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Meggitt becomes latest FTSE giant to axe dividend as aerospace arm is hurt by coronavirus

Employees work on Boeing 737 MAX airplanes at the Boeing Renton Factory in Renton, Washington: AFP/Getty Images
Employees work on Boeing 737 MAX airplanes at the Boeing Renton Factory in Renton, Washington: AFP/Getty Images

British aerospace supplier Meggitt cancelled its dividend as it posted a 37% drop in first-half profit after the coronavirus crisis hit its business supplying parts to aerospace manufacturers.

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

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

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

Its shares, which have more than halved in value this year, were down 2.9% at 291.1p.

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

Meggitt, which supplies jet parts such as braking systems, sensors and fuel systems, and provides follow-on services, has been on a cost-cutting drive early this year.

It said in April it would axe about 1,800 jobs.

The company said the job cuts were "substantially" completed, adding that it still expected to deliver cash savings of £400 to £450 million pounds this year.

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

"We regard the inventory reduction slipping into full year 2021 largely as a matter of timing. A possible long-term negative is a potential increase in pension-deficit funding," Jefferies analysts said.

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

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