5th Mar 2015 13:34
LONDON (Alliance News) - Aerospace and defence manufacturer Cobham PLC on Thursday reported a big fall in pretax profit for 2014 despite higher revenue, as the company's results were held back by restructuring and acquisition costs and the strength of sterling.
Cobham said its pretax profit for the year was GBP24 million, sharply down from the GBP127 million it posted a year earlier due to costs related to the acquisition of US communications equipment maker Aeroflex and restructuring measures, plus a GBP15 million provision taken related to aerial refuelling programmes.
Shares in Cobham were down 2.2% to 325.80 pence on Thursday afternoon, one of the worst performers in the FTSE 250.
Revenue increased to GBP1.85 billion from GBP1.79 billion last year, driven by acquisitions and a 5% rise in like-for-like commercial revenue, Cobham said. The revenue was pushed up by full-year contributions from the Axell Wireless and FB Heliservices business, both of which were acquired in 2013, and by a partial contribution from Aeroflex Holding Corp, which it acquired in May 2014.
The company said its book-to-bill ratio for the year was 1.03 times, with its Communications and Connectivity, Mission Systems and Aviation Services all registered ratios above 1 times. Only Advanced Electronic Solutions saw its ratio fall below 1 times, due to some expected contract awards being delayed to 2015. Cobham's year-end order book sat at GBP2.51 billion, up from GBP2.27 billion at the end of 2013.
Despite the fall in profit, the company is recommending a 10% hike to its total dividend for the year to 10.65 pence, up from 9.68 pence a year earlier. That includes a 7.746 pence final dividend, up from 7.04 pence in 2013.
"Overall we have made significant progress on the delivery of our strategic objectives in 2014 and, as anticipated, Cobham remains well positioned to deliver mid-single digit organic revenue growth from 2015," said Cobham Chief Executive Bob Murphy.
"Completing the Aeroflex acquisition was a key highlight, increasing the group's exposure to growing commercial markets, and Aeroflex's post acquisition trading and integration has been in line with the Board's expectations," Murphy added.
"The year also included a number of challenges. Although Cobham delivered good order intake and saw the expected overall improvement in revenue in the second half, the group's revenue mix has changed over time. There has been a decline in the higher margin shorter cycle businesses which are exposed to land related defence and security markets. This has been largely offset by an increase in lower margin engineering and development revenue," Murphy said.
Cobham said it remains well-positioned to generate mid-single-digit organic revenue growth in 2015.
Communications & Connectivity, which includes Cobham's communications equipment and national security monitoring businesses, saw revenue rise to GBP697 million from GBP678 million, due to the contribution from the former Aeroflex Test Solutions arm and from Axell Wireless. But organic revenue in the division, stripping out the contribution from acquisitions, was down 6% due to lower revenue from defence and security work.
Mission Systems, covering aerial refuelling system and wing-tip-to-wing-tip mission systems for fast jets, saw revenue fall to GBP334 million, compared to GBP358 million, with organic revenue falling 4% due to a lull in production of the KC-130 tanker aircraft in the US and lower product and aftermarket activity on the UK FSTA Airbus A330 MRTT aircraft. Those declines were partially offset by increased engineering and development revenue on aerial refuelling programmes, primarily the Boeing KC-46 and the Airbus A400M.
Advanced Electronic Solutions, which provides critical communication services, saw revenue rise to GBP410 million from GBP372 million, again boosted by a contribution from the Aeroflex business. Organic revenue fell 1%, however, primarily due to the ongoing challenges in the US defence and security market, the primarily end-market for the business, Cobham said.
Organic revenue was dragged lower by a number of mature production programmes, including legacy electronic warfare applications and a space-related programme, along with lower revenue for foreign military sales.
Aviation Services, its military and civil aviation services outsourcing arm, saw revenue rise to GBP412 million from GBP365 million, boosted by a contribution from FB Heliservices. Organic revenue growth hit 8% in the division, boosted by increased revenue from Australian airline Qantas after the contract expansion Cobham secured with the company in the second half of 2013 became fully operational. The unit also got a boost from increased flight activity in the Australian natural resources market, driven by a short-term contract expansion secured with US gas group Chevron Corp.
Liberum expects consensus earnings estimates for Cobham to be cut following the results and estimates organic revenue growth for the company will be around 4% in 2015.
Liberum analyst Ben Bourne says the broker expects earnings estimates to be cut by around 1%, with an increase in revenue forecasts but a decline in margins due to an unfavourable mix.
Bourne adds dividend growth expectations will tighten in order to build cover.
Liberum has a Hold rating on the stock, and a 330.00 pence price target.
By Sam Unsted; [email protected]; @SamUAtAlliance
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