Cobham — H1 2010 Earnings Presentation
42 slides from Cobham's earnings presentation, Aug 5, 2010
Slide 1: 2010 Interim Results
5 August 2010 The most important thing we build is trust 2010 Interim Results
Slide 2: Agenda
Agenda • Introduction Andy Stevens Chief Executive Officer • Financial Results Warren Tucker Chief Financial Officer • Business Review Andy Stevens • Q&A 1 2010 Interim Results Cobham plc
Slide 3: Summary Profit and Loss Account
Summary Profit and Loss Account Full Year 2009 H1 2009 H1 2010 Growth £m £m £m 1,880.4 Revenue 952.1 963.4 1.2% 337.0 Trading Profit 161.7 167.2 3.4% 17.9% Margin 17.0% 17.4% 0.4pts 295.3 Profit before Taxation 141.2 144.6 2.4% 18.80p Underlying Earnings Per Share 8.96p 9.29p 3.7% 5.3% PV Spend % 5.
Slide 4: Earnings Per Share Growth
Earnings Per Share Growth 0.1% 1.6% 5.0% (2.7)% (3.0)% 1.5% 1.2% 3.7% 10.0 9.5 9.29 pence 8.96 9.0 3.9% 8.5 3.6% at constant translation exchange 8.0 H1 2009 FX Translation Growth FX Other margin Interest Pension Tax rate & H1 2010 Transaction effects Finance other Charge 3 2010 Interim Results Cobh
Slide 5: Cash Flow and Dividend
Cash Flow and Dividend Full Year 2009 H1 2009 H1 2010 Growth £m £m £m 330.9 Trading Profit (ex. JV) 159.2 164.7 3.5% 293.2 Operating Cash Flow 139.1 135.1 (2.9%) 88.6% Operating Cash conversion 87.4% 82.0% (5.4)pts 213.6 Free Cash Flow from Business 95.1 102.7 8.0% 228.7 Decrease in Net Debt 199.8 3
Slide 6: Technology Divisions' Revenue Growth
Technology Divisions’ Revenue Growth 1,000 843 5 2% 833 3% CMS 23 750 CMS CAS 1.0% Organic Growth CAS £m 500 250 CDS CDS 0 H1 2009 FX Translation Acquisitions Defence/ Commercial/ H1 2010 Security Other 5 2010 Interim Results Cobham plc
Slide 7: Technology Divisions' Organic Revenue Growth Cycle Over the Medium Term
Technology Divisions’ Organic Revenue Growth Cycle Over the Medium Term 4 Year Full Year CAGR 7.4%, 5 Year Half Year CAGR 6.3% 2,000 0.6% 10.3% 1,500 13.2% 5.8% £m 1,000 1.0% 14.3% 0.6% 7.8% 8.3% H2 500 H1 0 2005 2006 2007 2008 2009 2010 Excludes FX, Acquisitions and Disposals. Prior year are profor
Slide 8: Cobham Avionics and Surveillance
Cobham Avionics and Surveillance Other US Defence / Acq Mix / Comms Security Translation Organic 34% 13% 2009 H1 FX Growth 2010 H1 Revenue £m 254.8 (5.2) (12.6) 237.0 Commercial Non US Trading Profit £m 42.5 38.5 Aerospace/ Defence / GA Security Margin 16.7% 0.2pts (0.7)pts 16.2% 29% 24% 37% revenue
Slide 9: Cobham Mission Systems
Cobham Mission Systems Commercial Other Acq Mix / Aerospace/ Comms GA Translation Organic 9% 4% 2009 H1 FX Growth 2010 H1 Non US Defence / Revenue £m 162.7 (3.4) 12.0 171.3 Security 30% Trading Profit £m 27.0 29.1 US Defence / Security Margin 16.6% - 0.4pts 17.0% 57% 87% revenue defence/security 4 y
Slide 10: Cobham Defence Systems
Cobham Defence Systems Commercial Other Acq Mix / Aerospace/ Comms Translation Organic GA Non US 1% 2009 H1 FX Growth 2010 H1 3% Defence / Revenue £m 436.6 (9.2) 6.4 433.8 Security 10% Trading Profit £m 74.9 79.9 US Military / Government Margin 17.2% 0.3pts 0.9pts 18.4% 86% 96% revenue defence/secur
Slide 11: Cobham Aviation Services
Cobham Aviation Services Acq Mix / Commercial Translation Organic Aerospace/ 2009 H1 FX Growth 2010 H1 GA Revenue £m 111.4 14.8 5.1 131.3 33% Non US defence/ Trading Profit £m 15.3 15.7 Security 67% Margin 13.7% (0.3)pts (1.4)pts 12.0% 67% revenue defence/security 4 year organic revenue CAGR 1.7% 27
Slide 12: Financial Highlights
Financial Highlights • Trend in orders and revenue is positive • Robust margin control in H1; resilient earnings • Strong operating cash conversion; £103m of Free Cashflow • Business efficiency opportunities underpin 2010 and beyond • Continued 10% increase in dividend 11 2010 Interim Results Cobham
Slide 13: Agenda
Agenda • Introduction Andy Stevens Chief Executive Officer • Financial Results Warren Tucker Chief Financial Officer • Business Review Andy Stevens • Q&A 12 2010 Interim Results Cobham plc
Slide 14: Business Review
Business Review • The comprehensive business review considered: – Our markets – Our operational delivery • We asked ourselves how: – Further synergies and cost efficiencies can be extracted – Future integration and standardisation savings should be invested – To refine our portfolio towards the area
Slide 15: Our Strategy
Our Strategy Focus on Defence, • Maintain an appropriately focused portfolio on the defence, security and commercial markets, such 1 Security & that we can can add value and manage risk across the portfolio Commercial markets Sell technically • Sell technically differentiated products and services t
Slide 16: Focus on Defence, Security and Commercial Markets
1. Focus on Defence, Security and Commercial Markets Growth outlook: ~2% CAGR Growth outlook: ~7% CAGR Growth outlook: ~4% CAGR Variation by programme (e.g., JSF) Variation by country & sub-segment Variation by platform (e.g., 787) 450 450 450 400 ~$390bn 400 400 350 60 ROW 350 350 Market size US$bn
Slide 17: Market Growth Rates For Our Technology Businesses Over The Next 5 Years
Market Growth Rates For Our Technology Businesses Over The Next 5 Years Growth rates of our 31 major market segments • 10 Strategic Business Units in our technology 0-4% 11 businesses with 31 major market • There is some market segments (e.g., volatility land satcom, air • Long term prospects refuel
Slide 18: Revenue Analysis
Revenue Analysis RoW 9% UK 9% (2009:9%) (2009:9%) Australia 9% Mainland (2009:7%) Europe 13% (2009:13%) USA 60% (2009:62%) Aviation Services 13% US Defence/Security 52% (2009:12%) (2009:52%) Other communication 10% (2009:12%) Commercial/GA 9% (2009:12%) Non US Defence/Security 16% (2009:12%) 60% rev
Slide 19: Sell Technically Differentiated Products & Services
2. Sell Technically Differentiated Products & Services • Investment in PV is fundamental to the Group’s strategy • Our investment will match market opportunities • It is customer driven and focused on bringing new or improved products to market Will continue with our core Tier 3 capabilities and sel
Slide 20: Build Sustainable Scale Positions
3. Build Sustainable Scale Positions HIGH Defence/ C4ISR SATCOM EW, Radar, Missiles Security Commercial Surveillance Vehicle Communications MARKET GROWTH Analytic Solutions Antennas Avionics Mission Equipment Life Support Aviation Services Size of bubble represents Cobham LOW revenue BUILDING SCALE
Slide 21: Deliver Operational Excellence
4. Deliver Operational Excellence Holding Integrated company operator 2005 2010 By end of 2013 • Multiple • Integration of some smaller units • Scale operating units independent • Greater standardisation • Common operating processes businesses • Greater collaboration • Stronger functional leadership
Slide 22: Excellence In Delivery Programme
Excellence In Delivery Programme A Implementing a • SOF covers all the standard processes, tools and practices we will Standard use Operating • We piloted a new lean production system Framework • It has confirmed the potential for a 25-30% increase in production (SOF) capacity B Integration of • We
Slide 23: Implementing a Standard Operating Framework (SOF)
Implementing a Standard Operating A Framework (SOF) Key Performance % Change Total Expected Change Indicator Since 2009 From 2009 Baseline Capacity increase 11% 25% Manufacturing lead time reduction 30% 50% Overhaul lead time reduction 32% 60% Inventory turns increase 20% 40% Floor space reduction 3
Slide 24: Integration Of Facilities
Integration Of Facilities B • We Will Establish A Set Of Principal Manufacturing Sites each will – Be at least £100m turnover to achieve the appropriate scale – Apply a Standard Operating Framework for the production system – Have the same standard organisational structure – Use the same instance of
Slide 25: Indicative Programme Benefits And Costs For Excellence In Delivery
Indicative Programme Benefits And Costs For Excellence In Delivery • Step improvement in delivery performance to our customers • Approximately two year payback from one-off costs of some £130-£150m • Efficiency savings will be deployed to – Increase PV/technology – Improve infrastructure – Give cust
Slide 26: Actively Manage The Portfolio
5. Actively Manage The Portfolio Acquisitions We are actively pursuing acquisitions that: 1. Have attractive technology and market positions 2. Deliver attractive growth and investment returns 3. Deliver synergies with our portfolio and accelerate our strategy Divestments We will exit areas over tim
Slide 27: Summary
Summary • Resilient first half results with underlying EPS growth of 4% • Expect organic growth to increase in the second half • Some market uncertainties remain • Strategy review completed – Focus on defence, security and commercial markets – Sell technically differentiated products and services –
Slide 28: Appendices
Appendices • IR calendar • Key Performance Indicators • Ship set values • US DoD Investment Spending • Shareholder returns • Cash flow summary • Revenue & profit • Technology divisions’ revenue & trading profit growth • Foreign exchange transaction exposure • US$/£ translation exchange rates • Recon
Slide 29: IR Calendar
IR Calendar 2010 2011 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Announcements 3 3 6 4 3 Interim Preliminary AGM Interim Interim Management Results & Results Management Statement Interim Statement Management Statement Investor Days 30 London Investor Seminar (TBC) 28 2010 Interi
Slide 30: Key Performance Indicators
Key Performance Indicators Full Year 2009 H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 £m £m £m £m £m £m 0.6% Technology Divisions Organic Revenue Growth 8.3% 7.8% 14.3% 0.6% 1.0% 12.5% Earnings Per Share Growth (constant translation) 9.9% 15.3% 19.2% 18.7% 3.6% 88.6% Operating Cash Conversion 71.1% 75.1
Slide 31: Ship Set Values
Ship Set Values 2014 2010 2012 Ship Set Values US$ Programme / Platform F16 X X X $800k - $1,100k F/A 18 E/F/G X X X $800k - $4,500k F22 X X X $1,400k Military Fast Jets F35 X X X $1,200k / Trainers Eurofighter Typhoon X X X $1,500k Hawk X X X $600k T50 X X X $220k Gripen X X X $160k - $500k A330 X
Slide 32: US DoD Investment Spending
US DoD Investment Spending $Bn U.S. U.S. DoD DoD investment investment spending spending ($bn) ($bn) Procurement RDT&E AGR = 2. 3% 2010–2015 C 203 207 CAGR = 4.7% 197 2005–2010 189 196 181 185 175 160 69 70 150 76 73 147 6 76 80 80 77 76 68 72 133 137 120 124 105 113 98 102 79 78 84 2005 2006 2007 2
Slide 33: Shareholder Returns
Shareholder Returns Full Year 2009 H1 2009 H1 2010 Growth 27.8% Underlying Tax Rate 28.0% 26.5% Earnings Per Share 18.80p Underlying 8.96p 9.29p 3.7% 16.26p Basic 9.29p 6.55p 16.17p Diluted 9.25p 6.50p 5.45p Dividend Per Share 1.48p 1.628p 10.0% 18.70p Free Cash Flow Per Share 8.33p 8.93p 7.2% 32 20
Slide 34: Cash Flow Summary
Cash Flow Summary Full Year 2009 H1 2009 H1 2010 £m £m £m 330.9 Trading Profit (excluding joint ventures) 159.2 164.7 47.8 Depreciation and other movements 22.8 27.8 (8.2) Decrease/(Increase) in working capital and provisions (11.8) (29.6) (77.3) Net Capital expenditure (31.1) (27.8) 293.2 Operating
Slide 35: Revenue and Profit
Revenue and Profit Revenue Trading Profit £m H1 2009 H1 2010 Growth H1 2009 H1 2010 Growth Technology Divisions 842.5 832.6 (1.2)% 144.4 147.7 2.3% Margin 17.1% 17.7% Cobham Aviation Services 111.4 131.3 17.9% 15.3 15.7 2.6% Margin 13.7% 12.0% Operating Divisions 951.7 963.3 1.2% 159.7 163.4 2.3% He
Slide 36: Technology Divisions' Revenue and Trading Profit
Technology Divisions’ Revenue and Trading Profit Revenue Trading Profit Organic £m H1 2009 H1 2010 Growth H1 2009 H1 2010 Cobham Avionics and Surveillance 254.8 237.0 (4.9)% 42.5 38.5 Margin 16.7% 16.2% Cobham Defence Systems 436.6 433.8 1.5% 74.9 79.9 Margin 17.2% 18.4% Cobham Mission Systems 162.7
Slide 37: Foreign Exchange Transaction Exposure
Foreign Exchange Transaction Exposure Historic average effective rate 2006 $1.77 : £1 2007 $1.83 : £1 2008 $1.93 : £1 2009 $1.70 : £1 2010 Total $231m 90% hedged for 2010 Hedging in place $208m Avg hedge rate $1.58: £1 Hedging in place 2011 $112m Avg hedge rate $1.57: £1 2012 to 2014 $120m Avg hedge
Slide 38: US$/£ Translation Exchange Rates
US$/£ Translation Exchange Rates 2009 2010 Full Year Opening Half Year Half Year Income Statement (average rate) 1.56 1.50 1.53 Balance Sheet (closing rate) 1.61 1.44 1.63 1.50 £0.7m PBT translation impact for every 1 cent movement 37 2010 Interim Results Cobham plc
Slide 39: Reconciliation of IFRS to Underlying Result
Reconciliation of IFRS to Underlying Result Full Year 2009 H1 2009 H1 2010 £m £m £m 286.6 Operating profit 160.1 119.9 7.7 Portfolio restructuring 1.7 (1.1) (42.9) Unrealised losses/(gains) on revaluation of currency instruments (46.7) 14.7 78.7 Amortisation of intangible assets arising on acquisiti
Slide 40: Definitions
Definitions Underlying To assist with the understanding of earnings trends, the Group has included within its published statements trading profit and underlying earnings results. Trading profit and underlying earnings have been defined to exclude the impacts of certain transaction related adjustment
Slide 41: Glossary
Glossary AARGM Advanced Anti-Radiation Guided Missile Acq Acquisition AGM Annual General Meeting AMRAAM Advanced Medium-Range Air-to-Air Missile ASTOR Airborne Stand-Off Radar C4ISR Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance CAGR Compound Annual Growth
Slide 42: Cautionary Statement
Cautionary Statement For the purposes of the following disclaimers, references to this “document” shall be deemed to include references to the presenters’ speeches, the question and answer session and any other related verbal or written communications. This document contains certain “forward-looking