Cobham — H1 2019 Earnings Presentation
48 slides from Cobham's earnings presentation, Jul 25, 2019
Slide 1: 2019 Interim Results
2019 Interim Results 25th July 2019
Slide 2: Introduction
01 Introduction David Lockwood
Slide 3: Overview
Overview • Recommended cash offer for Cobham from Advent International at 165p* per share. Offer details are in the Rule 2.7 firm offer announcement released this morning • Actions feeding improving set of financial results with variation in Sector performances, as expected; confidence improving • A
Slide 4: Financial Results
02 Financial Results David Mellors
Slide 5: Summary Financial Headlines
Summary Financial Headlines £m H1 2019 H1 2018(1) Revenue 1,028.9 924.5 Underlying operating profit 107.1 95.5 Underlying operating margin 10.4% 10.3% Underlying earnings per share (pence) 3.2 2.0 Operating cash flow 64.2 37.7 Operating cash conversion 60% 40% Free cash flow (15.7) 9.2 Net debt (148
Slide 6: Revenue Bridge
Revenue Bridge H1 2018 to H1 2019 £m 1,200 27.2 5.7 1,028.9 67.3 1,000 27.8 4.9 924.5 28.5 800 2% 31% 9% 4% 600 Organic revenue increase 11% 400 200 0 H1 2018 Currency & i/c Divestments CCC CMS CAES CAVS H1 2019 elims 6
Slide 7: Underlying Operating Profit Bridge
Underlying Operating Profit Bridge H1 2018 to H1 2019 £m 140 Margin 14.0 10.4% 120 Margin 10.3% 10.6 6.6 107.1 2.8 1.1 100 5.1 95.5 10.3 90.4 80 60 40 20 0 H1 2018 Impact of H1 2018 FX Divestments CCC CMS CAES CAVS H1 2019 IFRS 16 Restated 7
Slide 8: Movements in Net Debt
Movements in Net Debt £m 122% operating cash conversion (pre-exceptionals) 40 164.5 Free cash flow £15.7m (outflow) (14.9) (128.1) (148.3) 0 (19.0) Includes £48.7m KC-46 Boeing settlement (40) (69.5) (66.4) (80) (120) (6.5) (3.9) (4.5) 60% operating cash conversion (160) Restated opening Other opera
Slide 9: 2016 Exceptional Charges Update
2016 Exceptional Charges Update Opening Cash flow Income statement Closing £m FX balance utilised (charged/released)(2) balance(3) 2017 (191)(1) 67 9 3 (112) 2018 (112) 103 (198) 1 (206) 2019 (206) 66 - - (140) Cumulative totals @ 30 June 2019 (191) 236 (189) 4 (140) (1) Opening balance comprises 20
Slide 10: Communications and Connectivity
Communications and Connectivity £m H1 2018(1) FX Divested Organic H1 2019 Order intake 336.2 3.0 (32.3) (52.3) 254.6 Revenue 279.9 2.8 (28.5) 4.9(2) 259.1 Underlying operating profit 23.6 (0.6) 1.1 10.6 34.7 Underlying operating margin 8.4% (0.3%) 1.4% 3.9% 13.4% Order book 284.1 268.8 Organic reven
Slide 11: Mission Systems
Mission Systems £m H1 2018(1) FX Organic H1 2019 Order intake 237.1 11.2 73.5 321.8 Revenue 209.0 10.2 67.3(2) 286.5 Underlying operating profit 28.9 1.8 14.0 44.7 Underlying operating margin 13.8% 0.2% 1.6% 15.6% Order book 762.0 785.8 Organic revenue primarily driven by: Profit increase due to: •
Slide 12: Advanced Electronic Solutions
Advanced Electronic Solutions £m H1 2018(1) FX Organic H1 2019 Order intake 379.6 23.8 (56.8) 346.6 Revenue 279.4 17.6 27.2(2) 324.2 Underlying operating profit 31.3 1.8 (6.6) 26.5 Underlying operating margin 11.2% (0.1%) (2.9%) 8.2% Order book 606.4 679.5 Organic revenue increase driven by: Profit
Slide 13: Aviation Services
Aviation Services £m H1 2018(1) FX Organic H1 2019 Order intake 74.8 (1.5) (25.4) 47.9 Revenue 157.0 (2.7) 5.7(2) 160.0 Underlying operating profit 11.7 (0.2) (10.3) 1.2 Underlying operating margin 7.5% - (6.7%) 0.8% Order book 1,004.4 877.5 Organic revenue increase driven by: Profit impacted by: •
Slide 14: Business Review
03 Business Review David Lockwood
Slide 15: Good progress against all objectives
Good progress against all objectives Improve Fix the Capital Onerous Focus the Operational Balance Allocation & Contracts & Portfolio Performance & Sheet Dividend Other Legacy Culture Items Change • Maintain strong • Allocation of capital for • Focus on defence, • Full rate production on • On-time c
Slide 16: KC-46 US Tanker Programme – Hose and Drogue
KC-46 US Tanker Programme – Hose and Drogue Financial • Net settlement of US$63m (£49m) paid Programme status • Centerline Drogue System (CDS) – full rate production now commenced • Progress on Wing Aerial Refuelling Pod (WARP) qualification consistent with previous guidance (completion around middl
Slide 17: Advanced Electronic Solutions – Operational Improvement Actions
Advanced Electronic Solutions – Operational Improvement Actions 2019 Actions H1 2019 Progress (set out in 2018 Prelims) • New management team • Senior management appointments including general management, finance and programmes • Enhanced proposal controls, additional oversight, training and improve
Slide 18: Wimborne – Improving Operational and Financial Metrics
Wimborne – Improving Operational and Financial Metrics A leading provider of aerial refuelling and weapons carriage & release products and services Improvement Actions Improving Performance • Improvement plans with strategic suppliers • Customer arrears halved • Programme delivery and execution lead
Slide 19: Strategic Review of Aviation Services Australia
Strategic Review of Aviation Services Australia Review of Aviation Services operations in Australia • Commenced strategic review • Optimise value in interests of company and stakeholders Business overview • Australia’s third largest aviation group; diversified operations in Special Mission, Airline
Slide 20: Overview
Overview • Recommended cash offer for Cobham from Advent International at 165p* per share. Offer details are in the Rule 2.7 firm offer announcement released this morning • Actions feeding improving set of financial results with variation in Sector performances, as expected; confidence improving • A
Slide 21: Questions
O q COBHAM Questions
Slide 22: Appendices
Appendices
Slide 23: IFRS 16 Restatement of underlying profit
IFRS 16 Restatement of underlying profit Full Year FY 2018 Previously Add back: Deduct: Lease £m Restated reported Rental cost Depreciation interest and tax Underlying operating profit Communications and Connectivity 55.9 9.3 (8.4) - 56.8 Mission Systems 75.3 1.5 (1.3) - 75.5 Advanced Electronic Sol
Slide 24: IFRS 16 Restatement of underlying profit
IFRS 16 Restatement of underlying profit Half Year H1 2018 Previously Add back: Deduct: Lease £m Restated reported Rental cost Depreciation interest and tax Underlying operating profit Communications and Connectivity 22.9 4.6 (3.9) - 23.6 Mission Systems 28.8 0.7 (0.6) - 28.9 Advanced Electronic Sol
Slide 25: IFRS 16 Restatement of Net Debt
IFRS 16 Restatement of Net Debt Full Year FY 2018 Previously IFRS 16 Lease rental and Presentational £m Restated reported Indebtedness(1) IFRS 16 interest adjustment(2) Operating cash flow 123.4 - 24.5 (17.7) 130.2 Net interest paid including make-whole payment (35.3) - (6.8) - (42.1) Net taxation p
Slide 26: IFRS 16 Restatement of Net Debt
IFRS 16 Restatement of Net Debt Half Year H1 2018 Previously IFRS 16 Lease rental and Presentational £m Restated reported Indebtedness(1) IFRS 16 interest adjustment(2) Operating cash flow 34.3 - 12.7 (9.3) 37.7 Net interest paid including make-whole payment (30.3) - (3.4) - (33.7) Net taxation rece
Slide 27: IFRS 16 Restatement of Balance Sheet
IFRS 16 Restatement of Balance Sheet • £99.9m of right-of-use (lease) 31 December 2018 assets recognised within PPE As originally IFRS 16 £m Restated stated adjustments Assets • £12.8m of finance leases Property, plant and equipment 388.2 99.9 488.1 reclassified from bank and other borrowings to lea
Slide 28: Order Intake Bridge
Order Intake Bridge H1 2018 to H1 2019 £m 1,200 1,027.1 36.4 73.5 1,000 970.2 32.3 52.3 56.8 25.4 800 600 400 200 0 H1 2018 Currency & i/c Divestments CCC CMS CAES CAVS H1 2019 elims 28
Slide 29: Revenue and Underlying Operating Profit by Sector
Revenue and Underlying Operating Profit by Sector Summary at constant exchange(1) £m Revenue Underlying Operating Profit H1 2019 H1 2018(2) H1 2019 H1 2018(2) CCC 34.7 24.1 259.1 254.2 Margin 13.4% 9.5% CMS 44.7 30.7 286.5 219.2 Margin 15.6% 14.0% CAES 26.5 33.1 324.2 297.0 Margin 8.2% 11.1% CAVS 1.
Slide 30: Income Statement
Income Statement £m H1 2019 H1 2018(1) Revenue 1,028.9 924.5 Underlying operating profit 107.1 95.5 Underlying net finance costs (8.2) (32.9) Underlying profit before taxation 98.9 62.6 Specific adjusting items (38.4) 118.4 Profit before taxation 60.5 181.0 Taxation (12.6) (14.3) Profit after taxati
Slide 31: Income Statement – Specific Adjusting Items
Income Statement – Specific Adjusting Items £m H1 2019 H1 2018 Amortisation of intangible assets arising on business combinations (44.2) (45.9) Derivative financial instruments 6.0 (13.7) Legal and other provisions provided at 31 December 2016 - 1.7 Profit on divestments (0.2) 216.3 Estimates of fix
Slide 32: Revenue by Destination and Market Segment
Revenue by Destination and Market Segment Group Revenue by Destination Group Revenue by Market Segment H1 2018 H1 2019 H1 2018 H1 2019 4% 4% 7% 8% 11% 11% 53% £925m 14% £1,029m 57% 37% £925m 38% 31% £1,029m 45% 16% 7% 8% 25% 24% USA UK Other EU Australia Asia ROW US Defence/ UK, RoW Commercial Secur
Slide 33: Market Segment Revenue by Sector
Market Segment Revenue by Sector Communications and Mission Advanced Electronic Aviation Connectivity Systems Solutions Services H1 2019 H1 2019 H1 2019 H1 2019 9% 9% 12% H1 2018 H1 2018 H1 2018 H1 2018 4% 8% 10% 16% 19% 19% 6% 43% 72% 35% 56% 84% 46% 54% 34% 56% 57% 73% 78% US Defence/ UK, RoW Comm
Slide 34: Taxation
Taxation £m H1 2019 H1 2018(1) Underlying tax charge (21.5) (14.4) Tax credit on specific adjusting items 8.9 0.1 Headline tax charge (12.6) (14.3) Underlying tax rate (excluding Joint Ventures) 21.8% 23.0% 1) Restated following adoption of IFRS 16, Leases 34
Slide 35: Underlying Earnings Per Share
Underlying Earnings Per Share 3.5p 3.2p 3.0p 2.5p 0.5p 2.0p - 2.0p 2.0p Pence 0.7p 1.5p 1.0p 0.5p 0.0p H1 2018 FX translation and H1 2018 Make whole Organic H1 2019 restated(1) divestments rebased interest movements reported 1) There was no impact to underlying EPS following the adoption of IFRS 16,
Slide 36: Cash flow – working capital
Cash flow – working capital Contract Contract Current Total Receivables £m Inventory Assets Liabilities Payables working Non-current working capital capital Balance at 1 Jan 2019(1) 276.0 131.0 321.1 (180.9) (376.7) 170.5 72.4 242.9 FX 0.9 0.5 1.6 0.1 (0.1) 3.0 0.4 3.4 Underlying cash outflow/(inflo
Slide 37: Balance Sheet
Balance Sheet £m 30 June 2019 31 Dec 2018(1) Intangible assets 775.7 821.2 Property, plant and equipment 469.5 488.1 Other non-current assets 218.8 245.6 Non Current Assets 1,464.0 1,554.9 Inventories 288.0 276.0 Contract assets 129.4 131.0 Trade and other receivables < 1 year 309.4 321.1 Contract l
Slide 38: Cash Conversion
Cash Conversion £m H1 2019 H1 2018(1) Underlying operating profit (less post tax share of JV results) 107.0 95.4 Depreciation and amortisation 52.2 47.6 Profit on disposal of property, plant and equipment and lease changes (3.0) (2.7) Share based payments 5.5 3.2 Movement in provisions (3.7) (46.1)
Slide 39: Movement in Net Debt
Movement in Net Debt £m H1 2019 H1 2018(1) Operating cash flow 64.2 37.7 Net interest paid (20.8) (33.7) Net taxation (paid)/received (59.1) 5.2 Free cash flow(2) (15.7) 9.2 Net divestments (3.3) 324.3 New lease arrangements (net of contractual changes) (11.4) (15.6) Lease capital payments 8.9 9.3 E
Slide 40: Capital Expenditure and Depreciation
Capital Expenditure and Depreciation H1 2019 H1 2018(1) £m Gross Capex(2) Depn(3) Gross Capex(2) Depn(3) Communications and Connectivity 2.5 6.2 2.5 7.7 Mission Systems 1.9 4.5 3.3 3.9 Advanced Electronic Solutions 10.1 11.5 10.4 10.2 Aviation Services 14.4 23.8 10.9 19.2 Head Office 3.4 6.2 - 6.6 C
Slide 41: Defined Benefit Pension Schemes
Defined Benefit Pension Schemes H1 2019 FY 2018 £m £m Market value of scheme assets 808.5 746.4 Present value of scheme liabilities (845.0) (793.0) Net pension liability before deferred tax (36.5) (46.6) Primary assumptions Discount rate 2.20% 2.70% Inflation rate 3.30% 3.45% Life expectancy of male
Slide 42: Credit Facilities
Credit Facilities £m Maturity of credit facilities Loan/ Usage 800 Facility £m £m US$ Loan Notes 700 US$59m Fixed rate (Oct 2019) 46.9 46.9 US$83m Fixed rate (Oct 2021) 65.1 65.1 US$140m Fixed rate (Oct 2024) 110.6 110 .6 600 222.6 222.6 Bank Facilities 500 US$40m Schuldschein agreement (May 2020) 3
Slide 43: Covenants
Covenants H1 2019 FY 2018(1) H1 2018(1) FY 2017 Net (Debt) / Cash (£m) - Balance Sheet (5.9) 10.3 (53.6) (383.5) Net (Debt) / Cash (£m) - Average Rate(2) (4.7) 10.4 (51.5) (405.3) EBITDA(3) (£m) 312.1 293.4 289.9 308.5 Net debt to EBITDA (not to exceed 3.5 times) - - 0.2 1.3 EBITA (3) (£m) 241.4 228
Slide 44: Exchange Rates
Exchange Rates Average Period Rate End Rate H1 2019 US$ 1.29 1.27 AUS$ 1.83 1.81 EUR 1.14 1.12 DKK 8.54 8.32 FY 2018 US$ 1.33 1.27 AUS$ 1.79 1.81 EUR 1.13 1.11 DKK 8.42 8.31 H1 2018 US$ 1.37 1.32 AUS$ 1.78 1.79 EUR 1.14 1.13 DKK 8.46 8.43 44
Slide 45: Definitions
Definitions Underlying measures To assist with the understanding of earnings trends, the Group has included within its published financial statements non-GAAP alternative performance measures including underlying operating profit and underlying profit. The non-GAAP measures used are not defined term
Slide 46: Disclaimer
Disclaimer 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 statement
Slide 47: Notes
Notes CoBHAm 47
Slide 48: Notes
Notes CoBHAm