement by

the auditors concerning their responsibilities. The directors also report

that the business is a going concern.

INTERNAL CONTROL

The Board maintains a sound system of internal control to safeguard

shareholders’ investment and the Group’s assets. The system is designed

to manage rather than eliminate the risk of failure to achieve business

objectives, and can only provide reasonable assurance against material

misstatement or loss. The Board confirms full implementation of the

Financial Reporting Council’s updated Turnbull guidance on Internal

Control (2005).


DIRECTORS’ STATEMENT ON CORPORATE GOVERNANCE Continued

The views of shareholders are reported to the Board by the Chief Executive.

The Chairman and other non executive directors are available to attend

meetings with shareholders if they are requested to do so. In addition to the

Chief Executive’s regular reports, directors may develop an understanding

of the views of major shareholders from regular reports by the Company’s

brokers to the Board and attendance at analysts’ briefings as required.

Analysts’ notes on the Company are made available to all directors.

CONSTRUCTIVE USE OF THE ANNUAL GENERAL

MEETING

The Board uses the Annual General Meeting as an occasion for

communication with its shareholders. Proxy appointment forms for each

resolution provide shareholders with the option to direct their proxy to

vote either for or against the resolution or to withhold their vote. All proxy

votes for, against and withheld are counted by the Company’s Registrars

and the level of voting for, against and withheld on each resolution is

made available at the end of the meeting and on the Company’s website.

The proxy form and the announcement of the results of a vote make it

clear that a vote withheld is not a vote in law and will not be counted in

the calculation of the proportion of votes for and against the resolution.

Separate resolutions are proposed at the Annual General Meeting on

substantially separate issues and there is a resolution relating to the

financial statements.

The respective Chairmen of the Audit, Remuneration and Nominations

Committees are available at the Annual General Meeting to respond to

questions and it is usual for all other directors to attend.

It is the intention of the Board that notice of the Annual General Meeting

and related papers should be sent to shareholders at least 20 working

days before the meeting.

STATEMENT OF COMPLIANCE WITH THE PROVISIONS

OF THE COMBINED CODE

The Board confirms that throughout the year ended 31 December 2008

the Company has complied with the provisions set out in Section 1 of

the 2006 Combined Code on Corporate Governance with the following

exceptions:

a) A.3.2 At least half of the Board, excluding the Chairman, does not

comprise independent non executive directors. Whilst Sir Alan Cox is

no longer regarded as independent owing to his appointment as a non

executive director for more than nine years, the Board considers that

his extensive experience in industry and other organisations makes him

a valuable member of the Board.

b) A.4.1 A majority of members of the Nominations Committee should

be independent non executive directors and this was not the case during

2008. Sir Alan Cox is no longer regarded as independent owing to his

appointment as a non executive director for more than nine years. As a

result, the Committee is made up of six members, of whom three are

independent non executive directors. The Board considers that Sir Alan

Cox’s extensive experience in industry and other organisations makes him

a valuable member of the Committee.

GOING CONCERN

After making enquiries, the directors have formed a judgement, at the

time of approving the financial statements, that there is a reasonable

expectation that the Company has adequate resources to continue in

operational existence for the foreseeable future. For this reason, the

directors continue to adopt the going concern basis in preparing the

financial statements. This statement of going concern also constitutes

part of the Business Review on pages 10 to 29.

The Board confirms that this process was in place for the year under

review and up to the date of approval of the financial statements.

The Board considers that there is considerable comfort in the fact that

the Group’s cash inflow from operating activities represented 100% of

underlying operating profit in 2008.

AUDIT COMMITTEE AND AUDITORS

The Audit Committee is appointed by the Board. The Committee has

three members, all of whom are considered to be independent. The

Chairman of the Committee is Mr D M Williams. The Board is satisfied

that amongst the Committee’s members there is recent and relevant

financial experience. The Board has approved written terms of reference

for the Committee which were updated in January 2009 and are available

on the Company’s website.

During 2008 the Committee met on three occasions. The external auditors

attended these meetings to discuss the scope and the final results of

the 2007 audit in detail (which included the main risks facing the Group),

the strategy for the 2008 audit, the “hard close” results of the 2008 audit

along with any other items which the auditors or the non executive

directors wished to discuss. The Audit Committee also reviewed the

internal control environment of the Group and received reports from

internal audit as described above. The Committee reviews at each

meeting the activities of the internal audit function and regularly reviews

its effectiveness. In addition the audit committee monitors the integrity

of the financial statements of the Group, formal announcements relating

to the Group’s financial performance and reviews significant financial

reporting judgements contained in them.

The Committee has primary responsibility for recommending the

appointment, reappointment and removal of the external auditors.

The Company places great importance on the independence of its

auditors and, together with them, is careful to ensure their objectivity

is not compromised. The Committee is responsible for agreeing the fees

to be paid to external auditors in respect of their services as auditors.

The Company’s general policy in respect of other non-audit fees is:

• audit related services: the external auditors would be invited to

undertake those services which they are required to, and most suited

to, perform;

• taxation: the Company’s principal tax advisor is Deloitte & Touche

LLP; and

• consulting: the Company’s policy is not to employ its external auditors

for general consulting work where this could impair their

independence or objectivity.

The Audit Committee is required to approve any fees to the external

auditors in excess of £0.1 million.

An Ethics Line exists which enables employees to raise any concerns

about possible improprieties in matters of financial reporting or

otherwise. These arrangements allow for proportionate and independent

investigation and for appropriate follow-up action.

DIALOGUE WITH INSTITUTIONAL SHAREHOLDERS

The Company values its dialogue with both institutional and private

investors. Effective communication with fund managers, institutional

investors and analysts is promoted by way of meetings involving the Chief

Executive and Group Finance Director. This encompasses such issues as

strategy, performance and policy. During the year the Company appointed

a Group Head of Corporate Communications and Investor Relations to

enhance communications with investors.



REMUNERATION REPORT

• benefits which include membership of the Executive Pension Plan and

a pensions allowance, a fully expensed car and free medical insurance

for the individual and their immediate family.

The share schemes include a significant proportion of management

co-investment under the Meggitt Equity Participation Plan 2005. They are

intended to:

• reward and incentivise growth;

• provide a strong link to performance; and

• take account of and, as far as possible, to follow corporate governance

best practice.

In 2008, Towers Perrin conducted a comprehensive review of executive

remuneration, including the operation of the existing long-term incentive

plans. Recommendations for the incentive plans in 2009 are intended to

be appropriate to current market conditions and sensitive to guidelines

issued by institutional investors’ representative organisations in recent

months on executive pay. Changes to the operation of the share schemes

are noted in the relevant sections.

The policy of the Remuneration Committee is to offer executive directors

contracts requiring one year’s notice from the Company. Should the

Company terminate the contracts in breach of the contract terms then

damages would be due which are equivalent to remuneration for the

unexpired period of notice less 5%.

Basic salary

An individual’s basic salary is reviewed by the Committee to take

effect from 1 January of each year and on any significant change of

responsibility. In deciding levels of salary the Committee takes into

account advice from Towers Perrin, data from appropriate third party

surveys, general market conditions, as well as salary increases

elsewhere in the Group. Generally, salaries should be around the

median level for appropriate benchmark companies.

Market conditions for 2009 are challenging. Therefore it was

recommended to the Remuneration Committee that executive directors’

base salaries be frozen at 2008 levels. The recommendation was accepted

and the Company extended the measure to the majority of the top 200

executives. At 1 January 2009, the basic salaries of the executive directors

remain as follows:

T Twigger £600,000

P E Green £275,000

S G Young £360,000

Annual bonus payments

The annual bonus payments for Mr T Twigger, Mr P E Green and Mr S G

Young are awarded following consideration of both the performance of the

Group and the individual’s contribution to that performance. The maximum

bonus which can be earned by any executive director is 150% of basic

salary, other than in truly exceptional circumstances. Achievement of

Group profit and cash targets with reference to the Group budget, together

with the individual’s personal performance and contribution, are the

criteria for awards. The level of bonus payments awarded to the executive

directors for 2008 was 135% of basic salary at 31 December 2008.

This cash bonus reflects the results achieved in 2008. The Group delivered

outstanding financial performance, growth and development, as shown

by the 36% improvement in underlying profit, the 20% increase in

underlying earnings per share, the 3% increase in annual dividend, the

continuing strong underlying cash flow from operations at 100% of

underlying operating profit and the successful integration of acquisitions

where synergy benefits for the year are 25% ahead of target. It also

indicates the Committee’s confidence in this team’s experience and its

ability to manage the business successfully through current, very difficult,

market conditions.

This report has been prepared in accordance with the Directors’

Remuneration Report Regulations 2002 (“the Regulations”). It also meets

the relevant requirements of the Listing Rules of the FSA and describes how

the Board has applied the 2006 Combined Code on Corporate Governance

relating to directors’ remuneration. As required by the Regulations, a

resolution to approve the report will be proposed at the Annual General

Meeting of the Company at which the financial statements will be considered.

The Regulations require the auditors to report to the Company’s members

on the audited information of the Directors’ Remuneration Report and to

state whether in their opinion that part of the report has been properly

prepared in accordance with the Companies Act 1985 (as amended by the

Regulations). The report has therefore been divided into separate sections

for Unaudited and Audited Information.

UNAUDITED INFORMATION

Remuneration Committee

The Remuneration Committee is appointed by the Board. It is responsible

for setting remuneration packages, including pension arrangements,

for all executive directors and senior management and for agreeing the

fees for the Chairman. All new long-term share schemes are submitted

to shareholders for approval. The Finance Committee of the Board is

responsible for setting the fees of the non executive directors within the

limits set in the Articles of Association. No director is involved in deciding

his own remuneration.

The Committee consists of three non executive directors: Mr D A Robins

(Committee Chairman), Mr P J Hill and Mr D M Williams, all of whom are

considered to be independent. None of the Committee has or has had any

personal financial interests, conflicts of interests arising from cross-

directorships or day-to-day involvement in running the business.

The Committee follows schedule A of the Combined Code, “Provisions

on the design of performance related remuneration”. The Committee

consults with the Chief Executive and has access to external professional

advice. In 2004 Towers Perrin were appointed as advisors to the

Committee. Their advice on long-term incentives is also used below

Board level. As far as the Committee is aware Towers Perrin has

no other relationship with the Company. The Committee carried out

a formal review of Towers Perrin in 2008 and agreed to retain them as

advisors, subject to regular review going forward.

The Board has approved written terms of reference for the Committee

which are available on the Company’s website.

Remuneration policy for executive directors

The Committee ensures that executive remuneration packages are

designed to attract, motivate and retain directors of a high calibre,

to recognise the international and decentralised nature of the Group’s

business and to reward them for enhancing value to shareholders.

The performance measurement of the executive directors and the

determination of their annual remuneration package is undertaken

by the Committee with advice from Towers Perrin.

The remuneration package for executive directors and senior

management targets median levels of fixed pay, whilst operating incentive

schemes that provide management with the ability to earn more for true

out-performance. Incentives include cash bonus and share schemes.

Key features of the remuneration plan for 2009 include:

• basic annual salary, frozen at 2008 levels;

• bonus payments in respect of performance of both the individual

and the Group calculated as a percentage of basic salary;

• eligibility for an award of shares under the Company’s Equity

Participation Plan, awards of which will be scaled down from 2008

levels as a percentage of salary;

• eligibility for a grant of options under the Company’s Executive Share

Option Scheme under which options are granted at market value; and


REMUNERATION REPORTContinued

No shares will vest if the Group’s TSR performance is below the 50th

percentile. At the 50th percentile, 30% of the award will vest, rising on

a straight-line basis to 100% vesting at the 75th percentile and above.

Notwithstanding the Group’s relative TSR performance, shares will

only become eligible for release to the extent that the Remuneration

Committee is satisfied that it is justified by the underlying financial

performance of the Group over the measurement period. Shares subject

to awards will not normally be released until the third anniversary of the

award date. Shares subject to the 2005 award vested at 44% and were

released in October 2008.

Changes to the Performance Condition were made for the 2008 award. In

line with what is now common market practice, 50% of the awards vesting

will be based on TSR, and 50% on the EPS condition used for the ESOS

award (details of which are set out in the section below): this change was

made to counteract the volatility which is an unavoidable feature of TSR.

The Committee recognises that TSR is an important performance

measure. The Committee plans to maintain this more balanced

performance measure for 2009 awards.

Other changes are planned for 2009 as follows:

• Maximum award levels to US participants will be reduced in line

with awards to all other participants;

• EPS targets will be set at levels which are appropriately stretching

in current economic conditions (see section below);

• The TSR comparator group will be amended to be as relevant

as possible; and

• Ensuring that the Remuneration Committee has sufficient discretion

to be able to modify levels of vesting to ensure that it fairly reflects

underlying performance.

Meggitt Executive Share Option Scheme 2005

An annual grant of options will be made to executive directors. The aggregate

market value of shares put under option each year may be up to three times

basic salary. In 2008, awards were made of two times basic salary. The price

payable for each share under option will be the mid-market value of the

share on the first dealing day prior to the grant date.

For awards made up to and including 2008, the performance condition for the

grant of options to executive directors is linked to the aggregate increase in

earnings per share (“EPS”) over the three year period following the financial

year ending immediately before the date of grant. An option can be exercised

in respect of 30% of the shares subject to the option if the aggregate growth

in EPS is at least equal to the increase in the Retail Prices Index (“RPI”) plus

5% per annum. The option can be exercised in respect of all the shares

subject to the option if the aggregate growth in EPS is at least equal to the

increase in RPI plus 8% per annum. For growth in EPS between RPI plus

5% per annum and RPI plus 8% per annum, the option can be exercised in

respect of between 30% and 100% of the shares under option determined

on a straight-line basis between these points. There is no retesting of the

performance condition. The Remuneration Committee has considered the

impact of changes to accounting standards and will endeavour to compare

EPS on a consistent basis.

The Company’s EPS performance during the last five years is shown on

page 103.

The Remuneration Committee plans to continue to use its discretion from

performance cycle to performance cycle to ensure that EPS ranges are

appropriately demanding, within the wider economic environment. The

Committee considers that an absolute EPS range is more appropriate

rather than one expressed relative to RPI both for the EPP and the ESOS,

considering RPI’s limited relevance to Meggitt’s revenues and costs.

The Committee will rigorously examine the range and ensure that the

targets are both appropriate and sufficiently challenging and stretching

given the prevailing economic environment. For the cycle beginning 2009,

it is likely that the EPS targets will be low relative to the previous target.

To be clear, we are not proposing any retrospective changes to existing

EPS growth targets.

For 2009, bonus payments will continue to be based on the achievement

of Group profit and cash targets, together with the individual’s personal

performance and contribution.

Policy on share schemes

The Company’s Equity Participation Plan and Executive Share Option

Scheme are designed to encourage executive directors to contribute

towards the continuing growth in, and performance of, the Company by

participating in the Company’s success along with other shareholders.

An award is made under the Equity Participation Plan on an annual basis

and grants are considered under the Executive Share Option Scheme

subject to regulatory and scheme limits. The Equity Participation Plan

2005 and Executive Share Option Scheme 2005 were introduced during

2005 following shareholder approval.

It is the Company’s policy that directors and senior executives, who have

received an allocation of shares under the Equity Participation Plan or

a grant of options under the Executive Share Option Scheme, should

retain an investment in the Company’s shares once the options have been

exercised or shares transferred to the individual amounting to at least

one year’s salary.

Under different economic circumstances, the Committee would have

proposed increases in 2009 to the quantum of awards under the ESOS

and the EPP, as levels have fallen behind its desired positioning relative

to the market. However, the Committee has reviewed the points raised

in the Association of British Insurers’ letter to Remuneration Committee

Chairmen in September 2008 and after giving them due consideration,

has decided that such increases would not be appropriate in the current

climate. In addition, maximum award levels to US participants will be

reduced in line with awards to all other participants.

Meggitt Equity Participation Plan 2005

An annual basic award of shares may be made under the Meggitt Equity

Participation Plan (the “Plan”) to executive directors of up to 125% of

basic salary (“basic award”). The number of shares which are the subject

of the award is calculated by dividing the value of the award by the average

middle market quotations of ordinary shares on the London Stock

Exchange over the 30 dealing days prior to the date of the award. A basic

award made to executive directors under the plan was made at 125% of

basic salary during 2008. This will be reduced to 75% in 2009.

Executive directors may also invest an amount, not to exceed 25% of net

basic salary, in ordinary shares. In that event, an executive director can

receive a further award of up to 50% of basic salary (“matching award”)

if the director makes the maximum investment permitted under the Plan.

The proportion of both awards, if any, that an executive director will

ultimately receive, depends on Group performance during a three year

period commencing at the beginning of the financial year in which the

award is made (the “measurement period”). For awards made in 2007 and

prior years, performance is measured by comparing the Total Shareholder

Return (“TSR”) achieved by the Group with that of other companies in

a comparator group chosen by the Remuneration Committee. The

comparator group comprises the following companies which are in similar

sectors and are of a relevant size and international spread to the Group:

BAE Systems Rotork

Bodycote International Senior

Cobham Smiths Group

Halma Spectris

IMI Spirax-Sarco Engineering

Invensys Spirent

Melrose* Tomkins

Morgan Crucible Company (The) Ultra Electronics Holdings

Renishaw VT Group

Rolls-Royce Group Weir Group

* Following its acquisition in 2008, FKI was replaced in the comparator

group by Melrose PLC.




Meggitt PLC Share Incentive Plan

The directors agree an amount of money annually to be set aside from

Group profits for the purchase of shares by the Trustee of the Share

Incentive Plan under the provisions of the Finance Act 2000. These shares

are allocated to eligible UK employees, including executive directors, on the

basis of total earnings in the year, and are transferred for no consideration.

Directors’ share interests

The beneficial interests of the directors in the ordinary shares of the

Company at 31 December were as follows:

Shareholding Ordinary shares of 5p each 2008 2007

Sir Colin Terry 10,011 6,426

T Twigger 820,856 676,358

Sir Alan Cox 20,000 20,000

P E Green 442,148 344,395

P J Hill 9,000 9,000

D A Robins 61,753 59,714

D M Williams 5,000 5,000

S G Young 210,270 78,263

Each of the executive directors were allocated 1,071 shares at an initial

market value of 278.85p under the Share Incentive Plan during 2008.

These shares have been included in the share interests shown in the table

above. Details of directors’ share options are shown on pages 48 to 50.

Directors’ contracts

Mr T Twigger and Mr P E Green have rolling service contracts dated

26 February 2001 and Mr S G Young has a rolling service contract dated

27 February 2004. The notice period required from the Company is twelve

months and they are required to give the Company notice of six months.

Under the contracts for Mr T Twigger, Mr P E Green and Mr S G Young

the Company would pay compensation if it were to terminate the contract

in breach of the terms of the contract. The compensation would be the

annual remuneration plus the value of benefits for the unexpired notice

period less 5%.

Remuneration policy for non executive directors

The remuneration of the non executive directors is determined by the

Finance Committee of the Board and the remuneration of the Chairman

is determined by the Remuneration Committee of the Board within

the limits set out in the Articles of Association. The Finance and

Remuneration Committees set the level of fees for non executive directors

to reflect the time commitment and responsibilities of the role after

consulting independent surveys of such fees. Fees paid to non executive

directors during 2008 are shown on page 47.

Non executive directors are appointed for a term of no longer than three

years, do not have a contract of service, are not eligible to join the

Company’s pension schemes and cannot participate in any of the

Company’s share schemes.

Policy on external appointments

It is the Company’s policy to allow the executive directors to hold external

appointments and to receive payment provided such appointments are

agreed by the Board or Committee in advance, that there is no conflict of

interests and the appointment does not lead to a deterioration in the

individual’s performance. During 2008 no executive director was a director

of another public company.

TSR five-year performance

Growth in the value of a hypothetical £100 holding from 1 January to

31 December in each of the five years:

£

250

200

150

100

50

0

20

08

20

05

20

06

20

07

20

03

Year

20

04

Meggitt

Custom Comparator Group (20 companies)

FTSE mid-250

The FTSE 250 and custom comparator group have been chosen as being

the most relevant to the industry in which the Company operates.

The Group’s share price has been adversely affected by market

participants focusing on three key factors:

• Perceived level of gearing on the balance sheet;

• Exposure to civil aerospace; and

• Institutional investors’ preference for FTSE 100 stocks

in current conditions.

The Board believes that the company has delivered excellent results, and

that it is in a position to weather the current conditions well and come out

of the downturn in robust shape.

Directors’ pension arrangements

The executive directors are members of the Meggitt Executive Pension

Plan (the “MEPP”) which is separate to the Company’s main pension

scheme. Their dependants are eligible for dependants’ pensions and

the payment of a lump sum in the event of death in service. The pension

arrangements provide for a pension on retirement of up to 2/3 final

pensionable salary. The executive directors’ pensions are restricted by

a Scheme Cap which replaced the HM Revenue and Customs ’pensions

cap’ from 6 April 2006.

As the executive directors’ benefits from, and contributions to, the MEPP

are restricted, additional contributions are made by means of a pensions

allowance paid instead to the executive directors in order that they might

make their own arrangements for retirement savings. The pensions

allowance is calculated as 50% of the amount by which the executive

director’s basic salary exceeds the MEPP Scheme Cap of £123,750.

The cap increases annually in line with the lifetime allowance, which

is the total capital value of all pension arrangements, excluding the

state pension, which can be built up without paying extra tax.

The pension contribution for the executive directors and all UK employees

(after taking into account the employee contribution) is set following the

receipt of actuarial advice from Mercer Human Resource Consulting.

Details of any changes in pension entitlements arising in 2008 are shown on

page 47. Bonus payments to executive directors are not pensionable. There

are no unfunded pension promises or similar arrangements for directors.



AUDITED INFORMATION

Details of directors’ remuneration

Basic Bonus

Total emoluments

salary Fees Benefits payments Other*

excluding pension

2008 2008 2008 2008 2008 2008 2007

£ £ £ £ £ £ £

Executive directors

T Twigger 600,000 – 30,411 810,000 238,594 1,679,005 1,544,965

P E Green 275,000 – 17,255 370,000 76,094 738,349 652,444

S G Young 360,000 – 21,658 485,000 118,594 985,252 868,308

Non executive directors

Sir Colin Terry – 150,000 – – – 150,000 120,000

Sir Alan Cox – 63,000 5,536 – – 68,536 63,298

P J Hill – 45,000 – – – 45,000 41,000

D A Robins – 52,000 – – – 52,000 47,000

D M Williams – 52,000 – – – 52,000 45,667

Total 1,235,000 362,000 74,860 1,665,000 433,282 3,770,142 3,382,682

* With effect from 6 April 2006 no further contributions were made to the funded unapproved retirement and death benefits scheme. Instead, an

allowance was paid to the executive directors in order that they might make their own arrangements for retirement savings.

Directors’ pension benefits

Directors’ membership of the various pension schemes is shown on page 46.

T Twigger P E Green S G Young

£ £ £

Meggitt Executive Pension PlanAccumulated total accrued pension at 31 December 2007 37,500 50,400 15,000

Real increase in accrued pension in year excluding inflation 6,507 8,590 5,483

Total increase in accrued pension in year 6,863 9,069 5,625

Accumulated total accrued pension at 31 December 2008 44,363 59,469 20,625

Transfer value (GN11 basis) at 31 December 2007 614,500 623,400 201,500

Increase in transfer value excluding directors’ contributions 307,665 307,590 124,222

Directors’ contributions 8,600 8,600 8,600

Transfer value (GN11 basis) at 31 December 2008 930,765 939,590 334,322

Transfer values do not represent a sum payable to the individual director, but represent a potential liability of the pension scheme.

Directors’ share scheme participation

The directors’ interests in the Meggitt Equity Participation Scheme 1996 and movements therein during the year are set out below:

Number of shares Market price Date of Date of Value of at 1 Jan Transferred at 31 Dec at actual date allocation Transfer allocation £ 2008 to directors 2008 of transfer

T Twigger 09.03.05 10.03.08 150,000 64,043 64,043 – 272.50p

P E Green 09.03.05 10.03.08 70,000 29,887 29,887 – 272.50p

S G Young 09.03.05 10.03.08 92,000 39,279 39,279 – 272.50p



Directors’ share scheme participation continued

The directors’ interests in the Meggitt Equity Participation Plan 2005 and movements therein during the year are set out below:

Number of shares

Market price First date for

Date of Value of at 1 Jan Awarded/ at 31 Dec at actual date transfer to

award award £ 2008 (transferred) Lapsed 2008 of transfer director

T Twigger

Basic Award 10.10.05 337,500 123,801 (54,472) (69,329) – 155.50p 10.10.08

Basic Award 04.04.06 361,500 117,540 – – 117,540 – 04.04.09

Basic Award 17.08.07 374,997 118,252 – – 118,252 – 17.08.10

Basic Award 07.08.08 750,000 – 389,388 – 389,388 – 07.08.11

Matching Award 10.10.05 225,000 81,120 (35,693) (45,427) – 155.50p 10.10.08

Matching Award 04.04.06 241,000 80,205 – – 80,205 – 04.04.09

Matching Award 04.09.07 252,374 79,114 – – 79,114 – 04.09.10

Matching Award 18.08.08 300,000 – 133,038 – 133,038 – 18.08.11

P E Green

Basic Award 10.10.05 150,000 55,022 (24,210) (30,812) – 155.50p 10.10.08

Basic Award 04.04.06 160,500 52,185 – – 52,185 – 04.04.09

Basic Award 17.08.07 166,125 52,386 – – 52,386 – 17.08.10

Basic Award 07.08.08 343,749 – 178,469 – 178,469 – 07.08.11

Matching Award 10.10.05 100,000 36,053 (15,863) (20,190) – 155.50p 10.10.08

Matching Award 04.04.06 107,000 35,609 – – 35,609 – 04.04.09

Matching Award 04.09.07 111,800 35,047 – – 35,047 – 04.09.10

Matching Award 18.08.08 137,500 – 60,976 – 60,976 – 18.08.11

S G Young

Basic Award 10.10.05 195,000 71,529 (31,473) (40,056) – 155.50p 10.10.08

Basic Award 04.04.06 208,500 67,793 – – 67,793 – 04.04.09

Basic Award 17.08.07 215,998 68,113 – – 68,113 – 17.08.10

Basic Award 07.08.08 450,000 – 233,633 – 233,633 – 07.08.11

Matching Award 10.10.05 130,000 46,869 (20,622) (26,247) – 155.50p 10.10.08

Matching Award 04.04.06 139,000 46,259 – – 46,259 – 04.04.09

Matching Award 04.09.07 145,368 45,570 – – 45,570 – 04.09.10

Matching Award 18.08.08 180,000 – 79,823 – 79,823 – 18.08.11

The directors’ interests in options over the ordinary share capital of the Company and movements therein during the year are set out below and on page 49:

Number of options

Market price Date at 1 Jan Granted/ at 31 Dec Exercise at date of exercisable Expiry Date of grant 2008 (exercised) 2008 price exercise from date

T Twigger1996 No 1 20.04.98 23,173 (23,173) – 129.45p 266.00p 20.04.01 19.04.08

1996 No 2 17.10.02 201,074 – 201,074 136.76p – 17.10.05 16.10.09

02.10.03 172,950 – 172,950 179.24p – 02.10.06 01.10.10

06.10.04 178,070 – 178,070 210.59p – 06.10.07 05.10.11

2005, Part B 10.10.05 322,987 – 322,987 278.65p – 10.10.08 09.10.15

27.09.06 365,613 – 365,613 263.67p – 27.09.09 26.09.16

29.03.07 334,448 – 334,448 299.00p – 29.03.10 28.03.17

25.03.08 – 475,248 475,248 252.50p – 25.03.11 24.03.18

Sharesave 07.04.05 3,011 (3,011) – 188.76p 255.00p 01.06.08 30.11.08

05.10.06 3,222 – 3,222 203.18p – 01.12.11 31.05.12

04.09.08 – 3,290 3,290 171.40p – 01.11.11 01.05.12

1,604,548 452,354 2,056,902





Number of options Market price Date at 1 Jan Granted/ at 31 Dec Exercise at date of exercisable Expiry Date of grant 2008 (exercised) 2008 price exercise from date

P E Green1996 No 1 20.04.98 16,800 (16,800) – 129.45p 266.00p 20.04.01 19.04.08

1996 No 2 27.09.01 109,621 (109,621) – 114.03p 216.25p 27.09.04 26.09.08

17.10.02 91,396 – 91,396 136.76p – 17.10.05 16.10.09

02.10.03 83,685 – 83,685 179.24p – 02.10.06 01.10.10

06.10.04 83,099 – 83,099 210.59p – 06.10.07 05.10.11

2005, Part A 29.03.07 2,759 – 2,759 299.00p – 29.03.10 28.03.17

2005, Part B 10.10.05 143,549 – 143,549 278.65p – 10.10.08 09.10.15

27.09.06 162,326 – 162,326 263.67p – 27.09.09 26.09.16

29.03.07 145,402 – 145,402 299.00p – 29.03.10 28.03.17

25.03.08 – 217,822 217,822 252.50p – 25.03.11 24.03.18

Sharesave 22.10.02 5,996 (5,996) – 109.56p 324.25p 01.01.08 30.06.08

07.04.05 1,749 – 1,749 188.76p – 01.06.10 30.11.10

05.10.06 3,222 – 3,222 203.18p – 01.12.11 31.05.12

04.09.08 – 3,798 3,798 171.40p – 01.11.13 01.05.14

849,604 89,203 938,807

Number of options Market price Date at 1 Jan Granted/ at 31 Dec Exercise at date of exercisable Expiry Date of grant 2008 (exercised) 2008 price exercise from date

S G Young

1996 No1 01.04.04 17,200 – 17,200 174.40p – 01.04.07 31.03.14

1996 No2 01.04.04 246,564 – 246,564 174.40p – 01.04.07 31.03.11

2005, Part B 10.10.05 186,615 – 186,615 278.65p – 10.10.08 09.10.15

27.09.06 210,871 – 210,871 263.67p – 27.09.09 26.09.16

29.03.07 192,642 – 192,642 299.00p – 29.03.10 28.03.17

25.03.08 – 285,149 285,149 252.50p – 25.03.11 24.03.18

Sharesave 07.04.05 9,468 – 9,468 188.76p – 01.06.12 30.11.12

863,360 285,149 1,148,509

None of the non executive directors held options over the Company’s shares at any time during the relevant periods.

Between 1 January 2009 and 27 February 2009 (the latest date for which it was practical to obtain the information) the following changes occurred in the

directors’ interests shown above:

Mr T Twigger – acquired 160 shares through the Meggitt PLC Share Incentive Plan.

Mr P E Green – acquired 160 shares through the Meggitt PLC Share Incentive Plan.

Mr S G Young – acquired 159 shares through the Meggitt PLC Share Incentive Plan.





The market price of the shares at 31 December 2008 was 159.75p and the range during the year was 115.75p to 324.25p. Options may, in certain

circumstances, be exercised or lapse earlier than the dates shown on pages 48 and 49.

Gains made on exercise of directors’ share options

Gain Gain

Exercise Options 2008 2007

Option date exercised £’000 £’000

T Twigger 1996 No 2 Executive Share Option Scheme 13.12.07 6,894 – 9

1996 No 1 Executive Share Option Scheme 15.04.08 23,173 32 –

Sharesave 03.06.08 3,011 2 –

P E Green 1996 No 1 Executive Share Option Scheme 15.03.07 8,125 – 15



Sharesave 02.01.08 5,996 13 –

182 24

Gains in 2008 were made on options granted under the rules of the 1996 Number 2 Executive Share Option Scheme and the 1996 Number 1 Executive

Share Option Scheme and the Sharesave Scheme, as detailed in directors’ share interests above.

There are currently no other schemes to benefit directors by enabling them to acquire shares in or debentures of the Company or any other company.

By order of the Board

D A RobinsChairman, Remuneration Committee

2 March 2009


INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MEGGITT PLC

BASIS OF AUDIT OPINION

We conducted our audit in accordance with International Standards on

Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit

includes examination, on a test basis, of evidence relevant to the amounts

and disclosures in the group financial statements. It also includes an

assessment of the significant estimates and judgments made by the

directors in the preparation of the group financial statements, and of

whether the accounting policies are appropriate to the group’s

circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information

and explanations which we considered necessary in order to provide us

with sufficient evidence to give reasonable assurance that the group

financial statements are free from material misstatement, whether

caused by fraud or other irregularity or error. In forming our opinion we

also evaluated the overall adequacy of the presentation of information

in the group financial statements.

OPINION

In our opinion:

• the group financial statements give a true and fair view, in accordance

with IFRSs as adopted by the European Union, of the state of the

group’s affairs as at 31 December 2008 and of its profit and cash flows

for the year then ended;

• the group financial statements have been properly prepared in

accordance with the Companies Act 1985 and Article 4 of the IAS

Regulation; and

• the information given in the Directors’ Report is consistent with the

group financial statements.


Chartered Accountants and Registered Auditors

Reading

2 March 2009

We have audited the group financial statements of Meggitt PLC for the

year ended 31 December 2008 which comprise the Consolidated Income

Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow

Statement, the Consolidated Statement of Recognised Income and

Expense and the related notes. These group financial statements have

been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements

of Meggitt PLC for the year ended 31 December 2008 and on the

information in the Directors’ Remuneration Report that is described as

having been audited.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS

AND AUDITORS

The directors’ responsibilities for preparing the Annual Report and the

group financial statements in accordance with applicable law and

International Financial Reporting Standards (IFRSs) as adopted by the

European Union are set out in the Statement of Directors’

Responsibilities.

Our responsibility is to audit the group financial statements in accordance

with relevant legal and regulatory requirements and International

Standards on Auditing (UK and Ireland). This report, including the opinion,

has been prepared for and only for the company’s members as a body in

accordance with Section 235 of the Companies Act 1985 and for no other

purpose. We do not, in giving this opinion, accept or assume responsibility

for any other purpose or to any other person to whom this report is shown

or into whose hands it may come save where expressly agreed by our

prior consent in writing.

We report to you our opinion as to whether the group financial statements

give a true and fair view and whether the group financial statements have

been properly prepared in accordance with the Companies Act 1985 and

Article 4 of the IAS Regulation. We also report to you whether in our

opinion the information given in the Directors’ Report is consistent with

the group financial statements. The information given in the Directors’

Report includes specific information cross referenced from the Principal

Activities and Business Review section of the Directors’ Report to the

Business Review.

In addition we report to you if, in our opinion, we have not received all the

information and explanations we require for our audit, or if information

specified by law regarding directors’ remuneration and other transactions

is not disclosed.

We review whether the Corporate Governance Statement reflects the

company’s compliance with the nine provisions of the Combined Code

2006 specified for our review by the Listing Rules of the Financial Services

Authority, and we report if it does not. We are not required to consider

whether the board’s statements on internal control cover all risks and

controls, or form an opinion on the effectiveness of the group’s corporate

governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider

whether it is consistent with the audited group financial statements. The

other information comprises Meggitt at a Glance, Financial Highlights,

Overview, Chairman’s Statement, Group Strategic Objectives, Strategy

Implementation, Market Review, Business Review, Risks and Uncertainties,

Aerospace Equipment, Sensing Systems, Defence Systems, Corporate

Responsibility, Board of Directors, Report of the Directors, Directors’

Statement on Corporate Governance, the unaudited part of the Remuneration

Report and the other information listed in the contents to the Annual

Report. We consider the implications for our report if we become aware

of any apparent misstatements or material inconsistencies with the

group financial statements. Our responsibilities do not extend to any

other information.



2008 2007

Notes £’m £’m

Continuing operations

Revenue 5 1,162.6 878.2

Cost of sales 7 (637.8) (493.4)

Gross profit 524.8 384.8

Net operating costs 7 (352.4) (242.1)

Operating profit* 6 172.4 142.7

Finance income 12 33.9 32.7

Finance costs 13 (87.0) (70.0)

Net finance costs (53.1) (37.3)

Profit before tax from continuing operations** 119.3 105.4

Tax 14 (20.2) (16.1)

Profit for the year from continuing operations attributable to equity holders 40 99.1 89.3

Earnings per share – basic 16 15.0p 14.6p

Earnings per share – diluted 16 15.0p 14.5p

* Underlying operating profit 10 296.4 216.3

** Underlying profit before tax 10 243.3 179.0

CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2008


CONSOLIDATED BALANCE SHEETAs at 31 December 2008

2008 2007

Restated

Notes £’m £’m

Non–current assetsGoodwill 19 1,382.7 1,067.8

Development costs 20 97.8 57.7

Programme participation costs 20 180.4 121.8

Other intangible assets 21 901.6 741.7

Property, plant and equipment 22 245.2 191.2

Trade and other receivables 25 19.3 14.4

Derivative financial instruments 32 1.6 –

Deferred tax assets 34 112.4 41.4

Assets held for sale 23 – 14.5

2,941.0 2,250.5

Current assetsInventories 24 273.1 204.6

Trade and other receivables 25 286.9 214.6

Derivative financial instruments 32 1.0 3.6

Current tax recoverable 0.7 7.8

Cash and cash equivalents 26 67.3 64.9

629.0 495.5

Total assets 3,570.0 2,746.0

Current liabilities

Trade and other payables 27 (314.6) (227.1)

Derivative financial instruments 32 (26.4) (0.9)

Current tax liabilities (37.1) (44.2)

Obligations under finance leases 29 (1.0) (0.5)

Bank and other borrowings 30 (13.5) (16.7)

Provisions 33 (45.3) (18.0)

(437.9) (307.4)

Net current assets 191.1 188.1

Non–current liabilities

Trade and other payables 28 (9.3) (7.0)


Deferred tax liabilities 34 (359.9) (265.5)

Obligations under finance leases 29 (6.2) (5.0)

Bank and other borrowings 30 (1,094.5) (858.1)

Provisions 33 (64.0) (74.0)

Retirement benefit obligations 35 (241.2) (153.3)

Liabilities directly associated with assets classified as held for sale 23 – (1.6)

(1,845.7) (1,375.2)

Total liabilities (2,283.6) (1,682.6)

Net assets 1,286.4 1,063.4

Equity

Share capital 37 33.3 32.9

Share premium 40 798.8 781.6

Other reserves 40 14.1 14.1

Hedging and translation reserves 40 195.7 (6.8)

Retained earnings 40 244.5 241.6

Total equity attributable to equity holders 40 1,286.4 1,063.4

The financial statements were approved by the Board of Directors on 2 March 2009 and signed on its behalf by:

T Twigger S G YoungDirector Director



2008 2007

Notes £’m £’m

Cash inflow from operations before exceptional operating costs 295.4 214.3

Cash outflow from exceptional operating costs 11 (16.5) (4.2)

Cash inflow from operations 42 278.9 210.1

Interest received 1.6 5.0

Interest paid (47.8) (34.8)

Tax paid (30.3) (23.4)

Cash inflow from operating activities 202.4 156.9

Purchase of subsidiaries 44 (9.2) (563.6)

Net cash acquired with subsidiaries – 11.5

Proceeds from disposal of subsidiaries 19.9 –

Capitalised internal development costs 20 (23.7) (22.4)

Capitalised programme participation costs 20 (35.7) (20.1)

Purchase of other intangible assets 21 (5.8) (3.3)

Purchase of property, plant and equipment (35.1) (40.5)

Proceeds from disposal of property, plant and equipment 0.4 2.6

Cash outflow from investing activities (89.2) (635.8)

Dividends paid to Company’s shareholders 17 (40.3) (35.6)

Issue of equity share capital 40 2.1 439.8

Expenses of issue of equity share capital 40 – (9.8)

Proceeds from borrowings 10.2 520.7

Debt issue costs (2.1) (3.6)

Repayments of borrowings (82.1) (406.0)

Cash (outflow)/inflow from financing activities (112.2) 505.5

Net increase in cash and cash equivalents 1.0 26.6

Cash and cash equivalents at start of year 64.9 43.6

Exchange gains/(losses) on cash and cash equivalents 1.4 (5.3)

Cash and cash equivalents at end of year 26 67.3 64.9

CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2008


2008 2007

Notes £’m £’m

Currency translation gains/(losses) 200.2 (0.5)

Currency translation loss transferred to income statement 45 1.0 –

Taxation recognised on currency translation movements – current 14 15.6 7.2

Taxation recognised on currency translation movements – deferred 14 (1.0) –

Actuarial (losses)/gains 35 (60.9) 24.8

Taxation recognised on actuarial movements – deferred 14 18.7 (8.2)

Losses on cash flow hedges (18.5) (10.2)

Taxation recognised on cash flow hedge movements – deferred 14 5.2 2.9

Net income recorded directly in equity 40 160.3 16.0

Profit for the year 40 99.1 89.3

Total recognised income for the year 259.4 105.3

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFor the year ended 31 December 2008



Foreign subsidiariesThe results of foreign subsidiaries are translated at the average rates

of exchange for the period. Assets and liabilities of foreign subsidiaries

are translated at the exchange rates prevailing at the balance sheet

date. Exchange differences arising from the translation of the results of

foreign subsidiaries and their opening net assets are recognised as a

separate component of equity. Exchange differences on borrowings and

other currency instruments designated as a net investment hedge of

foreign subsidiaries are also taken to equity.

When a foreign subsidiary is sold the cumulative exchange differences

relating to the retranslation of the net investment in that foreign

subsidiary are recognised in the income statement as part of the gain

or loss on disposal. This applies only to exchange differences recorded

in equity after 1 January 2004. Exchange differences arising prior to 1

January 2004 remain in equity on disposal as permitted by IFRS 1(“First

time Adoption of International Financial Reporting Standards”).

Goodwill and fair value adjustments arising from the acquisition of a

foreign subsidiary are treated as assets and liabilities of that subsidiary

and are retranslated at the rates of exchange prevailing at the balance

sheet date.

Revenue recognition

Revenue represents the fair value of the consideration received or

receivable in respect of the sale of goods and services provided in the

normal course of business, net of trade discounts, VAT and other sales

related taxes.

Revenue is recognised when the significant risks and rewards of

ownership have been transferred to the customer which occurs when

the products are delivered to the customer or the services have been

provided to the customer, title and risk of loss have been transferred

and collection of related receivables is probable. An appropriate

proportion of total long-term contract value, based on the fair value

of work performed, is included in revenue and an appropriate level

of profit is taken based on the estimated percentage completion of

contractual obligations provided the final outcome can be reliably

assessed.

Segment reporting

A business segment is a group of businesses engaged in providing

products and services that are subject to similar risks and returns

and whose risks and returns differ from other business segments.

A geographical segment is a group of businesses which operate in

economic environments that are subject to similar risks and returns

and whose risks and returns differ from other geographical segments.

Exceptional operating items

Items which are significant by virtue of their size or nature and which

are considered non-recurring are classified as exceptional operating

items. Such items, which include for instance the costs of integrating

significant acquisitions, significant restructuring costs and profits

or losses made on the disposal of businesses, are included within

the appropriate consolidated income statement category but are

highlighted separately in the notes to the financial statements.

Exceptional operating items are excluded from the underlying profit

measures used by the Board to monitor and measure the underlying

performance of the Group (see note 10).

Intangible assets

Goodwill Goodwill represents the excess of the cost of an acquisition over

the fair value of the Group’s share of the net assets of the acquired

business. Goodwill is no longer amortised but is tested annually for

impairment. Goodwill is carried at cost less amortisation charged prior

1 BASIS OF PREPARATION

The consolidated financial statements of the Group have been prepared

in accordance with EU endorsed International Financial Reporting

Standards (IFRSs), IFRIC interpretations and the Companies Act 1985

and 2006 applicable to companies reporting under IFRSs. The

consolidated financial statements have been prepared under the

historical cost convention, as modified by the revaluation of land and

buildings, available for sale financial assets, and financial assets and

financial liabilities (including derivative instruments) at fair value.

Certain comparatives have been restated as described in note 46.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted by the Group in the

preparation of the consolidated financial statements are set out below.

These policies have been applied consistently to all periods presented

unless stated otherwise.

Basis of consolidation

The Group financial statements consolidate the financial statements

of the Company and all of its subsidiaries. A subsidiary is an entity over

which the Group has the power to govern the financial and operating

policies. The existence and nature of potential voting rights that are

currently available to the Group are considered when determining

whether the entity is a subsidiary. The results of subsidiaries acquired

are consolidated from the date on which control passes to the Group.

The results of disposed subsidiaries are consolidated up to the date on

which control passes from the Group.

Acquisitions are accounted for using the purchase method. The cost

of an acquisition is measured as the fair value at the date of exchange

of the consideration provided plus costs directly attributable to the

acquisition. Identifiable assets and liabilities of the acquired business

that meet the conditions for recognition under IFRS 3 (“Business

Combinations”) are recognised at their fair value at the date of

acquisition. To the extent that the cost of an acquisition exceeds the fair

value of net assets acquired the difference is recorded as goodwill.

Where the fair value of the net assets acquired exceeds the cost of an

acquisition the difference is recorded directly in the income statement.

Transactions between, and balances with, Group companies are

eliminated together with unrealised gains on inter-group transactions.

Unrealised losses are eliminated to the extent that the asset

transferred is not impaired. The accounting policies of acquired

businesses are changed where necessary to be consistent with those

of the Group.

Foreign currencies

Functional and presentational currencyThe Group’s consolidated financial statements are presented in pounds

sterling, the functional currency of the Group, being the currency of the

primary economic environment in which the Group operates. Items

included in the financial statements of each of the Group’s subsidiaries

are measured using the functional currency of the primary economic

environment in which the subsidiary operates.

Transactions and balancesTransactions in foreign currencies are recorded at the rates of

exchange at the dates of the transaction. Monetary assets and liabilities

denominated in foreign currencies are reported at the rates of

exchange prevailing at the balance sheet date. Exchange differences

on retranslating monetary assets and liabilities are recognised in the

income statement except where they relate to qualifying cash flow or

net investment hedges in which case the exchange differences are

deferred in equity.

NOTES TO THE FINANCIAL STATEMENTS


NOTES TO THE FINANCIAL STATEMENTSContinued

The assets’ residual values and useful lives are reviewed annually and

adjusted if appropriate.

Non-current assets (or disposal groups) held for sale

Non-current assets (or disposal groups) are classified as assets held

for sale and stated at the lower of carrying amount and fair value less

costs of disposal if their carrying amount is to be recovered principally

through a sale transaction rather than through continuing use.

Taxation

Tax payable is based on the taxable profit for the year calculated using

tax rates that have been enacted or substantially enacted at the

balance sheet date.

Deferred tax is provided in full using the liability method on temporary

differences between the tax bases of assets and liabilities and their

corresponding book values as recorded in the Group’s financial

statements. Deferred tax is provided on unremitted earnings of foreign

subsidiaries except where the Group can control the remittance and it

is probable that the earnings will not be remitted in the foreseeable

future. Deferred tax assets are recognised only to the extent that it is

probable that taxable profits will be available against which deductible

temporary differences can be utilised. Where deferred tax arises on

the initial recognition of an asset or liability other than in a business

combination and the recognition gives rise to no impact on taxable

profit or loss then deferred tax is not provided. Deferred tax is calculated

using tax rates that have been enacted or are substantially enacted at

the balance sheet date.

Impairment of non-current non-financial assets

Assets that have indefinite lives are tested for impairment annually.

Assets that are subject to amortisation or depreciation are reviewed

for impairment whenever events or changes in circumstances indicate

that the carrying value may not be recoverable. To the extent that the

carrying value exceeds the recoverable amount an impairment loss is

recorded for the difference as an expense in the income statement.

The recoverable amount used for impairment testing is the higher

of the value in use and its fair value less costs of disposal. For the

purpose of impairment testing, assets are grouped at the lowest levels

for which there are separately identifiable cash flows (Cash Generating

Units or “CGUs”).

Inventories

Where a business is acquired, inventory of the acquired business is

recorded at fair value in the Group’s balance sheet. Finished goods are

valued at estimated selling price less the costs of disposal and a

reasonable profit allowance for the selling effort. Work in progress is

valued at estimated selling price less the costs to complete, the costs of

disposal and a reasonable profit allowance for the work still to be carried

out. When this inventory is subsequently disposed of post acquisition the

fair value is charged to the income statement. The difference between

the fair value of the inventory consumed and its cost is excluded from the

underlying profit measures used by the Board to monitor and measure

the underlying performance of the Group (see note 10).

All other inventories are recorded at the lower of cost and net realisable

value. Cost represents materials, direct labour, other direct costs and

related production overheads (based on normal operating capacity) and

is determined using the first-in first-out (FIFO) method. Net realisable

value is based on estimated selling price, less further costs expected

to be incurred to completion and disposal.

In all cases provision is made for obsolete, slow moving or defective

items where appropriate and for unrealised profits on items of

intra-group manufacture. Provision is made for the full amount

of foreseeable losses on contracts.

to 1 January 2004 less accumulated impairment losses. In the event

that the business to which goodwill relates is disposed of, the

attributable goodwill is included in the determination of the gain

or loss on disposal.

Research and developmentResearch expenditure is recognised as an expense in the income

statement as incurred. Costs incurred on development projects that are

undertaken where the related expenditure is separately identifiable,

measurable and management are satisfied as to the ultimate technical

and commercial viability of the project based on all relevant available

information are recognised as an intangible asset. Capitalised

development costs are amortised on a straight-line basis over the

periods expected to benefit, typically up to 10 years, commencing with

the launch of the product. Development costs not meeting the criteria

for capitalisation are expensed as incurred.

Programme participation costsProgramme participation costs consist of incentives given to Original

Equipment Manufacturers (“OEMs”) in connection with their selection

of the Group’s products for installation onto new aircraft where the

Group has obtained principal supplier status. These incentives

comprise cash payments and/or the supply of initial manufactured

parts on a free of charge or deeply discounted basis. Programme

participation costs are amortised on a straight-line basis over the

periods expected to benefit (typically through the sale of replacement

parts) from receiving the status of “principal supplier”, generally over

terms ranging up to 15 years.

Other intangible assetsa) Licences, trademarks, patents and software

Purchased licences, trademarks, patents and software are included at

cost and are amortised on a straight-line basis over their estimated

useful economic life, typically over periods up to 5 years.

b) Intangible assets acquired as part of a business combination

For acquisitions of businesses after 1 January 2004, the Group

recognises intangible assets separately from goodwill provided they are

separable or arise from contractual or other legal rights and their fair

value can be measured reliably. The intangible assets recognised are

recorded at fair value. Where the intangible assets recognised have

finite lives their fair value is amortised on a straight-line basis over

those lives. The nature of those intangibles recognised and their

estimated useful lives are as follows:

Customer relationships Up to 25 years

Technology Up to 25 years

Order backlogs Over period of backlog

Amortisation of intangible assets acquired as part of a business

combination is excluded from the underlying profit measures used by

the Board to monitor and measure the underlying performance of the

Group (see note 10).

Property, plant and equipment

Property, plant and equipment is recorded at cost less subsequent

depreciation and impairment except for land which is shown at cost

less any impairment. Cost includes expenditure that is directly

attributable to the acquisition of the asset. The Group has taken

advantage of the exemption under IFRS 1 (“First-time Adoption of

International Financial Reporting Standards”) not to restate property

previously revalued under UK GAAP and to treat these earlier

revaluations as deemed cost. Depreciation is calculated on a straight-

line basis over the estimated useful lives of the assets as follows:

Freehold buildings 40 to 50 years

Long and short leasehold property Over period of lease

Plant and machinery 3 to 10 years

Furnaces Up to 20 years

Fixtures and fittings 3 to 10 years

Motor vehicles 4 to 5 years




obligation and the amount can be reliably estimated. Provisions are

discounted to present value where the impact is significant, using

a AAA bond rate, and the difference recognised as finance costs.

Retirement benefit schemes

For defined benefit schemes, pension costs and the costs of providing

other post-retirement benefits (principally healthcare) are charged to

the income statement in accordance with the advice of qualified

independent actuaries. Past service costs are recognised immediately

in the income statement unless the changes are dependent on the

employees remaining in service for a particular period in which case

the costs are recognised on a straight-line basis over that period.

The retirement benefit obligations recognised on the balance sheet

represent for each scheme the difference between the fair value of the

schemes’ assets and the present value of the schemes’ defined benefit

obligations measured at the balance sheet date. The defined benefit

obligation is calculated annually by independent actuaries using the

projected unit credit method. The present value of the defined benefit

obligation is determined by discounting the defined benefit obligations

using interest rates of high quality corporate bonds denominated in the

currency in which the benefits will be paid and with terms to maturity

comparable with the terms of the related defined benefit obligations.

Cumulative actuarial gains and losses are recognised in the period in

which they arise in the statement of recognised income and expense.

For defined contribution schemes, payments are recognised in the

income statement when they fall due.

Share-based compensation

The Group operates a number of equity settled and cash settled

share-based compensation schemes. For each scheme the fair value

of the services received from employees is recognised as an expense

in the income statement over the period for which services are received

(vesting period).

For equity settled share-based schemes the total amount recognised

is based on the fair value of the equity instrument measured at the date

the award is made. Assumptions are made as to the total number of

equity instruments that will vest and these assumptions are reviewed

at each balance sheet date. The impact of any revision to vesting

estimates is recognised in the income statement over the vesting

period, with a corresponding adjustment to equity. Proceeds received,

net of any directly attributable transaction costs, are credited to share

capital and share premium.

For cash settled share-based schemes the total amount recognised

is based on the fair value of the liability incurred. The fair value of

the liability is remeasured at each balance sheet date with changes

in the fair value recognised in the income statement for the period.

Derivative financial instruments and hedging

The Group uses derivative financial instruments to hedge its exposure

to interest rate and foreign currency transactional risk. Derivative

financial instruments are recognised at fair value on the date the

derivative contract is entered into and are subsequently remeasured

at fair value at each balance sheet date.

The method by which any gain or loss arising from remeasurement

is recognised depends on whether the instrument is designated as

a hedging instrument and if so the nature of the item being hedged.

The Group recognises an instrument as a hedging instrument by

documenting at the inception of the instrument the relationship

between the instrument and the hedged item and the objectives and

strategy for undertaking the hedging transaction. To be designated

as a hedging instrument, an instrument must also be assessed,

at inception and on an on-going basis, to be highly effective in offsetting

changes in fair values or cash flows of hedged items.

2 SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES CONTINUED

Trade receivables

Trade receivables are stated initially at fair value then measured

at amortised cost less provisions for impairment. Provisions for

impairment are recognised when there is objective evidence that

the Group will not be able to collect all amounts due according to

the original terms of the receivables. The impairment recorded is

the difference between the carrying value of the receivables and

the estimated future cashflows discounted where appropriate.

Any impairment required is recorded in the income statement.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at

call with banks and bank overdrafts. Bank overdrafts are disclosed

as current liabilities except where the Group participates in offset

arrangements with certain banks whereby cash and overdraft

amounts are offset against each other.

Trade payables

Trade payables are not interest bearing and are stated at their

nominal value.

Leases

Leases where the Group has substantially all the risks and rewards

of ownership are classified as finance leases. Finance leases are

capitalised at the lease’s commencement at the lower of the fair value

of the leased asset and the present value of the minimum lease

payments. Each lease payment is allocated between the liability and

finance charges so as to achieve a constant rate on the finance balance

outstanding. The corresponding rental obligations, net of finance charges,

are included in liabilities. The interest element of the finance cost is

charged to the income statement over the lease period so as to produce a

constant periodic rate of interest on the remaining balance of the liability

for each period. The assets acquired under finance leases are depreciated

over the shorter of the useful life of the asset or the lease term.

Leases in which a significant portion of the risks and rewards of

ownership are retained by the lessor are classified as operating leases.

Payments made under operating leases (net of any incentives received

from the lessor) are charged to the income statement on a straight-line

basis over the period of the lease.

Dividends

Interim dividends are recognised when they are paid. Final dividends

are recognised when they are approved by the shareholders.

Borrowings

Borrowings are initially recognised at fair value being proceeds received

less directly attributable transaction costs incurred. Borrowings are

subsequently measured at amortised cost with any transaction costs

amortised to the income statement over the period of the borrowings

using the effective interest method. Any related interest accruals are

included within borrowings. Borrowings are classified as current

liabilities unless the Group has an unconditional right to defer settlement

of the liability for at least 12 months after the balance sheet date.

Provisions

Provision is made for environmental, legal and regulatory liabilities,

onerous contracts and for product warranty claims when the Group

has a present obligation as a result of past events, it is more likely than

not that an outflow of economic benefits will be required to settle the



Adoption of new and revised accounting interpretations

The following accounting interpretations became effective during the

current year, but have had no impact on the Group’s financial statements.

• IFRIC 12, ‘Service concession arrangements’ (effective from

1 January 2008).

Recent accounting developmentsThe following amendments to existing standards, new standards and

interpretations have been published and are mandatory for the Group’s

future accounting periods. They have not been early adopted in these

financial statements, but may have an impact on future financial

statements when adopted:

• IFRS 3 (Revised), ‘Business combinations’ and consequential

amendments to IAS 27 ‘Consolidated and separate financial

statements’, IAS 28, ‘Investments in associates’ and IAS 31

‘Interests in joint ventures’. The amendment to the standard is still

subject to endorsement by the European Union. The revision to IFRS

3 will require the Group to recorded contingent consideration at fair

value at the acquisition date and in subsequent periods remeasure

such consideration at fair value through the income statement. The

Group will also be required to expense certain transaction costs

rather than include them as part of the consideration paid. The

standard is applicable to business combinations occurring in

accounting periods beginning on or after 1 July 2009.

• IFRS 8, ‘Operating segments’ (effective from 1 January 2009). IFRS 8

replaces IAS 14 and requires a ‘management approach’, under

which segment information is presented on the same basis as that

used for internal reporting purposes. The Group will apply IFRS 8

from 1 January 2009. The expected impact is still being assessed in

detail by management.

The following amendments to existing standards, new standards and

interpretations have been published and are mandatory for the Group’s

future accounting periods. They have not been early adopted in these

financial statements and are not expected to have a significant impact

on future financial statements when adopted:

• IFRS 1 (Amendment), ‘First time adoption of IFRS’ (effective for

annual periods beginning on or after 1 January 2009);

• IFRS 2 (Amendment), ‘Share-based payment’ (Effective for annual

periods beginning on or after 1 January 2009);

• IAS 1 (Amendment), ‘Presentation of financial statements’ (effective

for annual periods beginning on or after 1 January 2009);

• IAS 23 (Amendment), ‘Borrowing costs’ (Effective for annual periods

beginning on or after 1 January 2009);

• IAS 27 (Revised), ‘Consolidated and separate financial statements’

(Effective for annual periods beginning on or after 1 July 2009);

• IAS 32 (Amendment), ‘Financial instruments: Presentation’

(Effective for annual periods beginning on or after 1 January 2009);

• IAS 39 (Amendment), ‘Financial instruments: Recognition and

measurement’ (Effective for annual periods beginning on or after

1 July 2008);

• IAS 39 (Amendment), ‘Financial instruments: Recognition and

measurement on eligible hedged items’ (Effective for annual

periods beginning on or after 1 July 2009);

• IFRIC 13, ‘Customer loyalty programmes’ (Effective for annual

periods beginning on or after 1 July 2008);

• IFRIC 14, ‘IAS 19 - The limit on a defined benefit asset, minimum

funding requirements and their interaction’ (Effective for annual

periods beginning on or after 1 January 2009);

• IFRIC 15, ‘Agreements for construction of real estates (Effective for

annual periods beginning on or after 1 January 2009);

• IFRIC 16, ‘Hedges of a net investment in a foreign operation’ (Effective

for annual periods beginning on or after 1 October 2008).

To the extent that the maturity of the financial instrument is more than

12 months from the balance sheet date the fair value is reported as a

non-current asset or non-current liability. All other derivative financial

instruments are reported as current assets or current liabilities.

Fair value hedgesChanges in the fair value of derivative financial instruments that are

designated and qualify as fair value hedges are recognised in the

income statement together with changes in the fair value of the hedged

item. The Group currently only applies fair value hedge accounting

for hedging fixed interest rate risk on borrowings.

Cash flow hedgesChanges in the fair value of the effective portion of derivative financial

instruments that are designated and qualify as cash flow hedges are

initially recorded in equity. Changes in the fair value of the ineffective

portion are recognised immediately in the income statement. To the extent

that changes in the fair value are recorded in equity they are recycled to

the income statement in the periods in which the hedged item affects

the income statement. The Group currently only applies cash flow value

hedge accounting for hedging floating interest rate risk on borrowings.

If the forecast transaction to which the cash flow hedge relates is

no longer expected to occur, the cumulative gain or loss previously

recognised in equity is transferred to the income statement immediately.

If the hedging instrument is sold, expires or no longer meets the criteria

for hedge accounting the cumulative gains and losses previously

recognised in equity are transferred to the income statement when

the forecast transaction is recognised in the income statement.

Net investment hedgesGains and losses on net investments of foreign subsidiaries are

accounted for in a similar way to cash flow hedges. Gains and losses

relating to the effective portion of any hedge are recognised in equity.

Changes in the fair value of any ineffective portion are recognised in the

income statement. Cumulative gains and losses previously recognised

in equity are transferred to the income statement if the foreign

subsidiary to which they relate is disposed of.

Derivatives that do not meet the criteria for hedge accountingWhere derivatives do not meet the criteria for hedge accounting,

changes in fair value are recognised immediately in the income

statement. Gains and losses arising from measuring the contracts

at fair value are excluded from the underlying profit measures used

by the Board to monitor and measure the underlying performance

of the Group (see note 10). The Group, for instance, utilises a number

of foreign currency forward contracts to mitigate against currency

fluctuations. The Group has determined that the additional costs of

meeting the extensive documentation requirements for the Group’s

large number of foreign currency forward contracts are not merited.

Share capital

Ordinary shares are classified as equity. Incremental costs directly

attributable to the issue of new shares or options are deducted from

the proceeds recorded in equity.

Own shares represent shares in the Company that are held by an

independently managed Employee Share Ownership Plan. The

consideration paid for own shares including any incremental directly

attributable costs is recorded as a deduction from shareholders’ equity.

When such shares are sold any consideration received, net of any

directly attributable costs, is recorded within shareholders’ equity.

Restatement of prior periods for finalisation of fair values arising on acquisitions

Where businesses are acquired fair values of the net assets of the

acquired business are finalised within 12 months of the acquisition

date, with the exception of certain deferred tax balances. All fair value

adjustments are recorded with effect from the date of acquisition and

consequently may result in the restatement of previously reported

financial results (see note 46).



3 FINANCIAL RISK MANAGEMENT

Financial risk factors

The Group’s operations expose it to a number of financial risks including foreign exchange risk, credit risk, interest rate risk and liquidity risk. These

risks are managed by a centralised treasury department, in accordance with Board approved objectives, policies and authorities. Regular reports

monitor exposures and assist in managing the associated risks.

Foreign exchange riskThe Group operates internationally and is subject to foreign exchange risks on future commercial transactions and net investments in foreign

subsidiaries. The principal exposures arise with respect to the US dollar against the Pound sterling. To mitigate risks associated with future commercial

transactions the Group policy is to hedge known, and certain forecast transaction exposures based on historical experience and projections. The Group

hedges at least 70% of the next 12 months anticipated exposure and can hedge up to five years ahead. The Group uses borrowings denominated in the

relevant currencies to hedge its investment in foreign subsidiaries. Details of the hedges in place can be found in note 32.

Credit riskThe Group is not subject to significant concentration of credit risk with exposure spread across a large number of companies across the world. In

addition, many of the Group’s principal customers are either government departments or large multinationals. Policies are maintained to ensure the

Group makes sales to customers with an appropriate credit history. Letters of credit or other appropriate instruments are put in place to reduce credit

risk where considered necessary. The Group is also subject to credit risk on the counterparties to its other financial instruments which it controls

through only dealing with highly rated counterparties and netting transactions on settlement wherever possible.

Interest rate riskThe Group has borrowings issued at both fixed and floating rates of interest. Borrowings issued at fixed rates expose the Group to fair value interest rate

risk whereas floating rate borrowings expose the Group to cash flow interest rate risk. The Group’s policy is to maintain at least 25% of its net debt at

fixed rates. The Group mitigates interest rate risks through swaps which have the economic effect of converting fixed rate borrowings into floating rate

borrowings and floating rate borrowings into fixed rate borrowings. Details of the hedges in place can be found in note 32.

Liquidity riskThe Group maintains sufficient committed facilities to meet projected borrowing requirements based on cash flow forecasts. Additional headroom is

maintained to protect against the variability of cash flows and to accommodate small bolt-on acquisitions. Key ratios are monitored to ensure continued

compliance with covenants contained in the Group’s principal credit agreements. The following table analyses the Group’s financial liabilities and

derivative assets and liabilities as at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows:

2008

Less than 1-2 years 2-5 years Greater than Total 1 year 5 years £’m £’m £’m £’m £’m

Trade and other payables 314.6 3.4 5.9 – 323.9Bank and other borrowings 8.7 1.5 1,051.3 50.0 1,111.5Interest payments on borrowings 16.4 9.4 24.8 4.0 54.6Obligations under finance leases (see note 29) 1.0 1.6 4.6 – 7.2

Derivative financial instruments:

Inflows* (0.8) – – – (0.8)Outflows* 21.2 18.0 11.2 – 50.4

Total 361.1 33.9 1,097.8 54.0 1,546.8

2007

Less than 1-2 years 2-5 years Greater than Total

1 year 5 years

£’m £’m £’m £’m £’m

Trade and other payables 227.1 1.7 5.3 – 234.1

Bank and other borrowings 6.5 1.1 733.5 127.4 868.5

Interest payments on borrowings 13.8 6.8 20.3 9.4 50.3

Obligations under finance leases (see note 29) 0.5 0.5 1.8 2.7 5.5

Derivative financial instruments:

Inflows* (0.5) – – – (0.5)

Outflows* 0.5 0.5 1.5 – 2.5

Total 247.9 10.6 762.4 139.5 1,160.4

* Assumes no change in interest rates from those prevailing at year end.



3 FINANCIAL RISK MANAGEMENT CONTINUED

Sensitivity analysis

The Group’s principal exposures in relation to market risks are to changes in the exchange rate between the US dollar and Pound sterling and to

changes in US interest rates. The table below illustrates the sensitivity of the Group’s results to changes in these key variables as at the balance sheet

date. The analysis covers only financial assets and liabilities held at the balance sheet date and is made on the basis of the hedge designations in place

on the relative dates and assuming no hedge ineffectiveness.

2008 2007

Income Equity Income Equity

statement statement

£’m £’m £’m £’m

USD/GBP exchange rate +/– 5% 13.9 48.4 3.0 35.8

US yield curve +/– 1% 7.2 13.4 2.0 12.2

Of the impact on equity from movements in the exchange rate, £50.0 million (2007: £38.7 million) relates to net US dollar debt. However, as all US dollar

debt is designated as a net investment hedge, the impact is entirely offset by the retranslation of overseas operations.

Capital risk management

The Group’s objective when managing its capital structure is to minimise the cost of capital while maintaining adequate capital to protect against

volatility in earnings and net asset values. The strategy is designed to maximise shareholder return over the long term. The relative proportion of debt to

equity will be adjusted over the medium term depending on the cost of debt compared to equity and the level of uncertainty facing the industry and the

Group. The capital structure of the Group at the balance sheet date is as follows:

2008 2007

£’m £’m

Obligations under finance leases – current (see note 29) 1.0 0.5

Bank and other borrowings – current (see note 30) 13.5 16.7

Obligations under finance leases – non-current (see note 29) 6.2 5.0

Bank and other borrowings – non-current (see note 30) 1,094.5 858.1

Less cash and cash equivalents (see note 26) (67.3) (64.9)

Total net debt 1,047.9 815.4

Total equity 1,286.4 1,063.4

Debt/equity % 81% 77%

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In applying the Group’s accounting policies set out in note 2 management is required to make certain estimates and judgements concerning the future.

These estimates and judgements are regularly reviewed and updated as necessary. The estimates and judgements that have the most significant effect

on the amounts included in these consolidated financial statements are as follows:

Goodwill

Each year the Group carries out impairment tests of its goodwill balances which requires estimates to be made of the value in use of its cash

generating units (CGUs). These value in use calculations are dependent on estimates of the future cash flows and long-term growth rates of the CGUs.

Further details on these estimates are provided in note 19.

Development costs and programme participation costs

The Group capitalises development costs and programme participation costs provided they meet certain criteria as set out in note 2. Costs are only

capitalised where management are satisfied as to the ultimate commercial viability of the project based on available information. Projects typically

involve long-term relationships on aircraft platforms and in assessing commercial viability, estimates need to be made of future revenues, margins and

cashflows which are dependent on a number of factors including the size, utilisation and life of the aircraft fleet to which the capitalised costs relate.

Fair value of intangible assets acquired in a business combination

On the acquisition of a business it is necessary to attribute fair values to any intangible assets acquired (provided they meet the criteria to be

recognised). The fair values of these intangible assets are dependent on estimates of attributable future revenues, margins and cashflows.

Income taxes

In determining the Group’s provisions for income tax and deferred tax it is necessary to consider transactions in a small number of key tax jurisdictions

for which the ultimate tax determination is uncertain. To the extent that the final outcome differs from the tax that has been provided, adjustments will

be made to income tax and deferred tax provisions held in the period the determination is made.




4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS CONTINUED

Environmental matters

The Group is involved in the investigation and remediation of certain sites for which we have been identified as a potentially responsible party under US

law. Advice is received by the Group from its environmental consultants and legal advisors to assist in the determination of the timing and estimation of

the costs that the Group may incur in respect of such claims and an appropriate provision is made. To the extent that these estimates change as more

information becomes available adjustments are made to the carrying value of the provision. The Group has extensive insurance arrangements in place

to mitigate the impact of historical environmental events on the Group.

Legal and regulatory

The Group is subject to legal proceedings and other claims arising in the ordinary course of business. The Group is required to assess the likelihood

of any adverse judgements or outcomes, as well as potential ranges of probable losses. A determination of the amount of reserves required for these

matters is based on a careful analysis of each individual issue with the assistance of outside legal counsel. However, actual claims incurred could differ

from the original estimates.

Retirement benefit obligations

The liability recognised in respect of retirement benefit obligations is dependent on a number of estimates including those relating to mortality, inflation,

salary increases, healthcare cost increases and the rate at which liabilities are discounted. Any change in these assumptions would impact the retirement

benefit obligations recognised. Further details on these estimates are provided in note 35.

5 REVENUE

An analysis of the Group’s revenue is as follows:

2008 2007

£’m £’m

Sale of goods 1,034.0 789.6

Contract accounting revenue 59.8 38.8

Revenue from services 49.4 32.8

Revenue from funded research and development 19.4 17.0

Total 1,162.6 878.2

6 SEGMENTAL ANALYSIS

Primary reporting format – business segments

The Group’s primary segments are its business segments. The Group manages its businesses under the key segments of Aerospace Equipment,

Sensing Systems and Defence Systems.

Year ended 31 December 2008 Aerospace Sensing Defence Equipment Systems Systems Total £’m £’m £’m £’m

Revenue 763.7 267.8 131.1 1,162.6

Underlying operating profit (see note 10) 230.6 46.7 19.1 296.4

Exceptional operating costs (see note 11) (12.8) (0.1) (2.9) (15.8)

Amortisation of intangibles acquired in business combinations (see note 21) (52.7) (1.0) (8.1) (61.8)

Disposal of inventory revalued in business combinations (see note 10) – (0.3) – (0.3)

Financial instruments (see note 10) (37.9) (8.2) – (46.1)

Operating profit 127.2 37.1 8.1 172.4Net finance costs (53.1)

Profit before tax 119.3Tax (20.2)

Profit for the year 99.1

Depreciation (see note 22) 17.5 7.7 1.4 26.6Amortisation of intangible assets* (see notes 20 and 21) 69.8 3.7 8.7 82.2Capital expenditure** 78.3 17.7 5.1 101.1

* Of the total amortisation in the year £20.4 million has been charged to underlying profit as defined in note 10.

** Capital expenditure includes internal development costs capitalised of £23.7 million (see note 20), capitalised programme participation costs of

£35.7 million (see note 20), other purchased intangibles of £5.8 million (see note 21) and property, plant and equipment of £35.9 million (see note 22)

but excludes additions arising from the acquisition of businesses which are shown separately in note 44.



6 SEGMENTAL ANALYSIS CONTINUED

As at 31 December 2008 Segment Segment assets liabilities £’m £’m

Aerospace Equipment 2,810.9 (304.8)

Sensing Systems 365.9 (104.3)

Defence Systems 205.8 (32.8)

Unallocated 7.0 (15.7)

Total 3,389.6 (457.6)

Segment assets and liabilities exclude net debt, taxation, retirement benefit obligations, interest rate derivatives and assets and liabilities classified as

held for sale.

Year ended 31 December 2007 Aerospace Sensing Defence

Equipment Systems Systems Total

£’m £’m £’m £’m

Revenue 528.1 235.9 114.2 878.2

Underlying operating profit (see note 10) 158.2 41.5 16.6 216.3

Exceptional operating costs (see note 11) (4.7) – (0.7) (5.4)

Amortisation of intangibles acquired in business combinations (see note 21) (30.5) (0.4) (7.5) (38.4)

Disposal of inventory revalued in business combinations (see note 10) (21.3) – – (21.3)

Financial instruments (see note 10) (4.2) (1.1) – (5.3)

Goodwill adjustment arising from recognition of tax losses (see note 10) (3.2) – – (3.2)

Operating profit 94.3 40.0 8.4 142.7

Net finance costs (37.3)

Profit before tax 105.4

Tax (16.1)

Profit for the year 89.3

Depreciation (see note 22) 11.8 6.1 0.9 18.8

Amortisation of intangible assets* (see notes 20 and 21) 40.8 3.9 8.3 53.0

Capital expenditure** 57.0 24.8 5.0 86.8

* Of the total amortisation in the year £14.6 million has been charged to underlying profit as defined in note 10.

** Capital expenditure includes internal development costs capitalised of £22.4 million (see note 20), capitalised programme participation costs of

£20.1 million (see note 20), other purchased intangibles of £3.3 million (see note 21) and property, plant and equipment of £41.0 million (see note 22)

but excludes additions arising from the acquisition of businesses.

As at 31 December 2007 Segment Segment

assets liabilities

Restated Restated

£’m £’m

Aerospace Equipment 2,186.1 (218.8)

Sensing Systems 270.1 (70.4)

Defence Systems 157.7 (25.0)

Unallocated 3.4 (12.8)

Total 2,617.3 (327.0)

Segment assets and liabilities exclude net debt, taxation, retirement benefit obligations, interest rate derivatives and assets and liabilities classified as

held for sale.




6 SEGMENTAL ANALYSIS CONTINUED

Secondary reporting format – geographical segments

The Group’s secondary segments are its geographical segments.

2008 2007

£’m £’m

RevenueUK 149.8 121.3

Rest of Europe 260.9 212.2

North America 599.9 428.3

Rest of World 152.0 116.4

Total 1,162.6 878.2

Revenues are based on the location of the customer.

2008 2007

Restated

£’m £’m

Total segment assetsUK 805.2 734.9


North America 2,397.1 1,775.6


Total 3,389.6 2,617.3

Total segment assets are based on the location of the assets. Total segment assets exclude cash, taxation, interest rate derivatives and assets classified

as held for sale.

2008 2007

£’m £’m

Capital expenditureUK 29.8 29.6


North America 59.7 42.6


Total 101.1 86.8

Capital expenditure is based on the location of the assets, and includes capitalised internal development costs, capitalised programme participation

costs, other purchased intangibles and property plant and equipment but excludes additions arising from the acquisition of businesses which are shown

separately in note 44.



7 EXPENSES BY NATURE 2008 2007

£’m £’m

Raw materials and consumables used 344.6 254.6

Changes in inventories of finished goods and work in progress (35.8) (31.2)

Disposal of inventory revalued in business combinations (see note 10) 0.3 21.3

Employee costs (see note 9) 352.5 290.7

Depreciation of property, plant & equipment (see note 22) 26.6 18.8

Research and development costs 35.7 30.5

Amortisation of development costs (see note 20) 3.5 3.8

Amortisation of programme participation costs (see note 20) 14.1 7.8

Amortisation of other purchased intangible assets (see note 21) 2.8 3.0

Amortisation of intangibles acquired in business combinations (see note 10) 61.8 38.4

Net foreign exchange gains (6.9) (2.8)

Operating lease rentals – land and buildings 9.3 7.7

Operating lease rentals – plant, equipment and vehicles 0.8 1.1

Exceptional operating costs (see note 11) 15.8 5.4

Financial instruments (see note 10) 46.1 5.3

Goodwill adjustment arising from recognition of tax losses (see note 14) – 3.2

Other administration costs 121.1 78.7

992.3 736.3

Other operating income (2.1) (0.8)

Total 990.2 735.5

Analysed in the income statement:

Cost of sales 637.8 493.4

Net operating costs 352.4 242.1

Total 990.2 735.5

8 AUDITOR REMUNERATION 2008 2007

£’m £’m

Payable to PricewaterhouseCoopers LLP and network firms:

Audit services : Fees payable for the audit of parent company and consolidated financial statements 0.2 0.2

Non-audit services : Fees payable for the audit of the Company’s subsidiaries pursuant to legislation 1.1 1.4

: Fees payable for other services supplied pursuant to legislation – 1.4

: Services relating to corporate finance transactions – 0.1

: All other services 0.9 1.3

Total 2.2 4.4

“Fees payable for other services pursuant to legislation” of £Nil (2007: £1.4 million) relate to costs capitalised within acquisition costs of businesses

acquired during the year.

“All other services” primarily relates to fees in respect of cost saving advice on procurement.

In addition to the above services, the Group’s auditor acted as auditor to the Meggitt Group 1990 Pension Plan (1990 Plan) and the Meggitt Executive

Pension Plan (MEPP). The appointment of auditors to these Group pension schemes and the fees paid in respect of those audits are agreed by the

trustees of each scheme, who act independently from the management of the Group. The aggregate fees paid to the Group’s auditor for audit services

to these pension schemes during the year was £27,000 (2007: £27,000).

The Group engages PricewaterhouseCoopers LLP to undertake those non-audit related activities which they are required to, and most suited to, perform.

Further details on the Group’s policy in respect of non-audit fees is contained in the Directors’ statement on corporate governance on page 43.




9 EMPLOYEE COSTS 2008 2007

£’m £’m

Employee costs during the year including executive directors:

Wages and salaries 285.0 232.0

Social security costs 40.7 33.0

Pension costs – defined contribution schemes (see note 35) 9.9 8.4

Pension costs – defined benefit schemes (see note 35) 12.3 11.6

Other post-retirement costs – healthcare schemes (see note 35) 1.0 0.5

Share-based payment (see note 38) 3.6 5.2

Total 352.5 290.7

2008 2007

No. No.

Average monthly number of persons employed including executive directors:

Production 6,802 6,023

Selling and distribution 619 611

Administration 790 726

Total 8,211 7,360

Details of directors’ remuneration can be found in the Remuneration Report on page 44, which constitutes part of these financial statements.

10 RECONCILIATIONS BETWEEN PROFIT AND UNDERLYING PROFIT

Underlying profit is used by the Board to measure and monitor the underlying trading performance of the Group. It excludes certain items as shown below:

2008 2007

Note £’m £’m

Operating profit 172.4 142.7

Exceptional operating costs (see note 11) 15.8 5.4

Amortisation of intangibles acquired in business combinations a 61.8 38.4

Disposal of inventory revalued in business combinations b 0.3 21.3

Financial instruments c 46.1 5.3

Goodwill adjustment arising from recognition of tax losses d – 3.2

Adjustments to operating profit 124.0 73.6

Underlying operating profit 296.4 216.3

Profit before tax 119.3 105.4

Adjustments to operating profit per above 124.0 73.6

Exceptional finance costs (see note 11) – 2.0

Exceptional finance income (see note 11) – (2.0)

Adjustments to profit before tax 124.0 73.6

Underlying profit before tax 243.3 179.0

Profit for the year 99.1 89.3

Adjustments to profit before tax per above 124.0 73.6

Tax effect of adjustments to operating profit (47.9) (33.1)

Adjustments to profit for the year 76.1 40.5

Underlying profit for the year 175.2 129.8

a. The Group excludes from its underlying profit figures the amortisation of intangibles acquired in business combinations. 2008 2007

£’m £’m

Amortisation of other intangible assets (see note 21) 64.6 41.4

Less amortisation of purchased intangible assets (see note 21) (2.8) (3.0)

Amortisation of intangibles acquired in business combinations 61.8 38.4



10 RECONCILIATIONS BETWEEN PROFIT AND UNDERLYING PROFIT CONTINUED

b. IFRS 3 requires finished goods acquired through a business combination to be valued at estimated selling price less costs of disposal and a

reasonable profit allowance for the selling effort. Work in progress acquired in a business combination is valued at estimated selling price less

costs to complete, costs of disposal and a reasonable profit allowance for the work not yet completed. The fair value of acquired inventory is thus

significantly higher than the same items built post acquisition, the value of which includes no profit element. This increase arising from the

revalued inventory is charged to the income statement as the inventory is consumed and is excluded from the Group’s underlying profit figures.

c. Although the Group uses foreign currency forward contracts to hedge against foreign currency exposures, it has decided that the costs of meeting

the extensive documentation required to be able to apply hedge accounting under IAS 39 (“Financial Instruments: Recognition and Measurement”)

are not merited. The Group’s underlying profit figures exclude amounts which would not have been recorded if hedge accounting had been applied.

Where interest rate derivatives do not qualify to be hedge accounted, movements in the fair value of those derivatives are excluded from underlying

profit. Where interest rate derivatives do qualify to be accounted for as fair value hedges, any difference between the movement in the fair values of

the derivatives and in the fair value of fixed rate borrowings is excluded from underlying profit. Any gains or losses arising from the requirement to

continue to measure fixed rate borrowings at fair value after the associated interest rate derivatives have matured or have been cancelled are also

excluded from underlying profit.

2008 2007

£’m £’m

Movement in the fair value of foreign currency forward contracts (see note 32) 49.6 5.8

Impact of retranslating net foreign currency assets and liabilities at spot rate (4.2) (0.7)

Movement in the fair value of interest rate derivatives not hedge accounted 2.9 0.2

Movement in the fair value of fixed rate borrowings (2.2) –

Financial instruments – loss 46.1 5.3

d. The goodwill adjustment arises from the recognition of tax losses during the year in respect of businesses acquired in earlier years. These tax losses

existed when the businesses were acquired but a deferred tax asset was not recognised at the time as the recoverability of those losses was not

probable at the time the fair values were finalised. IFRS requires that goodwill is adjusted in the year the recoverability becomes probable with a

corresponding charge recorded in profit before tax (see note 14).

11 EXCEPTIONAL ITEMS 2008 2007

Note £’m £’m

Integration of K&F Industries Holdings, Inc. (“K&F”) a 10.2 4.7

Integration of Firearms Training Systems Inc. (“FATS”) b 2.9 0.7

Integration of other businesses c 4.6 –

Profit on sale of S-Tec Corporation (see note 45) d (1.9) –

Exceptional operating costs 15.8 5.4

2008 2007

Note £’m £’m

Rights issue – Interest on bank deposits e – (2.0)

Rights issue – Reduced interest payable net of costs of new facilities e – (1.6)

Redemption of K&F 7.75% senior subordinated notes f – 3.6

Exceptional net finance costs – –

Analysed as:

Exceptional finance income – (2.0)

Exceptional finance costs – 2.0

Exceptional net finance costs – –

a. Costs incurred during the year include the rationalisation of repair and overhaul centres with the relocation of the Slough and Liege facilities to

Coventry in the UK and the relocation of the Atlanta facility to Akron in the US. Costs were also incurred in rationalising and restructuring R&D

and engineering capabilities and in moving steel brake and structural manufacturing from Akron to Mexico. Further exceptional operating costs

of £14.1m are expected to arise over the next two years as the integration is completed.

b. During the year the relocation of Caswell and FATS US to a new site in Atlanta was completed.

c. During the year other business integration costs were also incurred, principally the integration of the Avery Hardoll business into other businesses

in the Group.

Cash expenditure on all exceptional operating costs above was £16.5 million (2007: £4.2 million), including £9.5 million in respect of K&F

(2007: £1.9 million) and £3.3 million (2007: £1.3 million) in respect of FATS. The tax credit in respect of the exceptional operating costs was £4.0 million

(2007: £1.7 million).




11 EXCEPTIONAL ITEMS CONTINUED

d. In January 2008 the Group completed the disposal of S-Tec Corporation and recorded a profit of £1.9 million which has been treated as an

exceptional operating item.

e. The Group announced on 6 March 2007 the proposed acquisition of K&F for an enterprise value of USD 1.8 billion funded in part by a rights issue

with the balance financed by a new debt facility. The reduction in net finance costs arising from the cash raised by the rights issue and finance costs

associated with the new debt facilities was treated as exceptional net finance income in respect of the period between the completion of the rights

issue on 18 April 2007 and the completion of the acquisition on 22 June 2007.

f. Following the acquisition of K&F, the Group commenced a cash tender offer for K&F’s USD 315 million aggregate principal amount of 7.75% senior

subordinated notes which were due in 2014. This tender offer successfully completed on 3 August 2007. The premium payable on redemption, being the

difference between the total consideration paid and the book value of the notes at the date the offer completed, was treated as exceptional finance costs.

12 FINANCE INCOME 2008 2007

£’m £’m

Interest on bank deposits 0.6 3.6

Unwinding of interest on other receivables 1.0 0.9

Expected return on retirement benefit scheme assets (see note 35) 31.3 27.0

Other finance income 1.0 1.2

Finance income 33.9 32.7

13 FINANCE COSTS 2008 2007

£’m £’m

Interest on bank borrowings 39.0 27.1

Interest on USD 250 million senior notes 7.4 6.7

Interest on 7.75% senior subordinated notes – 1.7

Premium payable on redemption of 7.75% senior subordinated notes (see note 11) – 3.6

Interest on finance lease obligations 0.3 0.2

Unwinding of interest on provisions (see note 33) 1.9 1.1

Unwinding of interest on retirement benefit scheme liabilities (see note 35) 36.0 28.2

Other finance costs 2.4 1.4

Finance costs 87.0 70.0

14 TAX 2008 2007

£’m £’m

Current tax – current year 40.9 36.4

Current tax – adjustment in respect of prior years 2.0 (2.9)

Deferred tax – current year (15.0) (8.5)

Deferred tax – adjustment in respect of prior years (7.7) (5.7)

Deferred tax – adjustments to goodwill on recognition of tax assets (see note 10) – (3.2)

Total taxation 20.2 16.1

Reconciliation of the total tax chargeA reconciliation of the notional tax charge based on average standard rates of tax (weighted in proportion to accounting profits) to the actual tax charge

is as follows: 2008 2007

£’m £’m

Profit on ordinary activities before taxation at weighted average standard tax rate of 29.0%* (2007: 34.9%) 34.6 36.8

Effects of:

Permanent differences (1.2) (4.8)

Timing differences (0.8) (1.8)

Tax credits and incentives (6.7) (2.3)

Prior year credit (5.7) (8.6)

Deferred tax – adjustments to goodwill on recognition of tax assets (see note 10) – (3.2)

Total taxation 20.2 16.1



14 TAX CONTINUED

Tax (credit)/charge on items recorded directly in equity 2008 2007

£’m £’m

Current tax on exchange movements (15.6) (7.2)

Deferred tax on exchange movements 1.0 –

Deferred tax on actuarial movements (18.7) 8.2

Deferred tax on share based payment 1.9 (0.6)

Deferred tax on cash flow hedge movements (5.2) (2.9)

Total taxation recorded in equity (36.6) (2.5)

* The sensitivity of the tax charge to changes in the tax rate is such that a one percentage point increase or reduction in the tax rate would cause the

total taxation charge for 2008 to increase or reduce respectively by approximately £1 million.

15 PROFIT OF PARENT COMPANY

The profit attributable to the shareholders of Meggitt PLC includes a profit, after dividends received, of £104.6 million (2007: £40.8 million) which has

been dealt with in the accounts of that Company. Meggitt PLC, which prepares its accounts in accordance with UK GAAP, has taken advantage of the

legal dispensation contained in Section 230 of the Companies Act 1985 allowing it not to publish a separate profit and loss account.

16 EARNINGS PER ORDINARY SHARE

Earnings per ordinary share (“EPS”) is calculated by dividing the profit attributable to equity shareholders by the weighted average number of shares

in issue during the year. The weighted average number of shares used excludes any shares bought by the Group and held as own shares (see note 39).

The calculation of diluted earnings per share adjusts the weighted average number of shares to reflect the assumption that all potentially dilutive

ordinary shares convert. For the Group this means assuming all share options in issue are exercised.

2008 2008 2008 2007 2007 2007

£’m No. ’m Pence £’m No. ’m Pence

Profit attributable to equity shareholders 99.1 661.9 15.0 89.3 612.7 14.6

Own shares (see note 39) – – – – (0.1) –

Basic EPS 99.1 661.9 15.0 89.3 612.6 14.6

Potential effect of dilutive ordinary shares – options – 1.1 – – 3.3 (0.1)

Diluted EPS 99.1 663.0 15.0 89.3 615.9 14.5

Underlying earnings per share is based on underlying profit (see note 10) and is calculated below:

2008 2007

Pence Pence

Basic EPS 15.0 14.6

Add back effects of:

Exceptional operating costs 1.8 0.6

Amortisation of intangibles acquired in business combinations 4.7 3.3

Disposal of inventory revalued in business combinations – 2.1

Financial instruments 5.0 0.6

Exceptional finance income – (0.5)

Exceptional finance costs – 0.4

Rights issue* – 1.0

Underlying EPS 26.5 22.1

* As referred to in note 11 the Group excluded exceptional net finance income arising from the rights issue for the period from when the rights issue

proceeds were received on 18 April 2007 to 22 June 2007, the date when the acquisition of K&F was completed. For the purposes of underlying

EPS for 2007 the Group also adjusted the weighted average number of shares used to exclude the effect of the new shares for this same period.

The weighted average number of shares used for underlying EPS in 2007 was 586.9 million.




17 DIVIDENDS 2008 2007

£’m £’m

In respect of earlier years – 26.2

In respect of 2007:

Interim of 2.45p per share – 16.0

Final of 5.75p per share 37.9 –

In respect of 2008:

Interim of 2.70p per share 17.9 –

Dividends paid 55.8 42.2

Less paid as scrip dividend (see note 43) (15.5) (6.6)

Dividends paid in cash 40.3 35.6

A final dividend in respect of 2008 of 5.75p per share (2007: 5.75p), amounting to a total final dividend of £38.3 million (2007: £37.9 million) is to be

proposed at the Annual General Meeting on 23 April 2009. This dividend is not reflected in these financial statements as it is not approved at the balance

sheet date.

18 RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries have been eliminated on consolidation. The remuneration of the key management personnel of

the Group including executive directors is set out below:

2008 2007

£’m £’m



Pension costs – defined contribution schemes – 0.1

Pension costs – defined benefit schemes 0.3 0.3

Share based payment 2.1 2.0

Total 10.9 10.0

Interests of key management personnel in share schemes operated by the Group at the balance sheet date are set out below:

2008 2008 2007 2007

Average No. Average No.

exercise outstanding exercise outstanding

price price

pence ‘m pence ‘m

Share options 252.69 6.5 249.34 5.0

Share appreciation rights 271.09 1.1 281.95 0.7

Equity Participation Plan shares N/A 4.2 N/A 1.6

Full details of all elements in the remuneration package of each director together with directors’ share interests and share options are given in the

Remuneration Report on page 44 which constitutes part of these financial statements.

19 GOODWILL Total £’m

At 1 January 2007

Cost 563.4

Year ended 31 December 2007Opening cost 563.4

Exchange rate adjustments (0.8)

Businesses acquired as restated 516.9

Transfer to assets classified as held for sale (see note 23) (8.5)

Adjustment arising from recognition of tax losses (see note 10) (3.2)

Closing cost – restated (see note 46) 1,067.8

Year ended 31 December 2008Opening cost 1,067.8

Exchange rate adjustments 309.3

Businesses acquired (see note 44) 5.6

Closing cost 1,382.7



19 GOODWILL CONTINUED

Goodwill is tested for impairment annually or more frequently if there is any indication of impairment. No impairment charge was required in the year

(2007: £Nil) and the cumulative impairment charge recognised to date is £Nil (2007: £Nil).

For the purposes of testing goodwill for impairment, goodwill is allocated to the Group’s cash generating units (CGUs) which principally comprise its

individual business operations. The allocation of goodwill to CGU’s is initially carried out in the year a business is acquired according to those CGUs

which are expected to benefit from the acquisition. Subsequent adjustments are made to this allocation to the extent that operations to which goodwill

relates are transferred between CGUs or disposed of outside the Group. An analysis of goodwill by principal CGU is shown below:

2008 2007

Restated

£’m £’m

Meggitt Aircraft Braking Systems (“MABS”) 749.6 575.1

Whittaker Controls Inc 183.3 132.4

Engineering Fabrics Corporation (“EFC”) 79.0 57.4

Meggitt Training Systems Inc 72.5 52.4

Other 298.3 250.5

Total 1,382.7 1,067.8

For each CGU the Group has determined its recoverable amount from value in use calculations. The value in use calculations are based on cash flow

forecasts derived from the most recent budgets and plans approved by management in December 2008 for the next three years. Cash flows for periods

beyond three years are extrapolated using estimated growth rates. The resultant cash flows are discounted using a pre-tax discount rate appropriate for

the relevant CGU.

The key assumptions for the value in use calculations are shown below:

• Sales volumes, selling prices and cost increases over the five years covered by management’s detailed plans. Sales volumes are based on industry

forecasts and/or management estimates for the businesses in which each CGU operates including forecasts for OEM deliveries of large jets,

regional aircraft and business jets; air traffic growth and military spending by the US DOD and other major governments. Sales prices and cost

increases are based on past experience and management expectations of future changes in the market. A cautious approach to volume levels,

selling prices and cost increases has been taken given the current global economic uncertainty. The extent to which these assumptions affect each

CGU with a significant level of goodwill are described below.

MABS and Whittaker Controls Inc are broadly spread across both civil aerospace and military platforms with Whittaker Controls Inc also operating

in the energy sector. Within the civil aerospace sector MABS is a world leader in the supply of brake systems for regional aircraft and business jets,

whilst the Whittaker Controls business, which designs and manufactures fluid control devices and systems, has a higher content on large jets.

Both businesses have significant OEM and aftermarket revenues with the latter representing the greater proportion of revenues. In civil aerospace

external forecasts suggest air traffic, measured in available seat kilometres (ASKs), will decline by 3% to 5% in 2009 and remain flat or increase slightly

in 2010. This will translate into reduced use of existing aircraft and, combined with adverse conditions in credit markets, lower sales of new aircraft.

Sales and usage of business jets will also see the declines. In military markets, the US DoD base budget is predicted to grow by around 3% in 2009 and,

with market share gains, the Group’s energy business are also forecast to grow; these markets are forecast to remain robust over the coming years.

EFC and Meggitt Training Systems Inc both operate in the military sectors. The principal customer of EFC is the US DOD to whom EFC are a leading

supplier of flexible fuel tanks. Meggitt Training Systems Inc supplies integrated live and virtual training packages for armed forces and law

enforcement agencies across the world. The forecasts used for military markets are as outlined above;

• Growth rates used for periods beyond those covered by management’s detailed budgets and plans. Growth rates are derived based on managements

estimates which take into account the long-term nature of the industry in which each CGU operates, external industry forecasts of long-term growth

in the aerospace and defence sectors, the extent to which a CGU has sole source position on platforms where it is able to share in a continuing

stream of highly profitable aftermarket revenues, the maturity of the platforms supplied by the CGU and the technological content of the CGU’s

products. For the purpose of impairment testing a conservative approach has been used and where the derived rate is higher than the long-term

GDP growth rates for the countries in which the CGU operates (UK: 2.4%, US: 2.9%), the latter has been used; and

• Discount rates applied to future cash flows. The Group’s pre-tax weighted average cost of capital (WACC) was used as the foundation for determining

the discount rates to be applied. The Group WACC was then adjusted to reflect risks specific to the CGU that are not already reflected in the future

cash flows for that CGU. The discount rates used were as follows: MABS 11.8%, Whittaker Controls Inc, 12.0%, EFC 12.3%, and Meggitt Training

Systems Inc 12.6%.

The Group has carried out a sensitivity analysis on the impairment testing on the CGU’s carrying values. In performing the sensitivity analysis the Group

has considered the potential impacts of the current economic uncertainty affecting the civil aerospace markets in particular. The Group has examined

the effects of other past shock events on air traffic growth both in the short term and the medium/long term. These included the effects of the 1973 and

1979 oil crises, the first Gulf War in 1991 and impact of 9/11, SARS and the second Gulf War in 2001. Past experience has shown that these events only

had a short term negative impact on air traffic growth. Accordingly, and given the sole source position that both MABS and Whittaker Controls Inc have

on civil platforms with lives of up to thirty years and the exposure to military markets, with typically larger platform lives, that all four CGU’s have,

management has concluded that no reasonably foreseeable change in the key assumptions used in the impairment model would result in a significant

impairment charge being recorded in the financial statements.




20 DEVELOPMENT COSTS AND PROGRAMME PARTICIPATION COSTS Development Programme costs participation costs £’m £’m

At 1 January 2007Cost 44.3 54.6

Accumulated amortisation (12.4) (20.7)

Net book amount 31.9 33.9

Year ended 31 December 2007Opening net book amount 31.9 33.9

Exchange rate adjustments 1.2 0.4

Businesses acquired 7.0 75.2

Additions 22.4 20.1

Transfer to assets classified as held for sale (see note 23) (1.0) –

Amortisation charge (3.8) (7.8)

Closing net book amount 57.7 121.8

At 31 December 2007Cost 74.0 150.4



Year ended 31 December 2008Opening net book amount 57.7 121.8


Additions 23.7 35.7

Amortisation charge (3.5) (14.1)

Closing net book amount 97.8 180.4

At 31 December 2008Cost 120.7 227.3





21 OTHER INTANGIBLE ASSETS Customer Technology Order Other Other Total relationships backlogs purchased (*) (*) (*) (*) £’m £’m £’m £’m £’m £’m

At 1 January 2007Cost 154.2 63.2 8.1 15.4 12.8 253.7

Accumulated amortisation (15.6) (4.9) (5.9) (0.7) (7.6) (34.7)

Net book amount 138.6 58.3 2.2 14.7 5.2 219.0

Year ended 31 December 2007Opening net book amount 138.6 58.3 2.2 14.7 5.2 219.0

Exchange rate adjustments 1.7 – – (0.1) (0.1) 1.5

Businesses acquired as restated 447.6 94.3 10.1 6.9 0.5 559.4

Additions – – – – 3.3 3.3

Transfer to assets classified as held for sale (see note 23) – – – – (0.1) (0.1)

Amortisation charge (21.9) (9.5) (3.6) (3.4) (3.0) (41.4)

Closing net book amount – restated (see note 46) 566.0 143.1 8.7 18.1 5.8 741.7

At 31 December 2007Cost 603.8 157.6 18.3 22.2 15.0 816.9


Net book amount** – restated (see note 46) 566.0 143.1 8.7 18.1 5.8 741.7

Year ended 31 December 2008Opening net book amount 566.0 143.1 8.7 18.1 5.8 741.7

Exchange rate adjustments 166.1 40.5 2.0 4.8 1.4 214.8

Businesses acquired (see note 44) 2.4 1.3 0.3 0.2 0.1 4.3

Additions – – – – 5.8 5.8

Disposals – – – – (0.4) (0.4)

Amortisation charge (38.7) (13.6) (5.1) (4.4) (2.8) (64.6)

Closing net book amount 695.8 171.3 5.9 18.7 9.9 901.6

At 31 December 2008Cost 788.1 206.2 23.3 28.2 24.7 1,070.5


Net book amount** 695.8 171.3 5.9 18.7 9.9 901.6

* Acquired in a business combination. The amortisation of these items are excluded from the Group’s underlying profit figures (see note 10).

** Includes £4.4 million (2007: £3.2 million) of assets currently not subject to amortisation.




22 PROPERTY, PLANT AND EQUIPMENT Plant, Land and equipment buildings and vehicles Total £’m £’m £’m

At 1 January 2007Cost 95.5 232.2 327.7

Accumulated depreciation (22.2) (177.9) (200.1)

Closing net book amount 73.3 54.3 127.6

Year ended 31 December 2007Opening net book amount 73.3 54.3 127.6

Exchange rate adjustments 0.5 1.1 1.6

Businesses acquired as restated 10.0 33.1 43.1

Additions 15.6 25.4 41.0

Transfer to assets classified as held for sale (see note 23) (0.5) (0.7) (1.2)

Disposals (1.8) (0.3) (2.1)

Depreciation charge (3.2) (15.6) (18.8)

Closing net book amount – restated (see note 46) 93.9 97.3 191.2

At 31 December 2007Cost 118.1 293.5 411.6


Closing net book amount – restated (see note 46) 93.9 97.3 191.2

Year ended 31 December 2008Opening net book amount 93.9 97.3 191.2

Exchange rate adjustments 19.6 25.3 44.9

Businesses acquired (see note 44) 0.5 0.2 0.7

Additions 11.1 24.8 35.9

Disposals (0.1) (0.8) (0.9)

Depreciation charge (4.9) (21.7) (26.6)

Closing net book amount 120.1 125.1 245.2

At 31 December 2008Cost 154.8 349.1 503.9


Net book amount 120.1 125.1 245.2

The Group’s obligations under finance leases (see note 29) are secured by the lessors’ title to the leased assets, which have a carrying amount of

£6.1 million (2007: £5.2 million) and are included within plant, equipment and vehicles.



23 NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE

The disposal of S-Tec Corporation (part of the Sensing Systems segment) was announced on 21 November 2007 subject to certain regulatory clearances

being obtained. The related assets were classified as a disposal group held for sale and were presented separately as at 31 December 2007 together

with directly associated liabilities. The disposal was subsequently completed on 3 January 2008 (see note 45).

2008 2007

£’m £’m

Goodwill (see note 19) – 8.5

Development costs (see note 20) – 1.0

Other intangible assets (see note 21) – 0.1

Property, plant and equipment (see note 22) – 1.2

Inventory – 2.0

Trade and other receivables – 1.7

Assets held for sale – 14.5

2008 2007

£’m £’m

Trade and other payables – 1.4

Provisions – 0.2

Liabilities directly associated with assets classified as held for sale – 1.6

24 INVENTORIES 2008 2007

£’m £’m

Contract costs incurred 10.2 14.1

Less progress billings (5.8) (10.1)

4.4 4.0

Raw materials and bought-in components 115.5 82.8

Manufacturing work in progress 105.4 72.7

Finished goods and goods for resale 47.8 45.1

Total 273.1 204.6

The cost of inventories recognised as an expense and included in cost of sales amounted to £309.1 million (2007: £244.7 million).




25 TRADE AND OTHER RECEIVABLES 2008 2007

£’m £’m

Trade receivables 223.6 158.3

Amounts recoverable on contracts 12.7 10.9

Prepayments and accrued income 7.8 5.7

Other receivables 62.1 54.1

Total 306.2 229.0

Less non-current portion:

Other receivables 19.3 14.4

Non-current portion 19.3 14.4

Current portion 286.9 214.6

Other receivables includes £22.6 million (2007: £17.5 million) in respect of insurance receivables arising on environmental issues pertaining to

businesses sold by Whittaker Corporation prior to its acquisition by the Group (see note 33) of which £5.5 million (2007: £4.0 million) is shown as current.

The Group’s trade receivables are stated after a provision for impairment of £5.3 million (2007: £2.9 million). Other balances within trade and other

receivables do not contain impaired assets. The provision for impairment against trade receivables is based on a specific risk assessment taking into

account past default experience and is analysed as follows:

2008 2007

£’m £’m

At 1 January 2.9 3.4

Exchange movements 0.8 –

Charge/(credit) to income statement 1.6 (0.5)

At 31 December 5.3 2.9

The charge/(credit) to income statement for impaired receivables has been included in ‘net operating costs’.

As of 31 December 2008, trade receivables of £45.6 million (2007: £36.0 million) were past due but not impaired. These relate to a number of

independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:

2008 2007

£’m £’m

Up to 3 months 41.6 33.1

Over 3 months 4.0 2.9

Total 45.6 36.0

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any

collateral as security.

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

2008 2007

£’m £’m

Sterling 77.4 83.9

US dollar 187.0 124.7

Euro 34.6 15.3

Other currencies 7.2 5.1

Total 306.2 229.0



26 CASH AND CASH EQUIVALENTS 2008 2007

£’m £’m

Cash at bank and in hand 67.3 64.9

Total 67.3 64.9

Cash and cash equivalents are subject to interest at floating rates.

The credit quality of cash and cash equivalents is as follows:

2008 2007

£’m £’m

S&P rating:

AAA 0.9 1.4

AA 35.8 53.7

A 30.6 9.8

Total 67.3 64.9

27 TRADE AND OTHER PAYABLES – CURRENT 2008 2007

Restated

£’m £’m

Payments received on account 53.0 44.2

Trade payables 101.9 79.7

Social security and other taxes 5.4 6.9

Accrued expenses 39.2 22.9

Deferred consideration relating to acquired businesses 5.4 3.5

Other payables 109.7 69.9

Total 314.6 227.1

28 TRADE AND OTHER PAYABLES – NON-CURRENT 2008 2007

£’m £’m

Other payables 9.3 7.0

Total 9.3 7.0

29 OBLIGATIONS UNDER FINANCE LEASES Present value Minimum of minimum lease payments lease payments

2008 2007 2008 2007

£’m £’m £’m £’m

Amounts payable under finance leases:Within one year 1.7 0.9 1.0 0.5

In the second to fifth years inclusive 8.0 3.2 6.2 2.3

After five years – 2.8 – 2.7

Total 9.7 6.9 7.2 5.5

Less: future finance charges (2.5) (1.4)

Present value of lease obligations 7.2 5.5

Non-current portion 6.2 5.0

Current portion 1.0 0.5

The underlying currency of obligations under finance leases is Sterling £0.4 million (2007: £0.2 million) and US dollars £6.8 million (2007: £5.3 million).

The weighted average period to maturity for these finance leases is 4.8 years (2007: 6.0 years) and the weighted average interest rate is 5.9% (2007: 5.6%).





30 BANK AND OTHER BORROWINGS 2008 2007

£’m £’m

CurrentBank loans 8.9 15.2

Other loans 4.6 1.5

Total current 13.5 16.7

Non-currentBank loans 918.6 727.0

Other loans 175.9 131.1

Total non-current 1,094.5 858.1

Total borrowings 1,108.0 874.8

Analysis of borrowings repayable:

In one year or less 13.5 16.7

In more than one year but not more than two years 1.4 3.1

In more than two years but not more than five years 1,043.7 729.2

In more than five years 49.4 125.8

Total 1,108.0 874.8

Borrowings are stated after deduction of unamortised debt issue costs. Debt issue costs are being written off over the period of the facility to which they

relate. Secured borrowings amounted to £0.7 million (2007: £0.7 million).

The Group has the following committed facilities:

2008 2007

Drawn Undrawn Total Drawn Undrawn Total

£’m £’m £’m £’m £’m £’m

Senior notes (USD 250.0 million) 173.9 – 173.9 125.6 – 125.6

Syndicated credit facility (USD 680.0 million) 314.0 159.0 473.0 229.1 112.5 341.6

Syndicated credit facility (USD 1,170.0 million) 608.6 205.1 813.7 494.6 93.1 587.7

Total 1,096.5 364.1 1,460.6 849.3 205.6 1,054.9

The Group issued USD 250.0 million of loan notes to private investors in 2003. These were all drawn at 31 December 2008 and the sterling equivalent

was £173.9 million. Of these, USD 180.0 million carry an interest rate of 5.36% and are due for repayment in 2013, and the balance of USD 70.0 million

carry an interest rate of 5.46% and are due for repayment in 2015.

The Group negotiated a USD 500.0 million, five year, unsecured multi-currency revolving credit facility during 2008 available to be drawn down on

maturity or early cancellation of our existing USD 680.0 million facility. At 31 December 2008 the amounts drawn under our revolving credit facilities

were £922.6 million (2007: £723.7 million) represented by borrowings denominated in US dollars of £838.1 million (USD 1,205.0 million), in Euros of

£24.8 million (Euros 25.6 million), and in Swiss francs of £59.7 million (Swiss francs 91.3 million). Borrowings under the facilities are subject to interest

at floating rates. The Group also has various uncommitted facilities with its relationship banks.

The committed facilities outstanding as at 31 December 2008 and 31 December 2007 expire as follows:

2008 2007

Drawn Undrawn Total Drawn Undrawn Total

£’m £’m £’m £’m £’m £’m

Within one to two years – 125.2 125.2 – – –

In more than two years 1,096.5 238.9 1,335.4 849.3 205.6 1,054.9

Total 1,096.5 364.1 1,460.6 849.3 205.6 1,054.9


30 BANK AND OTHER BORROWINGS CONTINUED

The fair value of the Group borrowings is as follows:

2008 2007

Book value Fair value Book value Fair value

£’m £’m £’m £’m

Current 13.5 13.5 16.7 16.7

Non-current 1,094.5 1,080.5 858.1 855.9

Total 1,108.0 1,094.0 874.8 872.6

After taking account of the financial derivatives that alter the interest and currency basis of the financial liabilities entered into by the Group, the interest

rate exposure on gross borrowings is:

As at 31 December 2008: Fixed rate borrowings

Weighted average Weighted period Non-interest average for which Floating Fixed bearing Total interest rate rate is fixed £’m £’m £’m £’m % years

US dollar 285.0 730.3 – 1,015.3 5.4 3.0Swiss franc 59.7 – – 59.7 Euro 24.8 0.7 7.0 32.5 5.9 2.5Other 5.3 – – 5.3

Gross borrowings 374.8 731.0 7.0 1,112.8

Less unamortised debt issue costs (4.5) (0.3) – (4.8)

Book value of borrowings 370.3 730.7 7.0 1,108.0

As at 31 December 2007: Fixed rate borrowings

Weighted

average

Weighted period

Non-interest average for which

Floating Fixed bearing Total interest rate rate is fixed

£’m £’m £’m £’m % years

US dollar 272.3 527.5 – 799.8 5.5 4.0

Swiss franc 58.0 – – 58.0

Euro 10.0 0.7 5.9 16.6 5.7 2.9

Other 4.4 – – 4.4

Gross borrowings 344.7 528.2 5.9 878.8

Less unamortised debt issue costs (3.6) (0.4) – (4.0)

Book value of borrowings 341.1 527.8 5.9 874.8

The weighted average period to maturity for non-interest bearing borrowings is 2.8 years (2007: 5.1 years).

31 FINANCIAL INSTRUMENTS

For cash, receivables and short-term borrowings the fair value of the financial instruments approximates to their book value due to the short maturity

periods of these financial instruments. On receivables, allowances are made within the book value for credit risk. For other borrowings and financial

liabilities, the fair value is based on market values or, where not available, on discounting future cash flows at prevailing market rates and by applying

year end exchange rates. Market rates have been used to determine the fair values of the interest rate and foreign exchange derivatives.




31 FINANCIAL INSTRUMENTS CONTINUED

The book values and fair values of financial instruments are set out below:

Fair Value Amortised Cost

2008 2008 2008 2008 2008 2008 Through Derivatives Loans & Other Total Total profit used receivables liabilities book fair & loss as hedges value value £’m £’m £’m £’m £’m £’m

Financial assetsNon-current:

Trade and other receivables (see note 25) – – 19.3 – 19.3 19.3

Derivative financial instruments (see note 32) 1.6 – – – 1.6 1.6

Current:


Derivative financial instruments (see note 32) 1.0 – – – 1.0 1.0Cash and cash equivalents (see note 26) – – 67.3 – 67.3 67.3

2.6 – 373.5 – 376.1 376.1

Financial liabilities

Current:

Trade and other payables (see note 27) – – – (314.6) (314.6) (314.6)Derivative financial instruments (see note 32) (26.4) – – – (26.4) (26.4)Obligations under finance leases (see note 29) – – – (1.0) (1.0) (1.0)Bank and other borrowings (see note 30) – – – (13.5) (13.5) (13.5)

Non-current:

Trade and other payables (see note 27) – – – (9.3) (9.3) (9.3)Derivative financial instruments (see note 32) (30.7) (39.9) – – (70.6) (70.6)Obligations under finance leases (see note 29) – – – (6.2) (6.2) (6.2)Bank and other borrowings (see note 30) (35.6) – – (1,058.9) (1,094.5) (1,080.5)

(92.7) (39.9) – (1,403.5) (1,536.1) (1,522.1)

Total (90.1) (39.9) 373.5 (1,403.5) (1,160.0) (1,146.0)

Fair Value Amortised Cost

2007 2007 2007 2007 2007 2007

Through Derivatives Loans & Other Total Total

profit used receivables liabilities book fair

& loss as hedges value value

£’m £’m £’m £’m £’m £’m

Financial assets

Non-current:


Current:


Derivative financial instruments (see note 32) 3.5 0.1 – – 3.6 3.6

Cash and cash equivalents (see note 26) – – 64.9 – 64.9 64.9

3.5 0.1 293.9 – 297.5 297.5

Financial liabilities

Current:

Trade and other payables (see note 27) – – – (227.1) (227.1) (227.1)

Derivative financial instruments (see note 32) (0.9) – – – (0.9) (0.9)

Obligations under finance leases (see note 29) – – – (0.5) (0.5) (0.5)

Bank and other borrowings (see note 30) – – – (16.7) (16.7) (16.7)

Non-current:

Trade and other payables (see note 27) – – – (7.0) (7.0) (7.0)

Derivative financial instruments (see note 32) – (10.7) – – (10.7) (10.7)

Obligations under finance leases (see note 29) – – – (5.0) (5.0) (5.0)

Bank and other borrowings (see note 30) (27.3) – – (830.8) (858.1) (855.9)

(28.2) (10.7) – (1,087.1) (1,126.0) (1,123.8)

Total (24.7) (10.6) 293.9 (1,087.1) (828.5) (826.3)

The above tables exclude non-current assets and liabilities held for sale (see note 23).



32 DERIVATIVE FINANCIAL INSTRUMENTS Contract or underlying principal amount Fair value

2008 2008 2008 2008 Assets Liabilities Assets Liabilities £’m £’m £’m £’m

Interest rate swaps – (556.4) – (47.4)Foreign currency forward contracts 40.3 (291.1) 2.6 (49.6)

Total 40.3 (847.5) 2.6 (97.0)


Interest rate swaps – (556.4) – (39.9)Foreign currency forward contracts 21.1 (174.6) 1.6 (30.7)

Non-current portion 21.1 (731.0) 1.6 (70.6)

Current portion 19.2 (116.5) 1.0 (26.4)

Contract or underlying

principal amount Fair value

2007 2007 2007 2007

Assets Liabilities Assets Liabilities

£’m £’m £’m £’m

Interest rate swaps 59.4 (401.9) 0.1 (10.7)

Foreign currency forward contracts 59.6 (35.1) 3.5 (0.9)

Total 119.0 (437.0) 3.6 (11.6)


Interest rate swaps – (401.9) – (10.7)

Non-current portion – (401.9) – (10.7)

Current portion 119.0 (35.1) 3.6 (0.9)

Interest rate swaps

The notional principal amount of the outstanding interest rate swap contracts at 31 December 2008 is £556.4 million (USD 800.0 million). The swaps

have the economic effect of converting floating rate US dollar borrowings into fixed rate US dollar borrowings and are accounted for as cash flow

hedges. The notional principal amount of the outstanding interest rate swap contracts at 31 December 2007 was £461.3 million (USD 918.2 million).

Foreign currency forward contracts

Although the Group uses foreign currency forward contracts to hedge against foreign currency exposures, it has decided that the costs of meeting the

extensive documentation required to be able to apply hedge accounting under IAS 39 (“Financial Instruments: Recognition and Measurement”) are

not merited.

2008 2008 2007 2007


£’m £’m £’m £’m

Fair value:

US dollar forward sales (USD/£) 0.6 (49.0) 2.6 (0.5)

Forward sales denominated in other currencies 2.0 (0.6) 0.9 (0.4)

Total 2.6 (49.6) 3.5 (0.9)

The credit quality of derivative financial assets is as follows:

2008 2007

£’m £’m

AA 2.6 3.5

A – 0.1

Total 2.6 3.6




33 PROVISIONS Environmental Onerous Warranty

legal & regulatory contracts costs (a) (b) (c) Total £’m £’m £’m £’m

At 1 January 2008 as previously reported 61.2 10.3 19.0 90.5

Restatement following finalisation of fair values (see note 46) 1.5 – – 1.5

At 1 January 2008 as restated 62.7 10.3 19.0 92.0

Exchange rate adjustments 20.5 1.4 3.8 25.7

Businesses acquired (see note 44) – – 0.1 0.1

Transfer from/(to) trade and other payables – current – 4.3 (4.6) (0.3)

Charge/(credit) to income statement – net operating costs 15.2 (1.5) 2.7 16.4

Charge to income statement – net finance costs (see note 13) 1.4 0.5 – 1.9

Utilised (18.8) (2.1) (5.6) (26.5)

At 31 December 2008 81.0 12.9 15.4 109.3

2008 2007

Restated

£’m £’m

Current 45.3 18.0

Non-current 64.0 74.0

At 31 December 2008 109.3 92.0

a) Provision has been made for known exposures arising from environmental, health and safety, product liability matters, legal proceedings and

contractual disputes in a number of businesses. Meggitt’s operations and facilities are subject to laws and regulations that govern the discharge

of pollutants and hazardous substances into the ground, air and water as well as the handling, storage and disposal of such materials and other

environmental matters. Failure to comply with its obligations potentially exposes the Group to serious consequences, including fines, other

sanctions and limitations on operations. The Group is involved in the investigation and remediation of current and former sites for which it has been

identified as a potentially responsible party under US law. Provision has been made for the expected costs arising from these sites based on

information currently available and a receivable established to the extent these costs are recoverable under the Group’s environmental insurance

policies. A number of asbestos-related claims have been made against subsidiary companies of the Group. To date, the amount connected with such

claims in any year has not been material and many claims are covered fully or partly by existing insurance and indemnities. There is a provision for

claims which cannot be recovered from insurers. In 2000, the US Government started to investigate alleged violations of US export control laws by a

US subsidiary of the Group and is also investigating alleged breaches by three other subsidiaries, one of which is in the UK. These investigations are

likely to lead to financial penalties for which provision has been made. The provisions are expected to be mainly utilised over the next ten years and

are discounted, where appropriate, using a discount rate relevant to each provision.

b) Onerous contracts include lease obligations and trading contracts. Provision has been set up for the estimated rental shortfall in respect of

properties with onerous lease obligations and will be utilised over the lease terms typically up to ten years and are discounted using a discount rate

appropriate to each provision. Provision has also been set up for the estimated losses to be made under certain trading contracts. These are

expected to be utilised over the next five years.

c) Provision has been made for product warranty claims. These provisions are expected to be utilised over the next three years.

34 DEFERRED TAX

Movement on deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax

jurisdiction, is as follows:

Deferred tax assets Tax Retirement Other Total losses benefit obligations £’m £’m £’m £’m

At 1 January 2007 6.7 30.8 13.4 50.9

Exchange rate adjustments – 0.2 0.4 0.6

Businesses acquired as restated – 32.2 (20.7) 11.5

Reclassifications – – (8.4) (8.4)

(Charged)/credited to income statement (see note 14) (4.0) (2.2) 11.9 5.7

(Charged)/credited to equity (see note 14) – (8.2) 3.5 (4.7)

At 31 December 2007 – restated 2.7 52.8 0.1 55.6

Exchange rate adjustments – 16.5 0.1 16.6

(Charged)/credited to income statement (see note 14) (2.7) (5.6) 9.8 1.5

Credited to equity (see note 14) – 18.7 3.3 22.0

At 31 December 2008 – 82.4 13.3 95.7



34 DEFERRED TAX CONTINUED

Deferred tax liabilities Accelerated Intangible tax assets depreciation (*) Other Total £’m £’m £’m £’m

At 1 January 2007 (12.0) (75.8) (0.1) (87.9)

Exchange rate adjustments – (2.2) – (2.2)

Businesses acquired as restated (3.8) (205.9) – (209.7)

Reclassifications 8.5 (0.2) 0.1 8.4

(Charged)/credited to income statement (see note 14) (0.1) 11.8 – 11.7

At 31 December 2007 – restated (7.4) (272.3) – (279.7)

Exchange rate adjustments (1.8) (79.9) – (81.7)

Businesses acquired (see note 44) – (1.1) – (1.1)

Reclassifications – (0.9) – (0.9)

(Charged)/credited to income statement (see note 14) (1.6) 22.8 – 21.2

Charged to equity (see note 14) – (1.0) – (1.0)

At 31 December 2008 (10.8) (332.4) – (343.2)

* Acquired in business combinations

Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current tax liabilities and when

the deferred income taxes relate to the same tax authority. The balances after allowing for such offsets are as follows:

2008 2007

Restated

£’m £’m

Deferred tax assets 112.4 41.4

Deferred tax liabilities (359.9) (265.5)

Net balance at 31 December (247.5) (224.1)

Deferred tax assets are analysed as follows: 2008 2007

£’m £’m

To be recovered within 12 months 10.1 23.0

To be recovered after more than 12 months 102.3 18.4

Total 112.4 41.4

Deferred tax liabilities are analysed as follows:

2008 2007

Restated

£’m £’m

To be recovered within 12 months (25.9) (22.7)

To be recovered after more than 12 months (334.0) (242.8)

Total (359.9) (265.5)

The Group has unrecognised deferred tax assets of £11.8 million (2007: £7.5 million). The majority relate to the Group’s operations in the USA and

unutilised losses. Deferred tax assets have not been recognised in respect of these items, as it is not regarded as more likely than not that they will be

recovered. Deferred tax assets not recognised would be recoverable in the event that they reverse and suitable taxable profits are available. No provision

has been made for taxation that would arise in the event of foreign subsidiaries distributing their reserves as these amounts are retained for investment

in the businesses. The aggregate unrecognised deferred tax liability in respect of such unremitted earnings is £36.0 million (2007: £21.0 million).

35 RETIREMENT BENEFIT OBLIGATIONS

Pension schemesIn the UK, the Group operates three defined benefit schemes all of which are closed to new members. In the USA, the Group operates five defined

benefit schemes, two of which are closed to new members. The US schemes are a mixture of funded and unfunded plans. In Switzerland the Group

operates a defined benefit scheme which is a funded scheme. The assets of all of the defined benefit schemes are held in trust funds separate from the

Group’s finances. The Group also operates a number of defined contribution schemes.

Healthcare schemesThe Group has two principal other post-retirement benefit schemes providing medical and life assurance benefits, both of which arose on the

acquisition of K&F. These schemes are unfunded.




35 RETIREMENT BENEFIT OBLIGATIONS CONTINUED

Amounts recognised in the income statement 2008 2007

£’m £’m

In respect of:

Defined contribution schemes (see note 9) 9.9 8.4

Defined benefit schemes

Service cost (see note 9) 12.3 11.6

Expected return on scheme assets (see note 12) (31.3) (27.0)

Interest cost (see note 13) 32.6 26.6

Total cost of defined benefit schemes 13.6 11.2

Healthcare schemes

Service cost (see note 9) 1.0 0.5

Interest cost (see note 13) 3.4 1.6

Total cost of healthcare schemes 4.4 2.1

Total charge 27.9 21.7

Of the total charge £10.8 million (2007: £9.8 million) has been included in cost of sales, £12.4 million (2007: £10.7 million) in net operating expenses and

£4.7 million (2007: £1.2 million) in net finance costs.

Amounts recognised in the balance sheet 2008

UK Overseas Overseas Total pension pension healthcare schemes schemes schemes £’m £’m £’m £’m

Fair value of scheme assets 283.7 168.2 – 451.9Present value of scheme liabilities (354.8) (269.1) (69.2) (693.1)

Retirement benefit obligations (71.1) (100.9) (69.2) (241.2)

Of the total deficit of £241.2 million, £80.3 million is in respect of unfunded schemes.

2007

UK Overseas Overseas Total

pension pension healthcare

schemes schemes schemes

£’m £’m £’m £’m

Fair value of scheme assets 334.2 137.2 – 471.4

Present value of scheme liabilities (387.4) (186.1) (51.2) (624.7)

Retirement benefit obligations (53.2) (48.9) (51.2) (153.3)

Of the total deficit of £153.3 million, £58.6 million is in respect of unfunded schemes.

Analysis of scheme assets 2008

UK pension schemes Overseas pension schemes Total

Expected Expected £’m % return % £’m % return % £’m %

Equities 165.6 58.4 7.75 69.9 41.6 9.50 235.5 52.1Government bonds 74.0 26.1 3.75 34.0 20.2 5.70 108.0 23.9Corporate bonds 28.6 10.1 6.30 47.0 27.9 6.50 75.6 16.7Property – – N/A 7.6 4.5 7.50 7.6 1.7Other assets 15.5 5.4 4.00 9.7 5.8 1.00 25.2 5.6

Total 283.7 100.0 6.36 168.2 100.0 7.31 451.9 100.0

2007

UK pension schemes Overseas pension schemes Total

Expected Expected

£’m % return % £’m % return % £’m %

Equities 187.3 56.0 7.50 62.5 45.6 9.50 249.8 53.0

Government bonds 69.5 20.8 4.50 19.5 14.2 5.70 89.0 18.9

Corporate bonds 52.6 15.7 5.65 46.8 34.1 6.40 99.4 21.1

Property 19.5 5.8 7.50 3.8 2.8 7.50 23.3 4.9

Other assets 5.3 1.7 4.00 4.6 3.3 1.00 9.9 2.1

Total 334.2 100.0 6.53 137.2 100.0 7.56 471.4 100.0




The schemes have no investments in the Group’s occupied properties or any other assets of the Group.

To develop the expected long-term rate of return on assets assumption, the Group considered the current level of expected returns on risk free

investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is

invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target

asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio.

Changes in the fair value of scheme assets

2008 2007

£’m £’m

Fair value of scheme assets at 1 January 471.4 395.8


Businesses acquired – 58.0

Expected return on scheme assets 31.3 27.0

Contributions – Group 35.8 14.5

Contributions – Members 5.6 4.6

Benefits paid (28.2) (21.0)

Actuarial losses (115.0) (8.7)

Fair value of scheme assets at 31 December 451.9 471.4

Financial assumptions used to calculate scheme liabilities

2008 2007

UK Overseas Overseas UK Overseas Overseas

pension pension healthcare pension pension healthcare

schemes schemes schemes schemes schemes schemes

Discount rate 6.30% 6.50% 6.50% 5.65% 6.40% 6.40%

Inflation rate 3.00% N/A N/A 3.25% N/A N/A

Increase to deferred benefits during deferment* 3.00% N/A N/A 3.25% N/A N/A

Increases to pensions in payment* 3.00% N/A N/A 3.25% N/A N/A

Salary increases 4.00% 4.00% N/A 4.25% 4.00% N/A

Healthcare cost increases N/A N/A ** N/A N/A **

* To the extent not overridden by specific scheme rules.

** Healthcare cost increases are assumed to be 8.5% for 2009 trending down to 5.0% by 2016. (2007: 9.5% for 2008 trending down to 5.0% by 2013).

In determining pension liabilities the Group uses mortality assumptions which are based on published mortality tables adjusted to reflect the

characteristics of the scheme populations. The Group’s mortality assumptions are based on the PA92 medium cohort (year of birth) mortality tables for

the UK schemes and the RP2000 IRS RPA tables for the US schemes. The life expectancies reflected in the mortality assumptions used are as follows:

2008 2007

UK Overseas UK Overseas

schemes schemes schemes schemes

years years years years

Member age 45 (life expectancy at age 65) – male 21.2-22.8 19.2 21.2-22.8 19.2

Member age 45 (life expectancy at age 65) – female 24.0-25.6 21.1 24.0-25.6 21.1

Member age 65 (current life expectancy) – male 20.1-21.5 18.8 20.1-21.5 18.8

Member age 65 (current life expectancy) – female 23.0-24.4 20.8 23.0-24.4 20.8

Details on the sensitivity of scheme liabilities to changes in discount rates and inflation rates are provided below:

• The impact of a 10 basis point reduction in discount rate would cause scheme liabilities at 31 December 2008 to increase by approximately £9.8 million;

• The impact of a 10 basis point reduction in inflation rate would cause scheme liabilities at 31 December 2008 to reduce by approximately £5.4 million;

• The impact of a 10 basis point increase in medical trend rates would cause scheme liabilities at 31 December 2008 to increase by approximately

£0.3 million;

• The impact of assuming every scheme member were to live for an additional year would cause scheme liabilities at 31 December 2008 to increase

by approximately £14.3 million.





Changes in the present value of scheme liabilities 2008 2007

£’m £’m

Present value of scheme liabilities at 1 January 624.7 493.0


Businesses acquired – 140.0

Service cost 13.3 12.1

Interest cost – unwinding of discount on liabilities 36.0 28.2

Contributions – Members 5.6 4.6

Benefits paid (28.2) (21.0)

Actuarial gains (54.1) (33.5)

Present value of scheme liabilities at 31 December 693.1 624.7

Cumulative (losses)/gains recognised in equity 2008 2007

£’m £’m

As at 1 January 3.9 (12.7)

Actuarial (losses)/gains (60.9) 24.8

Deferred tax credit/(charge) 18.7 (8.2)

Net actuarial (losses)/gains (42.2) 16.6

As at 31 December (38.3) 3.9

The actual return on scheme assets was a loss of £83.7 million (2007: Gain of £18.3 million).

History of experience gains and losses and retirement benefit obligations 2008 2007 2006 2005 2004

£’m £’m £’m £’m £’m

Experience adjustments on scheme assets:

(Loss)/gain (115.0) (8.7) 5.3 25.7 12.1

Percentage of scheme assets (25.4%) (1.8%) 1.3% 7.4% 4.1%

Experience adjustments on scheme liabilities:

(Loss)/gain (4.9) 22.1 (7.1) (13.4) (20.5)

Percentage of scheme liabilities (0.7%) 3.5% (1.4%) (3.0%) (5.5%)

Fair value of scheme assets 451.9 471.4 395.8 349.1 298.2

Present value of scheme liabilities 693.1 624.7 493.0 447.3 373.2

Scheme deficits 241.2 153.3 97.2 98.2 75.0

The estimated amounts of contributions expected to be paid to the schemes during 2009 is £36.8 million.

36 CONTINGENT LIABILITIES

The Company has given guarantees in respect of uncommitted credit facilities for certain of its subsidiaries, some property leases, other leasing

arrangements and the performance by some current and former subsidiaries of certain contracts. Also, there are similar guarantees given by certain

of the management companies. The fair value of these guarantees is not considered to be significant.

The Company and various of its subsidiaries are, from time to time, parties to legal proceedings and claims which arise in the ordinary course of

business. The directors do not anticipate that the outcome of these proceedings, actions and claims, either individually or in aggregate, will have

a material adverse effect upon the Group’s financial position.

37 SHARE CAPITAL 2008 2007

£’m £’m

Ordinary shares of 5p each

Authorised: 885.0 million shares (2007: 885.0 million) 44.3 44.3

Nominal Net No. of shares value consideration ‘m £’m £’m

Allotted and fully paid:

At 1 January 2008 658.3 32.9

Issued on exercise of executive share options 0.3 – 0.5

Issued on exercise of sharesave options 1.0 0.1 1.6

Scrip dividends 6.0 0.3 15.5

At 31 December 2008 665.6 33.3



37 SHARE CAPITAL CONTINUED

Sharesave and Share Option Schemes

No. of Exercise ordinary shares price

Exercise period

Year of grant under option per share From To

i) Meggitt 1998 Sharesave Scheme: 2002 29,148 109.56p 01.01.10 30.06.10

2005 7,025 188.76p 01.06.08 30.11.08*

2005 608,803 188.76p 01.06.10 30.11.10

2005 204,494 188.76p 01.06.12 30.11.12

2007 352,661 203.18p 01.12.09 31.05.10

2007 337,982 203.18p 01.12.11 31.05.12

2007 62,773 203.18p 01.12.13 31.05.14

ii) Meggitt 2008 Sharesave Scheme: 2008 1,185,999 171.40p 01.11.11 30.04.12

2008 720,839 171.40p 01.11.13 30.04.14

2008 107,700 171.40p 01.11.15 30.04.16

iii) Meggitt 1996 No 1 Executive Share Option Scheme:1999 32,237 134.90p 01.10.02 30.09.09

2000 3,512 162.10p 14.12.03 13.12.10

2002 6,963 136.76p 17.10.05 16.10.12

2003 26,029 179.24p 02.10.06 01.10.13

2004 17,200 174.40p 01.04.07 31.03.14

2004 14,245 210.59p 06.10.07 05.10.14

iv) Meggitt 1996 No 2 Executive Share Option Scheme:2002 507,134 136.76p 17.10.05 16.10.09

2003 587,402 179.24p 02.10.06 01.10.10

2004 246,564 174.40p 01.04.07 31.03.11

2004 1,173,845 210.59p 06.10.07 05.10.11

v) Meggitt Executive Share Option Scheme 2005 Part A:2005 485,519 278.65p 10.10.08 09.10.15

2006 105,876 263.67p 27.09.09 26.09.16

2006 11,141 269.23p 09.10.09 08.10.16

2007 89,790 299.00p 29.03.10 28.03.17

2007 10,152 295.50p 16.04.10 15.04.17

2007 10,389 288.75p 17.08.10 16.08.17

2008 121,989 252.50p 25.03.11 24.03.18

2008 10,695 280.50p 08.04.11 07.04.18

2008 14,705 204.00p 07.08.11 06.08.18

vi) Meggitt Executive Share Option Scheme 2005 Part B:2005 1,572,845 278.65p 10.10.08 09.10.15

2006 2,325,299 263.67p 27.09.09 26.09.16

2006 61,108 269.23p 09.10.09 08.10.16

2007 2,321,006 299.00p 29.03.10 28.03.17

2007 35,533 295.50p 16.04.10 15.04.17

2007 5,152 288.75p 17.08.10 16.08.17

2008 3,176,492 252.50p 25.03.11 24.03.18

2008 7,130 280.50p 08.04.11 07.04.18

2008 1,156,456 204.00p 07.08.11 06.08.18

* Share options outstanding after their expiry date relate to participants with deferred payments.

All the above options which were granted for nil consideration, may in certain circumstances, be exercised earlier than the dates given. The average

remaining contractual life of outstanding options is 6.4 years (2007: 6.1 years).




38 SHARE-BASED PAYMENT

The Group operates a number of share schemes for the benefit of its employees. The total expense recorded in the income statement for the year in

respect of such schemes was £3.6 million (2007: £5.2 million). The nature of each scheme which has a significant impact on the expense recorded in the

income statement is set out below.

1996 No 1 & No 2 Executive Share Option Schemes and Executive Share Option Scheme 2005

Share options are granted to certain senior executives at an exercise price equal to the market price of the shares on the date the grant is made.

The options are exercisable at the earliest three years after the grant is made. Options can only be exercised if the Group meets an earnings per share

performance condition. The Group has no obligation, legal or constructive, to settle the options in cash. An expense of £2.1 million (2007: £1.8 million)

was recorded in the year.

Movements in the number of outstanding share options and their related weighted average exercise prices are as follows:

2008 2008 2007 2007

Average No. of Average No. of

exercise options exercise options

price outstanding price outstanding


At 1 January 250.28 10.1 223.75 9.8

Granted 240.01 4.5 298.87 2.5

Lapsed 275.35 (0.1) 265.13 (0.2)

Exercised 149.55 (0.4) 180.22 (2.0)

At 31 December 249.75 14.1 250.28 10.1

The fair value of the options was determined using the Black-Scholes option pricing model. The fair value of options granted during the year was

52.7 pence for the award in March and 48.0 pence for the award in August (September 2007: 68.9 pence). The significant assumptions used in the

model were:

2008 2008 2007

Award in Award in Award in

August March September

Share price at date of grant (pence) 204.00 252.50 299.00

Exercise price (pence) 204.00 252.50 299.00

Vesting period (years) 3 3 3

Expected volatility 27% 24% 25%

Expected life of option (years) 5 5 5

Risk free rate 4.40% 4.00% 5.10%

Expected dividend yield 2.60% 2.60% 2.85%

Expected volatility figures are based on historical volatility over the last five years measured using a statistical analysis of daily share prices. The share

options may be exercised at any point up to ten years after the date the award was made.

Share Appreciation Rights (SARs)

Under the terms of the Meggitt Executive Share Option Scheme 2005 the Group may grant SARs to certain overseas employees. The Group is required to

pay the intrinsic value of the SAR to the employee at the date of exercise. A credit of £1.4 million (2007: Expense of £1.2 million) was recorded in the year.

The Group has recorded a liability at the balance sheet date of £0.1 million (2007: £1.6 million). The total intrinsic value at the balance sheet date was

£Nil (2007: £2.9 million).

Movements in the number of outstanding SARs and their related weighted average exercise prices are as follows:

2008 2008 2007 2007

Average No. of Average No. of

exercise SARs exercise SARs

price outstanding price outstanding


At 1 January 281.55 5.2 270.68 3.5

Granted 234.29 4.3 296.07 2.3

Lapsed 276.11 (0.7) 275.67 (0.5)

Exercised – – 276.04 (0.1)

At 31 December 258.72 8.8 281.55 5.2

The fair value of each SAR is determined using the Black-Scholes model. The initial fair value at the date of award reflects the same assumptions used for

share options and are disclosed in the table above. As a cash settled award the fair value of outstanding SARs is reassessed at each balance sheet date.



38 SHARE-BASED PAYMENT CONTINUED

1996 Meggitt Equity Participation Scheme and Meggitt Equity Participation Plan 2005

Under the 1996 Meggitt Equity Participation Scheme the number of shares, if any, that an executive would ultimately have received was dependent

on the Group’s performance during a one year period commencing at the beginning of the financial year preceding that in which the award was made

(the “measurement period”). Performance was measured by comparing the Total Shareholder Return (“TSR”) achieved by Meggitt with that of other

companies in a comparator group chosen by the Remuneration Committee. The Meggitt Equity Participation Scheme was replaced during 2005 by the

Meggitt Equity Participation Plan 2005.

Under the Meggitt Equity Participation Plan 2005 an annual award of shares may be made to certain senior executives. The number of shares if any, that

an executive will ultimately receive, will depend on the Group’s performance during a three year period commencing at the beginning of the financial

year in which the award is made (the “measurement period”). Performance is measured by comparing the Total Shareholder Return (“TSR”) achieved

by the Group with that of other companies in a comparator group chosen by the Remuneration Committee. Changes to the performance condition were

made for the 2008 award. In line with what is now common market practice, 50% of the awards vesting will be based on TSR performance, and 50% on

an earnings per share condition. An expense of £2.4 million (2007: £1.9 million) was recorded in the year.

Movements in the number of outstanding shares that may potentially be released to employees are as follows:

2008 2007

No. of shares No. of shares

under award under award

outstanding outstanding

’m ’m

At 1 January 5.5 4.0

Awarded 2.5 2.0

Lapsed (1.1) (0.4)

Released to employees (1.0) (0.1)

At 31 December 5.9 5.5

The fair value of the award is measured using a Monte Carlo model. The fair value of awards during the year was 120.8 pence (2007: 180.8 pence).

The significant assumptions used in the model were:

2008 2007

Award in Award in

September March

Share price at date of award (pence) 200.98 317.12

Vesting period (years) 3 3

Expected volatility 30% 23%

Expected life of award (years) 3 3

Risk free rate 4.62% 5.26%

Expected dividend yield 2.96% 2.47%

Expected volatility figures are based on historic volatility over the last three years measured using a statistical analysis of weekly share prices.

39 OWN SHARES

Own shares represent shares in the Company that are held by an independently managed Employee Share Ownership Plan which was formed

to purchase shares to be used to meet certain of the Company’s future obligations in respect of employee share schemes as described in the

Remuneration Report on page 44.

At 31 December 2008 the trust held 25,453 ordinary shares (2007: 104,773 shares) of which none were allocated to the Meggitt 1996 Executive Share

Option Schemes (2007: 7,274 shares) and 25,453 were unallocated (2007: 97,499) being retained by the trust for future use. The shares were purchased

in prior years and have a cost of £0.0 million at 31 December 2008 (2007: £0.1 million).

The market value of the shares at 31 December 2008 was £0.0 million (2007: £0.3 million) representing 0.00% of the issued share capital of the

Company (2007: 0.02%). The Group retains the full benefit of these shares until such time as participating employees exercise their options.




40 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share Other Hedging and Retained Total capital premium reserves translation earnings equity reserves* £’m £’m £’m £’m £’m £’m

At 1 January 2007 21.8 356.1 14.1 (6.2) 173.6 559.4

Actuarial gains – – – – 16.6 16.6

Currency translation differences arising in the year – – – 6.7 – 6.7

Losses on cash flow hedges:

Movement in fair value – – – (7.1) – (7.1)

Transferred to income statement – – – (0.2) – (0.2)

Net (expense)/income recognised directly in equity – – – (0.6) 16.6 16.0

Profit for the year – – – – 89.3 89.3

Rights issue 10.9 415.7 – – – 426.6

Employee share option schemes:

Value of services provided – – – – 4.3 4.3

Proceeds from shares issued 0.1 3.3 – – – 3.4

Dividends 0.1 6.5 – – (42.2) (35.6)

At 31 December 2007 32.9 781.6 14.1 (6.8) 241.6 1,063.4

Actuarial losses – – – – (42.2) (42.2)

Currency translation differences:

Arising in the year – – – 214.8 – 214.8

Transferred to income statement – – – 1.0 – 1.0

Losses on cash flow hedges:

Movement in fair value – – – (17.2) – (17.2)

Transferred to income statement – – – 3.9 – 3.9

Net income/(expense) recognised directly in equity – – – 202.5 (42.2) 160.3

Profit for the year – – – – 99.1 99.1


Value of services provided – – – – 3.1 3.1

Own shares purchased – – – – (1.3) (1.3)

Proceeds from shares issued 0.1 2.0 – – – 2.1

Dividends 0.3 15.2 – – (55.8) (40.3)

At 31 December 2008 33.3 798.8 14.1 195.7 244.5 1,286.4

* The hedging and translation reserves at 31 December 2008 were made up of a credit balance on the translation reserve of £216.3 million (2007: £0.5

million) and a debit balance on the hedging reserve of £20.6 million (2007: £7.3 million). The amounts recycled from the hedging reserves to the income

statement have affected net operating expenses in the case of currency translation differences and net finance costs in the case of cash flow hedges.

In 2007 transaction costs of £9.8 million arising in relation to the rights issue were charged against the share premium account.

41 CONTRACTUAL COMMITMENTS

Capital commitments 2008 2007

£’m £’m

Contracted for but not incurred – property, plant & equipment 6.4 20.3

Operating lease commitments

The Group leases various factories, warehouses and offices under non-cancellable operating leases. These leases have various lease periods,

escalation clauses and renewal rights. Additionally the Group also leases various items of plant and machinery under cancellable operating leases.

The expenditure on operating leases is charged to the income statement as incurred and is disclosed in note 7.

The future aggregate minimum lease payments under non–cancellable operating leases are as follows:

2008 2007

£’m £’m

Not later than one year 11.8 9.0

Later than one year and not later than five years 36.6 29.9

Later than five years 20.5 17.7

Total 68.9 56.6



41 CONTRACTUAL COMMITMENTS CONTINUED

Other financial commitments

The Group enters into long-term arrangements with Aircraft and/or Original Equipment Manufacturers to design, develop and supply products to them

for the life of the aircraft. This represents a significant long-term financial commitment for the Group and requires the consideration of a number of

uncertainties including the feasibility of the product/solution and the ultimate commercial viability over a period which can extend over 40 years.

The directors are satisfied that, at this time, there are no significant unprovided contingent liabilities arising from these commitments.

42 CASH INFLOW FROM OPERATIONS 2008 2007

£’m £’m

Profit for the year 99.1 89.3

Adjustments for:

Tax 20.2 16.1

Depreciation (see note 22) 26.6 18.8

Amortisation (see notes 20 and 21) 82.2 53.0

Loss/(profit) on disposal of property, plant & equipment 0.5 (0.5)

Loss on disposal of intangibles 0.4 –

Profit on disposal of subsidiaries (see note 45) (1.9) –

Finance income (see note 12) (33.9) (32.7)

Finance costs (see note 13) 87.0 70.0

Financial instruments (see note 10) 46.1 5.3

Adjustment to goodwill on recognition of tax losses (see note 10) – 3.2

Changes in working capital:

Inventories (9.6) 14.7

Trade and other receivables (18.3) (11.7)

Trade and other payables 15.7 (9.5)

Retirement benefit obligation deficit payments (22.5) (2.4)

Provisions (12.7) (3.5)

Cash inflow from operations 278.9 210.1

43 MAJOR NON-CASH TRANSACTIONS

During the year Meggitt PLC issued 6.0 million shares worth £15.5 million in respect of scrip dividends (2007: 2.1 million shares worth £6.6 million).

44 BUSINESS COMBINATIONS

Total consideration paid in respect of acquisitions is as follows:

2008 2007

£’m £’m

Businesses acquired in 2008 7.8 –

Businesses acquired in 2007 0.3 563.6

Businesses acquired in earlier years 1.1 –

Total consideration paid 9.2 563.6

Total goodwill arising in respect of acquisitions is as follows:

2008 2007

Restated

£’m £’m

Businesses acquired in 2008 5.6 –

Businesses acquired in 2007 – 516.4

Businesses acquired in earlier years* – 0.5

Total goodwill arising 5.6 516.9

* Relates to consideration recognised in 2007 in respect of acquisitions in earlier years.




44 BUSINESS COMBINATIONS CONTINUED

Acquisitions made in 2008

On 7 January 2008 Meggitt acquired 100% of the share capital of Ferroperm Piezoceramics A/S for £9.8 million. The acquired business is located

in Kvistgaard, Denmark and is a world leader in the manufacture of advanced piezo-electric ceramic materials for a range of specialist sensor

applications, such as vibration, dynamic pressure, underwater acoustics and medical ultrasound. The acquisition has been accounted for using the

purchase method of accounting.

The assets and liabilities arising from the acquisitions are as follows:

Book value Fair value £’m £’m

Goodwill (see note 19) – 5.6Development costs 0.3 –Other intangible assets (see note 21) – 4.3Property, plant and equipment (see note 22) 0.7 0.7Inventories 0.9 1.1Trade and other receivables – current 0.6 0.7Trade and other payables – current (0.3) (0.4)Current tax liabilities (0.2) (0.2)Bank and other borrowings – current (0.8) (0.8)Provisions – current (see note 33) (0.1) (0.1)Deferred tax liabilities (see note 34) – (1.1)

Total 1.1 9.8

Consideration satisfied in cash (including costs) 7.8Deferred consideration 2.0

Total consideration payable 9.8

Goodwill is attributable to the profitability of the acquired businesses and expected future synergies arising following the acquisition. The impact of the

acquired business on the results of the Group for the period since acquisition is not significant.

Analysis of the net outflow of cash in respect of the acquisition of Ferroperm:

2008 £’m

Cash consideration 7.7Directly attributable costs 0.1

Net outflow of cash and cash equivalents for acquisitions 7.8

Acquisitions made in 2007 – amendment of provisional fair values

On 22 June 2007 the Group completed the acquisition of 100% of the issued share capital of K&F Industries Holdings, Inc (K&F). At 31 December 2007

the Group had allocated provisional fair values to the net assets acquired as a result of this acquisition. The Group finalised these fair values in 2008.

In accordance with IFRS 3 these amendments have been recorded as though they were made in 2007. The impact on net assets and the income

statement arising from the finalisation of fair values is shown in note 46.



45 DISPOSALS

On 3 January 2008, Meggitt completed the disposal of S-TEC Inc. (‘S-TEC’) for a net consideration of £17.2 million. S-TEC designs, certifies and

manufactures general aviation autopilots, supplying original equipment manufacturers and the aftermarket. The business was no longer considered

core to the Group’s current operations. The assets and liabilities disposed are summarised below:

2008 £’m

Goodwill 9.2Development costs 1.1Other intangible assets 0.2Property, plant and equipment 1.3Inventory 2.2Trade and other receivables – current 1.8Trade and other payables – non-current (1.3)Provisions – current (0.2)

Net assets disposed 14.3Currency translation loss transferred from equity 1.0

Total 15.3Net consideration 17.2

Profit on disposal (see note 11) 1.9

46 RESTATEMENT OF PRIOR YEAR COMPARATIVES

IFRS 3 requires fair values of assets and liabilities acquired to be finalised within 12 months of the acquisition date with the exception of certain deferred

tax balances (see note 10). All fair value adjustments are required to be recorded with effect from the date of acquisition and consequently result in

the restatement of previously reported financial results. During 2008 the Group finalised the fair values of K&F completed in 2007 and this resulted in

adjustments to the balance sheet at that date. These amendments primarily relate to revisions to the fair value of property and recognition of future

tax benefits. Further details are provided in note 44.

The impact of the restatements is shown below:

2007 2007 2007

As Fair value As

reported adjustments restated

£’m £’m £’m

Goodwill (see note 19) 1,071.2 (3.4) 1,067.8

Other intangible assets (see note 21) 742.2 (0.5) 741.7

Property, plant and equipment (see note 22) 195.4 (4.2) 191.2

Trade and other payables – current (226.8) (0.3) (227.1)

Current tax liabilities (43.1) (1.1) (44.2)

Deferred tax liabilities – non-current (276.5) 11.0 (265.5)

Provisions – non-current (see note 33) (72.5) (1.5) (74.0)

Other net liabilities – not affected by restatement (326.5) – (326.5)

Net assets 1,063.4 – 1,063.4

The finalisation of fair value adjustments had no impact on the 2007 income statement.





47 GROUP COMPANIES

The following information is not a complete listing of all subsidiary companies at 31 December 2008 and relates only to those subsidiaries principally

affecting the profits or assets of the Group.

United Kingdom

Dunlop Limited ‡ Dunlop Holdings Limited ‡

Dunlop Aerospace (UK) Limited ‡ Dunlop Aerospace Group Limited ‡

Dunlop Aerospace Holdings Limited ‡ Dunlop Aerospace Overseas Limited ‡

Meggitt Aerospace Limited Meggitt Defence Systems Limited

Meggitt International Limited*‡ Meggitt Properties PLC*‡

Meggitt (UK) Limited

Continental Europe

Navarra de Componentes Electronicos SA – Spain Sensorex SAS – France

Vibro-Meter SAS – France Vibro-Meter SA – Switzerland

North America

Endevco Corporation – USA Engineered Fabrics Corporation – USA

Keith Products LLP – USA Meggitt Aircraft Braking Systems Corporation – USA

Meggitt Defense Systems, Inc – USA Meggitt GP Inc – USA ‡

Meggitt Holdings (California) Inc – USA ‡ Meggitt Holdings (USA) Inc – USA ‡

Meggitt Oregon, Inc – USA Meggitt Safety Systems Inc – USA

Meggitt Thermal Systems, Inc – USA Meggitt Training Systems Inc – USA ‡

Meggitt-USA, Inc – USA ‡ NASCO Aircraft Brake Inc – USA

Stewart Warner South Wind Corporation – USA Vibro-Meter Inc – USA

Whittaker Controls Inc – USA Whittaker Corporation – USA ‡

Wilcoxon Research Inc – USA

Rest of World

Meggitt Aerospace Asia Pacific Pte Ltd – Singapore Meggitt (Xiamen) Sensors & Controls Co Ltd – China

i) United Kingdom companies listed above are incorporated and registered in England and Wales. Other companies listed above are

incorporated in the country named.

ii) The ordinary shares of all subsidiaries were 100% owned by Meggitt PLC either directly or indirectly at 31 December 2008.

iii) All companies are included in the consolidation.

iv) Companies marked * are direct subsidiaries of Meggitt PLC.

v) Companies marked ‡ are management companies. Otherwise all companies are operating companies engaged in the Group’s principal

activities as described in the Report of the Directors on page 37.

A full list of subsidiary companies will be annexed to the next annual return to the Registrar of Companies.


BASIS OF AUDIT OPINION

We conducted our audit in accordance with International Standards on

Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit

includes examination, on a test basis, of evidence relevant to the amounts

and disclosures in the parent company financial statements and the part

of the Directors’ Remuneration Report to be audited. It also includes an

assessment of the significant estimates and judgments made by the

directors in the preparation of the parent company financial statements,

and of whether the accounting policies are appropriate to the company’s

circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information

and explanations which we considered necessary in order to provide us

with sufficient evidence to give reasonable assurance that the parent

company financial statements and the part of the Directors’ Remuneration

Report to be audited are free from material misstatement, whether

caused by fraud or other irregularity or error. In forming our opinion we

also evaluated the overall adequacy of the presentation of information in

the parent company financial statements and the part of the Directors’

Remuneration Report to be audited.

OPINION

In our opinion:

• the parent company financial statements give a true and fair view,

in accordance with United Kingdom Generally Accepted Accounting

Practice, of the state of the company’s affairs as at 31 December 2008;

• the parent company financial statements and the part of the Directors’

Remuneration Report to be audited have been properly prepared in

accordance with the Companies Act 1985; and

• the information given in the Directors’ Report is consistent with the

parent company financial statements.

PricewaterhouseCoopers LLPChartered Accountants and Registered Auditors

Reading

2 March 2009

We have audited the parent company financial statements of Meggitt PLC

for the year ended 31 December 2008 which comprise the Balance Sheet

and the related notes. These parent company financial statements have

been prepared under the accounting policies set out therein. We have also

audited the information in the Directors’ Remuneration Report that is

described as having been audited.

We have reported separately on the group financial statements of Meggitt

PLC for the year ended 31 December 2008.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS

AND AUDITORS

The directors’ responsibilities for preparing the Annual Report, the

Directors’ Remuneration Report and the parent company financial

statements in accordance with applicable law and United Kingdom

Accounting Standards (United Kingdom Generally Accepted Accounting

Practice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the parent company financial statements

and the part of the Directors’ Remuneration Report to be audited in

accordance with relevant legal and regulatory requirements and

International Standards on Auditing (UK and Ireland). This report,

including the opinion, has been prepared for and only for the company’s

members as a body in accordance with Section 235 of the Companies Act

1985 and for no other purpose. We do not, in giving this opinion, accept

or assume responsibility for any other purpose or to any other person to

whom this report is shown or into whose hands it may come save where

expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the parent company financial

statements give a true and fair view and whether the parent company

financial statements and the part of the Directors’ Remuneration Report

to be audited have been properly prepared in accordance with the

Companies Act 1985. We also report to you whether in our opinion the

information given in the Directors’ Report is consistent with the parent

company financial statements. The information given in the Directors’

Report includes specific information cross referenced from the Principal

Activities and Business Review section of the Directors’ Report to the

Business Review.

In addition we report to you if, in our opinion, the company has not kept

proper accounting records, if we have not received all the information and

explanations we require for our audit, or if information specified by law

regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider

whether it is consistent with the audited parent company financial

statements. The other information comprises Meggitt at a Glance,

Financial Highlights, Overview, Chairman’s Statement, Group Strategic

Objectives, Strategy Implementation, Market Review, Business Review,

Risks and Uncertainties, Aerospace Equipment, Sensing Systems,

Defence Systems, Corporate Responsibility, Board of Directors, Report

of the Directors, Directors’ Statement on Corporate Governance, the

unaudited part of the Remuneration Report and the other information

listed in the contents to the Annual Report. We consider the implications

for our report if we become aware of any apparent misstatements or

material inconsistencies with the parent company financial statements.

Our responsibilities do not extend to any other information.

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF MEGGITT PLC



2008 2007

Notes £’m £’m

Fixed assetsTangible fixed assets 4 4.7 1.8


Investments 5 172.5 171.2

209.5 173.0

Current assetsDebtors 6 2,480.4 2,220.2


Cash at bank and in hand 26.8 7.2

2,527.1 2,227.4

Creditors – amounts falling due within one year 7 (570.5) (605.7)


Net current assets 1,929.2 1,621.6

Total assets less current liabilities 2,138.7 1,794.6

Creditors – amounts falling due after more than one year 8 (1,088.9) (851.4)

Provision for liabilities and charges 9 (0.2) (0.2)


Net assets 977.4 932.3

Capital and reserves

Called up share capital 13 33.3 32.9

Share premium account 15 798.8 781.6

Other reserves 15 17.5 17.5

Profit and loss reserve 14 127.8 100.3

Total shareholders’ funds 15 977.4 932.3

The financial statements were approved by the Board of Directors on 2 March 2009 and signed on its behalf by:

T Twigger S G YoungDirector Director

COMPANY BALANCE SHEETAs at 31 December 2008


Loans

Loans are initially recognised at fair value being proceeds received less

directly attributable transaction costs incurred. Loans are subsequently

measured at amortised cost with any transaction costs amortised to the

profit and loss account over the period of the loans. Loans are classified

as current liabilities unless the Company has an unconditional right to

defer settlement of the liability for at least 12 months after the balance

sheet date.

Foreign currencies

Local currencyThe Company’s financial statements are presented in pounds sterling

being the currency of the primary economic environment in which the

Company operates.

Transactions and balancesTransactions in foreign currencies are recorded at the rate of exchange

at the date of the transaction. Monetary assets and liabilities denominated

in foreign currencies at the balance sheet date are reported at the rates

of exchange prevailing at that date. Exchange differences on retranslating

monetary assets and liabilities are recognised in the profit and loss

account except where they relate to qualifying cash flow or investment

hedges in which case the exchange differences are deferred in equity.

Pension scheme arrangements

The Company operates three defined benefit schemes, the Meggitt 1990

Plan, the Meggitt Executive Pension Plan (MEPP) and the Dunlop Aerospace

Limited UK Pension Scheme. As the Company is unable to identify its

share of the underlying assets and liabilities of the schemes on a consistent

and reasonable basis the Company accounts for all schemes as though they

were defined contribution schemes. Accordingly the amount charged to the

profit and loss account is the contribution payable in the period. Differences

between contributions payable in the period and contributions actually paid

are shown as accruals or prepayments in the balance sheet.

Share-based payment

The fair value of the services received from employees is recognised as an

expense in the profit and loss account over the period for which services

are received (vesting period).

For equity settled share-based payment transactions the total amount

recognised is based on the fair value of the equity instrument measured

at the date the award is made. Assumptions are made as to the total

number of equity instruments that will vest and this assumption is

reviewed at each balance sheet date. The impact of any revision to vesting

estimates is recognised in the profit and loss account over the vesting

period. Proceeds received, net of any directly attributable transaction

costs, are credited to share capital and share premium.

For cash settled share-based payment transactions the total amount

recognised is based on the fair value of the liability incurred. The fair value

of the liability is remeasured at each balance sheet date with changes in

the fair value recognised in the profit and loss account for the period.

Shares in the company are held by an independently managed Employee

Share Ownership Trust (‘ESOP Trust’), to meet future obligations in

respect of the Company’s employee share schemes. The cost of own

shares held by the ESOP Trust is deducted from shareholders’ funds.

1 BASIS OF PREPARATION

These financial statements have been prepared under the historical

cost accounting convention, as modified to include the revaluation of

certain assets, in accordance with the Companies Act 1985. The Company

continues to prepare its annual financial statements in accordance with

UK Generally Accepted Accounting Practice (UK GAAP).


Investments

Investment in subsidiaries are stated at cost less provision for impairment

in value except for investments acquired before 1 January 1988 where

Section 131 merger relief has been taken when investments are stated at

the nominal value of the shares issued in consideration.

Tangible fixed assets

Tangible fixed assets are stated at cost or valuation, net of depreciation and

any provision for impairment. Depreciation is not provided on freehold land.

On other assets it is provided on cost or revalued amounts in equal annual

instalments over the estimated useful lives of the assets as follows:

Freehold buildings 40 to 50 years

Long and short leasehold property over period of lease

Fixtures and fittings 3 to 10 years

Motor vehicles 4 to 5 years

Operating leases

Rental costs under operating leases are charged to the profit and loss

account on a straight-line basis over the lease term, even if the payments

are not made on such a basis.

Taxation

The charge for taxation is based on the profit for the period and takes into

account taxation deferred because of timing differences between the

treatment of certain items for taxation and accounting purposes.

Deferred taxation is provided in full, without discounting, on timing

differences that result in an obligation at the balance sheet date to pay

more tax, or a right to pay less tax, at a future date, at rates expected to

apply when they crystallise based on current tax rates and law. Deferred

taxation assets are recognised to the extent that it is regarded as more

likely than not that they will be recovered.

Deferred taxation is not provided on timing differences arising from the

sale or revaluation of fixed assets unless, at the balance sheet date, a

binding commitment to sell the asset has been entered into and it is

unlikely that any gain will qualify for rollover relief.

Provision for liabilities and charges

In accordance with FRS 12 provision is made for onerous property leases.

Provisions are discounted where appropriate to reflect the time value

of money.

NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANY



Capital instruments

Ordinary shares are classified as equity. Incremental costs directly

attributable to the issue of new shares or options are deducted from

the proceeds recorded in equity. Other instruments are classified as

liabilities if they contain an obligation to transfer economic benefits

and otherwise are included in shareholders’ funds. The finance cost

recognised in the profit and loss account in respect of capital instruments

other than equity shares is allocated to periods over the term of the

instrument at a constant rate of charge based on the carrying amount.

Dividends

Interim dividends are recognised when they are paid. Final dividends

are recognised when they are approved by the Company’s shareholders.

Profit and recognised gains and losses of the Company

The Company has taken advantage of the legal dispensation contained

in Section 230 of the Companies Act 1985 allowing it not to publish

a separate profit and loss account and related notes (see Meggitt PLC

Group accounts note 15). The Company has taken advantage of the legal

dispensation contained in Section 230 of the Companies Act 1985 allowing

it not to publish a separate statement of recognised gains and losses.

Cash flow statement

The Company has taken advantage of the exemption under the terms

of FRS 1 (revised 1996) from the requirement to produce a cash flow

statement. A consolidated cash flow statement is included in the Meggitt

PLC Group accounts.

Related party transactions

The Company has taken advantage of the exemption contained in

FRS 8 from the requirement to disclose related party transactions within

the Group.


CONTINUED

Derivative financial instruments and hedging

Derivative financial instruments are recognised at fair value on the date

the derivative contract is entered into and are subsequently remeasured

at fair value at each balance sheet date. To the extent that the maturity of

the financial instrument is more than 12 months from the balance sheet

date the fair value is reported as a non-current asset or liability. Derivative

financial instruments with maturities of less than 12 months from the

balance sheet are shown as current assets or liabilities. The method by

which any gain or loss is recognised depends on the designation of the

derivative financial instrument:

Fair value hedgesFair value hedges are hedges of the fair value of recognised assets or

liabilities or a firm commitment. Interest rate swaps that change fixed

rate interest to variable rate interest are an example of an instrument

that would be treated as a fair value hedge assuming it meets the hedge

criteria. Changes in the fair value of derivative financial instruments that

are designated as fair value hedges are recognised in the profit and loss

account together with changes in the fair value of the hedged item.

Cash flow hedgesCash flow hedges are hedges of highly probable forecast transactions.

Interest rate swaps that change variable rate interest to fixed rate interest

are an example of an instrument that would be treated as a cash flow

hedge assuming it meets the hedge criteria. Changes in the fair value

of the effective portion of derivative financial instruments that are

designated as cash flow hedges are initially recorded in a separate

reserve within equity. To the extent that changes in fair value are recorded

in equity they are recycled to the profit and loss account in the periods

in which the hedged item affects the profit and loss account. However,

when the transaction to which the hedge relates results in the recognition

of a non-monetary asset or a liability then gains and losses previously

recognised in equity are included in the initial measurement of the cost

of the non-monetary asset or liability.

If the forecast transaction to which the cash flow hedge relates is

no longer expected to occur the cumulative gain or loss previously

recognised in equity is transferred to the profit and loss account

immediately. If the hedging instrument is sold, expires or no longer

meets the criteria for hedge accounting the cumulative gains and losses

previously recognised in equity are transferred to the profit and loss

account when the forecast transaction is recognised in the profit and

loss account.

Net investment hedgeGains and losses on net investments of foreign subsidiaries are accounted

for in a similar way to cash flow hedges. Gains and losses relating to the

effective portion of any hedge are recognised in equity. Changes in the

fair value of any ineffective portion are recognised in the profit and loss

account. Cumulative gains and losses previously recognised in equity are

transferred to the profit and loss account if the foreign business to which

they relate is disposed of.

Derivatives that do not meet the criteria for hedge accountingWhere derivatives do not meet the criteria for hedge accounting changes

in fair value are recognised immediately in the profit and loss account.

The Company utilises a number of foreign currency forward contracts to

mitigate against currency fluctuations. The Company has determined that

the additional costs of meeting the extensive documentation requirements

for the Company’s large number of foreign currency contracts is not

merited. Accordingly gains and losses arising from measuring the contracts

at fair value are recorded immediately in the profit and loss account.

NOTES TO THE FINANCIAL STATEMENTS OF THE COMPANYContinued


3 EMPLOYEE COSTS 2008 2007

£’m £’m

Employee costs during the year including executive directors:



Other pension costs 0.7 0.6

Share-based payment (see note 15) 1.9 1.4

Total 12.6 10.4

Details of the Group’s employee share schemes are included in note 38 of the Meggitt PLC Group accounts.

2008 2007

No. No.

Average monthly number of persons employed including executive directors:

Administration 42 38

Total 42 38

4 TANGIBLE FIXED ASSETS Plant, Land and equipment buildings and vehicles Total £’m £’m £’m

Cost at 1 January 2008 0.8 2.0 2.8

Additions – 3.4 3.4

Cost at 31 December 2008 0.8 5.4 6.2

Accumulated depreciation at 1 January 2008 0.2 0.8 1.0

Charge for year 0.1 0.4 0.5

Accumulated depreciation at 31 December 2008 0.3 1.2 1.5

Net book amount at 31 December 2008 0.5 4.2 4.7

Net book amount at 31 December 2007 0.6 1.2 1.8

2008 2007

£’m £’m

Net book amount of land and buildings

Freehold 0.1 0.1

Short leasehold 0.4 0.5

Total 0.5 0.6

5 INVESTMENTS 2008 2007

£’m £’m

Shares in subsidiaries:

At 1 January 171.2 167.3

Additions – capital contribution arising from share-based payments (see note 15) 1.7 3.9

Provision for impairment in value (0.4) –

At 31 December 172.5 171.2

A list of principal subsidiaries is included in note 47 of the Meggitt PLC Group accounts.




6 DEBTORS 2008 2007

£’m £’m

Amounts owed by Group undertakings 2,469.3 2,215.5

Other debtors – 0.7

Prepayments and accrued income 0.5 0.4

Deferred tax assets 10.6 3.6

Total 2,480.4 2,220.2

Deferred tax assets include £10.6 million (2007: £2.9 million) due after one year. All other amounts fall due within one year.

7 CREDITORS - AMOUNTS FALLING DUE WITHIN ONE YEAR 2008 2007

£’m £’m

Bank loans and overdrafts 3.4 8.8

Other loans 0.5 0.4

Trade creditors 1.4 1.8

Amounts owed to Group undertakings 551.8 579.0

UK corporation tax payable 5.4 9.2

Taxation and social security 1.0 1.6

Other creditors 1.9 0.7

Accruals 5.1 4.2

Total 570.5 605.7

8 CREDITORS - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2008 2007

£’m £’m

Bank loans 918.1 726.5

Other loans 170.8 124.9

Total 1,088.9 851.4

2008 2007

£’m £’m

Analysis of bank loans and overdrafts repayable:


In more than two years but not more than five years 918.1 726.5

Total 921.5 735.3

2008 2007

£’m £’m

Analysis of other loans repayable:


In more than two years but not more than five years 122.3 –

In more than five years 48.5 124.9

Total 171.3 125.3

9 PROVISIONS FOR LIABILITIES AND CHARGES 2008 2007

£’m £’m

Onerous lease costs 0.2 0.2

Total 0.2 0.2

Provision has been set up for the estimated rental shortfall in respect of properties with onerous lease obligations and will be utilised over the lease terms

typically up to ten years.



10 DERIVATIVE FINANCIAL INSTRUMENTS 2008 2008 2007 2007


£’m £’m £’m £’m


Forward foreign exchange contracts 52.2 (52.2) – –

Total 52.2 (99.6) – (10.8)



Forward foreign exchange contracts 32.3 (32.3) – –

Non-current portion 32.3 (72.2) – (10.7)

Current portion 19.9 (27.4) – (0.1)

The Company is exempt from the FRS 29 disclosures as the consolidated financial statements of Meggitt PLC give the disclosures required by IAS 32 (see

Meggitt PLC Group accounts notes 31 and 32).

11 PENSIONS

The Directors do not believe that the FRS 17 deficit for the schemes in which the Company participates is significantly different from the IAS 19 deficits

reported in note 35 to the Meggitt PLC Group accounts.

12 COMMITMENTS

Capital commitments 2008 2007

£’m £’m

Contracted for but not incurred – plant, equipment and vehicles 0.1 –

Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases are as follows: 2008 2007

£’m £’m

Not later than one year 0.1 0.2

Later than one year and not later than five years 0.5 0.7

Later than five years 1.2 1.6

Total 1.8 2.5

13 SHARE CAPITAL 2008 2007

£’m £’m

Ordinary shares of 5p each

Authorised: 885.0 million shares (2007: 885.0 million) 44.3 44.3

Net No. of shares Nominal value consideration ‘m £’m £’m

Allotted and fully paid:

Balance at 1 January 2008 658.3 32.9

Issued on exercise of executive share options 0.3 – 0.5

Issued on exercise of sharesave options 1.0 0.1 1.6

Scrip dividends 6.0 0.3 15.5

Balance at 31 December 2008 665.6 33.3




14 PROFIT AND LOSS RESERVE £’m

Balance at 1 January 2008 100.3

Profit for the financial year 104.6

Dividends (see note 17 to Group financial statements) (55.8)

Losses on cash flow hedges (13.3)

Currency translation differences (10.3)


Value of subsidiary employee services (see note 5) 1.7

Value of services provided (see note 3) 1.9

Own shares purchased (1.3)

Balance at 31 December 2008 127.8

15 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS Profit and

Share Share Other loss Total Total

capital premium reserves reserve 2008 2007

£’m £’m £’m £’m £’m £’m

Balance at 1 January 2008 32.9 781.6 17.5 100.3 932.3 499.1

Profit for the financial year – – – 104.6 104.6 40.8

Dividends (see note 17 to Group financial statements) – – – (55.8) (55.8) (42.2)

Losses on cash flow hedges – – – (13.3) (13.3) (7.3)

Currency translation differences – – – (10.3) (10.3) –


Value of subsidiary employee services (see note 5) – – – 1.7 1.7 3.9

Value of services provided (see note 3) – – – 1.9 1.9 1.4

Own shares purchased – – – (1.3) (1.3) –

Rights issue – – – – – 426.6

Issued on exercise of sharesave and executive share options 0.1 2.0 – – 2.1 3.4

Scrip dividends 0.3 15.2 – – 15.5 6.6

Balance at 31 December 2008 33.3 798.8 17.5 127.8 977.4 932.3

Details of the Group’s employee share schemes are included in note 38 of the Meggitt PLC Group accounts.



2008 2007 2006 2005 2004

£’m £’m £’m £’m £’m

Revenue and profit

Revenue 1,162.6 878.2 670.3 616.3 476.6

Underlying profit before taxation 243.3 179.0 132.7 116.3 90.3

Exceptional operating costs (15.8) (5.4) (1.5) (7.0) (7.9)

Amortisation of intangibles acquired in business combinations (61.8) (38.4) (12.9) (11.2) (3.2)

Disposal of inventory revalued in business combinations (0.3) (21.3) (1.3) (0.9) (8.5)

Financial instruments (46.1) (5.3) 12.1 (10.1) –

Goodwill adjustment arising from recognition of tax losses – (3.2) (2.4) – –

Profit before taxation 119.3 105.4 126.7 87.1 70.7

Earnings and dividends

Earnings per share – basic 15.0p 14.6p 18.6p 13.0p 11.9p

Earnings per share – underlying 26.5p 22.1p 19.1p 17.1p 14.9p

Dividends per ordinary share (paid or proposed in respect of the year) 8.45p 8.20p 7.36p 6.59p 5.99p

Gearing ratio

Year end net cash/borrowings as a percentage of capital employed 81.5% 76.7% 63.0% 63.3% 71.2%

Profit figures have been restated for the effects of finalising the fair values of acquired businesses in subsequent financial periods. The figures for 2004 have

been restated following the group’s transition to IFRS. All comparative data for earnings and dividends for 2004, 2005 and 2006 has been adjusted for the bonus

element of the rights issue approved by shareholders in 2007.

FIVE-YEAR RECORD



INVESTOR INFORMATION

SHAREHOLDER INFORMATION

Analysis of share register at 31 December 2008

No of % of total No of % of total

shareholders shares shareholders shares

Size of holdings Types of shareholder

1–999 5,831 0.21 Individuals 8,180 2.32

1,000–9,999 3,193 1.51 Banks and nominees 1,658 96.73

10,000–99,999 572 2.44 Investment and insurance companies 32 0.03

100,000–249,999 126 3.06 Other 103 0.92

250,000–499,999 85 4.59

500,000–999,999 48 5.14

1,000,000 and over 118 83.05

9,973 100.00 9,973 100.00

holidays, on telephone number 0870 703 0084.

Shareholders should have their shareholder

reference number (SRN) ready when making

the call. The SRN appears on share certificates.

A bank debit card will be required for purchases.

Detailed terms and conditions are available on

request by telephoning 0870 702 0000.

This is not a recommendation to buy, sell or

hold shares in Meggitt PLC. Shareholders who

are unsure of what action to take should obtain

independent financial advice. Share values

may go down as well as up which may result

in shareholders receiving less than they

originally invested.

Insofar as this statement constitutes a financial

promotion for the share dealing service provided

by Computershare Investor Services PLC, it has

been approved by Computershare Investor

Services PLC for the purpose of Section 21 (2) (b)

of the Financial Services and Markets Act 2000

only. Computershare Investor Services PLC is

authorised and regulated by the Financial

Services Authority. Where this has been received

in a country where providing such a service

would be contrary to local laws or regulations,

this should be treated as information only.

ShareGiftIf you only have a small number of shares which

would cost more for you to sell than they are

worth, you may wish to consider donating them

to the charity ShareGift (registered charity

1052686), which specialises in accepting such

shares as donations. Further information about

ShareGift may be obtained on 0207 930 3737 or

from www.ShareGift.org.

further details on how and when to vote and

further information for Crest members.

We provide annual reports and other documents

to shareholders in their elected format under

the electronic communications provisions

approved by the shareholders at the 2007 Annual

General Meeting. The Companies Act 2006

recognises the growing importance of electronic

communication and contains provisions that

allow companies to communicate with

shareholders electronically unless they elect to

continue to receive paper documents. The Board

also wishes to protect the environment by

reducing the volume of documents produced.

Electronic copies of the Annual Report and

Accounts 2008 and the Notice of Annual General

Meeting will be posted on our website, where

Meggitt PLC’s announcements to the Stock

Exchange and press releases are also published.

Share dealing servicesWe have established share dealing services with

the company’s registrar, Computershare

Investor Services PLC to provide shareholders

with an easy way to buy or sell Meggitt PLC

ordinary shares on the London Stock Exchange.

The internet share dealing service commission

is 0.5%, subject to a minimum charge of £25.

Stamp duty, currently 0.5%, is payable on

purchases. There is no need to open an account

to deal. Real-time dealing is available during

market hours. There is a facility to place orders

outside market hours. Up to 90-day limit orders

are available for sales. To access the service,

shareholders should note their shareholder

reference number (SRN) and log onto

www.computershare.com/dealing/uk. The SRN

appears on share certificates. A bank debit card

will be required for purchases.

The telephone share dealing service commission

is 1%, subject to a minimum charge of £25.

Stamp duty, currently 0.5%, is payable on

purchases. The service is available from 8 a.m.

to 4.30 p.m. Monday to Friday, excluding bank

SUPPLEMENTARY INFORMATION

DividendsThe proposed 2008 final dividend of 5.75 pence

per share, if approved, will be paid on 8 May

2009 to shareholders on the register on

13 March 2009. The expected dividend

payment date for the 2009 interim dividend

is 2 October 2009.

Shareholder enquiriesEnquiries about the following administrative

matters should be addressed to Meggitt PLC’s

registrar: Computershare Investor Services

PLC, The Pavilions, Bridgwater Road, Bristol

BS99 6ZZ, telephone 0870 703 6210 or e-mail:

[email protected]

• Change of address notification

• Lost share certificates

• Dividend payment enquiries

• Dividend mandate instructions. Shareholders

may have their dividends paid directly into

their bank or building society accounts by

completing a dividend mandate form. Tax

vouchers are sent directly to shareholders’

registered addresses

• Amalgamation of shareholdings. We invite

shareholders who receive more than one

copy of the annual report to amalgamate

their accounts on the share register.

Shareholders can check their shareholdings

at www.computershare.com. A shareholder

reference number, which can be found on share

certificates and recent dividend tax vouchers,

is needed for site registration. The website

includes information on recent trends in

Meggitt’s share price.

Electronic communicationsMeggitt encourages shareholders to vote at

the Annual General Meeting and provides an

electronic proxy voting facility. Shareholders

who are not Crest members can vote online on

resolutions proposed at the Annual General

Meeting via our website. Proxy cards contain


KEY DATES

3 March 2009

Preliminary results

23 April 2009

AGM and interim


4 August 2009

Interim results

30 October 2009


CONTACT US

01202 597 597 Andy Mann, Head of Communications & Investor Relations

[email protected]

www.meggitt.com Latest Meggitt share price with a 25-minute time delay












ADVISORS


HSBC Bank plc

Barclays Bank PLC

Bank of America

Merchant bankers


Auditors


Solicitors

Clifford Chance LLP

Brokers


Registrars


FINANCIAL CALENDAR











AGM 23 April









432989

01_RUNNING HEADER

02_Intro Paragraph



Meggitt PLC

Atlantic House

Aviation Park West


Christchurch

Dorset BH23 6EW

United Kingdom

T +44 (0) 1202 597 597

F +44 (0) 1202 597 555

EUROFIGHTER TYPHOON












ME

GG

ITT

PL

C A

NN

UA

L R

EP

OR

T A

ND

AC

CO

UN

TS

20

08
























1,162.6

8.45 26.5







1,162.6

878.2

670.3

616.3

476.604

05

06

07

08

8.45

8.20

7.36

6.59

5.9904

05

06

07

08 26.5

22.1

19.1

17.1

14.904

05

06

07

08

243.3

179.0

132.7

116.3

90.304

05

06

07

08 295.4

214.3

140.3

138.4

111.004

05

06

07

08

Documents

0900 Meggitt A&R Covers AW - AnnualReports.co.uk€¦ · An international live-ﬁ re and simulation training and combat systems business positioned to meet the challenges of modern