Interim Results 2014 - Cobham · PDF fileInterim Results 2014 Taking the Next Step In Our Evolution 07 August 2014 . ... − £17m contribution from Axell Wireless (Distributed Antenna

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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


Agenda

2




• Q&A


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 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)%



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%



Commercial (H1 2013: 8%) H1 2014

()


Change%

Revenue £m 138.4 159.7 (13.3)%




93%

4% 3%

Cobham Advanced Electronic Solutions (CAES)

6




• 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()


Change%

Revenue £m 172.5 167.1 3.2%




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



H1 2014()


Change%

Revenue (exc JV) £m 205.5 149.7 37.3%

Trading Profit £m 26.1 20.0 30.5%


Trading Margin (exc JV) 12.7% 11.2% 1.5pts


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%


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%


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


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


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


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


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


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


Agenda

16




• Q&A


Today’s Agenda

• Delivering 2014

• Market Realities and Opportunities

– Commercial

– US Defence & Security

– Non-US Defence & Security

• Strategy Update

• Aeroflex Update

• Summary

17


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


Today’s Agenda

• Delivering 2014


– Commercial



• Strategy Update

• Aeroflex Update

• Summary

19


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%


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



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


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%



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


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%


Today’s Agenda

• Delivering 2014


– Commercial



• Strategy Update

• Aeroflex Update

• Summary

24


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


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%


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


Today’s Agenda

• Delivering 2014


– Commercial



• Strategy Update

• Aeroflex Update

• Summary

28


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.


Today’s Agenda

• Delivering 2014


– Commercial



• Strategy Update

• Aeroflex Update

• Summary

30


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


APPENDICES Cobham Interim Results 2014

33


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


Group Revenue Analysis

35

34%

28%

38%




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%)


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


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


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%


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%


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


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


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


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


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


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%


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


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


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%



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%



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



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.


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


Notes Page

54


Notes Page

55

Documents

Interim Results 2014 - Cobham · PDF fileInterim Results 2014 Taking the Next Step In Our Evolution 07 August 2014 . ... − £17m contribution from Axell Wireless (Distributed Antenna