15th Mar 2007 07:02
Cobham PLC15 March 2007 15 March 2007 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Cobham plc, the aerospace and defence company, today announces full year results. 2005 2006 Change Orders received £1,318.6m £1,390.5m +5.5%Total revenue1 £1,090.4m £1,015.7m (6.9)%Underlying2 trading margin 16.3% 18.3% +2.0ptsUnderlying2 profit before tax (PBT) £167.0m £182.9m +9.5%Underlying2 earnings per share (EPS) 10.58p 11.66p +10.2%Basic earnings per share 8.71p 13.13pOperating cash conversion3 98.6% 84.3%Full year recommended dividend per share (DPS) 3.41p 3.75p +10.0% Results reflect ongoing progress made during the year:• Record order intake of £1.4bn• Strong organic growth across technology divisions• Strong trading profit growth in Cobham Flight Operations and Services• Group trading margin increased two percentage points as a result of operational efficiencies and portfolio reshaping• Company funded PV investment as % of technology division revenues increased to 6.0% (£49m) from 5.3%• Double digit EPS and DPS growth• Strong operating cash conversion continues Gordon Page, CBE, Chairman, commented:"These strong results, underpinned by record order intake, reinforce ourconfidence in the future. We have made good progress in the implementation ofour strategy to increase PV investment, improve operational efficiency, andincrease the proportion of sales in high growth technology markets. We lookforward to continued progress in 2007." ENQUIRIESCobham plc Telephone: +44 (0) 1202 882020Allan Cook, Chief Executive +44 (0) 1202 857738 (on the day)Warren Tucker, Group Financial DirectorJulian Wais, Director of Investor Relations Weber Shandwick Financial +44 (0) 207 067 0700Susan Ellis Notes:An extract of the Preliminary Report is attached. A presentation of the results will be available as a webcast by 4.30pm on 15 March, and the published Annual Report as a download file on 2 May, at www.cobham.com The following notes apply throughout these statements. 1. Total revenue includes the results of both continuing and discontinued operations up to the point of disposal. Continuing operations for 2005 exclude the results of Cobham Fluid Systems products division, Countermeasures operations and Fluid and Air group, all of which are reported as discontinued. Most of these operations were sold in the second half of 2005, with the exception of Wallop Defence Systems Ltd, part of the Countermeasures operations, which was sold in March 2006. For 2006, therefore, continuing operations exclude the results of Wallop Defence Systems only.2. In order to assist with the understanding of earnings trends, trading profit and underlying earnings have been defined to exclude the impact of the amortisation of intangible assets arising on acquisition and the impact of marking to market of foreign exchange derivatives not realised in the period. All underlying measures include the operational results of both continuing and discontinued businesses up to the point of sale, but exclude exceptional profits or losses arising on disposals actually completed in the period. None exist in the current period or comparatives, but any impairments of goodwill would also be excluded from underlying measures. Details of these adjustments may be found in the table under 'Results'.3. Operating cash flow is defined as cash generated from operations, adjusted for cash flows from the purchase or disposal of fixed assets. Operatingcash conversion is defined as operating cash flow as a percentage of trading profit, excluding profit from joint ventures. INTRODUCTIONThe Group is pleased to report a year of good progress. The portfolio reshapinghas removed a number of non-core and underperforming businesses from the Group,enhancing profitability and growth prospects while the focus on streamlining haspermitted the Group to concentrate resources on its core technologies and bringthe best of Cobham to its customers. Progress in aligning the divisions and operating them as a united group has beenexcellent. The five technology divisions have established clear identities andmanagement structures that allow them to participate in cross-Cobham initiatives. Organic revenue growth within the technology divisions was 5.8%. It is pleasing to note that three of the technology divisions, Antennas, Defence Electronic Systems and Life Support, achieved double-digit organic growth in their revenue. Without the impact of Chelton Telecom & Microwave (CTM) in France reducing its telecom revenue, organic revenue growth in Cobham Avionics and surveillance was8%. Air Refuelling and Auxiliary Mission Equipment improved in the second half of the year but remains affected by the anticipated dip in business associated with major procurement cycles. Cobham has achieved good profit and earnings per share growth, while Grouptrading margins have increased 2.0% points, in part reflecting the operationalefficiencies being realised. Substantial improvements have been made in costefficiencies, which have more than offset 1% point of transaction exchange rateheadwind and funded an increased investment in company funded R&D (PV) which nowrepresents 6.0% of technology division revenues. This is substantial progresstowards the Group's strategic goal of 7%. Since the operational improvementprogramme commenced in 2005, working capital efficiencies of £19m havecontributed to a substantial reduction in group net debt. A number of projectsare in progress to evaluate further site and business integration opportunities,with integration underway in Cobham Life Support in the USA, Cobham Antennas inthe UK and LENS companies within Cobham Avionics and Surveillance in NorthAmerica. Looking at Cobham's core markets, demand has continued to be strong and this isreflected in the success the Group has had in winning new contracts, resultingin an order book at the end of the period of £1.6bn. The largest order was inCobham's Flight Operations and Services division, where the AUS$1bn Sentinelcontract (formerly Coastwatch) was secured. In 2006 the AirTanker FSTA project made encouraging progress in negotiationswith the MoD and its suppliers and should progress to contract closure in 2007. RESULTS 2005 2006-------------------------------------------------------------------------------- Total Revenue Comprises the following: £mRevenue from continuing operations 970.3 1,012.1Revenue from discontinued operations 120.1 3.6--------------------------------------------------------------------------------Total revenue 1,090.4 1,015.7-------------------------------------------------------------------------------- Trading profit is calculated as follows: £mResult before joint ventures and associates 133.9 184.0Share of post-tax results of joint ventures andassociates 3.1 4.7Operating profit from continuing operations 137.0 188.7Adjusted to exclude:Profit on disposal of undertakings - (1.5)(Gain)/loss on revaluation of currency instruments 16.1 (10.8)Amortisation of intangible assets arising onacquisition 16.9 9.1Trading profit from continuing operations 170.0 185.5Trading profit from discontinued operations 7.7 0.8--------------------------------------------------------------------------------Trading profit (underlying operating profit) 177.7 186.3-------------------------------------------------------------------------------- The underlying profit before tax is calculated as follows: £mProfit on continuing operations before taxation 126.0 185.2Adjusted to exclude:Profit on disposal of undertakings - (1.5)(Gain)/loss on revaluation of currency instruments 16.1 (10.8)Amortisation of intangible assets arising onacquisition 16.9 9.1Underlying profit before taxation from continuingoperations 159.0 182.0Underlying profit before taxation from discontinuedoperations 8.0 0.9--------------------------------------------------------------------------------Underlying profit before taxation 167.0 182.9-------------------------------------------------------------------------------- The profit after tax used in the calculation of underlyingEPS is as follows: £mProfit after taxation attributable to equityshareholders 97.6 148.1Adjusted to exclude (after tax):Profit on disposal of continuing and discontinuedundertakings (1.3) (15.2)(Gain)/loss on revaluation of currency instruments 11.2 (7.6)Amortisation of intangible assets arising onacquisition 11.1 6.3--------------------------------------------------------------------------------Underlying profit after taxation 118.6 131.6Underlying earnings per ordinary share (pence) 10.58 11.66-------------------------------------------------------------------------------- The year saw the Group's order intake increase to approximately £1.4bn (2005:£1.3bn), reflecting success in winning new land, sea and air orders. Excludingbusinesses acquired or disposed of in 2005 and 2006, order intake for continuingbusinesses has grown by 27.2% from some £1bn in 2005 to £1.2bn. As well assuccess in Cobham Flight Operations and Services, the technology divisions had abook to bill ratio of 1.1 underpinning future growth. Total Group revenue decreased to £1,015.7m (2005: £1,090.4m), primarily due todisposals in 2005 and 2006 which has been partly offset by organic growth andacquisitions. The Group has continued to focus its activities onhigh-technology, high-growth markets. On a geographical basis 46% (2005: 40%) of Group revenue was into the USA and increased to 58% (2005: 55%) across the technology divisions. Organic revenue growth across the technology divisions was 5.8%, with double-digit growth in the Antennas, Defence Electronic Systems and Life Support Divisions. Without the impact of CTM in France reducing its telecom revenue, organic revenue growth in Cobham Avionics and Surveillance was 8%. Air Refuelling and Auxiliary Mission Equipment improved in the second half of the year but remains affected by the anticipated dip in business associated with major procurement cycles. The military, law enforcement and national security and space markets together accounted for 67% (2005: 62%) of technology divisionrevenues and the civil aviation and marine markets 25% (2005: 28%). Group underlying trading profit increased by 4.8% to £186.3m (2005: £177.7m)despite currency headwinds and disposals. Group underlying trading marginimproved by 2.0% points to 18.3% (2005: 16.3%) due to initial delivery ofoperational efficiencies and the disposal of non core businesses. In line with the Group's strategy for accelerating growth, the Group invested anincreased £49.3m (2005: £47.9m, which includes disposals) in company fundedResearch & Development (PV), representing 6.0% (2005: 5.3%) of the technologydivisions' revenue. Including customer-funded expenditure, total Research &Development was £83m or approximately 10% of technology division revenues. Net finance expense in the period, including pension finance income of £2.8m(2005: £1.0m), was £3.4m (2005: £10.7m), reflecting the benefit of lower averagenet borrowings and the increased finance income from pension schemes. Underlyingprofit before tax was up 9.5% at £182.9m (2005: £167.0m). On an underlying basis, the effective tax rate for the year was 28.7% (2005:29.2%). Following IFRS, this effective rate is now calculated by excluding jointventure profits that have already been taxed. Underlying earnings per shareincreased 10.2% to 11.66p (2005: 10.58p). Basic earnings per share increased50.7% to 13.13p (2005: 8.71p) largely due to profits on disposal and gains onthe revaluation of currency instruments. Operating cash inflow in the year, after capital expenditure and PV expenditure,which is expensed in the income statement, but before the payment of tax,interest and dividends was £153.0m (2005: £172.1m), representing 84.3% oftrading profit before the Group's share of post-tax results of joint venturesand associates. After the payment of tax, net interest and dividends receivedfrom joint ventures, the Group generated free cash flow of £103.8m (2005:£122.4m). An additional net cash inflow of £61.1m (2005: net outflow of £64.9m) arose inthe year from corporate activity, being the exiting of seven businesses, theacquisition of two businesses and the acquisition of the minority interests intwo businesses, in line with the Group's strategy of focusing the portfolio. TheGroup's acquisitions were domo Limited, a leading provider of digital wirelessvideo surveillance technology and Aerodata Flight Inspection GmbH, a companyinvolved in the inspection and calibration of equipment essential to the safeoperation of aircraft at commercial and military airports. During the year the Group generated £14.5m of profit before tax on the disposalof businesses giving a cumulative net profit, since the announcement of theStrategic Review in 2005, of £20.1m. In accordance with the Group's policy,these have been excluded from underlying profits. It is expected that some ofthese net profits will fund total exceptional restructuring costs, which areanticipated in 2007 and beyond, as progress in restructuring operatingbusinesses accelerates. Given the high return on investment in businessrestructuring, the Group will seek to invest as much of this £20m as possible. As a result of its business cash inflows and portfolio reshaping, the Groupended the year with net cash of £0.9m (2005: net borrowings £168.3m). Thisposition was aided by the Group having a large proportion of its debtdenominated in US dollars. Net movements in exchange rates reduced netborrowings on translation by a total of £37.3m, (2005: increased net borrowingsby £19.8m) in comparison to the previous year end. As part of its strategy of operational improvement, the Group has targetedreducing its total working capital balances, after allowing for the effects ofgrowth, over a three year period. At the year end, total working capitalbalances had reduced to £163.9m (2005: £198.4m). Since the operationalimprovement programme commenced in 2005, the Group has delivered working capitalefficiencies of £19m. The Group operates a number of defined benefit pension schemes, the mostsignificant being the Cobham Pension Plan. The Group has worked hard to manageits pension deficit and is pleased to report a substantial reduction. The mostrecent actuarial valuation for this scheme was carried out as at 1 April 2006and was updated for accounting purposes to 31 December 2006. At this date, theGroup's net liability relating to its defined benefit schemes had reduced to£29.6m before deferred tax compared to a deficit of £81.0m at 31 December 2005. A final ordinary dividend of 2.64p (2005: 2.40p) has been recommended by theBoard which represents an increase of 10% on last year. Together with theinterim dividend of 1.11p per share (2005: 1.01p) which was paid in December2006, this will result in a total dividend of 3.75p per share (2005: 3.41p).Subject to shareholders' approval, the final dividend will be paid on 6 July2007 to all shareholders on the register at 1 June 2007. MARKETSThe US defence budget represents more than 50% of global defence spending andcontinues to dominate the overall military landscape. Overall, the outlook forUS defence budgets remains positive. Defence electronics spending is continuingto grow faster than spending on new platforms and programmes, reflecting theneed by the armed forces for greater capability, but on fewer platforms. Thetrend towards life extension programmes by using electronic upgrades rather thanreplacing ageing but still competitive platforms continues. In the US andEurope, much of the defence spending is channelled towards new technologies thatenable the use of smaller, better equipped, rapid reaction forces with higherprecision weapons. In countries such as India, where Cobham has suppliedequipment for 20 years, the military aerospace market is anticipated to grow byapproximately 8%. The commercial aerospace industry enters 2007 with strong underlying deliveryfundamentals already established. Air traffic growth remains the core driver forthe commercial aerospace cycle and current overall growth is estimated to be4.8% per year over the next 25 years. However, within this overall figure, thereare wide variations, from high growth economies, such as India (12% growth perannum) to more mature markets such as domestic USA (2.7% growth per annum).Following the record year in 2005, order intake for 2006 held up very well, withover 1,800 new aircraft booked between Boeing and Airbus, resulting in a recordindustry order book of over 4,300 aircraft. The outlook for communications equipment for the general aviation, business jetand marine markets remains strong, driven by the requirement for communicationon the move. Although the Law Enforcement and National Security (LENS) market isstill relatively immature and fragmented, it is a growing and attractive market. During 2006 Cobham opened an office in India and expanded its presence in SouthAfrica. OPERATING REVIEWCobham has five technology based divisions and one focused on the provision ofservices. Total Revenue £m Trading Profit £m ----------------------------------------------------------------- 2005 Unaudited Growth 2005 Unaudited Growth 2006 2006Air Refuelling& AME 127.1 90.4 26.5 12.8Margin 20.8% 14.2% Antennas 173.9 182.2 39.5 41.2Margin 22.7% 22.6% Avionics &Surveillance 196.3 206.0 27.9 32.2Margin 14.2% 15.6% DefenceElectronicSystems 130.9 191.6 30.8 46.4Margin 23.5% 24.2% Life Support 129.9 141.4 22.5 27.3Margin 17.3% 19.3% TechnologyDivisions 758.1 811.6 7.1% 147.2 159.9 8.6%Margin 19.4% 19.7% FlightOperations &Services 197.0 188.4 (4.4)% 16.7 20.1 20.4%Margin 8.5% 10.7%-------------------------------------------------------------------------------- Segmental revenue includes revenue from trading between segments which iseliminated on Group consolidation. Cobham Air Refuelling & Auxiliary Mission Equipment £m Year to Year to Change 31.12.05 31.12.06Revenue 127.1 90.4 (28.9)%Trading profit 26.5 12.8 (51.7)% The financial performance in 2006 reflects the anticipated dip in business priorto new programmes progressively coming on stream and the expected significantre-capitalisation programme for many of the world's air forces. This followsstrong performances in 2004 and 2005. The Division has continued to win allmajor refuelling programmes and to position its technology and products for newmarket opportunities and benefited in the second half year from work associatedwith tranche two of Eurofighter Typhoon. The Division should at least maintainits trading profit in 2007 and start to revert to its medium term growth trendin 2008 as new orders are won and programmes already secured come on stream. In air refuelling, further orders were received for equipment to be fitted tothe South African and Malaysian tanker versions of the A400M. The Division'sfirst deliveries of A400M equipment are scheduled to commence in 2010.Engineering and development work has continued with the 90X technology platform,which forms the basis for the A330MRTT and A400M refuelling systems. The 90Xtechnology is the foundation for an all speed drogue which will allow refuellingof helicopter, rotorcraft and fast jets in a single mission. Follow-on orders were received for the Division's space saving telescopicrefuelling probe for the V-22 Osprey and significant investment in newtechnology for the emerging UAV market continues, using a probe and droguesystem. Good progress has been made demonstrating autonomous air to airrefuelling of two unmanned air vehicles. Auxiliary mission equipment sales continue to grow. In the US, Cobham isproducing the weapons carriage and release system for the Small Diameter Bomband secured a $20m production contract from The Boeing Company for over 300units enabling full rate production to start. In the UK, following PV investment in a new generation of missile launchers, theDivision received its first order for equipment to be fitted to the HungarianAir Force's Gripen aircraft. The contract covers the supply of 45 NATO MultiMission Launchers (NMML) and a comprehensive support package. The division hascontinued to invest in pneumatic technology for weapons carriage and releasesystems. Further successful trials were held of a pneumatic multi-store carrier'Viper' in advance of the US Navy Multi-Purpose Bomb Rack competition to be heldin 2007. Management remain focused on implementing lean manufacturing and plans are beingfinalised to relocate operations in Wimborne to a purpose built facility on anadjacent Cobham owned site. Cobham Antennas Year to Year to Change£m 31.12.05 31.12.06Revenue 173.9 182.2 4.8%Trading profit 39.5 41.2 4.3% Improvements in orders, revenue and trading profit helped the Division toachieve a record trading year despite considerable currency headwind followingthe expiry of particularly favourable US dollar hedging rates. Overall growthreflects increased demand for mobile communication systems for land, sea andairborne applications, particularly broadband satellite, and the positive impactof Cobham's lean manufacturing improvement programme. There continues to be a growing need for secure multiple communication systemsto operate in close proximity, with limited space on mobile platforms.Reflecting this demand, an order for the Group's innovative interferencecancellation system (mINCAN) was secured from Lockheed Martin for the US MarineCorp Light Armoured Vehicle Command and Control (LAV-C2) programme. The Satcom-On-The-Move (SOTM) market is expected to grow significantly and firstdeliveries of a medium profile tracking antenna were made to ViaSat in the USduring the year. Contracts were also secured for mobile Ku band auto-tracking TX/RX systems foruse in emergency and hostile environments by the US National Guard, the VeteransAdministration Hospitals, the State of Florida and the Red Cross. In addition,the Division's products were selected by The Boeing Company and Embraer for anumber of major aerospace programmes. In the satellite communication market orders and sales have been strong forbroadband internet at sea products, in particular stabilised marine antennasystems. In Europe, contracts were secured for Direction Finding (DF) and Tetra productsfor the UK Coast Guard S92 and AV139 Helicopters respectively, and for a highgain antenna for the Airbus EADS-CASA A400M programme. Supply of the 15different radome types for Tranche 2 of Typhoon aircraft commenced production. Synergies are now being realised as a result of Group and Division ledrationalisation of product development, manufacture and sales and marketing. InMarlow, production facilities previously in five separate buildings are beingconsolidated into one purpose designed facility, significantly reducing thehandling time and movement needed for each product. Five composite sites havealso been consolidated to two. Cobham Avionics and Surveillance Year to Year to Change£m 31.12.05 31.12.06Revenue 196.3 206.0 4.9%Trading profit 27.9 32.2 15.4% Strong financial performance in the second half of the year reflected growth inthe covert tracking Law Enforcement and National Security (LENS) markets and theupturn in the commercial market for audio management and avionics technology.Without the impact of CTM in France reducing its telecom revenue, organic growthis 8%. Following successful selection of the Division's Synthetic Vision EFIS(Electronic Flight Instrument System) for the Bell Helicopter platforms in 2005,the EFIS has now achieved FAA Supplemental Type Certification for the EurocopterEC-120B helicopter and the Eurocopter AS 350/355 family of rotorcraft. The nextgeneration navigation and communications system, FliteLine, achieved full FAAcertification. A 10 million South African Rand order was secured to supply, install and supportseven dual EFIS for the Safair fleet of C130 / L382 aircraft. A contract wasalso won to supply the navigation and communications system for the EADS UH-145Light Utility Helicopter. Following the acquisition of domo Limited, a handheld video transmitter hascompleted development using domo's technology. The product is effectively a'video flashlight' transmitting images in the path of the beam and is a tool forfirst responders, government, military and law enforcement teams. Domo'scapability is being exploited across the Division and into adjacent areas withinCobham Antennas and Cobham Defence Electronic Systems. In the second half of 2006, the Division began the integration of two LENScompanies, Orion and Micromill, and one complementary search and rescue company,Seimac. The new entity, Cobham Tracking & Locating, has been well received bycustomers. Operational issues in the French telecom business, CTM, have beenaddressed through management changes and the telecoms market exited. In the Search and Rescue market, Cobham's covert beacon technology is showingpromise for the military market. In January 2006, a contract worth more thanC$3m was received from Canada's Department of National Defence for personallocator beacons (PLBs) to be used by Canadian Air Force aircrews duringoperational and training missions. Further orders for PLBs were secured from theUS Army and Danish Air Force. Cobham Defence Electronic Systems Year to Year to Change£m 31.12.05 31.12.06Revenue 130.9 191.6 46.4%Trading profit 30.8 46.4 50.6% The Division had another excellent year with exceptional margins and very strongorganic growth in revenue and the full year impact of REMEC. The Middle East warcontinues to affect specific programmes for funding priorities with particularemphasis placed on soldier safety and ground vehicles as a consequence of theon-going ground conflict. While some large airborne and shipboard radar, EW(Electronic Warfare) and communication programmes have slipped, the groundcommunication programmes in support of the US Army have more than compensatedfor these delays. 2007 will be another year for revenue growth, but this islikely to revert to trend in 2008 particularly if operations in the Middle Eastreduce. It is anticipated that the exceptional margins achieved in 2006 willstart to revert back to trend in 2007. Ground Vehicle Intercom Communication system sales remain extremely strong withunits being installed in most of the US Army's fleet of Main Battle Tanks,Armoured Personnel Carriers and Light Tactical Vehicles currently deployed intheatre. New network centric products have been developed to support futureprogrammes which will provide a basis for further growth in the future. The newIntegrated Digital Soldier System which provides Command, Control,Communications and Situational Awareness capability has now gone into servicewith the British Army and will also form the basis of the FIST C4I Lite system,which is scheduled for evaluation by the UK MoD in 2007. In the Microwave market, the Division remains focused on high priority advancedtactical programmes for the US Department of Defense. Microwave modules continueto be supplied for ongoing production requirements for radar, EW, andcommunications, and navigation systems for the F-16, F-18, F-22 and the F-35aircraft programmes, as well as several missile programmes. A number of key R&Dprogrammes started in the year, using funding from primes and the US DoD. Theseadvanced technology developments will strengthen the Division's technicalposition in the antenna and RF (Radio Frequency) front end of ElectronicallyScanned Arrays of the future. There has been strong organic growth in ground communication antennas, with amulti-year contract worth up to US$49m awarded for the COM-201 portable VHFantenna for the US Army. This was followed in December by the largest militaryantenna award to date for COM-231 vehicle mounted microwave antennas for the USArmy, Navy, Air Force, and Marine Corps. Whilst the award is on an IndefiniteDelivery Indefinite Quantity basis with an initial one year contract and fourone year options, it could be worth up to US$248m over a five year period. Goodcontinued organic growth was seen in airborne electronic warfare antennas,shipboard radar components, and support of US air traffic control radars. Cobham Life Support Year to Year to Change£m 31.12.05 31.12.06Revenue 129.9 141.4 8.9%Trading profit 22.5 27.3 21.3% Strong growth in orders, revenue and trading profit partly reflected the fullimpact of the acquisition of H Koch & Sons ("Koch") and strong organic growthfor improved passenger restraints. Progress integrating the operations of Kochin California with existing facilities in Florida has been good and is largelycomplete. Demand for vehicle restraints is expected to be sustained into 2007,but at moderated levels. Sales of On Board Oxygen Generating Systems on tactical military aircraft weresteady throughout the year. Supplies to new aircraft combined with retrofitopportunities will continue to provide a reliable and significant revenuestream. The C-17 On-Board Inert Gas Generating System is being installed on allnew production aircraft with the retrofit programme phase beginning in 2007.This programme will provide good growth through to 2015. Orders for the Division's HMMWV Improved Restraint System have been strong withapproximately 45,000 ship sets ordered to date for retrofit. An indefinitequantity order was received in November to install the restraint system at thevehicle's original equipment manufacturer (AM General) and a $16m order receivedin December from the US Marines. Record levels for order intake, sales and production were achieved for theDivision's one watt linear cryocoolers. The Division's cooling system technologycontinues to be a key component in the upgrade of US Army and US Marine Corpsplatforms as they seek to improve their effectiveness in the global war onterrorism. Following PV investment in innovative microclimate cooling technology, contractsworth more than $20m were received in the year for microclimate cooling unit(MCU) sales to the US Army. This technology has now been successfullytransferred from rotary aircraft under the Warrior programme to a range ofground vehicles to help improve the effectiveness of on-board personnel. A multi million dollar contract was received for laser guided bomb manifoldassemblies, which was supplemented with an order from the UK MoD for 2,300enhanced laser guided bomb manifold modifications. Orders were also receivedfrom Lockheed Martin for pneumatic actuation assemblies for the Longbow Hellfireand JASSM missiles. Discussions have commenced to develop the pressure control system components onNASA's Orion Launch Vehicle as part of the Environmental Control Life SupportSystem integration.. Cobham Flight Operations and Services Year to Year to Change£m 31.12.05 31.12.06Revenue 197.0 188.4 (4.4)%Trading profit 16.7 20.1 20.4% Revenue was marginally lower in 2006 as anticipated, largely reflecting theremoval of £6m 'pass through' lease revenues as Qantas introduced its ownaircraft for Cobham to operate. Cobham's share of profits achieved in its jointventure companies, particularly those associated with the buoyant helicoptermarket, increased over the year to £4.7m (2005: £3.1m). Major bid activity hasreturned to normal levels following the award of the Sentinel contract. Thiscombined with an improvement in fuel terms had a positive impact on margin andcontributed to overall recovery in 2006. Following the award of the A$1bn Australian Sentinel contract, the conversion ofthe first of ten fully electronic Bombardier Dash 8 aircraft was completed ontime. The new aircraft entered into service in February 2007 and the remainingaircraft are on schedule for conversion. In November a further A$80m contractwas received for a Surveillance Information Management System (SIM) to be fittedto all ten Sentinel aircraft. The performance of the Flight Inspection companies has exceeded expectations,reflecting acquisitions in the year. Major contract wins included confirmationfrom the UK MoD of the extension of the contract for the calibration of allmilitary airfields to the end of 2011. The FB Heliservices 50/50 joint venturealso had another good year with a £7.5m contract extension to its supportcontract to the British Army Training Support Unit in Belize. In the UK, an order was won to provide aerial targets against which the RoyalNavy's new Type 45 Destroyer's weapon system will be tested over a two yearintegration and test programme. High performance levels were maintained on theair warfare training contract which runs to 2014. The 20-year E-3D SentryAirborne Warning and Control Systems (AWACS) support contract completed itsfirst full year with 12 aircraft inputs completed on time and to budget.Discussions are ongoing to extend the existing Nimrod MR2 contract to a similaroutput based model through to 2012. In outsourced commercial aviation, the resources sector continued to show goodgrowth as new mining operations started throughout Australia. The transitionfrom a BAe 146 fleet to an eight aircraft B717 fleet operating on QantasLinkregional routes was completed and discussions are at an advanced stage withQantas to extend the fleet from eight aircraft to thirteen operating through to2012. An A$80m extension to the air freight contract for Australian Air Express(AaE) was agreed in January. OUTLOOK2006 has been a successful year for Cobham, during which the Group has againachieved strong organic revenue growth and double-digit growth in earnings anddividend per share. A year ago, it was indicated that there would be additionalbenefits from portfolio reshaping, operational performance improvements andincreased PV investment. All three have been realised in 2006, with managementactions contributing to a 2 percentage point trading margin improvement.Increased PV investment underpins record order intake. Entering 2007, Cobham's businesses are well placed in growth markets, wherethere are many opportunities to leverage the Group's products, services andtechnologies. Further benefits are expected to be realised from ongoingoperational improvements and the Group remains committed to further investment.Cobham will continue to focus on PV investment and seek acquisitions that are astrong fit with the Group's strategy. Given the strength of the business portfolio, balance sheet and order book, theBoard remains confident of achieving further growth in 2007. Consolidated income statementFor the year ended 31 December 2006 £m Note 2006 2005________________________________________________________________________________ Continuing operations Revenue 2 1,012.1 970.3Cost of sales (679.2) (682.2)________________________________________________________________________________ Gross profit 332.9 288.1 Selling and distribution costs (57.1) (54.7)Administrative expenses (102.6) (83.4)Share of post-tax results of joint ventures and associates 4.7 3.1Gain / (loss) on revaluation of currency instruments 10.8 (16.1)________________________________________________________________________________ Operating profit 2 188.7 137.0 Finance income 4 47.2 31.6Finance expense 4 (50.7) (42.6)________________________________________________________________________________ Profit on continuing operations before taxation 185.2 126.0Tax on continuing operations 5 (50.7) (35.3)________________________________________________________________________________ Profit on continuing operations after taxation 134.5 90.7Discontinued operationsProfit after taxation from discontinued operations 13.8 7.4________________________________________________________________________________ Profit after taxation for the year 148.3 98.1________________________________________________________________________________ Profit attributable to equity shareholders 148.1 97.6Profit attributable to minority interests 0.2 0.5________________________________________________________________________________ Profit after taxation for the year 148.3 98.1________________________________________________________________________________ Earnings per ordinary share 7 -Basic 13.13p 8.71p -Fully diluted 13.00p 8.66p Earnings per ordinary share from continuing operations 7 -Basic 11.90p 8.05p -Fully diluted 11.79p 8.01p Trading profit is calculated as follows:£m Note 2006 2005________________________________________________________________________________ Operating profit from continuing operations 2 188.7 137.0Adjusted to exclude:Profit on disposal of undertakings 10 (1.5) -(Gain) / loss on revaluation of currency instruments (10.8) 16.1Amortisation of intangible assets arising on acquisition 9.1 16.9________________________________________________________________________________ Trading profit from continuing operations 185.5 170.0Trading profit from discontinued operations 0.8 7.7________________________________________________________________________________ Trading profit 2 186.3 1 77.7________________________________________________________________________________ Consolidated balance sheetAs at 31 December 2006 £m Note 2006 2005________________________________________________________________________________AssetsNon-current assetsIntangible assets 482.6 528.1Property, plant and equipment 187.6 202.8Investment properties 6.4 4.0Investments in joint ventures 15.7 14.7Trade and other receivables 9.2 8.5Derivative financial instruments 8.6 4.5Deferred taxation assets 6.9 6.8________________________________________________________________________________ 717.0 769.4________________________________________________________________________________Current assetsInventories 160.2 167.2Trade and other receivables 182.6 208.5Corporation tax 3.2 2.1Derivative financial instruments 7.0 1.7Cash and cash equivalents 364.3 251.8Assets classified as held for sale - 18.1________________________________________________________________________________ 717.3 649.4________________________________________________________________________________ LiabilitiesCurrent liabilitiesBorrowings (231.2) (276.9)Trade and other payables (182.6) (174.2)Derivative financial instruments (1.8) (3.5)Corporation tax (45.1) (48.1)Provisions (38.0) (42.7)Liabilities classified as held for sale - (14.2)________________________________________________________________________________ (498.7) (559.6)________________________________________________________________________________ Non-current liabilitiesBorrowings (132.2) (151.6)Trade and other payables (7.8) (7.8)Derivative financial instruments (2.5) (2.0)Deferred taxation liabilities (25.6) (8.8)Provisions (22.9) (20.9)Retirement benefit obligations (29.6) (81.0)________________________________________________________________________________ (220.6) (272.1)________________________________________________________________________________ Net assets 715.0 587.1________________________________________________________________________________ Capital and reservesCalled up share capital 28.3 28.1Share premium account 94.2 87.5Translation reserve * (8.9) 1.9Other reserves 16.0 11.3Retained earnings * 585.3 456.8________________________________________________________________________________ Total shareholders' equity 714.9 585.6Minority interest in equity 0.1 1.5________________________________________________________________________________ Total equity 715.0 587.1________________________________________________________________________________ Net cash / (debt) 8 0.9 (168.3) * The translation reserve and retained earnings as at 31 December 2005 have beenrestated following a re-assessment of the cumulative translation reserve. Consolidated cash flow statementFor the year ended 31 December 2006 £m Note 2006 2005________________________________________________________________________________ Cash flows from operating activities Cash generated from operations 8 192.4 210.3Corporation taxes paid (46.2) (39.2)Interest paid 27.6) (23.6)Interest received 20.3 11.9________________________________________________________________________________ Net cash from operating activities 138.9 159.4 ________________________________________________________________________________ Cash flows from investing activities Dividends received from joint ventures 4.3 1.2Proceeds on disposal of property, plant and equipment 15.2 6.4Purchase of property, plant and equipment (52.9) (38.9)Purchase of intangible assets (1.4) (4.0)Capitalised expenditure on intangible assets (0.3) (1.7)Acquisition of subsidiaries net of cash acquired (12.2) (189.0)Acquisition of minority interests (4.2) -Payment of deferred consideration (7.3) (2.3)Disposal of undertakings 10 83.5 149.4Contingent consideration received 10 2.9 -Special pension contributions relating to disposals (11.5) (24.0)Investment in joint ventures and associates - 1.0________________________________________________________________________________ Net cash from / (used in) investing activities 16.1 (101.9)________________________________________________________________________________ Cash flows from financing activities Issue of share capital 6.9 6.1Dividends paid 6 (39.7) (35.8)Dividends paid to minority interests - (0.3)New borrowings 78.6 569.0Repayment of borrowings (81.9) (432.9)Repayment of obligations under finance leases (0.2) (12.8)________________________________________________________________________________ Net cash (used in) / from financing activities (36.3) 93.3 ________________________________________________________________________________ Net increase in cash and cash equivalents 118.7 150.8Cash and cash equivalents at start of year 246.6 101.4Initial application of IAS 21, 32 and 39 - (7.6)Exchange movements (4.9) 2.0________________________________________________________________________________ Cash and cash equivalents at end of year 360.4 246.6________________________________________________________________________________ Cash and cash equivalents as at 31 December 2005 included £8.3m cash held indiscontinued businesses. Statement of recognised income and expenseFor the year ended 31 December 2006 £m 2006 2005________________________________________________________________________________ Profit after taxation for the year 148.3 98.1 Net translation differences on investments in overseassubsidiaries (10.8) 3.2Actuarial gain / (loss) on pensions 32.8 (46.5)Actuarial loss on other retirement obligations (0.5) -Movement on cash flow hedges 0.4 1.7Deferred tax relating to items charged directly to retainedearnings (9.7) 13.5Deferred tax credit relating to share-based payments 1.3 2.5________________________________________________________________________________ Net income / (expenses) recognised directly in equity 13.5 (25.6)________________________________________________________________________________ Total income for the year 161.8 72.5Initial application of IAS 21, 32 and 39 - 7.3________________________________________________________________________________ Total recognised income for the year 161.8 79.8_______________________________________________________________________________ Attributable to:Equity holders of the parent 161.6 79.3Minority interest 0.2 0.5________________________________________________________________________________ 161.8 79.8________________________________________________________________________________ 1. Basis of preparation The attached unaudited financial information has been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted by the EU,International Financial Reporting Interpretation Council (IFRIC) interpretationsand those parts of the Companies Act 1985 applicable to companies reportingunder IFRS. The accounting policies remain as published in the financial statements for theyear ended 31 December 2005. These financial statements have been prepared under the historical costconvention, as modified by the revaluation of certain borrowings and derivativecontracts which are held at fair value. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the reportedperiod. Although these estimates are based on management's best knowledge of theamount, event or actions, actual results ultimately may differ from thoseestimates. The following amendments to and interpretations of existing standards have beenadopted from 1 January 2006: • IAS 39 (Amendment), The Fair Value Option • IAS 39 (Amendment), Financial Guarantee Contracts • IFRIC 4, Determining whether an Arrangement contains a Lease No adjustments were required on adoption of these amendments to andinterpretations of existing standards. The financial information set out in this statement does not constitute theGroup's statutory accounts for the years ended 31 December 2006 and 31 December2005. The auditors have not yet reported on the statutory accounts for 2006.Statutory accounts for the year ended 31 December 2005 have been delivered tothe Registrar of Companies. The auditors have reported on the 2005 accounts;their report was unqualified and did not contain any statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended31 December 2006 will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. 2. Analysis by business segment From 1 January 2006, the Group was organised into six operating divisions. These divisions are the basis on which the Group reports its primary segmental information. The principal activities of the Group's operating divisions are: Cobham Air Refuelling & Air refuelling equipment and pneumatic weapons Auxiliary Mission Equipment carriage release systems Cobham Antennas Antenna components and sub-systems Cobham Avionics & Electronic products for airborne, marine and land Surveillance applications Cobham Defence Electronic Air, ground and ship board antenna sub-systems,Systems positioners, radomes and high-power microwave components Cobham Life Support Aviation oxygen, pneumatic technology for fin actuation in missiles and cryostatic cooling products Cobham Flight Operations Operation and maintenance of aircraft in aerospace & Services and defence markets 'Other Activities' include head office, the central research facility, the central project costs relating to the Future Strategic Tanker Aircraft project and the results of the composites and countermeasures operations disposed of during 2005 and 2006. The comparative figures for 31 December 2005 have been re-presented in accordance with this new divisional structure. Details for these primary segments are shown below: Air Refuelling & Auxiliary Defence Flight Mission Avionics & Electronic Life Operations & Other£m Equipment Antennas Surveillance Systems Support Services Activities Total_______________________________________________________________________________________________________________________ Revenue Year to 31 December 2006Revenue 90.4 182.2 206.0 191.6 141.4 188.4 28.7Inter-segmental revenue (1.1) (6.5) (6.0) (2.9) - (0.1) -_______________________________________________________________________________________________________________ Third party revenue -continuing operations 89.3 175.7 200.0 188.7 141.4 188.3 28.7 1,012.1Third party revenue -discontinued operations - - - - - - 3.6 3.6_______________________________________________________________________________________________________________________ Total third party revenue 89.3 175.7 200.0 188.7 141.4 188.3 32.3 1,015.7_______________________________________________________________________________________________________________________ Year to 31 December 2005Revenue 127.1 173.9 196.3 130.9 129.9 197.0 32.5Inter-segmental revenue (2.7) (7.2) (6.4) (1.2) - 0.2 -________________________________________________________________________________________________________________ Third party revenue -continuing operations 124.4 166.7 189.9 129.7 129.9 197.2 32.5 970.3Third party revenue -discontinued operations - - - - - - 120.1 120.1_______________________________________________________________________________________________________________________ Total third party revenue 124.4 166.7 189.9 129.7 129.9 197.2 152.6 1,090.4_______________________________________________________________________________________________________________________ Result Year to 31 December 2006Result before joint venturesand associates 12.8 39.8 28.7 43.2 26.4 15.3 17.8 184.0Share of post-tax results ofjoint ventures and associates - - - - - 4.7 - 4.7_______________________________________________________________________________________________________________________ Operating profit fromcontinuing operations 12.8 39.8 28.7 43.2 26.4 20.0 17.8 188.7Profit on disposal ofundertakings - - - - - - (1.5) (1.5)Gain on revaluation ofcurrency instruments - - - - - - (10.8) (10.8)Amortisation of intangibleassets on acquisition - 1.4 3.5 3.2 0.9 0.1 - 9.1_______________________________________________________________________________________________________________________ Trading profit fromcontinuing operations 12.8 41.2 32.2 46.4 27.3 20.1 5.5 185.5Trading profit fromdiscontinued operations - - - - - - 0.8 0.8_______________________________________________________________________________________________________________________ Total trading profit 12.8 41.2 32.2 46.4 27.3 20.1 6.3 186.3_______________________________________________________________________________________________________________________ Year to 31 December 2005 Result before joint venturesand associates 26.4 38.0 25.0 19.5 21.2 13.8 (10.0) 133.9Share of post-tax results ofjoint ventures and associates - 0.2 - - - 2.9 - 3.1_______________________________________________________________________________________________________________________ Operating profit fromcontinuing operations 26.4 38.2 25.0 19.5 21.2 16.7 (10.0) 137.0Loss on revaluation ofcurrency instruments - - - - - - 16.1 16.1Amortisation of intangibleassets on acquisition 0.1 1.3 2.9 11.3 1.3 - - 16.9_______________________________________________________________________________________________________________________ Trading profit fromcontinuing operations 26.5 39.5 27.9 30.8 22.5 16.7 6.1 170.0Trading profit fromdiscontinued operations - - - - - - 7.7 7.7_______________________________________________________________________________________________________________________ Total trading profit 26.5 39.5 27.9 30.8 22.5 16.7 13.8 177.7_______________________________________________________________________________________________________________________ 3. Underlying profit and earnings per share In addition to the information required by IAS 33 (Earnings per share), thedirectors believe that it is helpful to calculate an underlying earnings pershare figure based on profits excluding profits and losses on disposal ofundertakings, amortisation of intangible assets recognised on acquisition andunrealised changes in the fair value of currency derivative instruments. 2006 2005 _________________________________ _________________________________ Continuing Discontinued Continuing Discontinued £m Note operations operations Total operations operations Total_______________________________________________________________________________________________________________ Revenue 1,012.1 3.6 1,015.7 970.3 120.1 1,090.4_______________________________________________________________________________________________________________ Operating profit 188.7 0.8 189.5 137.0 7.7 144.7(Gain) / loss on revaluationof currency instruments (10.8) - (10.8) 16.1 - 16.1Profit on disposal ofundertakings 10 (1.5) - (1.5) - - -Amortisation of intangibleassets arising on acquisition 9.1 - 9.1 16.9 - 16.9_______________________________________________________________________________________________________________ Trading profit 185.5 0.8 186.3 170.0 7.7 177.7Net finance income /(expense) 4 (3.5) 0.1 (3.4) (11.0) 0.3 (10.7)_______________________________________________________________________________________________________________ Underlying profit beforetaxation 182.0 0.9 182.9 159.0 8.0 167.0Taxation charge onunderlying profit (51.0) (0.1) (51.1) (46.0) (1.9) (47.9)Minority interest (0.2) - (0.2) (0.5) - (0.5)_______________________________________________________________________________________________________________ Underlying profit after taxattributable to equityshareholders 130.8 0.8 131.6 112.5 6.1 118.6_______________________________________________________________________________________________________________ Underlying basic EPS (pence) 11.66 10.58Underlying diluted EPS (pence) 11.55 10.53 4. Finance income and expense Continuing Discontinued Total operations operations ________________________________________________ £m 2006 2005 2006 2005 2006 2005____________________________________________________________________________________ Finance income:Bank interest 21.1 10.2 0.1 0.3 21.2 10.5Other interest 0.8 0.4 - - 0.8 0.4Expected return on pension scheme assets 25.3 21.0 - - 25.3 21.0____________________________________________________________________________________ Total finance income 47.2 31.6 0.1 0.3 47.3 31.9____________________________________________________________________________________ Finance expense:Interest on bank overdrafts and loans (27.5) (21.1) - - (27.5) (21.1)Interest on obligationsunder finance leases - (0.9) - - - (0.9)Other interest (0.7) (0.6) - - (0.7) (0.6)Interest on pension schemeliabilities (22.5) (20.0) - - (22.5) (20.0)____________________________________________________________________________________ Total finance expense (50.7) (42.6) - - (50.7) (42.6)____________________________________________________________________________________ Net finance expense (3.4) (10.7)____________________________________________________________________________________ Other interest includes £1,182 (2005: £1,182) paid in respect of non-equitysecond cumulative preference shares. Net finance expense excluding interest on pension schemesamounts to £6.2m (2005: £11.7m). Borrowing costs of £1.6m (2005: £nil) have been capitalised on qualifyingassets at the Group's external borrowing rate. 5. Income tax expense Continuing Discontinued operations operations Total ________________________________________________ £m 2006 2005 2006 2005 2006 2005________________________________________________________________________________ Current tax 43.9 35.9 0.3 5.3 44.2 41.2Deferred tax 6.8 (0.6) (0.2) 0.2 6.6 (0.4)________________________________________________________________________________ Income tax expense for theyear 50.7 35.3 0.1 5.5 50.8 40.8________________________________________________________________________________ The total income tax expense is analysed between UK andoverseas tax as follows: £m 2006 2005________________________________________________________________________________ United Kingdom 33.7 22.8Overseas 17.1 18.0________________________________________________________________________________ Total tax charge for the period 50.8 40.8________________________________________________________________________________ Tax charge included in share of post-tax resultsof joint ventures and associates 1.4 0.9________________________________________________________________________________ Income tax for the UK is calculated at the standard rate of UK Corporation taxof 30% (2005: 30%) of the estimated assessable profit for the year. Taxation forother jurisdictions is calculated at the rates prevailing in the relevantjurisdictions. In addition to the income tax expense charged to the income statement, adeferred tax charge of £8.4m (2005: £16.0m credit) has been recognised in equityin the year as shown in the statement of recognised income and expense. 6. Dividends £m 2006 2005________________________________________________________________________________ Dividends on ordinary shares Final dividend per share for the year ended 31 December2005 (2005: 31 December 2004) 2.40p 2.18p Interim dividend per share for the year ended 31 December 2006 (2005: 31 December 2005) 1.11p 1.01p Total final dividend authorised 27.1 24.5 Total interim dividend authorised 12.6 11.3________________________________________________________________________________ Total dividend authorised 39.7 35.8________________________________________________________________________________ In addition to the above, the directors are proposing a final dividend inrespect of the financial year ended 31 December 2006 of 2.64p per share whichwill absorb an estimated £29.8m of shareholders' funds. This dividend is subjectto approval by shareholders at the Annual General Meeting and has not beenincluded as a liability in these financial statements. If authorised, it will bepaid on 6 July 2007 to shareholders who are on the register of members as at 1June 2007. 7. Earnings per ordinary share From continuing and discontinued operations 2006 2005 ___________________________________ _____________________________________ Weighted Weighted average number Per-share average number Per-share Earnings of shares amount Earnings of shares amount £m million pence £m million pence________________________________________________________________________________________________________________ Basic earnings per share (EPS)Earnings attributable to ordinaryshareholders 148.1 1,128.3 13.13 97.6 1,120.7 8.71 Effect of dilutive securities:Options 10.9 5.7________________________________________________________________________________________________________________Fully dilutedEPS 148.1 1,139.2 13.00 97.6 1,126.4 8.66________________________________________________________________________________________________________________ From continuing operations 2006 2005 __________________________________________________________________________ Weighted Weighted average number Per-share average number Per-share Earnings of shares amount Earnings of shares amount £m million pence £m million pence________________________________________________________________________________________________________________ Basic earnings per share (EPS)Earnings attributable to ordinaryshareholders (as above) 148.1 97.6Earnings from discontinuedoperations (13.8) (7.4) _______ _______ Earnings from continuingoperations 134.3 1,128.3 11.90 90.2 1,120.7 8.05 Effect of dilutive securities:Options 10.9 5.7________________________________________________________________________________________________________________ Fully diluted EPS 134.3 1,139.2 11.79 90.2 1,126.4 8.01________________________________________________________________________________________________________________ 8. Notes to the consolidated cash flow statement Cash flows from operating activities £m Note 2006 2005_________________________________________________________________________________ Profit after taxation for the year 148.3 98.1 Adjustments for:Tax 5 50.8 40.8Finance income 4 (47.3) (31.9)Finance expense 4 50.7 42.6Profit on disposal of undertakings 10 (14.5) (5.6)(Gain) / loss on revaluation of currency instruments (10.8) 16.1Share of post-tax profits of joint ventures andassociates (4.7) (3.1)Depreciation 36.0 44.5Amortisation of intangible assets 9.6 18.2Profit on sale of property, plant and equipment (2.6) (2.1)Pension contributions in excess of pension expenditure (1.9) (3.4)Share-based payments 3.0 2.7_________________________________________________________________________________ Operating cash flows before movements in workingcapital and provisions 216.6 216.9(Decrease) / increase in provisions (16.8) 12.6Increase in working capital (7.4) (19.2)_________________________________________________________________________________ Movements in working capital and provisions (24.2) (6.6)_________________________________________________________________________________ Cash generated from operations 192.4 210.3_________________________________________________________________________________ The 2005 movements in provisions and working capital were impacted by areclassification of £31.2m from working capital to provisions. Reconciliation of net cash flow to movement in net debt £m 2006 2005_________________________________________________________________________________ Increase in cash and cash equivalents in the year 118.7 150.8Repayment of borrowings / (new borrowings) 3.3 (127.2)Borrowings of undertakings sold 9.9 -Exchange movements 37.3 (19.8)_________________________________________________________________________________ Movement in net debt in the year 169.2 3.8 Net debt at beginning of year (168.3) (163.9)Initial application of IAS 21, 32 and 39 - (8.2)_________________________________________________________________________________ Net cash / (debt) at end of year 0.9 (168.3)_________________________________________________________________________________ Net debt as at 31 December 2005 includes £8.3m of net cash in assets held forsale. 9. Acquisitions The acquisitions during the year to 31 December 2006 were as follows: Proportion ofNames of shares businesses Principal Date of acquired Cost of acquired activity acquisition % acquisition ____________________________________________________________________________________________ New subsidiaries Aerodata Flight Inspection and 13 February 2006 100% €6.9mInspection calibration of GmbH aircraft safety systems domo Limited Digital wireless video 14 June 2006 100% £17.8m technology Remaining minority interests in subsidiaries to obtain 100% holding WaveCall Satellite 9 June 2006 25% US$2mCommunications communicationsInc. Flight Precision Inspection and 13 February 2006 49% €4.5mLimited calibration of aircraft safety systems____________________________________________________________________________________________ 10. Disposal of subsidiaries and business operations On 8 March 2006 the Group disposed of Wallop Defence Systems Limited for £33.8m,resulting in a profit on disposal, reported within discontinued operations, of£13.0m. Contingent consideration of £0.6m, which was provided in 2005, has beenpaid out to a purchaser, giving total consideration for discontinued operationsof £33.2m. During the year the Group also disposed of the following businesses: Names of businesses disposed Date of disposal Proceeds of sale__________________________________________________________________________________ Precision Antennas Limited 13 April 2006 £15.4mAtlas Composites Limited 19 May 2006 £0.6mSlingsby Aviation Limited 29 June 2006 £1.7mDrager Aerospace GmbH 26 July 2006 €45.7mChelton Applied Composites AB 10 November 2006 SEK55mChelton Aviation Corporation (closure) 31 December 2006 - __________________________________________________________________________________ These entities do not form a separate line of business for the Group and hencehave been included within continuing operations. The profit on disposal beforetax of £1.5m has been excluded from the trading profit, as detailed in note 3. The profit on disposal can be analysed as follows: _________________________________________________________________________________ Discontinued Continuing £m operations operations Total disposals_________________________________________________________________________________ Gross consideration 33.2 53.0 86.2Loan repayments (2.1) (4.4) (6.5)Net assets at date of disposal (5.6) (46.0) (51.6)Expenses of sale (1.7) (2.2) (3.9)Provisions created on disposal (11.1) (0.9) (12.0)Pension liability curtailment andsettlement gains 0.3 2.4 2.7Transfer from translation reserve - (0.4) (0.4)_________________________________________________________________________________ Profit on disposal before tax 13.0 1.5 14.5Tax credit on profit on disposal - 0.7 0.7_________________________________________________________________________________ Profit on disposal after tax 13.0 2.2 15.2_________________________________________________________________________________ The net cash impact of thedisposals is as follows: Cash consideration 33.2 53.0 86.2Expenses of sale (2.7) (0.9) (3.6)Net overdrafts disposed - 0.9 0.9_________________________________________________________________________________ 30.5 53.0 83.5_________________________________________________________________________________ Contingent consideration totaling £2.9m was also received in relation to thedisposal of FR Countermeasures Inc, which was completed in 2005. 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Cobham