Cobham — FY2016 Earnings Presentation
48 slides from Cobham's earnings presentation, Mar 2, 2017
Slide 1: 2016 Preliminary Results and Proposed Rights Issue
2016 Preliminary Results and Proposed Rights Issue Thursday 2nd March 2017
Slide 2: Agenda
Agenda 01 02 03 04 Introduction Financial Results Business and Questions David Lockwood, David Mellors, Markets Outlook Chief Executive Officer Chief Financial Officer David Lockwood 2 Cobham plc
Slide 3: Introduction
01 Introduction David Lockwood
Slide 4: Overview
Overview Underlying operational issues identified Business challenges can and will be addressed Balance sheet requires Right Issues alongside self-help Cobham will be reinvigorated 4 Cobham plc
Slide 5: Initial Diagnosis
Initial Diagnosis Lack of Lack of control and Leadership and customer focus execution organisational complexity • Ineffective senior level • Operational execution • Accountability and engagement and contract morale management • Priority programmes • Speed and quality of • Cost control, forecasting d
Slide 6: Priorities for 2017
Priorities for 2017 Management focus Review of operations • Control and execution • To be conducted in H1 2017 • Customer focus • Leadership and simplification 6 Cobham plc
Slide 7: Financial Results
02 Financial Results David Mellors
Slide 8: Proposed Rights Issue
Proposed Rights Issue • Balance sheet not strong enough to support operations of the Group – Important for customers and delivering medium term growth • Proposed £500m equity issue fully underwritten on a standby basis • Target of 1.5x net debt / EBITDA • Size of equity issue driven by: – Outlook: •
Slide 9: Summary Financial Headlines
Summary Financial Headlines FY16 £m FY15 £m Order intake 2,084.0 2,148.0 Revenue 1,943.9 2,072.0 Underlying operating profit 225.0 332.2 Underlying operating margin 11.6% 16.0% Underlying earnings per share (pence) 9.0 16.5 Operating cash flow 181.8 234.6 Operating cash conversion 80.9% 70.7% Net de
Slide 10: Revenue Bridge
Revenue Bridge £m 2500 206.4 2,072.0 166.5 1,943.9 2000 36.9 27.3 46.2 57.6 (5%) (7%) (8%) (14%) 1500 1000 Organic decrease 8% 500 0 2015 Currency & Divestments CCC CMS CAES CAVS 2016 i/c Elims 10 Cobham plc
Slide 11: Underlying Operating Profit Bridge
Underlying Operating Profit Bridge £m 400 24.6 3.3 332.2 300 64.3 16.8 24.6 225.0 21.3 200 8.1 100 0 2015 Currency Divestments CCC CMS CAES CAVS Centre 2016 11 Cobham plc
Slide 12: Communications and Connectivity
Communications and Connectivity £m FY15 FX Divested Organic FY16 Revenue 771.8 68.7 (113.4) (36.9) 690.2 Underlying operating profit 108.4 6.6 9.3 (64.3) 60.0 Underlying operating margin 14.0% 8.7% Revenue decrease driven by: Profit impacted by: - Wireless: lower test and measurement sales - Revenue
Slide 13: Mission Systems
Mission Systems £m FY15 FX Divested Organic FY16 Revenue 382.4 37.4 (6.1) (27.3) 386.4 Underlying operating profit 68.0 6.3 (1.0) (16.8) 56.5 Underlying operating margin 17.8% 14.6% Revenue decrease driven by: Profit impacted by: - Lower C-130 production volume - Revenue decreases - Lower KC-46 deve
Slide 14: Advanced Electronic Solutions
Advanced Electronic Solutions £m FY15 FX Divested Organic FY16 Revenue 538.0 69.1 (49.3) (46.2) 511.6 Underlying operating profit 80.5 9.3 (5.0) (24.6) 60.2 Underlying operating margin 15.0% 11.8% Revenue decrease driven by: Profit impacted by: - IES business programme run off and loss of - Revenue
Slide 15: Aviation Services
Aviation Services £m FY15 FX Divested Organic FY16 Revenue 390.1 24.7 (57.6) 357.2 Underlying operating profit 57.3 2.3 (21.3) 38.3 Underlying operating margin 14.7% 10.7% Revenue decrease driven by: Profit impacted by: - Lower revenue from natural resources - Revenue decreases customers (FIFO) - Pa
Slide 16: Operating Profit Profile in 2016
Operating Profit Profile in 2016 25% 0% Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec 16 Cobham plc
Slide 17: Exceptional Items
Exceptional Items FY16 Future £m cash impact Impairment of goodwill and other intangible assets 573.8 Revisions of the carrying values of other assets 33.3 Some Estimates of fixed price contract profitability 179.1 Assessment of legal and other provisions 24.4 Total 810.6 17 Cobham plc
Slide 18: Movements in Net Debt
Movements in Net Debt £m 1250 1,206.8 39.8 2.5 91.3 1000 236.4 1,028.2 181.8 126.1 750 Free cash flow £50.7m 500 490.6 2.3 250 0 Opening Operating Net interest Costs of prior years’ Net Net rights issue Other Dividends FX Closing net net debt cash flow and tax restructuring divestments proceeds debt
Slide 19: Financial Position
Financial Position • Balance sheet not strong enough to support operations of the Group – Important for customers and delivering medium term growth • Proposed £500m equity issue fully underwritten on a standby basis • Target of 1.5x net debt / EBITDA • Size of equity issue driven by: – Outlook: • Wi
Slide 20: Business and Markets Outlook
03 Business and Markets Outlook David Lockwood
Slide 21: Our Markets
Our Markets Good Positions in Stable to Growing Markets 34% US defence Space and security 3% Civil aerospace 10% Revenue products £1,944m UK, ROW defence and security 6% 25% Civil maritime 7% Wireless Civil aerospace 7%* 8% services *7% represents Other Markets including: land 21 Cobham plc SATCOM,
Slide 22: Attractive Markets, Differentiated Technology, Poor Execution
Attractive Markets, Differentiated Technology, Poor Execution Our Markets Defence & Medical / Aerospace Maritime Wireless Space Security Industrial SATCOM Microelectronics Oxygen and Gas Radio and Avionics Antennas Flight Management Test Solutions Training 22 Cobham plc
Slide 23: Attractive Markets, Differentiated Technology, Poor Execution
Attractive Markets, Differentiated Technology, Poor Execution Our Markets Defence & Medical / Aerospace Maritime Wireless Space Security Industrial Satellite Microelectronics Oxygen and Gas Radio and Avionics Antennas Flight Communications Management Test Solutions Training Multiple opportunities dr
Slide 24: Cobham Business Model
Cobham Business Model Markets 3 Commercial Aerospace Programmes Subsystems Service Defence Systems Tier 36 Book and Products one Ship 3 Scope of delivery Tier four Point of delivery 4 24 Cobham plc
Slide 25: What's Going to be Different
What’s Going to be Different A Laser Focus on Cash • Enhance controls and instil operational and financial discipline Control and execution • Prioritise key customer platforms and programmes • Ensure PV investment is effectively targeted Cash Leadership Generation Customer • Simplify systems, proces
Slide 26: Outlook
Outlook • 2017 – Wide range of potential outcomes – Need to arrest and reverse negative performance trajectory – May be challenging to deliver similar performance to that of 2016 • Medium term Fortunes of the – Problems are fixable – Differentiated technologies and know-how; leading company can be m
Slide 27: Questions
O q COBHAM Questions
Slide 28: Appendices
Appendices
Slide 29: Revenue and Underlying Operating Profit by Sector
Revenue and Underlying Operating Profit by Sector Revenue Underlying Operating Profit FY16 £m FY15 £m FY16 £m FY15 £m CCC 60.0 124.3 690.2 727.1 Margin 8.7% 17.1% CMS 56.5 73.3 386.4 413.7 Margin 14.6% 17.7% CAES 60.2 84.8 511.6 557.8 Margin 11.8% 15.2% CAvS 38.3 59.6 357.2 414.8 Margin 10.7% 14.4%
Slide 30: Income Statement
Income Statement FY16 £m FY15 £m Revenue 1,943.9 2,072.0 Underlying operating profit 225.0 332.2 Underlying net finance costs (49.8) (51.8) Underlying profit before taxation 175.2 280.4 Amounts related to prior periods’ restructuring programmes 8.7 (67.5) Non-underlying finance costs (19.0) _ Deriva
Slide 31: Revenue by Destination and Market Segment
Revenue by Destination and Market Segment Group Revenue by Destination Group Revenue by Market Segment 2016 2015 2016 2015 5% 5% 10% 11% 11% 48% 11% 47% 41% 34% 38% 36% £1,944m £2,072m £1,944m £2,072m 16% 15% 10% 11% 25% 26% USA UK Other EU Australia Asia ROW US Defence/ UK, RoW Commercial Security
Slide 32: Taxation
Taxation FY16 £m FY15 £m Underlying tax charge (39.6) (60.2) Tax credit on non-underlying items 92.4 62.3 Headline tax credit 52.8 2.1 Underlying tax rate 22.6% 21.5% 32 Cobham plc
Slide 33: Underlying Earnings Per Share
Underlying Earnings Per Share Year-on-year change (15.2)% 6.5% (1.5)% (12.0)% 2.2% (40.7)% 19.5p 20.0 1.1p 18.0 16.5p 0.3p 0.4p 15.7p 16.0 3.0p 14.0 2.0p 12.0 10.0 9.0p 8.0 6.7p 6.0 4.0 2.0 0.0 2015 PY impacts 2015 FX Tax rate CY impact of Divestments 2015 Organic 2016 reported of rights restated tr
Slide 34: Shares in Issue
Shares in Issue 1,707.9m 1,506.3m 1,138.6m Opening number of shares Weighted average Closing number of shares (1 Jan 2016) number of shares (2016) (31 Dec 2016) 34 Cobham plc
Slide 35: Balance Sheet
Balance Sheet FY16 £m FY15 £m Intangible assets 1,165.9 1,729.5 Property, plant and equipment 422.9 379.9 Other non-current assets 141.3 102.6 Non current assets 1,730.1 2,212.0 Inventories 405.3 410.4 Trade and other receivables < 1 year 409.8 366.0 Trade and other payables < 1 year (430.8) (398.1)
Slide 36: Cash Conversion
Cash Conversion FY16 £m FY15 £m Underlying operating profit (less post tax share of JV profits) 224.8 332.0 Depreciation and amortisation 80.5 74.6 Share based payments and provisions (12.5) (6.6) Pension contributions in excess of pension charges (16.7) (17.8) Increase in working capital (8.2) (48.
Slide 37: Movement in Net Debt
Movement in Net Debt FY16 £m FY15 £m Operating cash flow 181.8 234.6 Net interest paid (71.2) (49.4) Taxation paid (20.1) (31.5) Costs of prior years’ restructuring programmes (39.8) (48.2) Free cash flow 50.7 105.5 Dividends paid (126.1) (122.1) Net divestments (2.5) 137.5 Net rights issue proceeds
Slide 38: Capital Expenditure and Depreciation
Capital Expenditure and Depreciation Year to 31/12/16 Year to 31/12/15 £m Net Capex(1) Depn(2) Net Capex(1) Depn(2) Cobham Communications and Connectivity 13.1 16.8 9.1 14.2 Cobham Mission Systems 7.6 5.9 4.6 5.4 Cobham Advanced Electronic Solutions 7.8 15.4 18.0 16.3 Cobham Aviation Services 48.7 3
Slide 39: Defined Benefit Pension Schemes
Defined Benefit Pension Schemes IAS19 Balance Sheet Position FY16 £m FY15 £m Market value of scheme assets 790.0 663.9 Present value of scheme liabilities (877.0) (720.6) Net pension liability before deferred tax (87.0) (56.7) Primary assumptions Discount rate 2.65% 3.80% Inflation rate 3.45% 3.20%
Slide 40: Credit Facilities
Credit Facilities Loan/Facility Usage £m £m US$ loan notes US$75m fixed rate (Oct. 2017) 60.7 60.7 US$180m fixed rate (Oct. 2019) 145.7 145.7 US$44m fixed rate (Oct. 2020) 35.6 35.6 US$250m fixed rate (Oct. 2021) 202.3 202.3 £m US$425m fixed rate (Oct. 2024) 343.9 343.9 1,600 788.2 788.2 Bank facili
Slide 41: Covenants
Covenants FY16 FY15 FY14 FY13 Net debt (£m) – balance sheet (1,028.2) (1,206.8) (1,222.7) (453.4) Net debt (£m) – average rate (1) (937.9) (1,160.7) (1,159.2) (479.6) EBITDA (2) (£m) 316.5 396.4 440.2 395.0 Net debt to EBITDA (not to exceed 3.5 times) 3.0 2.9 2.6 1.2 EBITA (£m) 245.2 333.4 297.6 322
Slide 42: Exchange Rates
Exchange Rates Average Rate Year End Rate Impact of pro rata 1 cent movement 2016 Revenue £m PBT £m US$ 1.35 1.24 US$ 8 1 AUS$ 1.83 1.71 AUS$ 2 0 EUR 1.22 1.17 EUR/DKK 2 0 DKK 9.11 8.71 12 1 2015 US$ 1.53 1.47 AUS$ 2.03 2.03 EUR 1.38 1.36 DKK 10.27 10.13 42 Cobham plc
Slide 43: Hedging
Hedging Transaction Exposure $ / DKK $/£ 2017 Total $98m $153m Hedging in Place $67m 68% $142m 93% Historic average Average Hedge Rate $1:DKK 6.76 $1.42:£1 effective rate 2013 $1.59: £1 2014 $1.61: £1 Hedging in Place 2015 $1.59: £1 2016 $1.51: £1 2018 nil $40m Average Hedge Rate $1.43:£1 2019 to 20
Slide 44: Investor Events
IR Calendar 27th 3rd 25th 1st Results AGM & Interim Trading Preliminary AGM results update results statement 2017 APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR 17 17 17 17 17 17 17 17 17 18 18 18 Investor Events w/c 19th 12th- 15th Paris Air DSEI Show exhibition, London 44 Cobham plc
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 measures including underlying operating profit (previously called trading profit) and underlying profit. All underlying measures include the
Slide 46: Disclaimer
Disclaimer This presentation comprises the written materials/slides for a presentation to investors concerning the proposed rights issue by Cobham plc (the "Company") (the "Transaction"). This presentation is the property of the Company. For the purposes of this notice, “presentation” means this doc
Slide 47: Notes
Notes CoBHAm 47 Cobham plc
Slide 48: Notes
Notes CoBHAm 48 Cobham plc