Cobham — H1 2018 Earnings Presentation
48 slides from Cobham's earnings presentation, Aug 3, 2018
Slide 1: 2018 Interim Results
2018 Interim Results 3rd August 2018
Slide 2: Introduction
01 Introduction David Lockwood
Slide 3: Highlights
Highlights Encouraging operational progress KC-46 programme update More focused portfolio and strengthened Balance Sheet 3
Slide 4: Financial Results
02 Financial Results David Mellors
Slide 5: Summary Financial Headlines
Summary Financial Headlines Organic(2) £m H1 2018 H1 2017(1) H1 2017 Order intake 1,027.1 822.1 915.8 Revenue 924.5 922.9 1,028.2 Underlying operating profit 90.4 84.4 94.1 Underlying operating margin 9.8% 9.1% 9.2% Underlying earnings per share (pence) 2.0 2.7 Operating cash flow 34.3 108.3 Operati
Slide 6: Movements in Net Debt
Movements in Net Debt £m 500 400 383.5 9.9 20.4 43.8 5.2 21.0 300 17.5 200 116.6 0.2x 38% operating cash conversion Net debt/EBITDA gearing ratio 100 14.7 53.6 324.3 11.1 0 Opening Other operating Working Net Cash impact Accelerated Other net Taxation Net M&A Aircraft FX Closing net net debt cash fl
Slide 7: Balance Sheet Progress
Balance Sheet Progress £m 30 June 2018 31 Dec 2017(1) 30 June 2017(1) 31 Dec 2016(1) Working capital 328 302 368 399 Net debt (54) (384) (461) (1,028) Provisions (146) (152) (189) (212) Pension deficit (49) (63) (64) (87) (1) Restated following adoption of IFRS15 Note: Contingent liabilities have be
Slide 8: 2016 Exceptional Charges Update
2016 Exceptional Charges Update Opening Utilised (Charge)/released Closing £m FX balance [cashflow] [income statement] (2) balance(3) 2017 (191)(1) 67 9 3 (112) 2018 H1 (112) 44 (38) (7) (113) Cumulative totals @ 30 June 2018 (191) 111 (29) (4) (113) (1) Opening balance comprises 2016 non-underlying
Slide 9: Order Intake Bridge
Order Intake Bridge H1 2017 to H1 2018 £m 1,200 144.1 1,027.1 1,000 8.9 915.8 32.5 37.3 800 42.0 51.7 600 400 200 0 H1 2017 Currency & i/c Divestments CCC CMS CAES CAVS H1 2018 elims 9
Slide 10: Revenue Bridge
Revenue Bridge H1 2017 to H1 2018 £m 1,200 1,028.2 1,000 10.5 19.5 924.5 48.5 56.8 4.7 23.7 800 (2%) 5% 8% (13%) Organic growth flat 600 400 200 0 H1 2017 Currency & i/c Divestments CCC CMS CAES CAVS H1 2018 elims 10
Slide 11: Underlying Operating Profit Bridge
Underlying Operating Profit Bridge H1 2017 to H1 2018 £m 100 94.1 3.7 3.8 90.4 2.6 4.3 4.1 - 4.1 80 5.6 86.1 £4.3m net credit from certain 60 provision reassessments 40 20 0 H1 2017 Currency Contribution Overhead recovery CCC CMS CAES CAVS H1 2018 from divested from divested businesses businesses 11
Slide 12: Communications and Connectivity
Communications and Connectivity £m H1 2017 FX Divested Organic H1 2018 Order intake 354.5 (3.9) (51.7) 37.3 336.2 Revenue 345.8 (4.4) (56.8) (4.7) 279.9 Underlying operating profit 25.7(1) 0.2 (3.0) - 22.9 Underlying operating margin 7.4% 0.2% 0.4% 0.2% 8.2% Order book 263.4 284.1 Organic revenue: P
Slide 13: Mission Systems
Mission Systems £m H1 2017(2) FX Organic H1 2018 Order intake 219.6 (15.0) 32.5 237.1 Revenue 212.4 (13.9) 10.5 209.0 Underlying operating profit 26.9(1) (1.9) 3.8 28.8 Underlying operating margin 12.7% (0.1%) 1.2% 13.8% Order book 663.0 762.0 Organic revenue increase driven by: Profit increased due
Slide 14: Advanced Electronic Solutions
Advanced Electronic Solutions £m H1 2017(2) FX Organic H1 2018 Order intake 257.2 (21.7) 144.1 379.6 Revenue 283.4 (23.5) 19.5 279.4 Underlying operating profit 28.2(1) (2.0) 3.7 29.9 Underlying operating margin 10.0% 0.1% 0.6% 10.7% Order book 520.3 606.4 Organic revenue increase driven by: Profit
Slide 15: Aviation Services
Aviation Services £m H1 2017 FX Organic H1 2018 Order intake 86.0 (2.3) (8.9) 74.8 Revenue 187.8 (7.1) (23.7) 157.0 Underlying operating profit 13.3(1) (0.4) (4.1) 8.8 Underlying operating margin 7.1% - (1.5%) 5.6% Order book 1,276.1 1,004.4 Organic revenue decrease driven by: Profit impacted by: •
Slide 16: FY18 Guidance
FY18 Guidance • Underlying operating profit expectations unchanged with a range of outcomes • Limited free cash flow • Capital expenditure c.£80m (pre asset disposals) • Interest c.£20m (pre make whole payments) • Tax c.£25m (including £9m H1 refund) 16
Slide 17: Business Review
03 Business Review David Lockwood
Slide 18: Our Progress
Our Progress Identified improvement area We said… Progress Structural actions: Balance Sheet strengthened; 0.2x Net debt/EBITDA 1 The Group is targeting a net debt/ EBITDA Fix the balance sheet value of c1.5x at 30 June 2018 – capital allocation policy to follow We are commencing a review of the Div
Slide 19: KC-46 Update
KC-46 Update • KC-46 update on 26 July • Centerline Drogue System qualification testing successfully completed • First conformed Wing Aerial Refuelling Pods delivered • Unquantified damages assertions disputed; payment withhold • Additional non-underlying £40m charge – latest estimate for Cobham cos
Slide 20: Strengthening the Fundamentals
Strengthening the Fundamentals New Customer Market Unrelated Orders Development Diversification Selling existing Selling new capabilities to solutions to new New, customers across customers in new a wide range of markets improved attractive products & High quality GROWTH markets enhanced standards C
Slide 21: Aviation Services – Restructuring the Sector to Improve Focus and Efficiency
Aviation Services – Restructuring the Sector to Improve Focus and Efficiency 3 BU’s 2 BU’s Helicopter Services Special Mission Commercial UK & EMEA Australia • Training • Training • Training • Government • Commercial • Commercial & outsourced outsourced Government flying flying outsourced flying • T
Slide 22: Summary and Outlook
Summary and Outlook • First half results slightly ahead of expectations; FY 2018 Group underlying profit expectations unchanged • Continue to engage with Boeing on KC-46 tanker issues • AvComm and Wireless test and measurement divestments completed; further focus on defence, aerospace and space with
Slide 23: Questions
O q COBHAM Questions
Slide 24: Appendices
Appendices
Slide 25: Revenue and Underlying Operating Profit by Sector
Revenue and Underlying Operating Profit by Sector Summary at constant exchange(1) Revenue £m Underlying Operating Profit £m H1 2018 H1 2017 H1 2018 H1 2017 CCC 22.9 22.9 279.9 284.6 Margin 8.2% 8.0% CMS 28.8 25.0 209.0 198.5 Margin 13.8% 12.6% CAES 29.9 26.2 279.4 259.9 Margin 10.7% 10.1% CAVS 8.8 1
Slide 26: Income Statement
Income Statement £m H1 2018 H1 2017 Revenue 924.5 1,028.2 Underlying operating profit 90.4 94.1 Underlying net finance costs (29.5) (20.4) Underlying profit before taxation 60.9 73.7 Specific adjusting items 118.4 (55.2) Profit before taxation 179.3 18.5 Taxation (13.9) 0.7 Profit after taxation 165
Slide 27: Income Statement – Specific Adjusting Items
Income Statement – Specific Adjusting Items £m H1 2018 H1 2017 Amortisation of intangible assets arising on business combinations (45.9) (72.4) Derivative financial instruments (13.7) 18.2 Carrying values of other assets provided at 31 December 2016 - 1.4 Legal and other provisions provided at 31 De
Slide 28: Revenue by Destination and Market Segment
Revenue by Destination and Market Segment Group Revenue by Destination Group Revenue by Market Segment H1 2017 H1 2018 H1 2017 H1 2018 4% 5% 8% 10% 11% 11% 49% 53% £1,028m £925m 40% £1,028m 36% 37% £925m 38% 16% 16% 8% 9% 24% 25% USA UK Other EU Australia Asia ROW US Defence/ UK, RoW Commercial Secu
Slide 29: Market Segment Revenue by Sector
Market Segment Revenue by Sector Communications and Mission Advanced Electronic Aviation Connectivity Systems Solutions Services H1 2018 H1 2018 H1 2018 H1 2018 8% 10% 16% H1 2017 H1 2017 H1 2017 H1 2017 7% 19% 11% 6% 15% 16% 4% 43% 43% 33% 56% 57% 34% 56% 57% 77% 81% 73% 78% US Defence/ UK, RoW Com
Slide 30: Taxation
Taxation H1 2018 H1 2017 £m £m Underlying tax charge (14.0) (17.7) Tax credit on specific adjusting items 0.1 18.4 Headline tax (charge)/credit (13.9) 0.7 Underlying tax rate 23.0% 24.0% 30
Slide 31: Underlying Earnings Per Share
Underlying Earnings Per Share Year-on-year change (3.7)% (11.1)% (7.4)% 18.5% (22.2)% 3.0p 0.2p 2.7p 0.5p 2.5p 2.5p 0.1p 0.3p 2.1p 2.0p 2.0p 0.2p 0.6p Pence 1.5p 1.0p 0.5p 0.0p H1 2017 IFRS15 H1 2017 FX Average Divestments H1 2017 Organic Make whole H1 2018 Reported impact restated translation numbe
Slide 32: Shares in Issue
Shares in Issue 2,391.0m 2,379.1m 2,391.0m opening number of shares weighted average number of shares closing number of shares (1 Jan 2018) (to 30 Jun 2018) (30 Jun 2018) Note: Shares held in Treasury within the Cobham Employee Benefit Trust are excluded from the weighted average number of shares ca
Slide 33: Cash flow – working capital
Cash flow – working capital Contract Contract Current Total Receivables Non- £m Inventory Assets Liabilities Payables working current working capital capital Balance at 1 Jan 2018 254.2 154.8 293.8 (134.1) (347.8) 220.9 81.2 302.1 FX 3.5 2.9 2.2 (1.3) (1.5) 5.8 0.3 6.1 Underlying cash outflow/(inflo
Slide 34: Balance Sheet
Balance Sheet £m 30 Jun 2018 31 Dec 2017 Intangible assets 856.1 893.8 Property, plant and equipment 375.8 380.9 Other non-current assets 209.3 188.7 Non Current Assets 1,441.2 1,463.4 Inventories 275.3 254.2 Contract assets 141.7 154.8 Trade and other receivables < 1 year 311.7 293.8 Contract liabi
Slide 35: Cash Conversion
Cash Conversion £m H1 2018 H1 2017 Underlying operating profit (less post tax share of JV results) 90.3 94.1 Depreciation and amortisation 37.9 41.4 Share based payments 3.2 2.3 Movement in provisions (46.3) (16.0) Pension contributions in excess of pension charges (8.5) (8.6) (Increase) / decrease
Slide 36: Movement in Net Debt
Movement in Net Debt £m H1 2018 H1 2017 Operating cash flow 34.3 108.3 Net interest paid (30.3) (21.4) Net taxation received/(paid) 5.2 (17.0) Amounts related to prior years’ restructuring programmes - (5.3) Free cash flow 9.2 64.6 Dividends paid - - Net divestments 324.3 (0.6) Net Rights Issue proc
Slide 37: Capital Expenditure and Depreciation
Capital Expenditure and Depreciation H1 2018 H1 2017 £m Net Capex(1) Depn(2) Net Capex(1) Depn(2) Cobham Communications and Connectivity 2.5 4.2 3.0 7.7 Cobham Mission Systems 3.3 3.3 1.1 3.2 Cobham Advanced Electronic Solutions 10.4 7.5 6.9 8.1 Cobham Aviation Services 4.6 16.7 15.0 18.0 Head Offic
Slide 38: Defined Benefit Pension Schemes
Defined Benefit Pension Schemes H1 2018 FY 2017 £m £m Scheme assets 793.7 816.3 Present value of scheme liabilities (843.0) (879.5) Net pension liability before deferred tax (49.3) (63.2) Primary assumptions Discount rate 2.50% 2.35% Inflation rate 3.25% 3.35% Life expectancy of male aged 65 in 2045
Slide 39: Credit Facilities
Credit Facilities £m 800 Loan/ Usage Facility £m £m 700 US$ senior notes US$59m Fixed rate (Oct 2019) 45.0 45.0 US$83m Fixed rate (Oct 2021) 62.5 62.5 600 US$140m Fixed rate (Oct 2024) 106.2 106.2 213.7 213.7 Bank facilities 500 US$40m Schuldschein agreement (May 2020) 30.3 30.3 EUR131m Schuldschein
Slide 40: Covenants
Covenants H1 2018 FY 2017 H1 2017 FY 2016 Net debt (£m) – balance sheet (53.6) (383.5) (460.8) (1,028.2) Net debt (£m) – average rate (1) (51.5) (405.3) (469.6) (937.9) EBITDA (2) (£m) 289.9 308.5 314.8 316.5 Net debt to EBITDA (not to exceed 3.5 times) 0.2 1.3 1.5 3.0 EBITA (£m) 238.2 234.3 238.9 2
Slide 41: IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers H1 2017 IFRS 15 H1 2017 FY 2017 IFRS15 FY 2017 £m Reported Impact Restated Reported Impact Restated Impact on income statement Revenue 1,003 25 1,028 2,053 39 2,092 Underlying operating profit 90 4 94 210 3 213 Underlying EPS (pence) 2.5 0.2 2.7 6.0 0.2
Slide 42: Exchange Rates
Exchange Rates Average Period Impact of pro rata 10 cent movement Rate End Rate H1 2018 Underlying £m Revenue US$ Operating Profit 1.37 1.32 AUS$ 1.78 1.79 US$ 91 11 EUR 1.14 1.13 AUS$ 17 1 DKK 8.46 8.43 EUR/DKK 24 1 FY 2017 Other 3 1 US$ 1.29 1.35 AUS$ 135 14 1.68 1.73 EUR 1.14 1.13 DKK 8.49 8.39 H
Slide 43: Hedging
Hedging Transaction Exposure $ / DKK $/£ 2018 Total $102m $124m Historic Average $102m $124m 100% Effective Rate Hedging in Place 100% 2014 $1.61: £1 Average Hedge Rate $1:DKK 6.29 $1.37:£1 2015 $1.59: £1 2016 $1.51: £1 2019 $75m $103m 2017 $1.41: £1 Average Hedge Rate $1:DKK 5.93 $1.36:£1 2020 - 20
Slide 44: Investor Events
IR Calendar 7th 1st Results Prelim Interim Results Results 2018 2019 SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG 18 18 18 18 19 19 19 19 19 19 19 19 Investor Events 25th w/c 19th AGM & Paris AGM Air Show statement 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