9th Mar 2006 07:02
Cobham PLC09 March 2006 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Cobham plc ("Cobham" or the "Group") today announces strong results for the year. IFRS Basis 2004 2005 ChangeOrders received £1,062.8m £1,318.6m +24.1%Revenue (1) £979.0m £1,090.4m +11.4%Underlying(2) trading margin 15.3% 16.3% +1.0ptsUnderlying(2) profit before tax £142.3m £167.0m +17.4%Underlying(2) earnings per share (3) 9.12p 10.58p +16.0%Basic earnings per share(3) 9.00p 8.71pOperating cash conversion 85% 99% +10.0%Full year recommended dividend per share(3) 3.10p 3.41p (1) Includes continuing and discontinued operations(2) Not IFRS. For definition of "underlying" see Results(3) Restated to reflect the share subdivision of 11 July 2005 2005• Double-digit growth in revenue, underlying operating profit and earnings per share• Strong operating cash conversion of 99%• Successful year for civil and military contract awards• Strategic review announced in September, implementation well underway• Good progress on portfolio reshaping with £158m raised from disposals• REMEC acquisition exceeding profit expectations 2006 2006• Order intake excellent, with A$1bn Coastwatch contract signed• Organic growth prospects strong• Countermeasures disposal agreed Gordon Page, CBE, Chairman, commented,"This has been a successful year and the start of a transformational process. Wehave delivered a strong financial performance, successfully integrated ourlargest acquisition to date and completed a strategic review which is a definingpoint for Cobham. We look with confidence to the future and believe the Group iswell positioned for continued organic and acquisition growth, exploiting andenhancing our leadership across high technology growth segments of the aerospaceand defence market. " ENQUIRIESCobham plc Telephone: +44 (0) 1202 882020Allan Cook, Chief ExecutiveWarren Tucker, Group Financial Director Weber Shandwick Square Mile Telephone: +44 (0) 207 067 0700Susan Ellis or Kirsty Raper Notes: An extract of the preliminary results is attached. A presentation of theresults will be available as a webcast by 4.30pm on 9 March 2006 atwww.cobham.com. INTRODUCTION 2005 was a successful year for Cobham with double-digit growth in revenue, trading profit (formerly underlying operating profit) and earnings per share and an improvement in cash conversion to 99%. Across the Group contracts were won that were significant both in size and market position, and new order intake increased by 24%. The order book now stands at £1.8bn including the new Coastwatch contract. The most significant corporate development of the year was the strategic review, announced in September 2005. It is a defining point for Cobham, setting out a clear strategy for exploiting and enhancing the Group's considerable technology leadership as the aerospace and defence industry continues to evolve worldwide. Implementation of this strategy is proceeding extremely well with good progress in portfolio reshaping and value already being derived from disposals. RESULTS Profit after tax for the period is £98.1m (2004: £100.6m) and earnings per shareare 8.71p (2004: 9.00p). To assist with the understanding of earnings trends, trading profit andunderlying earnings have been defined to exclude the impact of the amortisationof intangible assets recognised upon acquisition and the impact of the markingto market of foreign exchange derivatives not realised in the period. All underlying measures also include the revenue and operational results of bothcontinuing and discontinued businesses until the point of sale, but excludeexceptional profits or losses arising on disposals actually completed during theperiod (1). The results on this basis are as follows: Total revenue comprises the following £m 2004 2005 Unaudited Unaudited--------------------------------------------------------------------------------Revenue from continuing activities 832.3 970.3Revenue from discontinued activities 146.7 120.1--------------------------------------------------------------------------------Total Revenue 979.0 1,090.4-------------------------------------------------------------------------------- Total trading profit comprises the following £m 2004(2) 2005--------------------------------------------------------------------------------Trading profit from continuing activities 143.8 170.0Trading profit from discontinued activities 6.2 7.7--------------------------------------------------------------------------------Total Trading Profit 150.0 177.7-------------------------------------------------------------------------------- (1) Underlying measures would also exclude any impairments of goodwill. Noneexists in 2004 or 2005. (2) During our IFRS conversion project, errors were identified in the accountsof National Jet Systems Pty Ltd that dated back to accounting entries onacquisition in 2000. The errors related to provisions required for heavymaintenance costs and obligations relating to the return of aircraft and enginesunder operating lease contracts. In accordance with IFRS1, these fundamentalprior year errors have been corrected, with the effect that provisions as atJanuary 1st 2004 have been increased by £9.7m, a deferred tax asset of £2.9m hasbeen recognised and opening reserves have been reduced by a net £6.8m. Underlying profit before tax is as follows:£m 2004 2005 Unaudited UnauditedGroup Operating Profit (including discontinued operations) 148.3 144.7Loss on revaluation of currency instruments Not applicable 16.1Amortisation of intangible fixed assets arising on acquisition 1.7 16.9--------------------------------------------------------------------------------Trading Profit 150.0 177.7Net finance expense (including discontinued operations) (7.7) (10.7) --------------------------------------------------------------------------------Underlying Profit before Taxation 142.3 167.0Taxation charge on underlying profit (40.4) (47.9)Minority interest (0.3) (0.5)--------------------------------------------------------------------------------Underlying Profit After Tax Attributable to Equity Shareholders 101.6 118.6--------------------------------------------------------------------------------Underlying EPS 9.12 10.58 The results for the period based on the Group's operations (includingdiscontinued businesses) on an underlying basis are as follows. Revenue for 2005 increased by 11.4% to £1,090.4m (2004: £979.0m). Marginsimproved in Aerospace Systems as operating improvements offset the adverseimpact of transaction exchange and in Chelton margins increased markedly on theback of strong revenue growth, the introduction of new products into full rateproduction and cost efficiencies. Although margins in Flight Operations andServices have normalised following the exceptional result in 2004, this had onlya marginal overall impact due to the division's relative size. Accordingly,Group margins increased in 2005 by 1.0 point to 16.3%. The effective tax rate on underlying profit before taxation is 28.7% (2004:28.4%) reflecting increased presence in North America. Operating cash as apercentage of operating profit was 99% (2004: 85%) as the Group's operationalimprovement programme began to deliver improvements in working capital. Freecash flow generated from business activities, at £122.3m, was 22% higher thanthe same period for 2004. Net debt at the end of the period remained comparablewith the same period in 2004 at £168.4m (2004: 163.9m), following cash inflowsfrom disposals and expenditure on the acquisition of REMEC, Koch and six othersmaller businesses in the year. A final dividend of 2.40p per share has been recommended by the Board (2004:2.18p). Together with the interim dividend of 1.01p per share (2004 - 0.92p)which was paid in December 2005, this represents an increase of 10% compared to2004. Subject to shareholders' approval, the final dividend will be paid on 7July 2006 to all shareholders on the register at 2 June 2006. Cobham is one ofthe few UK quoted companies to have increased annual dividends at 10% orgreater, for more than a decade. CORPORATE DEVELOPMENTS Strategic ReviewThe strategic review announced in September concluded that Cobham would focusmore rigorously on areas where it can exploit and enhance its technologicalleadership in high-growth segments of the aerospace and defence market. Thisstrategy will help Cobham to consolidate and enhance its market leadership,allow for an increase in R&D investment, reinforce the Group's upper quartileaerospace and defence margins and enhance the organic profit growth throughmarket cycles. To achieve these objectives the Group set out a plan which includes portfoliorationalisation, increased collaboration across and within the divisions, aflatter simplified divisional structure and a new Chief Operating Officerfunction with responsibility for driving and co-ordinating efficiencyimprovements in procurement, integration, programme management and workingcapital. Key personnel are already in position with all six divisional headsappointed from within the Group. Furthermore, plans were announced to enhancecapabilities across the organisation in Group functions of strategic marketing,strategic development, mergers and acquisition, human resources, communications,internal audit and legal. We are pleased to report that excellent progress hasbeen made on all fronts. The planning of these activities already provides a high degree of confidencethat technology spend can be increased substantially, from a 2005 level of 5.3%of technology division revenues to 6-7% in the mid term, a 25% increase. Theamount of technology spend capitalised is minimal. Over a three year period,operational improvements and this enhanced technology investment are expected todeliver increases in total profitability and a further step change downwards inworking capital. Acquisitions and DisposalsThe Group has completed eight acquisitions during the year for a total cashconsideration of £189m. The two largest, both in the US, were REMEC Defense &Space in May for US$257m and H. Koch & Sons (Koch) in June for US$51m; both ofthese acquisitions are progressing and performing well. Since the year end, the Group has announced that it acquired the minorityinterest in its 51% owned UK based subsidiary Flight Precision Limited and 100%of Aerodata Flight Inspection GmbH in Germany for €11m. The acquisitions willstrengthen Cobham's market leading position in the highly specialised flightinspection service market, which is growing steadily with the emergence of newairports and equipment upgrades and a trend for military and civil organisationsto outsource flight inspection activities. In line with the Group's strategy, the disposal of the Fluid and Air companiesto Eaton Corporation for £150m was completed in November 2005. This follows theearlier sale of the trade and assets of the Products Division of Cobham FluidSystems. Cobham announces today that it has reached a definitive agreement with EsterlineTechnologies Inc (Esterline) for the disposal of its countermeasures businesses.This includes the sale of Wallop Defence Systems (WDSL) for a maximum totalconsideration of £43.75m in cash, of which £10m is contingent on the futureperformance of WDSL. The Group also announces today that it has sold FRC Inc in Milan, Tennessee toEsterline for £3.2m. This transaction was completed in December 2005, and afurther £2.9m becomes payable once the sale of WDSL is completed. Cobham has continued to review its portfolio of smaller companies. As aconsequence, the decision has been taken to integrate three composite companies(on five sites) into one company (on two sites). The newly named company, CobhamAdvanced Composites, will now form part of the Cobham Antennas Division. Theremaining composite companies Slingsby Aviation, Atlas Composites and AppliedComposites will be sold. Discussions on the sale of Precision Antennas, whichserves the telecommunications industry, are in progress. MARKET IN CONTEXT The UK Defence Industrial Strategy and the Quadrennial Defence Review in the USAhave provided good visibility of priorities for long term development programmesand capability upgrade requirements for existing platforms. USA military budgetscontinue to rise with renewed emphasis on intelligence, communication and theefficient and safe deployment of assets, areas where Cobham is a market leaderfor land, sea and airborne platforms. Defence spending in the USA continues tobe robust for the near term with the DoD budget for financial year (FY) 2007 of$439m, up 7% on FY 2006. Defence budgets across Europe are generally flat, although development contractssuch as the Eurofighter Typhoon, A400M, and Meteor are moving into morepredictable production phases. The announcement that the UK government wouldhelp modernise the Saudi Arabian armed forces is encouraging, with furtherincreases in defence expenditure in the region anticipated as a result of higheroil prices. Good growth in the global market for large commercial jets above 100 seats hascontinued through 2005, with The Boeing Company (Boeing) and Airbus Industrie(Airbus) between them securing over 2100 aircraft in firm orders. This beat the16 year old record set in 1989 of 1631 aircraft and exceeded market forecasts.With air passenger miles increasing by 7% in 2005 and predictions of 6% growthper annum for the next five years, the commercial market should maintain thismomentum with further growth expected particularly in certain regional markets,notably China and India. Cobham will continue to benefit from the growth in aircraft and passengernumbers in the commercial and civil markets, for both fixed and rotary wingaircraft. Customers continue to place a premium on products that enhance thesafety, efficiency and utility of platforms, which align with the Group'stechnology focus. For example, Bell Helicopter's selection of Cobham's syntheticenvironment EFIS as standard equipment on a number of their helicopter productofferings. OPERATING REVIEW Aerospace Systems * 2004 2005Orders received £352.4m £535.6mRevenue £382.0m £374.0mTrading profit £59.3m £60.5mMargin 15.5% 16.2% * Aerospace Systems includes Group Head Office. The Aerospace Systems Group reported relatively flat revenue, with salesimpacted by the disposal of Fluid and Air in November and the acquisition ofKoch. Organic growth in trading profit for the Air Refuelling and AuxiliaryMission Equipment Division was particularly strong and this, together with otheroperational performance improvements, more than offset transaction exchangeheadwind. In Air Refuelling & Auxiliary Mission Equipment Cobham was selected by Airbus tosupply its fourth generation refuelling systems for the tanker versions of theA400M military transport aircraft for Germany, Spain and France. The orderfurther consolidated Cobham's position as the market leader for strategic andtactical air refuelling solutions, with the A400M carrying wing pod dispensingequipment and hose drum units for centreline refuelling operations. Workcontinues on the A330 Multi Role Tanker Transport (MRTT) programme with thepassing of the critical design review for the launch customer in Australia. Major orders were received for Eurofighter Typhoon tranche two weapons carriageand release products for deliveries over the next five years. Cobham is thedesign authority for the platform's defensive aid chaff and flare systems whichhave now entered into service after extensive qualification testing. In the USA, a further low rate initial production order was received to provideBoeing with the BRU-61/A pneumatic weapons carriage release system assembly. Thefirst weapon integrated on the carriage will be the Boeing Small Diameter Bomb,with the US Air Force planning to use the carriage to deliver a family ofminiature munitions in the future. In Life Support, completion of the acquisition of Koch has provided Cobham witha complementary range of personal survival equipment. Since acquisition, thebusiness has won important orders for restraints to be fitted to the US Army'sTank-automotive and Armament Command (TACOM) fleet of High Mobility MultipurposeWheeled Vehicles (HMMWV). The Group won a major order to supply Passenger Service Units for the Boeing 787aircraft which integrates the electronic unit including wiring, reading lights,air outlet and emergency oxygen. The summer of 2005 saw the first widespread use of Cobham's Air WarriorMicroclimate Cooling System by US Army Helicopter pilots during operations inIraq and the delivery of the first Boeing C-17 Globemaster III Airlifter fittedwith Cobham's On Board Inert Gas Generating System (OBIGGS). In the USA an initial order for an advanced joint water-activated release system(JWARS) was received from the Naval Air Systems Command. JWARS is designed toreplace current release systems that enable aircrew to automatically separatefrom their parachutes upon landing in the sea. Ultimately, the device will befitted on all USN/USMC ejection seat equipped aircraft and increase the breadthof Cobham's life support business with the US military. Flight Operations & Services 2004 2005Orders received £261.5m £152.7mRevenue £188.5m £197.1mTrading profit £22.0m £17.2mMargin 11.7% 8.7% The Flight Operations and Services Group reported revenue up 5% and tradingprofit down 22% as margins normalised following the exceptional result in 2004.This result reflects higher bid costs, fuel price increases for outsourcedflying for the Australian resource industry and lower profitability on therenewed Qantas contract. In Military Training the upgrade of the Falcon 20 fleet of aircraft to glasscockpit was completed ahead of schedule, with 14 aircraft converted and fullyoperational. Discussions on EW training needs for the Eurofighter Typhoon havecommenced. In Special Mission Flight Operations Cobham was awarded preferred bidder statusin 2005 for the prestigious Australian Coastwatch contract. On 3 March 2006 aA$1bn, 12 year contract was subsequently signed to provide key elements of aborder patrol service to the Australian government. Under the new contractCobham will provide, operate and maintain an updated fleet of ten Dash 8aircraft through to the year 2020, starting in January 2008. It is Cobham'sbiggest single order to date and underlines the Group's surveillance expertisein an increasingly demanding network-centric environment. In Aircraft Engineering new business was won with a 20 year contract to supportthe UK fleet of E-3D Sentry Airborne Warning and Control System (AWACS) aircraftat RAF Waddington. Cobham is a member of a team that provides logistics supportunder the E-3D Sentry Whole Life Support Programme, with the team led byNorthrop Grumman and including BAE Systems and the AAR Corporation, with thefirst aircraft already successfully put back into service. The E-3D Sentrycontract award represents good organic growth, and together with Cobham'ssupport of the Nimrod fleet at RAF Kinloss brings the total number of militarybases with Cobham contracted personnel to five. In Outsourced Commercial Aviation a new two year freight contract was signedwith Australian air Express, a joint venture between Qantas and Australia Post,to continue operating five B727s and a contract was finalised to operate andmaintain a fleet of eight Boeing 717s on behalf of Qantas in Australia. Chelton 2004 2005Orders received £448.8m £626.8mRevenue £408.5m £519.2mTrading profit £71.0m £102.5mMargin 17.4% 19.7% Chelton had a very strong year and reported revenue up 27% and trading profit up44%. As well as the acquisition of REMEC, this performance is underpinned bydouble-digit organic growth in revenue and trading profit. This performance hasbeen driven by a relentless focus on technology investment manifesting itself innew products being available to meet customer demand and cost effectiveness. In Antennas the A400M aircraft has become a major platform for Cobham'scommunications and navigation antennas with selection by EADS CASA to supplyphased array electronically steerable SATCOM antenna. In the USA Cobham was selected by Boeing to supply communications and data linkantennas for the avionics modernisation programme for the C130 for standard andSpecial Operations configurations. An agreement was reached with Rockwell Collins to supply Traffic CollisionAvoidance Antennas for a further five years and the first deliveries were madeof high speed data SATCOM systems for Embraer and Gulfstream aircraft forinstallation on new aircraft. The SATCOM system provides an office-in-the-skycapability. Cobham's innovative, small footprint interference cancellation product mINCAN(R)was selected by the US Army and won acceptance onto the US Coastguard Rescue 21program, commencing volume manufacture. Wider military interest continues to beshown as the product is a fraction of the size of previous systems which aredeployed at sea and in fixed ground installations. In Avionics and Surveillance one of the most significant successes for Cobhamwas the selection by Bell helicopters to supply its synthetic environmentElectronic Flight Instrument System (EFIS) as standard equipment on a number oftheir Helicopter product offerings. This is the first major Original EquipmentManufacturer (OEM) success for the EFIS. It is anticipated that there will be astrong upgrade and retrofit market. Significant orders were received from the US Army for tactical communicationsequipment and sales of the COSPAS-SARSAT compliant search and rescue beaconproducts for military and civil markets were strong. In Europe, the A400M became a major platform for the division with selection tosupply both the audio management and passenger address systems. Defence Electronic Systems recorded excellent growth in the period and this isanticipated to continue with the light vehicle variant of the ROVIS vehicleintercom system for the US military being the largest contributor. Many of thenewly equipped vehicles are destined for Iraq and Afghanistan. Following the acquisition of REMEC in May 2005, the financial performance hasbeen strong and above expectations. REMEC increased Cobham's presence on keyplatforms including the F-35, F-18 Growler, DDX Multi-Mission Surface Combatantship, Common Data Link, Aerial Common Sensor, the US Coastguard Deepwaterprogramme and Global Hawk Uninhabited Aerial Vehicle (UAV) platform. Since acquisition, significant orders have been received for the US F/A22 and anumber of missile programmes. These include unique RF (radio frequency) andmicrowave modules that are used in the radar, electronic warfare and integratedcommunications, navigation and identification (CNI) systems on the F/A-22. OUTLOOK Cobham's proven and developing technologies position it well to take advantageof the evolution and growth of the aerospace and defence market, where it servesa wide range of civil and military customers. The Group will continue toallocate resources to areas of competitive advantage and to foster the longestablished entrepreneurial spirit across the organisation, whilst pursuing costand collaboration efficiencies. Cobham will secure additional benefits from portfolio reshaping and theoperating performance improvement programme, and investment in R&D. The Groupcontinues to seek acquisitions and to dispose of some smaller companies, both ofwhich will enhance shareholder value. 2006 has started well, with strong order intake including the new A$1bnCoastwatch contract. The Board remains confident about the Group's organicgrowth prospects and looks forward to continued progress in 2006. ENQUIRIESCobham plc Telephone: +44 (0) 1202 882020Allan Cook, Chief ExecutiveWarren Tucker, Group Financial Director Weber Shandwick Square Mile Telephone: +44 (0) 207 067 0700Susan Ellis or Kirsty Raper Notes: An extract of the preliminary results is attached. A presentation of theresults will be available as a webcast by 4.30pm on 9 March 2006 atwww.cobham.com. Consolidated Income StatementFor the Year ended 31 December 2005 --------------------------------------------------------------------------------£m Note 2005 2004--------------------------------------------------------------------------------Continuing Operations Revenue 2 970.3 832.3Cost of sales (682.2) (593.4)--------------------------------------------------------------------------------Gross Profit 288.1 238.9 Selling and distribution costs (54.7) (46.1) Administrative expenses (83.4) (53.3) Share of post-tax results of joint ventures and associates 3.1 2.6-------------------------------------------------------------------------------- 153.1 142.1--------------------------------------------------------------------------------Comprising Trading Profit from Continuing Operations 3 170.0 143.8 Amortisation of Intangible assets arising on acquisition (16.9) (1.7) -------------------- 153.1 142.1--------------------------------------------------------------------------------Loss on revaluation of currency instruments (16.1) ---------------------------------------------------------------------------------Operating Profit 137.0 142.1 Finance income 4 31.6 23.4Finance expense 4 (42.6) (31.1)--------------------------------------------------------------------------------Profit on Continuing Operations before Taxation 126.0 134.4Tax on continuing operations (35.3) (38.1)--------------------------------------------------------------------------------Profit on Continuing Operations after Taxation 90.7 96.3 Discontinued OperationsProfit after taxation from discontinued operations 7.4 4.3--------------------------------------------------------------------------------Profit after Taxation for the Year 98.1 100.6-------------------------------------------------------------------------------- Profit attributable to equity shareholders 97.6 100.3Profit attributable to minority interests 0.5 0.3--------------------------------------------------------------------------------Profit after Taxation for the Year 98.1 100.6-------------------------------------------------------------------------------- Earnings per Ordinary Share 6 -basic 8.71p 9.00p -fully diluted 8.66p 8.94p Earnings per Ordinary Share from Continuing Operations -basic 8.05p 8.61p -fully diluted 8.01p 8.55p Consolidated Balance SheetAs at 31 December 2005 --------------------------------------------------------------------------------£m Note 2005 2004--------------------------------------------------------------------------------ASSETSNon-Current AssetsIntangible assets 528.1 405.6Property, plant and equipment 202.8 237.8Investment properties 4.0 4.1Investments in joint ventures and associates 14.7 14.2Trade and other receivables 8.5 7.3Derivative financial instruments 4.5 -Deferred taxation assets 6.8 --------------------------------------------------------------------------------- 769.4 669.0--------------------------------------------------------------------------------Current AssetsInventories 167.2 183.9Trade and other receivables 208.5 221.9Corporation tax 2.1 2.2Derivative financial instruments 1.7 -Cash and cash equivalents 251.8 176.0Assets classified as held for sale 18.1 --------------------------------------------------------------------------------- 649.4 584.0--------------------------------------------------------------------------------LIABILITIESCurrent LiabilitiesBorrowings (276.9) (188.6)Trade and other payables (174.2) (209.7)Derivative financial instruments (3.5) -Corporation tax (48.1) (45.4)Provisions 8 (42.7) (2.2)Liabilities classified as held for sale (14.2) --------------------------------------------------------------------------------- (559.6) (445.9)--------------------------------------------------------------------------------Non-Current LiabilitiesBorrowings (151.6) (151.3)Trade and other payables (7.8) (11.4)Derivative financial instruments (2.0) -Deferred taxation liabilities (8.8) (16.1)Provisions 8 (20.9) (24.7)Retirement benefit obligation (81.0) (69.1)-------------------------------------------------------------------------------- (272.1) (272.6)-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Net Assets 587.1 534.5--------------------------------------------------------------------------------Capital and ReservesCalled up share capital 28.1 27.9Share premium account 87.5 81.6Translation reserve 13.0 (11.4)Other reserves 11.3 4.8Retained earnings 445.7 430.3--------------------------------------------------------------------------------Total Shareholders' Equity 585.6 533.2Minority interest in equity 1.5 1.3--------------------------------------------------------------------------------Total Equity 587.1 534.5-------------------------------------------------------------------------------- Consolidated Cash Flow StatementFor the Year ended 31 December 2005 --------------------------------------------------------------------------------£m Note 2005 2004--------------------------------------------------------------------------------Cash flows from Operating ActivitiesCash generated from operations 7 210.3 164.7Corporation taxes paid (39.2) (22.9)Interest paid (23.6) (11.6)Interest received 11.9 4.3--------------------------------------------------------------------------------Net Cash from Operating Activities 159.4 134.5-------------------------------------------------------------------------------- --------------------------------------------------------------------------------Net Cash used in Investing Activities 7 (101.9) (108.4)-------------------------------------------------------------------------------- Cash flows from Financing ActivitiesIssue of share capital 6.1 4.9Dividends paid (35.8) (32.3)Dividends paid to minority interests (0.3) (0.3)Increase in borrowings 136.1 4.5Repayment of obligations under finance leases (12.8) (4.4)--------------------------------------------------------------------------------Net Cash from/(used in) Financing Activities 93.3 (27.6)-------------------------------------------------------------------------------- Net increase in Cash and Cash Equivalents 150.8 (1.5) Cash and Cash Equivalents at start of Year 101.4 106.1Initial application of IFRS hedging rules (7.6) ---------------------------------------------------------------------------------Cash and Cash Equivalents at start of Year as restated 93.8 106.1 Exchange movements 2.0 (3.2)--------------------------------------------------------------------------------Cash and Cash Equivalents at end of Year + 246.6 101.4-------------------------------------------------------------------------------- + Cash and cash equivalents include £8.3m cash held in discontinued businesses. Statement of Recognised Income and ExpenseFor the Year ended 31 December 2005 --------------------------------------------------------------------------------£m 2005 2004-------------------------------------------------------------------------------- Profit after Taxation for the Year 98.1 100.6Net translation differences on investments in overseas subsidiaries 3.2 (1.3)Actuarial loss on pensions (46.5) (4.7) Movement on deferred tax relating to pension liability 14.0 1.4Net fair value gain on cash flow hedge 1.7 -Movement on deferred tax relating to cash flow hedge (0.5) ---------------------------------------------------------------------------------Net expenses recognised directly in equity (28.1) (4.6)--------------------------------------------------------------------------------Total Recognised Income for the Year 70.0 96.0-------------------------------------------------------------------------------- 1. Basis of preparation The attached unaudited financial information is the Group's first full yearfinancial information following the adoption of International FinancialReporting Standards (IFRS). This information has been prepared in accordancewith IFRS adopted for use within the European Union, in accordance with EuropeanUnion law (IAS Regulation EC 1606/2002). As allowed by IFRS 1 "First Time Adoption of IFRS" the group adopted IAS 32"Financial Instruments: Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" from 1 January 2005. Therefore until31 December 2004, the Group continued to account in accordance with UK GAAP itsforeign currency contracts and related transactions, interest rate swaps and netinvestments in overseas subsidiaries. Accordingly the 2004 comparative has notbeen restated. The Group has elected to early adopt the December 2004 amendments to IAS19. Inparticular, the Group has adopted a policy of recognising all actuarial gains and losses for all of its defined benefit plans in the period in which they occur, outside profit and loss, in the statement of recognised income and expenditure. The Group has determined that the portfolio hedging mechanism that it utilisesto cover its forward currency exposures is the most appropriate commercial response to the nature of the risks faced. Due to the volume of transactions involved, it is not practical to track individual hedge instruments to individual transactions and therefore the Group is not able to hedge account its future foreign exchange transactions under IAS 39. As required by the standard, these instruments are recorded on the balance sheet at fair value on transition and movements in fair value recorded through the income statement. Hedge accounting is undertaken for hedges associated with interest rate derivative instruments. On 6 June 2005 the Group published an analysis of the impact of adopting IFRSfrom 1 January 2004. During the Group's IFRS conversion project, errors were identified in the accounts of National Jet Systems Pty Ltd that dated backto accounting entries on acquisition in 2000. The errors related to provisionsrequired for heavy maintenance costs and obligations relating to the return ofaircraft and engines under operating lease contracts. In accordance with IFRS1, these fundamental prior year errors have been adjusted on transition, withthe effect that provisions as at 1 January 2004 have been increased by £9.7m, a deferred tax asset of £2.9m has been recognised and opening reserves adjusted by a net £6.8m. In addition some minor adjustments have been made to the IFRS conversion to reflect reclassification more accurately and the amended reconciliations are available on the Cobham web site at www.cobham.com or by application to the company. The financial information set out in this statement does not constitute theGroup's statutory accounts for the years ending 31 December 2005 and 31 December2004. The auditors have not yet reported on the statutory accounts for2005. Statutory accounts for 2004 have been delivered to the Registrar ofCompanies on a UK GAAP basis. The auditors have reported on the 2004 accounts;their reports were unqualified and did not contain any statement under section237(2) or (3) of the companies act 1985. The 2005 accounts will be delivered tothe registrar of Companies in due course. 2. Analysis by business segment For management purposes during 2005, the Group was organised into three operating divisions; Aerospace Systems, Chelton and Flight Operations & Services. These divisions are the basis on which the Group reports its primary segment information. Principal activities are as follows: Aerospace Systems Air refuelling equipment, life support systems, fluid & air distribution and countermeasuresChelton Antennas, aircraft communication and navigation equipmentFlight Operations & Services Operation and maintenance of aircraft in aerospace and defence markets Head Office costs associated with Group operations are included within theAerospace Systems division, with the exception of bid costs associated with the Future Strategic Tanker Aircraft (FSTA) project and losses associated with the revaluation of currency instruments, which have been shown separately. The following reflects the results for the continuing businesses by businesssegment: £m 2005 2004-------------------------------------------------------------------------------- Revenue Aerospace Systems and Group 253.9 235.3 Chelton 519.2 408.5 Flight Operations & Services 197.2 188.5-------------------------------------------------------------------------------- 970.3 832.3-------------------------------------------------------------------------------- Operating Profit Aerospace Systems and Group 51.6 53.1 Chelton 86.8 69.3 Flight Operations & Services 17.2 22.0 FSTA bid costs (2.5) (2.3) Loss on revaluation of currency instruments (16.1) --------------------------------------------------------------------------------- 137.0 142.1-------------------------------------------------------------------------------- The following additional information analyses total Group revenue and tradingprofit by segment Revenue Aerospace Systems and Group - Continuing Operations 253.9 235.3 Aerospace Systems and Group - Discontinued Operations 120.1 146.7 Chelton 519.2 408.5 Flight Operations & Services 197.2 188.5-------------------------------------------------------------------------------- 1,090.4 979.0-------------------------------------------------------------------------------- Trading Profit Aerospace Systems and Group Operating Profit from Continuing Operations 51.6 53.1 Operating Profit from Discontinued Operations 7.7 6.2 Amortisation of intangible assets arising on acquisition 1.2 --------------------------------------------------------------------------------- 60.5 59.3-------------------------------------------------------------------------------- Chelton Operating Profit from Continuing Operations 86.8 69.3 Amortisation of intangible assets arising on acquisition 15.7 1.7-------------------------------------------------------------------------------- 102.5 71.0-------------------------------------------------------------------------------- Flight operations & Services Operating Profit from Continuing Operations 17.2 22.0 Amortisation of intangible assets arising on acquisition - --------------------------------------------------------------------------------- 17.2 22.0--------------------------------------------------------------------------------Total Trading Profit by Segment 180.2 152.3 FSTA Bid Costs (2.5) (2.3)--------------------------------------------------------------------------------Group Trading Profit 177.7 150.0-------------------------------------------------------------------------------- 3. Underlying profit and earnings per share In addition to the information required by IAS33, the directors believe that itis helpful to calculate an underlying earnings per share figure based on profitsexcluding gains and losses on disposal of undertakings, amortisation of intangible fixed assets recognised on acquisition and unrealised change in fair value of currency derivative instruments. 2005 2004 -------------------------------------- ------------------------------------£m Continuing Discontinued Total Continuing Discontinued Total---------------------------------------------------------------------------------------------------------------Revenue 970.3 120.1 1,090.4 832.3 146.7 979.0---------------------------------------------------------------------------------------------------------------Operating Profit 137.0 7.7 144.7 142.1 6.2 148.3Loss on revaluation of currency instruments 16.1 - 16.1 - - ----------------------------------------------------------------------------------------------------------------Trading Profit 170.0 7.7 177.7 143.8 6.2 150.0 Net finance income/(expense) (11.0) 0.3 (10.7) (7.7) - (7.7)---------------------------------------------------------------------------------------------------------------Underlying Profit before Taxation 159.0 8.0 167.0 136.1 6.2 142.3Taxation charge on underlying profit (46.0) (1.9) (47.9) (38.5) (1.9) (40.4)Minority interest (0.5) - (0.5) (0.3) - (0.3)---------------------------------------------------------------------------------------------------------------Underlying Profit AfterTax Attributable to Equity Shareholders 112.5 6.1 118.6 97.3 4.3 101.6---------------------------------------------------------------------------------------------------------------Underlying EPS (basic) (p) 10.58 9.12 4. Finance income and expense Continuing operations Discontinued operations Total-----------------------------------------------------------------------------------------------------------------£m Note 2005 2004 2005 2004 2005 2004----------------------------------------------------------------------------------------------------------------- Interest income:Bank interest 10.2 4.2 0.3 0.2 10.5 4.4Other interest 0.4 0.7 - - 0.4 0.7Expected return on pension scheme assets 21.0 18.5 - - 21.0 18.5-----------------------------------------------------------------------------------------------------------------Total interest income 31.6 23.4 0.3 0.2 31.9 23.6----------------------------------------------------------------------------------------------------------------- Interest expense:Interest on bank overdrafts and loans (21.1) (10.4) - (0.1) (21.1) (10.5)Interest on obligations under finance leases (0.9) (0.7) - - (0.9) (0.7)Interest on other borrowings (0.6) (1.6) - (0.1) (0.6) (1.7)Interest on pension scheme liabilities (20.0) (18.4) - - (20.0) (18.4)-----------------------------------------------------------------------------------------------------------------Total interest expense (42.6) (31.1) - (0.2) (42.6) (31.3)-----------------------------------------------------------------------------------------------------------------Net interest expense (10.7) (7.7)----------------------------------------------------------------------------------------------------------------- Interest on other borrowings includes £1,182 (2004: £1,182) paid in respect of non-equity second cumulative preference shares. In the analysis of interest expense for discontinued businesses, intra-group loans have been eliminated. 5. Dividends--------------------------------------------------------------------------------£m 2005 2004--------------------------------------------------------------------------------Dividends on ordinary sharesFinal dividend per share for the year ended 31 December 2004 (2004: 31 December 2003) 2.18p 1.98pInterim dividend per share for the year ended 31 December 2005 (2004: 31 December 2004) 1.01p 0.92p Total final dividend authorised 24.5 22.0Total interim dividend authorised 11.3 10.3--------------------------------------------------------------------------------Total dividend authorised 35.8 32.3-------------------------------------------------------------------------------- In addition to the above, the directors are proposing a final dividend inrespect of the financial year ended 31 December 2005 of 2.4p per share whichwill absorb an estimated £27.0m of shareholders' funds. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. If authorised, it will be paid on 7 July 2006 to shareholders who are on the register of members as at 6 June 2006. On 8 July 2005 the ordinary shares of Cobham plc were subdivided such that eachexisting ordinary share was replaced by ten new ordinary shares. The subdivisionof share capital has been made to improve liquidity in the trading of Cobham plcshares. Comparative information has been restated to reflect this subdivision. 6. Earnings per ordinary share From continuing and discontinued operations -------------------------------------------------------------------------------------------------------------------- 2005 2004 Weighted Weighted average average number of Per-share number of Per-share Earnings shares amount Earnings shares amount £m million pence £m million pence--------------------------------------------------------------------------------------------------------------------Basic Earnings per Share (EPS)Earnings attributable to ordinary shareholders 97.6 1,120.7 8.71 100.3 1,114.5 9.00 Effect of dilutive securitiesOptions 5.7 7.0Long term incentive plans - 0.7--------------------------------------------------------------------------------------------------------------------Fully Diluted EPS 97.6 1,126.4 8.66 100.3 1,122.2 8.94-------------------------------------------------------------------------------------------------------------------- From continuing operations-------------------------------------------------------------------------------------------------------------------- 2005 2004 Weighted Weighted average average number of Per-share number of Per-share Earnings shares amount Earnings shares amount £m million pence £m million pence--------------------------------------------------------------------------------------------------------------------Basic Earnings per Share (EPS)Earnings attributable to ordinary shareholders 90.2 1,120.7 8.05 96.0 1,114.5 8.61 Effect of dilutive securities Options 5.7 7.0Long term incentive plans - 0.7--------------------------------------------------------------------------------------------------------------------Fully Diluted EPS 90.2 1,126.4 8.01 96.0 1,122.2 8.55-------------------------------------------------------------------------------------------------------------------- From discontinued operations Basic earnings per share for the discontinued operations is 0.66 pence per share(2004:0.39p per share) and diluted earnings per share for the discontinued operations is 0.66 pence per share (2004: 0.39p per share), based on the profit for the yearfrom the discontinued operations of £7.4m (2004: £4.3 m) and the share data above for both basic and diluted earnings per share. 7. Notes to the Consolidated IFRS Cash Flow Statement --------------------------------------------------------------------------------£m Note 2005 2004-------------------------------------------------------------------------------- Cash flows from Operating Activities Profit after Taxation for the Year 98.1 100.6Adjustments for:Tax 40.8 40.0Finance income (31.9) (23.6) Finance expense 42.6 31.3Profit on disposal of undertakings (5.6) -Loss on revaluation of currency instruments 16.1 -Share of post tax profits from joint ventures and associates (3.1) (2.6) Depreciation 44.5 42.6Amortisation of intangible fixed assets 18.2 3.3Profit on sale of property, plant and equipment (2.1) - Pension expenditure in excess of cash contributions (3.4) (7.3) Share based payments 2.7 1.2--------------------------------------------------------------------------------Operating cash flows before movements in working capital and provisions 216.9 185.5 Other provisions 12.6 (3.7)Increase in working capital (19.2) (17.1)--------------------------------------------------------------------------------Increase in working capital and provisions (6.6) (20.8)--------------------------------------------------------------------------------Cash generated from Operations 210.3 164.7-------------------------------------------------------------------------------- Cash flows from Investing Activities Dividends received from joint venture 1.2 5.0Proceeds on disposal of property, plant and equipment 6.4 1.1Purchase of property, plant and equipment (38.9) (40.6)Purchase of intangible fixed assets (4.0) (0.2)Acquisition of subsidiaries net of cash acquired (189.0) (69.5)Disposal of undertakings 149.4 -Payment of deferred consideration (2.3) -Investment in joint ventures and associates 1.0 (4.3)Capitalised expenditure on development costs (1.7) (0.1)Special pension contribution (24.0) -Short term investments held for sale - 0.2--------------------------------------------------------------------------------Net Cash used in Investing Activities (101.9) (108.4)-------------------------------------------------------------------------------- Reconciliation of Net Cash Flow to Movement in Net Debt --------------------------------------------------------------------------------£m 2005 2004-------------------------------------------------------------------------------- Increase/(decrease) in cash in the year 150.8 (1.5)Increase in debt and lease financing (127.2) (4.6)Exchange movements (19.8) (3.2)--------------------------------------------------------------------------------Movement in Net Debt in the Year 3.8 (9.3) Net Debt at beginning of Year (163.9) (154.6)Initial application of IFRS hedging rules (8.2) ---------------------------------------------------------------------------------Net Debt at beginning of Year as restated (172.1) (154.6)--------------------------------------------------------------------------------Net Debt at end of Year + (168.3) (163.9)-------------------------------------------------------------------------------- + Cash and cash equivalents and net debt include £8.3m net cash held in discontinued businesses 8. Provisions --------------------------------------------------------------------------------£m Total-------------------------------------------------------------------------------- At 1 January 2005 26.9Reclassification * 31.2Additional provisions in the year 22.5Utilisation of provisions (15.5)Unused amounts reversed in the year (8.2)Acquired on acquisitions of subsidiaries 8.2Disposed with undertakings (2.1)Foreign exchange adjustment 0.6--------------------------------------------------------------------------------At 31 December 2005 63.6-------------------------------------------------------------------------------- £m 2005 2004--------------------------------------------------------------------------------Analysed as:Current liabilities 42.7 2.2Non-current liabilities 20.9 24.7-------------------------------------------------------------------------------- 63.6 26.9--------------------------------------------------------------------------------* During the year the directors considered that reclassification of certainbalances from other balance sheet categories, primarily creditors, to provisionswas appropriate to more properly reflect the nature of the liabilities involved. 9. Acquisition of subsidiaries The following acquisitions took place during the year to 31 December 2005: --------------------------------------------------------------------------------------------------------------------Names of businesses Proportion of Cost of acquired Principal activity Date of acquisition shares acquired % acquisition--------------------------------------------------------------------------------------------------------------------Remec Defense and Space Inc Active microwave 20 May 2005 100% US $257m Vector Fields Limited Antenna development 14 June 2005 100% £2m WA Systems Limited Battlefield systems 20 January 2005 100% £1m cash £2m contingent considerationMastsystem International Oy Land antennas 1 February 2005 100% €12m TCRMA Components 31 January 2005 100% €0.5m H Koch & Sons Life saving devices 23 June 2005 100% US $51m Microwave Development Company Microwave 15 July 2005 100% US $14m TracStar Inc Satellite communication 19 September 2005 remaining 60% $7m $2m contingent consideration-------------------------------------------------------------------------------------------------------------------- The following acquisition took place after the Balance Sheet date and before approval of these Financial Statements: Inspection & calibration Aerodata Flight of aircraft safety Inspection GmbH systems. 11 January 2006 100% €11m The transaction was for the equity of Aerodata Flight Inspection GmbH and the minority interest in the 51% owned subsidiary, Flight Precision Ltd. The consideration paid related to both elements. 10. Discontinued Operations During the year, the board have decided to dispose of various businessoperations, in line with the Group strategy to focus on key markets andvalue-added technologies. On 28 June 2005 the board decided to dispose of the Group's countermeasuresoperations and the process has now been completed. FR Countermeasures Inc was sold on 23 December 2005, accordingly this has been treated as a disposal in these Financial Statements. On 8 March 2006 a definitive agreement was signed to sell Wallop Defence Systems Ltd and this is therefore classified as a disposal group held for sale and presented separately in the balance sheet. The operations are included in the Aerospace Systems division in the Group's segmental analysis. The proceeds of disposal of the remaining operations exceeded the book value of the related net assets and accordingly no impairment losses have been recognised on the classification of these operations as held for sale and their results are reported within discontinued operations. On 27 June 2005 an announcement was made to dispose of the Cobham Fluid Systemsproducts division, which produces specialist fluids and gases for non-airborneapplications. The disposal of this division was completed on 1 August 2005, onwhich date control of the division's operations passed to the acquirer. On 13 September 2005 an announcement was made to dispose of the Fluid and Airgroup of companies. The group designs and manufactures hydraulic andair distribution assemblies, composite struts and shafts, and fuel pumps andfuel components. The disposal was finally completed on 17 November 2005, onwhich date control of the whole of the Fluid and Air group operations passed tothe acquirer. Details regarding the disposals completed in the year are shown below: The consideration for these disposals is as follows: ------------------------------------------------------------------------------------------------------------------- FR Cobham Fluid Fluid and Air Countermeasures Systems£m Group Inc products division Total disposals-------------------------------------------------------------------------------------------------------------------- Cash 150.0 0.6 7.9 158.5- Contingent consideration (1.7) 2.9 - 1.2------------------------------------------------------------------------------------------------------------------- 148.3 3.5 7.9 159.7------------------------------------------------------------------------------------------------------------------- The profit on disposal can be analysed as follows: Total consideration 148.3 3.5 7.9 159.7Net assets at date of disposal (134.2) (11.2) (7.0) (152.4)Expense of sale (including cancellation of foreign exchange contracts) (7.0) (0.5) (0.2) (7.7)Pension liability curtailment 6.0 - - 6.0-------------------------------------------------------------------------------------------------------------------Gain/(loss) on disposal 13.1 (8.2) 0.7 5.6------------------------------------------------------------------------------------------------------------------- 11. Post balance sheet events The purchase of the equity of Aerodata Flight Inspection GmbH and the minorityinterest in the Group's 51% owned subsidiary, Flight Precision Ltd, was agreedsubject to various conditions on 11 January 2006. The transaction was completedon 13 February 2006. On 8th March 2006 the Group reached a definitive agreement with EsterlineTechnologies Inc for the disposal of its countermeasures businesses. Thisincludes the sale of Wallop Defence Systems (WDSL) for a maximum totalconsideration of £43.75m in cash, of which £10m is contingent on the futureperformance of WDSL. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Cobham