Cobham — FY2017 Earnings Presentation
50 slides from Cobham's earnings presentation, Mar 1, 2018
Slide 1: 2017 Preliminary Results
2017 Preliminary Results Thursday 1st March 2018
Slide 2: Introduction
01 Introduction David Lockwood
Slide 3: Highlights
Highlights Sound financial performance and strong Balance Sheet Encouraging early signs of operational progress Refocused and de-risked portfolio Investment case study 3
Slide 4: Financial Results
02 Financial Results David Mellors
Slide 5: Summary Financial Headlines
Summary Financial Headlines £m FY17 FY16 Order intake 1,916.6 2,084.0 Revenue 2,052.5 1,943.9 Underlying operating profit 210.3 225.0 Underlying operating margin 10.2% 11.6% Underlying earnings per share (pence) 6.0 7.8 Operating cash flow 217.6 181.8 Operating cash conversion 103% 81% Net debt 383.
Slide 6: Movements in Net Debt
Movements in Net Debt £m 1,250 1,028.2 1,000 32.2 9.9 34.9 79.8 750 5.1 292.3 500 103% £140.6m 1.3x 496.7 7.4 383.5 Operating cash Free cash flow Net debt/EBITDA 250 conversion gearing ratio 0 Opening Operating Gross Proceeds Net Taxation Amounts Net Rights Others and Closing net net debt Cash flow
Slide 7: Balance Sheet Strength
Balance Sheet Strength • 31 December 2017 net debt/EBITDA gearing ratio at 1.3x • Completed refinancing of 5 year US$545m revolving credit facilities • Divestment lowers gearing by c.1.0x (pro forma) • Components of expected limited free cash flow in 2018 – Onerous contract and other provision utili
Slide 8: Order Intake Bridge
Order Intake Bridge £m 2,500 132.5 108.8 37.3 2,084.0 6.6 2,000 9.9 1,916.6 429.5 1,500 1,000 500 0 2016 Currency & i/c Divestments CCC CMS CAES CAVS 2017 elims 8
Slide 9: Revenue Bridge
Revenue Bridge £m 2,500 91.5 25.5 31.0 2,052.5 2,000 1,943.9 7.7 22.7 9.0 (3%) 6% 6% (2%) 1,500 Organic revenue 1% higher 1,000 500 0 2016 Currency & i/c Divestments CCC CMS CAES CAVS 2017 elims 9
Slide 10: Underlying Operating Profit Bridge
Underlying Operating Profit Bridge £m 250 14.4 4.7 225.0 8.8 5.9 210.3 200 19.1 150 100 50 0 2016 Currency & CCC CMS CAES CAVS 2017 divestments 10
Slide 11: Communications and Connectivity
Communications and Connectivity £m 2016* FX Organic 2017 Order intake 647.3 30.6 37.3 715.2 Revenue 690.2 33.2 (22.7) 700.7 Underlying operating profit 58.2 6.1 4.7 69.0 Underlying operating margin 8.4% 0.5% 0.9% 9.8% Order book 255.1 266.8 Organic revenue decrease driven by: Profit impacted by: • L
Slide 12: Mission Systems
Mission Systems £m 2016* FX Divested Organic 2017 Order intake 381.6 14.0 (9.9) 132.5 518.2 Revenue 386.4 14.8 (7.7) 25.5 419.0 Underlying operating profit 60.0 2.5 1.5 (8.8) 55.2 Underlying operating margin 15.5% 0.1% 0.7% (3.1%) 13.2% Order book 649.1 709.1 Organic revenue increase driven by: Prof
Slide 13: Advanced Electronic Solutions
Advanced Electronic Solutions £m 2016* FX Organic 2017 Order intake 542.1 27.5 (6.6) 563.0 Revenue 511.6 25.8 31.0 568.4 Underlying operating profit 66.2 3.0 (5.9) 63.3 Underlying operating margin 12.9% - (1.8%) 11.1% Order book 673.9 610.4 Organic revenue increase driven by: Profit impacted by: • I
Slide 14: Aviation Services
Aviation Services £m 2016* FX Organic 2017 Order intake 513.4 38.5 (429.5) 122.4 Revenue 357.2 18.4 (9.0) 366.6 Underlying operating profit 40.6 1.3 (19.1) 22.8 Underlying operating margin 11.4% (0.2%) (5.0%) 6.2% Order book 1,368.6 1,114.9 Organic revenue decrease driven by: Profit impacted by: • R
Slide 15: IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers 2017 IFRS 15 2017 £m Reported Impact* Restated Revenue 2,052 41 2,093 Underlying operating profit 210 3 213 Underlying EPS (pence) 6.0 0.1 6.1 Net assets 1,028 1 1,029 Impact of adoption: • New revenue recognition accounting standard; effective from 1 Ja
Slide 16: AvComm & Wireless Divestment Impacts
AvComm & Wireless* Divestment Impacts • H1 2018 completion expected • Gross cash proceeds US$455m (c£325m) on completion • Aggregate divestment result in 2017 - Revenue - £169.6m - Underlying operating profit - £13.6m - Contribution (before central charges and restructuring costs) - £24.8m • Debt pa
Slide 17: 2018 Income Statement Guidance
2018 Income Statement Guidance • Underlying trading expectations unchanged • Other items to consider: - Foreign exchange translation - Divestment impacts: • Loss of contribution and timing of completion • Make-whole payments expected in H1 2018 of up to £30m • Interest reduction of £18m per full yea
Slide 18: Business Review
03 Business Review David Lockwood
Slide 19: The Opportunity
The Opportunity External Internal Improving US & RoW defence budgets overall Reduce organisational complexity • Heightened security threats; 2018 US National • Remove duplication and overheads, Defense Strategy - technology modernisation simplify processes Commercial aerospace and space opportunitie
Slide 20: Our Progress So Far
Our Progress So Far Operational One year Today The future priorities ago • Irregular senior engagement • Regular senior engagement • Real customer partnering Customer 1 focus • Technology investment & capital allocation lacking discipline • Focus on capital allocation and control major projects • Pr
Slide 21: Update on Onerous Contracts and Other 2016 Charges
Update on Onerous Contracts and Other 2016 Charges • KC-46 qualification ongoing as part of FAA certification process: - Contract contains significant terms including relating to delayed performance - Centreline Drogue System qualification nearing completion - Wing Aerial Refuelling Pod qualificatio
Slide 22: Strategy Summary
Strategy Summary New Market Unrelated Development Diversification Selling existing capabilities to Selling new solutions to new • Focus on defence, aerospace and customers across a wide range of customers in new markets space markets with increasing collaboration GROWTH attractive markets Customers
Slide 23: Case Study - Investing in San Diego, CA Facility
Case Study - Investing in San Diego, CA Facility A major Advanced Electronic Solutions Sector facility DDG Guided Missile Destroyer • Growth in key programmes enables Flight IIA – number microwave assemblies* long term planning • San Diego investment covers: – Engineering, manufacturing, testing & t
Slide 24: Summary and Outlook
Summary and Outlook • Full year results slightly ahead of expectations • Many improvement actions underway – encouraging early progress • Coherent portfolio and strengthened balance sheet • 2018 expectations unchanged with range of potential outcomes; affected by timing of divestment completion and
Slide 25: Questions
O q COBHAM Questions
Slide 26: Appendices
Appendices
Slide 27: Revenue and Underlying Operating Profit by Sector
Revenue and Underlying Operating Profit by Sector Revenue £m Underlying Operating Profit £m 2017 2016 2017 2016 CCC 69.0 64.3 700.7 723.4 Margin 9.8% 8.9% CMS 55.2 64.0 419.0 393.5 Margin 13.2% 16.3% CAES 63.3 69.2 568.4 537.4 Margin 11.1% 12.9% CAVS 22.8 41.9 366.6 375.6 Margin 6.2% 11.2% HO and el
Slide 28: Income Statement
Income Statement £m FY17 FY16 Revenue 2,052.5 1,943.9 Underlying operating profit 210.3 225.0 Underlying net finance costs (37.2) (49.8) Underlying profit before taxation 173.1 175.2 Specific adjusting items: to operating profit (106.2) (1,004.1) Specific adjusting items: to finance costs - (19.0) P
Slide 29: Income Statement – Specific Adjusting Items
Income Statement – Specific Adjusting Items £m FY17 FY16 Amortisation of intangible assets arising on business combinations (138.9) (161.2) Derivative financial instruments 28.9 (39.3) Impairment of goodwill and other intangible assets (33.5) (573.8) Reversal of impairment of intangible assets 31.8
Slide 30: Revenue by Destination and Market Segment
Revenue by Destination and Market Segment Group Revenue by Destination Group Revenue by Market Segment 2017 2016 2017 2016 4% 5% 10% 10% 11% 50% 11% 48% £2,052m £1,944m 40% £2,052m 36% 41% £1,944m 34% 16% 16% 9% 10% 25% 24% USA UK Other EU Australia Asia ROW US Defence/ UK, RoW Commercial Security D
Slide 31: Market Segment Revenue by Sector
Market Segment Revenue by Sector Communications and Mission Advanced Electronic Aviation Connectivity Systems Solutions Services 2017 2017 2017 2017 7% 9% 17% 2016 2016 2016 2016 16% 7% 9% 15% 4% 16% 5% 43% 44% 33% 37% 54% 56% 58% 57% 77% 80% 77% 79% US Defence/ UK, RoW Commercial Security Defence/S
Slide 32: Taxation
Taxation 2017 2016 £m £m Underlying tax charge (39.8) (39.6) Tax credit on specific adjusting items* 51.7 92.4 Headline tax credit 11.9 52.8 Underlying tax rate 23.0% 22.6% * Includes £10.9m recognition of capital losses anticipated to be used against the chargeable gains on disposal of Wireless tes
Slide 33: Underlying Earnings Per Share
Underlying Earnings Per Share Year-on-year change (13.3)% 6.4% (24.4)% (5.1)% 10.0 9.0p 9.0 0.5p 7.8p 8.0 1.2p 7.0 6.4p 6.0p 6.0 1.9p Pence 0.4p 5.0 4.0 3.0 2.0 1.0 0.0 2016 ‘like 2016 PY impact 2016 FX CY impact Organic 2017 reported of Rights restated translation of Rights for like’ movements repo
Slide 34: Shares in Issue
Shares in Issue 2,391.0m 2,231.8m 1,707.9m Opening number of shares Weighted average number of shares Closing number of shares (1 Jan 2017) (2017) (31 Dec 2017) Note: Excludes 76.0m shares held in treasury 34
Slide 35: Balance Sheet
Balance Sheet FY 16 £m FY 17 (restated) Intangible assets 893.8 1,165.9 Property, plant and equipment 380.9 422.9 Other non-current assets 159.1 142.9 Non current assets 1,433.8 1,731.7 Inventories 389.4 405.3 Trade and other receivables < 1 year 329.0 409.8 Trade and other payables < 1 year (448.2)
Slide 36: Cash Conversion
Cash Conversion £m 2017 2016 Underlying operating profit (less post tax share of JV results) 210.5 224.8 Depreciation and amortisation 84.8 80.5 Share based payments 5.5 3.8 Decrease in provisions (60.9) (16.3) Pension contributions in excess of pension charges (17.3) (16.7) Decrease/(increase) in w
Slide 37: Cash flow – working capital
Cash flow – working capital Current Total £m Inventory Receivables Payables working Non-current working capital capital Balance at 1 Jan 2017 405.3 409.8 (440.3) 374.8 34.5 409.3 FX (21.4) (18.1) 18.1 (21.4) 0.1 (21.3) Cash (inflow)/outflow 26.7 (22.9) (65.2) (61.4) (8.3) (69.7) Reclass to items hel
Slide 38: Movement in Net Debt
Movement in Net Debt £m 2017 2016 Operating cash flow 217.6 181.8 Net interest paid (34.9) (71.2) Taxation paid (32.2) (20.1) Amounts related to prior years’ restructuring programmes (9.9) (39.8) Free cash flow 140.6 50.7 Dividends paid (0.1) (126.1) Net divestments (0.9) (2.5) Net Rights Issue proc
Slide 39: Capital Expenditure and Depreciation
Capital Expenditure and Depreciation 2017 2016 £m Net Capex(1) Depn(2) Net Capex(1) Depn(2) Cobham Communications and Connectivity 9.3 15.1 13.1 16.8 Cobham Mission Systems 8.2 6.9 7.6 5.9 Cobham Advanced Electronic Solutions 29.3 15.9 7.8 15.4 Cobham Aviation Services 26.9 38.0 48.7 33.5 Head Offic
Slide 40: Defined Benefit Pension Schemes
Defined Benefit Pension Schemes IAS 19 balance sheet position FY17 FY16 £m £m Scheme assets 816.3 790.0 Present value of scheme liabilities (879.5) (877.0) Net pension liability before deferred tax (63.2) (87.0) Primary assumptions Discount rate 2.35% 2.65% Inflation rate 3.35% 3.45% Life expectancy
Slide 41: Credit Facilities
Credit Facilities £m 1,400 Loan/ Usage Facility £m £m US$ senior notes 1,200 US$180m fixed rate (Oct. 2019) 133.1 133.1 US$250m fixed rate (Oct. 2021) 184.8 184.8 US$425m fixed rate (Oct. 2024) 314.1 314.1 1,000 632.0 632.0 Bank facilities US$75m credit agreement (Dec 2019) 55.4 55.4 800 US$40m Schu
Slide 42: Covenants
Covenants FY17 FY16 FY15 FY14 Net debt (£m) – balance sheet (383.5) (1,028.2) (1,206.8) (1,222.7) Net debt (£m) – average rate (1) (405.3) (937.9) (1,160.7) (1,159.2) EBITDA (2) (£m) 308.5 316.5 396.4 440.2 Net debt to EBITDA (not to exceed 3.5 times) 1.3 3.0 2.9 2.6 EBITA (£m) 234.3 245.2 333.4 297
Slide 43: Exchange Rates
Exchange Rates Average Period Impact of pro rata 10 cent movement Rate End Rate 2017 Underlying £m Revenue US$ Operating Profit 1.29 1.35 AUS$ 1.68 1.73 US$ 79 9 EUR 1.14 1.13 AUS$ 16 1 DKK 8.49 8.39 EUR/DKK 23 2 2016 Other 4 1 US$ 1.35 1.24 122 13 AUS$ 1.83 1.71 EUR 1.22 1.17 DKK 9.11 8.71 43
Slide 44: Hedging
Hedging Transaction Exposure $ / DKK $/£ 2018 Total $92m $144m Historic Average $86m $119m Effective Rate Hedging in Place 93% 83% 2014 $1.61: £1 Average Hedge Rate $1:DKK 6.34 $1.37:£1 2015 $1.59: £1 2019 $1m 2016 $1.51: £1 $85m 2017 $1.41: £1 Average Hedge Rate $1:DKK 6.20 $1.36:£1 2020 - 2022 $1m
Slide 45: Investor Events
IR Calendar 2nd November 7th Results Interim date TBC Preliminary Results Q3 Trading Results 2018 update 2019 APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR 18 18 18 18 18 18 18 18 18 19 19 19 Investor Events 26th AGM & AGM statement 45
Slide 46: Change to Segmental Reporting
Change to Segmental Reporting Restatement of Underlying Operating Profit published 19 December 2017 £m HY12 HY13 HY14 HY15 HY16 HY17 FY12 FY13 FY14 FY15 FY16 CCC 60.5 62.6 53.2 59.8 22.8 25.7 137.8 121.6 121.9 112.5 58.2 Margin 21.8% 18.7% 16.8% 14.6% 6.9% 7.4% 21.7% 17.9% 17.5% 14.6% 8.4% CMS 39.6
Slide 47: 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 48: 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 49: Notes
Notes CoBHAm 49
Slide 50: Notes
Notes CoBHAm 50