Interim Results 2014 - Cobham(1) = H1 2013 data presented at H1 2014 exchange rates. Revenue Trading...
Transcript of Interim Results 2014 - Cobham(1) = H1 2013 data presented at H1 2014 exchange rates. Revenue Trading...
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ADVANCED ELECTRONIC SOLUTIONS AVIATION SERVICES COMMUNICATIONS AND CONNECTIVITY MISSION SYSTEMS
Interim Results 2014 Taking the Next Step In Our Evolution
07 August 2014
Cobham plc Cobham plc
Agenda
1
• Introduction Bob Murphy Chief Executive Officer
• Financial Results Simon Nicholls Chief Financial Officer
• Business Review Bob Murphy
• Q&A
Cobham plc Cobham plc
Agenda
2
• Introduction Bob Murphy Chief Executive Officer
• Financial Results Simon Nicholls Chief Financial Officer
• Business Review Bob Murphy
• Q&A
Cobham plc Cobham plc
Financial Highlights
3 See Appendix for definitions, including underlying, used throughout this presentation.
H1 2014 H1 2013 Change
£m £m
Order Intake 728.2 976.2 (25.4)% (20.5)%
Revenue 834.1 863.9 (3.4)% 3.4%
Trading Profit 129.7 154.0 (15.8)% (10.9)%
Trading Margin 15.5% 17.8% (2.3)pts
Underlying Profit before Taxation 117.6 136.9 (14.1)% (10.3)%
Underlying Earnings Per Share 8.7p 10.3p (15.9)% (11.6)%
Operating Cash Conversion 63.9% 84.2% (20.3)pts
Net Debt (313.3) (484.3)
Dividend per Share 2.904p 2.640p 10.0%
Constant FX
Change
Cobham plc Cobham plc
Cobham Communications & Connectivity (CCC)
4
15%
22% 63%
Non-US Defence & Security (H1 2013: 23%)
US Defence & Security (H1 2013: 23%)
Commercial (H1 2013: 54%)
• Total revenue includes:
− £17m contribution from Axell Wireless (Distributed Antenna Systems – DAS), making great progress
− Good organic growth in Commercial markets, driven by SATCOM and DAS up 11%
− Overall organic revenue decline of 7% including further declines in land related defence products
• Trading profit and margin reduction due to demand conditions in Defence markets
• Continued rationalisations to mitigate impact of demand reductions
• Continuing to invest for future growth, with PV spend 9.4% of revenue
− Focused on commercial opportunities in SATCOM, Avionics and DAS
− Funded in part by EiD benefits and savings
H1 2014()
H1 2013(constant FX)
Change%
Revenue £m 316.1 321.7 (1.7)%
Trading Profit £m 51.4 58.0 (11.4)%
Trading Margin 16.3% 18.0% (1.7)pts
Cobham plc Cobham plc
Cobham Mission Systems (CMS)
5
• Headline revenue decline due to reductions in:
− Production revenue on KC-130 aerial refuelling programme in the US
− US land based life support products
− Production and aftermarket revenue on FSTA in the UK
• Focus on engineering/development on next generation Advanced Aerial Refuelling programmes
• Margins reflect increased proportion of lower margin development programme revenue
• Anticipate improved performance in H2 through increased activity and contract milestones
53% 38%
9%
Non-US Defence & Security (H1 2013: 37%)
US Defence & Security (H1 2013: 55%)
Commercial (H1 2013: 8%) H1 2014
()
H1 2013(constant FX)
Change%
Revenue £m 138.4 159.7 (13.3)%
Trading Profit £m 19.9 30.3 (34.3)%
Trading Margin 14.4% 19.0% (4.6)pts
Cobham plc Cobham plc
93%
4% 3%
Cobham Advanced Electronic Solutions (CAES)
6
Non-US Defence & Security (H1 2013: 5%)
US Defence & Security (H1 2013: 93%)
Commercial (H1 2013: 2%)
• Robust top line performance in challenging US defence markets
• Organic revenue increase of 3% based on demand from longer cycle priority US Defence programmes
• Margins impacted by the mix between development and production phases of programmes
H1 2014()
H1 2013(constant FX)
Change%
Revenue £m 172.5 167.1 3.2%
Trading Profit £m 25.6 29.1 (12.0)%
Trading Margin 14.8% 17.4% (2.6)pts
Cobham plc Cobham plc
53%
47%
Cobham Aviation Services (CAvS)
7
• Total revenue increase of 37% driven by:
− £47m contribution from Helicopter Services (previously FBH), performing strongly
− Organic revenue increase of 6% from increased activity in the Australian commercial business with Qantas and FIFO services to the natural resources industry
• Trading profit and like for like margin increase driven by:
− Higher level of activity from organic operations in commercial markets
− Excellent contribution from Helicopter Services, previously treated as a JV
Non-US Defence & Security (H1 2013: 43%)
Commercial (H1 2013: 57%)
H1 2014()
H1 2013(constant FX)
Change%
Revenue (exc JV) £m 205.5 149.7 37.3%
Trading Profit £m 26.1 20.0 30.5%
Trading Margin 12.7% 13.4% (0.7)pts
Trading Margin (exc JV) 12.7% 11.2% 1.5pts
Cobham plc Cobham plc
Trading Margin Bridge
H1 2013 to H1 2014
8
17.8% 17.7%
15.5%
0.2%
0.8% 0.3%
1.5% 0.5%
0.7% 0.3%
Cobham plc Cobham plc
Revenue and Profit
Sector Summary at Constant Exchange1
9 (1) = H1 2013 data presented at H1 2014 exchange rates.
Revenue Trading Profit
£m H1 2014 H1 2013 Change H1 2014 H1 2013 Change
Cobham Communications and Connectivity 316.1 321.7 (1.7)% 51.4 58.0 (11.4)%
Margin 16.3% 18.0%
Cobham Mission Systems 138.4 159.7 (13.3)% 19.9 30.3 (34.3)%
Margin 14.4% 19.0%
Cobham Advanced Electronic Solutions 172.5 167.1 3.2% 25.6 29.1 (12.0)%
Margin 14.8% 17.4%
Cobham Aviation Services 205.5 149.7 37.3% 26.1 20.0 30.5%
Margin 12.7% 13.4%
Head Office and Eliminations (2.4) (1.6) 6.8 6.4
Core Businesses 830.1 796.6 4.2% 129.8 143.8 (9.7)%
Margin 15.6% 18.1%
Non Core Businesses 4.0 10.2 (0.1) 1.8
Exchange - 57.1 - 8.4
Cobham Group - as reported 834.1 863.9 (3.4)% 129.7 154.0 (15.8)%
Margin 15.5% 17.8%
Cobham plc Cobham plc
H1 2014 H1 2013
£m £m
Trading profit 129.7 154.0
Underlying net finance costs (12.1) (17.1)
Underlying profit before taxation 117.6 136.9
Taxation charge on underlying profit (2014: 20%; 2013: 20%) (23.5) (26.7)
Underlying profit after taxation for the period 94.1 110.2
Business restructuring - Excellence in Delivery (13.1) (25.8)
Movements in non-hedge accounted derivative financial instruments 5.7 (16.1)
Amortisation of intangible assets arising on business combinations (48.6) (40.8)
Exceptional legal costs (0.8) -
Other business acquisition and divestment related items (4.2) (2.3)
Non-underlying finance costs (2.4) (1.0)
Taxation on non-underlying items 15.4 24.3
Profit after taxation for the period 46.1 48.5
Reconciliation of Trading to Reported Profit
10
Cobham plc Cobham plc
Excellence in Delivery
• 5 site integrations commenced in H1 with a focus on shorter cycle businesses
• On schedule to be substantially complete within 2014
• On target for £24m of additional savings in 2014
On Track In Line With Accelerated Programme
11
23 62 100 156 189 191 Total cost
unchanged from original plan
£m
£m
Cumulative Exceptional Cost
Benefits
EiD On Track To Generate £105m Of Annualised Benefits
9
34
48
76
100 105
2010 2011 2012 2013 2014(forecast)
2015
Cobham plc Cobham plc
Cash Flow
12
Note: Depreciation and amortisation shown net of profit/loss on sale of property, plant and equipment and excluding amortisation of acquired intangibles.
H1 2014 H1 2013
£m £m
Trading profit (exc. Joint Ventures) 129.7 150.8
Depreciation and amortisation 33.9 30.1
Pension contributions in excess of service cost and administration cost (8.9) (7.7)
Increase in working capital (48.6) (20.8)
Net capital expenditure (25.7) (22.6)
Other items 2.5 (2.8)
Operating Cash Flow 82.9 127.0
Underlying net interest paid (11.6) (14.3)
Taxation paid (18.8) (27.9)
Dividends received from joint ventures - 3.7
EiD restructuring costs (13.4) (23.8)
Free Cash Flow 39.1 64.7
Dividends paid (75.5) (68.5)
Acquisition payments less divestment proceeds, other related costs and loans to JVs (23.2) (81.6)
Placing and net settlement of treasury shares 183.7 1.2
Exchange movements 16.0 (40.2)
Decrease/(increase) in Net Debt 140.1 (124.4)
Opening Net Debt (453.4) (359.9)
Closing Net Debt (313.3) (484.3)
Net Debt: EBITDA 0.9 1.2
Cobham plc Cobham plc
Working Capital
13
Inventories Receivables Payables
Current
Working
Capital Non-current
Total
Working
Capital
£m £m £m £m £m £m
Opening Balance Sheet 315.9 317.7 (370.3) 263.3 (15.8) 247.5
CMS Development Contracts 15.6 7.0 - 22.6 - 22.6
All Other 12.4 11.9 10.4 34.7 (8.7) 26.0
Underlying Cash Outflow 28.0 18.9 10.4 57.3 (8.7) 48.6
FX (7.0) (6.3) 5.9 (7.4) - (7.4)
Non-Underlying Items (0.4) (0.4) (0.4) (1.2) 11.8 10.6
Closing Balance Sheet 336.5 329.9 (354.4) 312.0 (12.7) 299.3
Cobham plc Cobham plc
Balance Sheet
14
30/06/2014 31/12/2013
£m £m
Intangible assets 1,096.1 1,162.2
Property, plant and equipment 336.0 350.8
Other non-current assets 61.3 56.3
Non Current Assets 1,493.4 1,569.3
Inventories 336.5 315.9
Trade and other receivables < 1 year 329.9 317.7
Trade and other payables < 1 year (354.4) (370.3)
Current Working Capital 312.0 263.3
Net current tax liabilities (108.0) (111.4)
Net borrowings (313.3) (453.4)
Provisions (41.6) (43.0)
Retirement benefit obligations (95.1) (87.3)
Other assets / liabilities (75.6) (93.3)
Net Assets 1,171.8 1,044.2
Cobham plc Cobham plc
Summary
• Order intake momentum encouraging
• Good growth in Commercial markets and positive impact of acquisitions offset by continued challenges in Defence markets
• Trading margins impacted adversely by Defence volume decline and development/production mix change
• Benefits from EiD helping to mitigate margin pressure
• Fundamentals of Group cash generation characteristics remain unchanged
• Interim dividend increase 10%
• Improved performance anticipated in H2
15
Cobham plc Cobham plc
Agenda
16
• Introduction Bob Murphy Chief Executive Officer
• Financial Results Simon Nicholls Chief Financial Officer
• Business Review Bob Murphy
• Q&A
Cobham plc Cobham plc
Today’s Agenda
• Delivering 2014
• Market Realities and Opportunities
– Commercial
– US Defence & Security
– Non-US Defence & Security
• Strategy Update
• Aeroflex Update
• Summary
17
Cobham plc Cobham plc
Delivering 2014
Orders • Stronger Aviation Services order intake • Increase in short-cycle orders in CCC & CMS sectors
Revenue • Increased short cycle shipments on higher order intake • Air-to-Air Refuelling (AAR) development milestones
Trading Margin • Increased short cycle revenue drives higher margin mix • Enhanced operational performance • Continuing focus on cost reduction
Operating Cash • Achieve AAR development milestones in H2 • Inventory reductions on higher volume
Clear Path To Achieve 2014 Guidance
18
H2 Expectations vs. H1 Performance
Expect Stronger H2 – Reconfirming Full Year Guidance
Cobham plc Cobham plc
Today’s Agenda
• Delivering 2014
• Market Realities and Opportunities
– Commercial
– US Defence & Security
– Non-US Defence & Security
• Strategy Update
• Aeroflex Update
• Summary
19
Cobham plc Cobham plc
Our Three Principal Markets
Continuing To Shift Emphasis To Enable Sustained Organic Revenue Growth
20
US Defence & Security
34%
Non-US Defence & Security
28%
Commercial 38%
Cobham plc Cobham plc
Commercial Markets
Global Economic Recovery Driving Mid Single Digit Market Growth
21
Sources: Cobham Analysis, Boston Consulting Group, Roland Berger, CSP Associates
Key Commercial Markets Potential to Outperform
Aerospace • Well positioned on platforms with robust order backlog • Increasing fleet penetration of wireless connectivity
Marine SATCOM • Introduction of Inmarsat Ka-band services • Increased focus on maritime fleet fuel efficiency
Specialty Aviation Services • Long term growth in Australian natural resources • Enduring requirement for regional carrier services
Distributed Antenna Systems • Strong global demand for ubiquitous connectivity • Mandates for fail-proof emergency communications
Commercial
38% H1 2014 Revenue
• Strong positions in attractive segments
• Technology and know-how differentiators enable Cobham to outperform market
• Growth driven by long-term macro trends
– Improved fuel efficiency
– Demand for natural resources
– Increased need for bandwidth
– Robust growth in airline passenger traffic
Increasing Portfolio Exposure To Growing Commercial Markets
CCC 63%
CMS 4%
CAES 2%
CAvS 31%
Non-Core
Cobham plc Cobham plc
US Defence & Security
Major Programmes: President’s Funding Request
F-35 Lightning II KC-46 Pegasus Missiles and Missile Defence1
Moving Through The Down Cycle, Expect Low Single Digit Market Declines
22
Sources: Cobham Analysis, FY15 Green Book, DACIS; (1) Includes AMRAAM, AARGM, Aegis, AMDR, ESSM, Standard Missile
$0bn
$5bn
$10bn
$15bn
Procurement RDT&E
$0bn
$1bn
$2bn
$3bn
$4bn
$5bn
Procurement RDT&E
$0bn
$1bn
$2bn
$3bn
$4bn
$5bn
Procurement RDT&E
US Defence & Security
34% H1 2014 Revenue
Key Programmes Well Supported In Pentagon & On Hill
• A large and important market
– Key programmes well funded & supported
• Aligned to US DoD Asia rebalance strategy
– Connecting the digital battlefield
– Aircraft self-protection electronics
– Missile electronics and components
• Executing significant development programmes for air and sea platforms
• Pressure on land programmes and short cycle businesses remains
CCC 17%
CMS 26%
CAES 57%
Cobham plc Cobham plc
Non-US Defence & Security
MENA And Asia Driving Low To Mid Single Digit Market Growth
23
Sources: Cobham Analysis, SIPRI, IMF, Strategic Defence Intelligence
Programme Positions & Security Concerns Drive Growth
Non-US Defence & Security
28% H1 2014 Revenue
CCC 29%
CMS 22%
CAES 3%
CAvS 46%
• Regional security needs underpin market
• Special Mission Aviation Services gaining traction in Middle East
• Next generation E-scan for Eurofighter
• Strong positions on global Aerial Refuelling programmes
• Mature channels to market in place
Global Military Expenditure Growth Expectations
4%
3%
2%
2%
7%
5%
4%
4%
1% -2%
-5% 0% 5% 10%
MENA
Asia-Pacific
Latin America
Africa
Europe
0%
Cobham plc Cobham plc
Today’s Agenda
• Delivering 2014
• Market Realities and Opportunities
– Commercial
– US Defence & Security
– Non-US Defence & Security
• Strategy Update
• Aeroflex Update
• Summary
24
Cobham plc Cobham plc
Delivering The Strategy
Progress Against Key Actions For 2014
25
We will build and maintain leading positions in our chosen markets by leveraging innovative technology and know-how with a deep insight into customer needs
This will enable us to generate sustainable top and bottom line growth, relative to the markets in which we operate, while consistently generating good free cash flow and thereby creating shareholder value
2014 Actions
1 Deliver to expectations
Reconfirming full year guidance
2 Be agile and position to deliver growth
Commercial portfolio generated 8% organic growth in H1
Continuously drive efficiency and cost improvements
3 Invest organically to grow
Half year PV increased to 6.6% of revenue
Continuing to invest in our people
4 Increase exposure to growing commercial markets
Announced $1.5 billion acquisition of Aeroflex
Exposure to growing commercial markets increased to 42% of revenue1
5 Continue to focus on Governance, Ethics and Compliance
2014 Employee Code of Business Conduct training > 97% YTD
Streamlining Governance processes
6 Align organisation with key strategic priorities
Launched reorganisation
Layer of management removed
1 Pro-forma 2014 including Aeroflex
Strategic Objective
Cobham plc Cobham plc
Portfolio Development
Successfully Deploying Capital To Shift The Emphasis Of The Portfolio
26
2012
May-2014: Announced Proposed $1.5 Billion Acquisition of Aeroflex, a leading global provider of radio frequency and microwave integrated circuits, components and systems, and wireless test and measurement systems
Jul-2013: Acquired full ownership of FB Heliservices JV, enhancing Aviation Services capabilities to enable integrated fixed and rotary wing service operations
May-2013: Acquired Axell Wireless, a leading provider of
Distributed Antenna Systems (DAS) for public safety markets
Apr-2014: Divested small Non-Core Businesses
Jun-2012: Acquired Thrane & Thrane, a world leading SATCOM equipment
manufacturer, more than doubling the size of Cobham’s
existing SATCOM business
Jul-2012: Divestment of Non-Core Emergency Locator Beacon Businesses
2011 2014(1) 2012 2013
(1) = Pro-forma including Aeroflex
42%
27%
31% 37%
28%
35%
US Defence & Security RoW Defence & Security Commercial
Connectivity
Other
Connectivity
Other
Shaping The Portfolio To Underpin Future Organic Growth
48%
25%
27% 33%
25%
42%
53%
47%
66%
34%
Cobham plc Cobham plc
Demand For Connectivity Drives Growth
$1.7 trillion over the next 5 years to meet the demand for wireless data
Carriers will need to spend
Wireless connectivity is expected to reach approx.
50 billion connected devices estimated
worldwide by 2020
600 satellites are forecast to be manufactured in the next decade
189,000 active Inmarsat maritime terminals in 2013
$194 billion forecast spend worldwide on Military
Airborne C4ISR through 2023
50% of the global commercial aircraft fleet by 2022, up from 21% in 2013
27
80% of mobile and wireless communications traffic
originates from within buildings
A $22bn Annual Addressable Market
Connecting People, Machines & Networks Underpins Growth Sources: Cobham Analysis, Cisco VNI Mobile 2014, Total Telecom, Inmarsat, Forecast International, IHS, Strategic Defence Intelligence
Cobham plc Cobham plc
Today’s Agenda
• Delivering 2014
• Market Realities and Opportunities
– Commercial
– US Defence & Security
– Non-US Defence & Security
• Strategy Update
• Aeroflex Update
• Summary
28
Cobham plc Cobham plc
Acquisition of Aeroflex
• Technology leader, ~14% R&D/PV Investment
• 70% of revenue is Commercial
• 100% of revenue is in Connectivity
• ~$85m annualised run rate cost synergies1
• Significantly accretive in 2015
• Beats cost of capital in 3rd full year
Aligned To Strategic Priorities And Progressing To Plan
29
Commercial Space
Commercial Wireless
Avionics Medical Energy Defence & Government
Transaction Milestones
20-May: Acquisition announced
06-Jun: Appointed EVP Merger Integration
15-Jun: UK Class 1 Circular published
30-Jun: HSR approval
02-Jul: Cobham Shareholder approval received
03-Jul: Aeroflex Proxy published
End Aug: CFIUS approval
Mid-Sept: Aeroflex Shareholder vote
Late Sept: Expected transaction close date
A Significant Step In The Cobham Portfolio Evolution (1) Statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the cost savings and synergies referred to may not be achieved, or those achieved could be materially different from those estimated.
Cobham plc Cobham plc
Today’s Agenda
• Delivering 2014
• Market Realities and Opportunities
– Commercial
– US Defence & Security
– Non-US Defence & Security
• Strategy Update
• Aeroflex Update
• Summary
30
Cobham plc Cobham plc
Summary
• Reconfirming 2014 full year guidance, expect stronger H2 performance
• Interim dividend up 10%
• Focused on organic execution
• Aeroflex on track … focus on integration
• Deliver mid single digit organic revenue growth from 2015
Driving The Evolution of the Group In a Challenging Environment
31
Executing Strategy To Deliver Value To Our Shareholders
Cobham plc Cobham plc 32
Cobham plc Cobham plc
APPENDICES Cobham Interim Results 2014
33
Cobham plc Cobham plc
Appendices Table of Contents
• Group Revenue Analysis
• Revenue Bridge
• Underlying Earnings Per Share
• Group Financial KPIs
• Shareholder Returns
• Capital Expenditure and Depreciation
• Pension Deficit Movement
• Credit Facilities
• Credit Facilities – Maturity Profiles
• Covenants
• Exchange Rates
• Foreign Exchange Transaction Exposure
• Realignment of the Business from 2014
• Historical Segmental Restatement – Full Year 2009-2013
• Historical Segmental Restatement – Interims 2009-2013
• Ship Set Values
• US Defence and Security
• Definitions
• Glossary
• Notes
34
Cobham plc Cobham plc
Group Revenue Analysis
35
34%
28%
38%
Non-US Defence & Security (H1 2013: 26%)
US Defence & Security (H1 2013: 38%)
Commercial (H1 2013: 36%)
42%
14%
15%
15%
8% 6%
USA (H1 2013: 47%)
UK (H1 2013: 11%)
Other EU (H1 2013: 17%)
Australia (H1 2013: 15%)
Asia (H1 2013: 6%)
RoW (H1 2013: 4%)
Cobham plc Cobham plc
CCC CCC
CMS CMS
CAES
CAES
CAvS CAvS
Non- Core Non-
Core
864 834
63 22
(57) (5) (53)
H1 2013 FX Translation Divestments Acquisitions Defence/Security
Commercial H1 2014
Revenue Bridge
36
(10)% 8%
(4)% Organic Growth
£m
Cobham plc Cobham plc
Underlying Earnings Per Share
37
Year-on-year change:
Restatement Impact: (5.7)% Underlying Impact: (10.2)%
10.31p
9.72p
8.67p
(4.3)% (1.4)% 5.2% (15.4)%
H1 2013Reported
FXTranslation
SharePlacing
H1 2013Restated
Acquisitions/Divestments
Organic H1 2014
Cobham plc Cobham plc
Group Financial KPIs
38
Year to
31/12/10
Year to
31/12/11
Year to
31/12/12
Year to
31/12/13H1 2013 H1 2014
Organic Revenue Growth (0.3)% (0.6)% (0.6)% (4.0)% (2.7)% (3.9)%
Defence / Security (0.8)% (3.5)% (1.5)% (8.8)% (7.4)% (10.0)%
Commercial 1.0% 7.6% 1.9% 6.9% 8.3% 7.6%
Earnings Per Share Growth (constant translation) 3.8% 12.6% 3.2% (4.2)% (3.4)% (11.6)%
Operating Cash Conversion 79.3% 94.8% 104.5% 85.4% 84.2% 63.9%
PV Spend % 4.5% 4.9% 5.3% 6.2% 6.2% 6.6%
Return on Invested Capital % 18.6% 19.4% 18.1% 15.3% 15.8% 12.3%
Cobham plc Cobham plc
Shareholder Returns
39
Full Year
2013H1 2014 H1 2013 Growth
Earnings Per Share
21.6p Underlying 8.7p 10.3p (15.9%)
10.7p Basic 4.2p 4.5p
10.7p Diluted 4.2p 4.5p
9.680p Dividend Per Share 2.904p 2.640p 10.0%
Cobham plc Cobham plc
Capital Expenditure and Depreciation
40
(1) Shown net of proceeds on disposal of property, plant and equipment.
(2) Depreciation excludes amortisation of acquired intangibles but includes amortisation of other intangibles of £2.2m (H1 2013: £2.4m). Shown net of profit/loss on sale of property, plant and equipment.
£m Net Capex(1)
Depn(2)
Net Capex(1)
Depn(2)
Cobham Communications and Connectivity 6.2 6.8 6.7 6.9
Cobham Mission Systems 3.6 2.5 3.1 2.9
Cobham Advanced Electronic Solutions 3.2 5.9 5.8 7.2
Cobham Aviation Services 11.1 17.4 3.8 12.1
Head Office 1.5 1.2 3.0 0.8
Core Businesses 25.6 33.8 22.4 29.9
Non Core Businesses 0.1 0.1 0.2 0.2
Cobham Group 25.7 33.9 22.6 30.1
H1 2014 H1 2013
Cobham plc Cobham plc
Pension Deficit Movement
41
HY to June
2014
FY to Dec
2013
£m £m
Opening Deficit (87.3) (73.4)
Service Cost (2.8) (5.2)
Admin Cost (0.3) (1.4)
Net Finance Cost (1.8) (2.8)
Total Employer Contributions 12.0 21.1
Actuarial Loss Arising On Buy-In Transaction - (39.0)
Other Actuarial Variations (14.9) 13.4
FX impact - -
Closing Deficit (95.1) (87.3)
Primary Assumptions
Discount Rate 4.3% 4.5%
Price Inflation Rate 3.5% 3.6%
Salary Inflation Rate 3.7% 3.8%
Life Expectancy of Male aged 65 in 2045 25.8yrs 25.8yrs
Cobham plc Cobham plc
Credit Facilities
42
Loan / Facility Usage
£m £m
US$ Loan Notes
Fixed rate (Mar 2016) 47.4 47.4
Floating rate (May 2017) 29.2 29.2
Floating rate (Feb/Mar 2018) 61.4 61.4
Fixed rate (Mar 2019) 92.1 92.1
Fixed rate (Oct 2020) 25.8 25.8
255.9 255.9
Bank Facilities
US$75m credit agreement (Dec 2016) 43.9 43.9
DKK525m multi-currency revolving facility (Oct 2018) 56.4 53.9
US$90m multi-currency revolving credit agreement (Oct 2016) 52.6 37.4
US$270m multi-currency revolving credit agreement (Oct 2018) 157.9 112.2
EUR70m multi-currency revolving facility (Jun 2017) 56.0 53.8
AUS$90m revolving credit facility (Oct 2018) 49.7 35.2
US$1,300m acquisition finance facility (Jun 2016) 760.3 -
1,176.8 336.4
Total Committed Facilities 1,432.7 592.3
Overdrafts 3.3 3.3
Finance Leases 0.2 0.2
Gross Debt 1,436.2 595.8
Cash (282.5)
Net Debt 1,436.2 313.3
Cobham plc Cobham plc
Credit Facilities – Maturity Profile
43
£0m
£200m
£400m
£600m
£800m
£1,000m
£1,200m
£1,400m
£1,600m
Jun 14 Dec 14 Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 Dec 20
Net Debt at June 2014
£313m
Mar, Jun, Oct, Dec
May, Jun
Feb, Mar, Oct
Mar
Cobham plc Cobham plc
Covenants
44 (1) For covenant purposes net debt is typically expressed at average translation rates.
(2) EBITDA includes pro forma adjustments in respect of acquisitions and divestments.
Jun-14 Dec-13 Jun-13 Dec-12
Net Debt (£m) - Balance Sheet (313.3) (453.4) (484.3) (359.9)
Net Debt (£m) - Average Rate (1) (333.6) (479.6) (466.7) (370.9)
EBITDA (2)
- rolling 12 months (£m) 366.3 395.0 400.7 407.5
Net Debt to EBITDA (not to exceed 3.5 times) 0.9 1.2 1.2 0.9
EBITA - rolling 12 months (£m) 300.6 322.4 338.9 348.3
Net Interest - rolling 12 months (£m) 21.4 27.0 30.8 30.0
Interest Cover (to exceed 3 times) 14.0 11.9 11.0 11.6
Cobham plc Cobham plc
Exchange Rates
• Translation impact
– H1 2014 underlying PBT at June closing rates would be c.£1m (1%) lower
– Movements in exchange do not impact organic performance comparisons
– Translation risk not hedged as generally impact is only crystallised to the extent that profit is not reinvested in the business and is repatriated to the UK
– Risk partly mitigated by matching the currency profile of debt to that of the functional currencies of our operations
• Transaction impact
– Mostly hedged where we have costs or revenues that are not in underlying functional currency of the business
– See next slide “Foreign Exchange Transaction Exposure” highlighting US$ forward coverage
45
For Every US 1 Cent Movement – £0.5m PBT, £2m Net Debt
Average
rate
Closing
rate
%
change
June 2014
US$ 1.67 1.71 (2)%
AU$ 1.83 1.81 1%
EUR 1.22 1.25 (2)%
DKK 9.09 9.31 (2)%
Dec 2013
US$ 1.57 1.66 (6)%
AU$ 1.62 1.85 (14)%
EUR 1.18 1.20 (2)%
DKK 8.79 8.97 (2)%
June 2013
US$ 1.55 1.52 2%
AU$ 1.53 1.66 (8)%
EUR 1.18 1.17 1%
DKK 8.78 8.70 1%
Cobham plc Cobham plc
Foreign Exchange Transaction Exposure
46
Historic average effective rate
2010 $1.58 : £1 2011 $ 1.56 : £1 2012 $1.59 : £1 2013 $1.59 : £1
Dollar/Euro exposure predominantly hedged for 2014 with $55m @ 1.33, 2015 $27m @ 1.36
2014 Total $141m
Hedging in place $133m
$47m
94% hedged for 2014
Avg hedge rate $1.59: £1
2015
Hedging in place
Avg hedge rate $1.61: £1
Avg hedge rate $1.56: £1 $64m 2016 to 2022
Cobham plc Cobham plc
Realignment Of The Business From 2014
Divisions Cobham Aerospace
& Security Cobham Defence
Systems Cobham Mission
Systems Cobham Aviation
Services
Revenue FY2013
Sectors Cobham
Communications & Connectivity
Cobham Advanced Electronic Solutions
Cobham Mission Systems
Cobham Aviation Services
Revenue FY2013 (restated)
The Next Stage Of Strategic Development
47
No C
hange
No C
hange
Exeter, New Hampshire principal location
£744m £309m £358m £365m
£678m £372m £358m £365m
Cobham plc Cobham plc
Historical Segmental Restatement
Full Year 2009 to 2013
48
£m 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Cobham Communications & Connectivity 649 613 564 634 678 146 127 124 133 115
Margin 22.6% 20.8% 22.0% 20.9% 17.0%
Cobham Mission Systems 290 321 372 373 358 51 62 84 81 74
Margin 17.4% 19.2% 22.6% 21.7% 20.7%
Cobham Advanced Electronic Solutions 418 434 396 385 372 76 70 77 61 63
Margin 18.1% 16.1% 19.5% 16.0% 17.0%
Cobham Aviation Services 231 274 308 327 365 31 34 42 38 48
Margin 13.6% 12.5% 13.5% 11.6% 13.1%
Head Office and Eliminations (13) (12) (6) (6) (4) - 22 15 14 15
Core Businesses 1,575 1,630 1,634 1,713 1,769 304 315 342 327 315
Margin 19.3% 19.4% 21.0% 19.1% 17.8%
Non Core Businesses 305 273 220 36 21 33 33 23 5 3
Margin 10.8% 12.1% 10.2% 13.4% 12.0%
Cobham Group 1,880 1,903 1,854 1,749 1,790 337 348 365 332 318
Margin 17.9% 18.3% 19.7% 19.0% 17.7%
Revenue Trading Profit
Cobham plc Cobham plc
Historical Segmental Restatement
Interims 2009 to 2013
49
£m 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Cobham Communications & Connectivity 335 322 273 277 336 69 72 56 58 60
Margin 20.6% 22.3% 20.5% 21.0% 17.9%
Cobham Mission Systems 148 158 168 191 168 24 26 33 37 32
Margin 16.0% 16.8% 19.9% 19.5% 19.1%
Cobham Advanced Electronic Solutions 204 213 186 188 180 33 31 36 32 31
Margin 16.4% 14.5% 19.1% 17.1% 17.4%
Cobham Aviation Services 111 131 150 164 171 15 16 20 19 22
Margin 13.7% 12.0% 13.5% 11.6% 13.0%
Head Office and Eliminations (7) (3) (4) (3) (2) 2 4 10 7 7
Core Businesses 791 821 773 817 853 143 149 155 153 152
Margin 18.1% 18.1% 20.0% 18.8% 17.8%
Non Core Businesses 161 142 119 26 11 19 18 12 4 2
Margin 11.4% 12.8% 10.3% 15.8% 17.4%
Cobham Group 952 963 892 843 864 162 167 167 157 154
Margin 17.0% 17.4% 18.7% 18.7% 17.8%
Revenue Trading Profit
Cobham plc Cobham plc
Ship Set Values
50
Military Fast Jet US $k Rotorcraft US $k Missile US $k
F-16 500-900 EH101 380-600 AMRAAM 50-150
F/A-18 E/F/G 1,000-2,500 EC175 80-170 AARGM 120
F-35 1,100 Apache 500 PAC3/Patriot 130
Typhoon 1,400 CH-47 Chinook 90 Standard Missile 90-125
Hawk 500 CH-53K 440 Commercial Aircraft
Rafale 170 S-61 40 A320 60-100
PC-7 160 MH60/UH60 220-700 A350 130
T-50 100-150 V-22 500-1,100 A380 260
Gripen 190-500 UAV B737 50-110
Medium/Large Military Aircraft Predator/Reaper 350-700 B777 50
A400M 3,500 Global Hawk 1,700-2,000 B787 105-150
Sentry E-2D 250 Naval C919 90
Poseidon P-8 850 Aegis 2,200-3,200 G650 30
C-130/KC-130 300-3,500 DDG-1000 1,200-1,400 MRJ 50
Cobham plc Cobham plc
US Defence & Security
Challenging Budget Environment, As Anticipated – Budget Authorization
51
DoD Budgeting Trend Consistent With Previous Cycles Sources: Cobham Analysis, FY15 Green Book
Sources: Cobham Analysis, DoD FY14 Green Book, DoD Report on Joint Committee Sequestration for FY2013, NDAA 2014, White House; at constant exchange rate
0%
20%
40%
60%
80%
100%
120%
$0bn
$50bn
$100bn
$150bn
$200bn
$250bn
$300bn
Procurement RDT&E Gross Federal Debt % to GDP
To
tal
Bu
dg
et
Au
tho
rity
GulfWar
Vietnam WarAfghanistan/
Iraq Wars
(50)%
(55)%
Gro
ss F
ed
era
l De
bt %
to G
DP
(39)%
Cobham plc Cobham plc 52
Definitions
Underlying
To assist with the understanding of earnings trends, the Group has included within its published financial statements trading profit and underlying earnings results. Trading profit has been defined as operating profit from continuing operations excluding the impacts of business acquisition and divestment related activity and business restructuring costs as detailed below. Also excluded are changes in the marking to market of non-hedge accounted derivative financial instruments, impairments of intangible assets and items deemed by the Directors to be of an exceptional nature. Underlying earnings are defined as trading profit less net underlying finance costs, which excludes the unwinding of acquisition related discounting and other acquisition related items, and after deducting associated taxation and non-controlling interests.
Business acquisition and divestment related items
Business acquisition and divestment related items excluded from trading profit and underlying earnings include the amortisation of intangible assets recognised on acquisition, adjustments to businesses held for sale, the writing off of the pre-acquisition profit element of inventory written up on acquisition, other direct costs associated with business combinations and terminated divestments and adjustments to contingent consideration related to previously acquired businesses.
Business restructuring costs EiD (Excellence in Delivery) restructuring costs comprise costs associated with the restructuring of the Group’s portfolio which are incremental to normal operations.
Operating cash flow
Operating cash flow is defined as net cash from operating activities before payment of tax, interest, restructuring costs and M&A related costs but after cash flows from the purchase or disposal of property, plant, equipment and intangible assets. Operating cash conversion is defined as operating cash flow as a percentage of trading profit, excluding profit from joint ventures.
Free cash flow
Free cash flow is defined as net cash from operating activities plus dividends received from joint ventures, less cash flows related to the purchase or disposal of property, plant, equipment and intangible assets but excluding payments relating to M&A related activities.
Net debt Net debt is defined as the net of borrowings less cash and cash equivalents at the balance sheet date.
Organic revenue growth
Organic revenue growth is defined as revenue growth stated at constant translation exchange rates, excluding the incremental effect of acquisitions and divestments.
PV investment
PV (Private Venture) or company funded R&D (Research and Development) measures exclude Aviation Services, where there is no R&D activity.
Invested capital Invested capital comprises net assets adjusted to exclude net debt, retirement benefit obligations, derivative financial instruments, current and deferred tax, provisions and other financial assets. Intangible assets recognised on business combinations are grossed up to their original cost before amortisation and an adjustment is also made to reinstate the historic goodwill previously written off directly to reserves.
Return on invested capital
Trading profit as a percentage of the average invested capital during the period.
Cobham plc Cobham plc
GSM Global System for Mobile communications
GX Global Xpress
HD High Definition
HiRel High Reliability
HSR Hart–Scott–Rodino (Antitrust Improvements Act)
HSXPA Third Generation High Speed Packet Access
IMS Interim Management Statement
IP Internet Protocol
JV Joint Venture
KPI Key Performance Indicator
LCM Life-Cycle Management
LTE Long Term Evolution
M&A Mergers & Acquisitions
M2M Machine-to-Machine
MENA Middle East and North Africa
MRJ Mitsubishi Regional Jet
PAC 3 Patriot Advanced Capability-3
PBT Profit Before Tax
PM Programme Management
PV Private Venture (Company funded R&D)
R&D Research & Development
RDT&E Research, Development, Test & Evaluation
RF Radio Frequency
RoW Rest of World
SATCOM Satellite Communication
SSA Special Security Agreement
SWAP-C Space, Weight, Power and Cooling
SWP Strategic Workforce Planning
TC&S Tactical Communications & Surveillance
TD-SCDMA Time Division Synchronous Code Division Multiple Access
UAV Unmanned Aerial Vehicle
UMTS Universal Mobile Telecommunications System
WCDMA Wideband Code Division Multiple Access
YTD Year-to-Date
Glossary
53
4G Fourth Generation
5G Fifth Generation
AAR Air-to-Air Refuelling
AARGM Advanced Anti-Radiation Guided Missile
AESA Active Electronically Scanned Array (radar)
AMDR Air and Missile Defence Radar
AMRAAM Advanced Medium-Range Air-to-Air Missile
BD Business Development
BEU Battery Electronics Unit
C4ISR Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance
CAES Cobham Advanced Electronic Solutions
CAGR Compound Annual Growth Rate
CAPEX Capital Expenditure
CAS Cobham Aerospace and Security
CAvS Cobham Aviation Services
CCC Cobham Communications and Connectivity
CDMA Code Division Multiple Access
CFIUS Committee on Foreign Investment in the United States
CMS Cobham Mission Systems
DAS Distributed Antenna System
DoD Department of Defence
EBITDA Earnings Before Interest Tax Depreciation and Amortisation
EBITA Earnings Before Interest Tax and Amortisation
EDGE Enhanced Data rates for GSM Evolution
EiD Excellence in Delivery
E-Scan Electronically Scanned
EU European Union
EVP Executive Vice President
EW Electronic Warfare
FBH FB Heliservices
FIFO Fly-In Fly-Out
FSTA Future Strategic Tanker Aircraft
FX Foreign Exchange
GDP Gross Domestic Product
GPRS General Packet Radio Service
Cobham plc Cobham plc
Notes Page
54
Cobham plc Cobham plc
Notes Page
55