6th Mar 2008 07:00
Cobham PLC06 March 2008 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 6 March 2008 Cobham plc, a trusted global partner in leading Aerospace and Defencetechnologies, today announces full year results: 2006 2007 Change Increase in order book £215.1m £163.2mTotal revenue(1) £1,015.7m £1,061.1m +4.5%Underlying(2) trading margin 18.3% 18.7% +0.4%ptsUnderlying(2) profit before tax £182.9m £206.5m +12.9%Underlying(2) earnings per share (EPS) 11.66p 13.09p +12.3%Basic earnings per share 13.13p 11.61pOperating cash conversion(3) 84.3% 81.1%Full year recommended dividend per share 3.75p 4.50p +20% • Order book up to £1.8bn (2006: £1.6bn) with increased order intake in all Technology Divisions • Technology Divisions achieve 13.2% organic revenue growth in healthy Aerospace and Defence markets • Robust Group margin after increase in company funded Research and Development to 6.3% (2006: 6.0%) of Technology Divisions' revenue • Underlying EPS growth up to 12.3% (15.9% at constant translation exchange) • US$750m of investment announced in five accretive acquisitions, adding 20% to pro forma Group revenue and giving US revenue of US$1.4bn • Cash conversion and balance sheet remain strong, providing headroom for additional investment • Full year dividend increased by 20% Gordon Page, CBE, Chairman, commented, "Cobham has had another excellent year. We have delivered accelerated, doubledigit organic growth with additional strategic progression through acquisitions.We are delighted to have been selected with Northrop Grumman on the US Air Forcetanker programme, which is a strategic win that will embed us on another hightechnology programme and help us enhance our future growth further. Given thestrength of the order book and the healthy state of our markets we are confidentof achieving our growth targets in 2008." ENQUIRIES Cobham plc +44 (0)1202 857738 (on 6 March)Allan Cook, Chief Executive +44 (0)1202 882020Warren Tucker, Chief Financial Officer +44 (0)1202 882020Julian Wais, Director of Investor Relations +44 (0)1202 857998 Weber Shandwick Financial +44 (0)207 067 0700Susan Ellis, Louise Robson PRELIMINARY RESULTS PRESENTATION AND WEBCAST There will be a preliminary results presentation at 09.30 on Thursday, 6 March2008, which will be held at Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ, UK. The results presentation will be webcast and will be available by 4.30pm on 6 March on the Cobham website (www.cobham.com) and will remain on the website for subsequent viewing. The published Annual Report will be available as a download file on Thursday, 8 April 2008. The following notes apply throughout this report: 1. Total revenue includes the results of both continuing and discontinued operations up to the point of disposal. For 2006, discontinued operations consisted of the results of Wallop Defence Systems, sold in March 2006. Other businesses disposed of but not classified as discontinued in 2006 included Precision Antennas (April 2006) and DrTM?ger Aerospace (July 2006).2. To assist with the understanding of earnings trends, the Group has included within its published statements trading profit and underlying earnings results. Trading profit and underlying earnings have been defined to exclude the impacts of the amortisation of intangible assets recognised on acquisition, fair value adjustments to inventory on acquisition, the marking to market of foreign exchange derivatives not realised in the period and impairments of goodwill. There has been no impairment to goodwill in the current or comparative periods. Trading profit and underlying earnings exclude portfolio restructuring costs, which comprise exceptional profits or losses arising on disposals actually completed during the period, as well as exceptional costs or profits associated with the restructuring of the Group's business and property portfolio. Trading profit and underlying earnings also exclude direct costs associated with exceptional terminated acquisitions. All underlying measures include the revenue and operational results of both continuing and discontinued businesses until the point of sale.3. Operating cash flow is defined as cash generated from operations, adjusted for cash flows from the purchase or disposal of fixed assets. Operating cash conversion is defined as operating cash flow as a percentage of trading profit, excluding profit from joint ventures. GROUP REVIEW Strategy Highlights • The Group's strategy has already resulted in organic revenue growth expectations in the Technology Divisions increasing from mid single digit to high single digit percentage per annum • Cobham has now streamlined its Technology Divisions so it can provide a more coherent and integrated set of products and capabilities to customers, in response to their needs • Investment in people and capability has resulted in an increasingly robust and simplified organisation capable of delivering faster organic growth, further facility integration and the integration of larger acquisitions • Cobham has announced five acquisitions for approximately US$750m in total that will add value to Cobham's businesses by exploiting synergies between complementary products and creating new growth and market opportunities. The Group's acquisition criteria continue to be strategic fit, differentiated products and capabilities, growth and a strong return on invested capital. These criteria have been stringently applied, even if this has meant that certain strategically attractive acquisition opportunities have not been realised • While the Group remains confident it can complete further acquisitions from its active pipeline, it will only continue to pursue its acquisition strategy where this creates value for shareholders • The Group remains focused on achieving an efficient capital structure • There has been a one off step change in the 2007 full year dividend, resulting in a 20% increase on the comparable period. The existing progressive dividend policy is expected to be maintained subject to future trading performance Divisional Integration Cobham has continued to progress the implementation of its strategy and hasconsolidated its six divisions into four to achieve the following business andcommercial advantages: • Broader scope for technology development, increased potential for synergies from the integration of operating units • Greater management strength in depth at the divisional level • Significantly enhanced US sales and marketing • More extensive use of the Cobham brand name The success of Cobham's strategy to date has positioned Avionics & Surveillanceand Defence Electronic Systems to achieve low double digit percentage organicrevenue growth per annum over the medium term with mid single digit organicgrowth from Cobham Mission Systems. This growth will be enhanced by the US AirForce (USAF) tanker programme. The Group is well placed to take advantage of theexciting opportunities that the consolidated divisional structure presents andaspires to outperform these divisional growth expectations. Cobham's businessefficiency programme, to identify integration and other cost savings, willcontinue and will provide funds for reinvestment into private venture (PV orcompany funded research and development) expenditure, sales and marketing andother growth enablers. Key Performance Indicators (KPIs) Cobham has delivered another year of excellent progress resulting in accelerateddouble digit organic revenue growth and underlying EPS growth with good cashgeneration. The financial KPIs used to measure Group performance are as follows: KPI 2006 2007 Annual Target Actual Actual________________________________________________________________________________Technology Divisions' organic revenue growth 5.8% 13.2% High single digit Underlying EPS Growth 10.7% 15.9% High single digit(at constant translation exchange rates) Operating cash conversion 84.3% 81.1% >80% PV investment 6.0% 6.3% 7% in medium term________________________________________________________________________________ Orders The Group has taken advantage of healthy demand across its markets and ended theyear with an order book of some £1.8bn (2006: £1.6bn) which underpins futurerevenue growth. The order book for both the Technology Divisions at £0.8bn(2006: £0.7bn) and Cobham Aviation Services at £1.0bn (2006: £0.9bn) increasedstrongly. Headline order intake at £1.2bn (2006: £1.4bn) was down on 2006 due to more than£0.3bn of orders received by Cobham Aviation Services in 2006 relating to theSentinel contract. Excluding Sentinel, Group order intake increased 11.9% overthe prior year. Each of the three Technology Divisions increased their orderintake during the year with the book to bill ratio being in aggregate over 1.1times. Organic Growth The proportion of revenue generated by the Group from the US, whose importantdefence market is the world's largest and which continues to grow, increased to47% (2006: 46%, at constant translation exchange 44%). Cobham's ongoing successin the US remains a primary driver behind the future growth prospects of theGroup. As a result of excellent positions on a variety of US platforms andprogrammes, the proportion of Group revenue generated in the US will continue togrow organically in 2008 and beyond. Details of some of these positions are setout later in the Divisional Review section. The Group is also looking to support organic growth through increased focus on anumber of faster growth countries and regions, including India and the MiddleEast. Cobham's presence in India is being expanded with a New Delhi office beingopened, in addition to the existing office in Bangalore. Cobham has recruited asenior official from the former UK Defence Export Services Organisation, who haslived in India for many years and is a specialist in Indian affairs, to run theNew Delhi office. This office will facilitate increased access to the IndianMinistry of Defence and government officials who are pivotal to the aerospaceand defence markets in that country. The Group has already had success in 2007with sales of its buddy refuelling system on the Su-30 fighter. Cobham is alsoat an advanced stage of negotiation with a Middle East customer that, ifsuccessful, will result in a multi year contract, providing a base for furthergrowth in the region. Increasing company funded investment in technology is key to the success ofCobham's strategy. Accordingly, PV expenditure increased to £55.0m (2006:£49.3m) representing some 6.3% (2006: 6.0%) of the Technology Divisions'revenue, steadily approaching the medium term target of 7%. Additionally, therewas a significant amount of externally funded research and developmentexpenditure so that total research and development continues to exceed 10% ofrevenue. The Group's investment in technology aims to deliver leading edgeproducts whose future success can drive Cobham's revenue growth. These includethe Eagle tactical networked radio, low cost digital video for law enforcementand intelligence customers, new audio equipment for the Airbus A350 aircraft,the TAC-G2 military Vehicle Intercom System, the next generation of microwaveintegrated circuits and support on a number of unmanned air and ground vehicleprogrammes. The Group announced on 29 February 2008 that its all digital hose and droguerefuelling pods are to be used on the Northrop Grumman KC45A, which has beenselected by the USAF for its multibillion dollar tanker programme. It isanticipated that the total value of the air refuelling equipment to Cobham overthe life of the programme will be up to $1bn, enhancing the Group's organicgrowth in the medium term. Cobham is also currently bidding on the US Army VIS-Xprogramme, for the next generation of vehicle intercom systems. Success on thiscontract could also enhance Cobham's organic growth. Cobham Defence ElectronicSystems as the incumbent supplier on this programme, through its prime contractrelationship with Northrop Grumman, has successfully secured a separate US$54maward from the US Army, which has also been announced on 6 March 2008, for thecurrent digital VIC-3 vehicle intercom system. In June 2007, the UK Government approved the Public Finance Initiative solutionfor the FSTA programme. The AirTanker consortium, in which Cobham has a 13.3%shareholding, is looking to complete the financing competition as a next stepwith focus on imminent closure. During the year, the consolidation of the diving products business based inMississauga, Canada, into existing facilities in Iowa, USA and the integrationof the antennas business based in Southampton, UK, into the new purpose designedfacility in Marlow, UK, were completed. The project to redevelop the Wimborne,UK site of Cobham Mission Systems has been continuing, with contracts exchangedon the sale of surplus land and the process for submitting planning applicationswell under way. The redevelopment of the Wimborne site is being used to furtherreconfigure the unit's manufacturing operations, including the outsourcing ofless value added work and increased use of business lean practices. Included inthe plans for the site is the establishment of an engineering and manufacturingCentre of Excellence. To date portfolio restructuring has produced exceptionalincome of £25.9m which, after taking into account the exceptional costs incurredin 2007, leaves cumulative exceptional net profits from the strategicrestructuring programme of £12.5m. Acquisitive Growth A key element of the Group's strategy is acquisitive growth, using Cobham'sbalance sheet capacity and cash generative businesses to fund acquisitions.Since the beginning of 2007, Cobham has acquired or agreed to acquire five highquality businesses for a total investment of approximately US$750million.Further details of these acquisitions are contained within the DivisionalReview. These acquisitions strengthen the Group's market positions, enhance keytechnologies and add value to Cobham's businesses by exploiting synergiesbetween complementary products and creating new growth and market opportunities. Taken as a whole, this acquisition activity increases the Group's US presencesignificantly. On a pro forma basis, after the impact of acquisitions, thepercentage of Group revenue in the US in 2007 would have been approximately 54%or US$1.4bn. The acquisitions are expected to be immediately earnings enhancingand it is anticipated each will be increasingly accretive over time as they growin line with the Technology Divisions. Board On 19 November 2007, Cobham announced the appointment of David Turner as anindependent Non-executive Director and Deputy Chairman. Mr Turner will take overas Chairman of Cobham in succession to Gordon Page at the conclusion of theAnnual General Meeting on 7 May 2008. Mr Page will remain a Non-executiveDirector of Cobham until he retires from the Board in November 2008. Alex Hannamretired from the Board on 31 December 2007. The Board would like to take thisopportunity to thank him for his valued contribution to Cobham over the years. SUMMARY AND OUTLOOK Cobham has had a year of accelerated double digit organic revenue growth, doubledigit improvement in underlying earnings and good cash generation. It is wellpositioned to benefit from the investment it has made in technology andcapabilities and the continued healthy demand in the Group's markets. Cobhamintends to continue to focus on revenue and earnings growth through increasedinvestment in PV, focus on sales and marketing and the development of employees.The Group is determined to take advantage of the exciting opportunitiespresented by its new consolidated divisions and, as a result of these changes,aspires to outperform current divisional organic growth expectations. Cobham'sbusiness efficiency programme, to identify integration and other cost savings,will continue and will provide funds for reinvestment into PV and other growthenablers. The Group has also made sound progress in the execution of its acquisitionstrategy since the start of 2007, agreeing to buy five high quality businessesfor approximately US$750m in total. Cobham retains considerable financingcapacity and remains confident that it can complete further acquisitions fromits active pipeline. However, it will only continue to pursue its acquisitionstrategy where this creates value for shareholders. Given the strength of Cobham's order book and the healthy state of the Group'smarkets, the Board is confident of achieving its growth targets in 2008. FINANCIAL REVIEW 2006 2007__________________________________________________________________________________Trading profit is calculated as follows:£mResult before joint ventures 184.0 160.0Share of post-tax results of joint ventures 4.7 5.8__________________________________________________________________________________Operating profit from continuing operations 188.7 165.8Adjusted to exclude: (Gain)/loss on portfolio restructuring (1.5) 9.5 Unrealised (gain)/loss on mark to market of currency instruments (10.8) 5.7 Costs of terminated acquisition - 3.9 Amortisation of intangible assets arising on acquisition 9.1 13.9__________________________________________________________________________________Trading profit from continuing operations 185.5 198.8Trading profit from discontinued operations 0.8 -__________________________________________________________________________________Trading profit (underlying operating profit) 186.3 198.8__________________________________________________________________________________ Underlying profit before tax is calculated as follows:£mProfit on continuing operations before taxation 185.2 173.5Adjusted to exclude: (Gain)/loss on portfolio restructuring (1.5) 9.5 Unrealised (gain)/loss on mark to market of currency instruments (10.8) 5.7 Costs of terminated acquisition - 3.9 Amortisation of intangible assets arising on acquisition 9.1 13.9__________________________________________________________________________________Underlying profit before taxation from continuing operations 182.0 206.5Underlying profit before taxation from discontinued operations 0.9 -__________________________________________________________________________________ Underlying profit before taxation 182.9 206.5__________________________________________________________________________________ Profit after tax used in the calculation of underlying EPS iscalculated as follows:£mProfit after taxation attributable to equity shareholders 148.1 131.7Adjusted to exclude (after tax): (Gain)/loss on portfolio restructuring (15.2) 0.8 Unrealised (gain)/loss on mark to market of currency instruments (7.6) 4.0 Costs of terminated acquisition - 2.7 Amortisation of intangible assets arising on acquisition 6.3 9.2__________________________________________________________________________________Underlying profit after tax 131.6 148.4__________________________________________________________________________________Underlying earnings per ordinary share (pence) 11.66 13.09__________________________________________________________________________________ Reporting of Divisional Results For the year ended 31 December 2007, the Group is reporting its results and allcomparative data according to the new consolidated divisional structure asfollows: • Cobham Avionics & Surveillance • Cobham Defence Electronic Systems • Cobham Mission Systems • Cobham Aviation Services Group Revenue Total Group revenue in the year increased by 4.5% to £1,061.1m (2006: £1,015.7m)driven by double digit organic growth, which was partly offset by currencytranslation and the effect of net business disposals in 2006. Technology Divisions - Revenue The biggest driver of organic growth has been the Technology Divisions, whichachieved excellent organic revenue growth of 13.2% (2006: 5.8%). An analysis ofthe major changes in the Technology Divisions' revenue is as follows: 2006 FX Disposals Acquisitions Organic Growth 2007 Translation________________________________________________________________________________ £816.6m -£41.0m -£21.3m +£7.6m +£107.8m £869.7m -5.0% -2.6% +0.9% +13.2%________________________________________________________________________________ Average 2006 US$/£ exchange rate = $1.84/£1. Average 2007 US$/£ exchange rate =$2.00/£1. Group Trading Profit Group trading profit increased by 6.7% to £198.8m (2006: £186.3m), which wasagain driven by strong organic growth, partly offset by currency translation andtransaction exposure. The Group's underlying trading margin increased by 0.4%points to 18.7% (2006: 18.3%) due to a number of factors, including thecontinued focus on operational improvement and the prior year disposal oflower-margin businesses, partly offset by currency translation and increased PVspending. Technology Divisions - Trading Profit The key driver behind trading profit in the Technology Divisions, whichincreased to £180.3m (2006: £162.5m), was organic growth of 14.6% (2006: 7.3%),with all three Technology Divisions achieving strong organic growth. An analysisof the major changes in the Technology Divisions' trading profit is as follows: 2006 FX Disposals Acquisitions Organic Growth 2007 Translation________________________________________________________________________________ £162.5m -£6.6m -£0.7m +£1.4m +£23.7m £180.3m -4.1% -0.4% +0.9% +14.6%________________________________________________________________________________ Cobham Aviation Services - Revenue and Trading Profit Cobham Aviation Services achieved organic revenue growth of 2.5%*, consistentwith the medium term expectations for this division and strong organic tradingprofit growth of 8.0%, with trading profit increasing to £21.9m (2006: £20.1m). * Organic revenue growth has been adjusted for the loss in 2006 of Qantas 'passthrough' lease revenue as it introduced its own aircraft for Cobham to operate.The loss of this revenue has no impact on profit. Net Finance Income and Underlying Profit Before tax Net finance income was £7.7m (2006: expense £3.4m). Net interest on cash anddebt holdings has moved from a net expense of £6.2m in 2006 to net income of£2.3m in 2007, as a result of the Group's 2005 and 2006 disposal programme andgood cash generation in the year. The net finance credit from pension schemeswas £5.4m (2006: £2.8m), with the improvement being based on the increased valueof pension scheme assets at 31 December 2006. In 2008, this net finance creditwill be substantially lower due to the prevalent conditions at 31 December 2007.Underlying profit before tax was up 12.9% at £206.5m (2006: £182.9m). Tax Rate On an underlying basis the effective tax rate for the year was 28.8% (2006:28.7%). The underlying tax rate is calculated by dividing the Group's underlyingtax charge by its underlying profit before tax, excluding the share of post-taxresults of joint ventures. It is anticipated that in 2008 the underlying tax rate will increase modestly,as profits in the US increase as a proportion of the total due to higher USorganic growth and the impact of US based acquisitions, offsetting the lower UKtax rate. EPS The strong organic revenue growth, improved margins and net interest incomeresulted in an increase in underlying EPS of 12.3% to 13.09p (2006: 11.66p) orby 15.9% at constant translation exchange rates. The reduction in expensed FSTAbid costs, compared to the prior year, contributed 0.9% to underlying EPSgrowth. Basic EPS was lower than the comparable period at 11.61p (2006: 13.13p) due toincreased amortisation of intangible assets arising on acquisition of £13.9m(2006: £9.1m) and unrealised losses of £5.7m (2006: gain £10.8m) on the mark tomarket of currency instruments. In addition, the Group reported a £5.8m profitin 2007 on disposal of undertakings, compared to a 2006 net profit on disposalof £13.0m. In 2007 the Group incurred £3.9m (2006: nil) of terminatedacquisition costs and £9.5m (2006: gain £1.5m) of portfolio restructuring andintegration costs, consistent with the Group's strategic plan and priorguidance. Cash Flow Operational cash inflow in the year after capital expenditure and that PVexpenditure which is expensed in the income statement but before the payment oftax, interest and dividends received from joint ventures was £156.6m (2006:£153.0m) representing 81.1% (2006: 84.3%) of trading profit before the Group'sshare of post-tax results of joint ventures. This was an excellent performancein a year with strong organic growth and significant capital expenditurerelating to the purchase of aircraft for the Sentinel contract in Australia.Since the commencement of the operational improvement programme in 2005, theGroup has delivered cumulative working capital efficiencies of £10 million,derived from emphasis on lean manufacturing techniques and improved debtorcontrol. These efficiencies are expected to accelerate as the UK FSTA,Australian and A400M air refuelling programmes are delivered. After the payment of restructuring costs, tax, net interest and dividendsreceived from joint ventures, the Group generated free cash flow of £133.9m(2006: £103.8m), which increased primarily due to the Group moving from netinterest paid to net interest received and due to lower tax payments made. Fromfree cash flow, the Group invested a net £17.7m (2006: net inflow £61.1m) onacquisitions and paid dividends of £43.8m with the balance, net of foreignexchange movements and share issue proceeds, increasing year end net cash. At the end of the year, the Group had net cash balances of £77.9m (2006: £0.9m).It is the Group's policy to hold a significant proportion of its borrowings inforeign currency, principally US dollars, as a natural hedge against US dollarand other currency denominated assets and earnings from overseas subsidiaries.At the year end, assuming completion of the S-TEC, Lansdale and SPARTAacquisitions, net debt would have been approximately £253m, on a pro formabasis. The Group has secured US$700m of funding for the acquisitions agreed todate at attractive rates, in line with the average cost of Cobham's existingborrowing arrangements. Cobham retains considerable financing capacity. Pensions The Group operates a number of defined benefit pension schemes, the mostsignificant being the Cobham Pension Plan. The most recent actuarial valuationfor this scheme was carried out at 1 April 2006 and this has been updated foraccounting purposes to 31 December 2007. At this date, the Group's net liabilityafter deferred tax relating to its defined benefit schemes had increased to£26.8m (2006: £20.7m). A major driver behind this increase was more conservativemortality assumptions, in line with good practice for FTSE100 companies. Dividend The Group's strong financial performance in recent years has resulted inCobham's dividend cover increasing. Given the Group's confidence in itsprospects and the reliability of its underlying cash flows, the Board hasdecided to make a one off step change in the 2007 dividend to shareholders.Consequently, the Board has declared a 2007 final dividend of 3.28p (2006:2.64p). Together with an interim dividend of 1.22p (2006: 1.11p), which was paidon 13 December 2007, this will result in a total dividend of 4.50p (2006: 3.75p)per share, a 20% increase on the comparable period. Subject to Cobham's futuretrading performance and financial position, the Board expects to maintain itsexisting progressive dividend policy. The final dividend will be paid on 1 July2008, to all shareholders on the register at 30 May 2008, dependent uponshareholder approval. DIVISIONAL REVIEW Cobham is reporting its full year results according to its recently announcedconsolidated divisional structure. Total Revenue Organic Trading Profit 2006 2007 Revenue Growth 2006 2007_______________________________________________________________________________£mTechnology Divisions 816.6 869.7 13.2% 162.5 180.3Margin 19.9% 20.7% Cobham Aviation Services 188.4 192.5 2.5% 20.1 21.9Margin 10.7% 11.4%_______________________________________________________________________________ Operating Divisions 1,005.0 1,062.2 182.6 202.2 Discontinued, OtherBusinesses & 10.7 (1.1) 7.0 (1.9)Head OfficeFSTA Bid Costs - - (3.3) (1.5)_______________________________________________________________________________ Cobham Group 1,015.7 1,061.1 10.8% 186.3 198.8Margin 18.3% 18.7%_______________________________________________________________________________ Cobham Avionics & Surveillance The Division has been enlarged by Cobham Antennas' commercial and SATCOMbusiness being absorbed into Cobham Avionics & Surveillance. £m 2006 2007 Organic Revenue Growth______________________________________________________________________________Revenue 281.0 326.9 17.5%Trading profit 45.9 51.9______________________________________________________________________________ This Division has delivered excellent organic revenue growth in the year andbroadly maintained the record margins achieved in 2006. The avionics, search,Law Enforcement and National Security (LENS) and SATCOM businesses all showedgrowth. Highlights • Robust growth in the sale of avionics products • Increasing security concerns led to record sales in the LENS businesses • Good orders received for marine and air SATCOM antennas Tactical radio sales and aircraft digital intercom systems continued to seerobust growth throughout the year as public safety organisations worldwideincrease spending on communication equipment. Search and rescue productsbenefited from large military orders. The demand for avionics products developedunder PV programmes remains robust, particularly for rotary wing equipment, withthe Division continuing to secure positions with Original EquipmentManufacturers (OEMs). In addition, Cobham was selected by L-3 Communications tosupply the US Navy with a comprehensive 'Cobham cockpit' suite of avionicsequipment for the TH-57 training helicopter retrofit programme. Cobham's French businesses capitalised on excellent opportunities for the saleof avionics and precision engineered components into Airbus, Eurocopter andother OEMs. Special mission helicopters and fixed wing military trainerscontinue to drive growth for avionics products. Increasing security concerns around the globe led to record sales in the LENSbusiness. Wireless digital video and audio surveillance technologies and covertsubject and internet surveillance products continue to be actively sought byrobotics OEMs, government, military, and civil security and intelligenceorganisations. PV programmes have been initiated to meet customer demand for integratedsurveillance systems, from 'smart' filtering of data from the perimeter tocomputer aided content analysis at the centre. The Division now suppliesvirtually all digital video and control links used on US robotic ImprovisedExplosive Device disposal platforms. A multimillion dollar SATCOM antenna order was secured in August from maritimebroadband provider, Ship Equip AS of Norway. Ship Equip selected Cobham'santennas because of their quality and durability in demanding environments suchas the North Sea. The antennas will provide ships with fixed cost internet andemail and low cost voice over internet protocol telephone lines. A new range ofcoastal marine antenna systems for television reception at sea was launched.With three versions, these antennas provide higher gain and improved 3-axismovement control for better stability in severe sea conditions. The Federal Aviation Administration approved the HGA-7001 High Gain SATCOMantenna, for use in cockpit communication and passenger internet and othercommunications applications, making it eligible for installation on anycommercial aviation platform. This antenna has been selected by Rockwell Collinsand Boeing for the 787, 747-8 and 777 programmes and to date is the onlyARINC-781 (the standard that defines the next generation of smaller, lighterweight fuselage-mounted antenna) compliant antenna that has achieved thisstatus. Airlines that have already adopted the antenna include Qatar, Emirates,KLM and Air France. On 28 August 2007, the acquisition of Patriot Antenna Systems (Patriot) wascompleted for a cash consideration of US$18m, with additional cash considerationof up to US$27 million, contingent on future performance. The business is basedin Michigan, USA and designs and manufactures parabolic antennas and a range ofspecialist Radio Frequency (RF) equipment. Patriot provides products, technologyand capabilities that can be exploited across Cobham's antenna businesses,particularly in the growing US government and military Satellite On The Movemarkets. On 2 January 2008 the acquisition of S-TEC Corporation (S-TEC), a company basedin Texas, USA, was completed for a cash consideration of US$38m. S-TEC designs,certifies and manufactures autopilots for general aviation aircraft.Increasingly avionics suppliers need to be able to supply autopilots to theircustomers, as the market is moving towards integrating these with otherproducts, such as Cobham's Electronic Flight Instrumentation System displays, tosave weight, wiring and integration costs. Cobham Defence Electronic Systems The Division has been enlarged by the military and aerospace business of CobhamAntennas being absorbed into Cobham Defence Electronic Systems. £m 2006 2007 Organic Revenue Growth______________________________________________________________________________Revenue 300.7 299.9 8.4%Trading profit 71.7 74.8______________________________________________________________________________ Cobham Defence Electronic Systems achieved another year of strong organicgrowth, after an exceptional 2006 performance. Headline results were impacted bythe 2006 disposal of Precision Antennas and by currency translation. Highlights • Cobham Defence Communications received its second Queen's Award for Enterprise • Significant orders for antenna and intercom products were received for US ground vehicles, including Mine Resistant Ambush Protected (MRAP) vehicles • Excellent microwave module positions on F-22 tactical fighter and growing positions on the F-35, Joint Strike Fighter • Completion of the Sensor and Antenna Systems Lansdale (Lansdale) acquisition and the agreement to purchase SPARTA Inc (SPARTA) Cobham Defence Communications was awarded its second Queen's Award forEnterprise for a 300% increase in exports of digital Vehicle Intercom Systemsover the past 3 years. Sales of these products have continued to grow, includingdeliveries for the latest MRAP vehicles in the USA and deliveries to eight newinternational customers. A new Integrated Digital Soldier System (IDSS) providing Command, Control,Communications and Situational Awareness capability to the infantryman went intoservice with the British Army and formed the basis of the Future InfantrySoldier Technology C4I Light system successfully trialled in 2007. The EagleClose Combat Radio was launched, which is compatible with the IDSS, following acollaborative development with ERA Technology, part of Cobham's Avionics &Surveillance Division. Significant development programmes were secured for the US ballistic missiledefence system, high reliability integrated space modules, helicopter radarsystem upgrades and new applications on existing manned reconnaissance aircraftand unmanned aircraft such as the Global Hawk. Follow-on orders were received for the F-22 Radar, EW and Communication,Navigation and Identification systems, as well as the F-18 Radar & EW systems,and the F-16 EW. Further research and development funding was secured forapplications including the AARGM missile and various F-16 and F-18 aircraftavionics systems. Development contracts were also awarded for the second phaseof the USAF Scaleable Panel for Efficient Affordable Radars programme andadditional Digital Receiver Exciter contracts for phased array radar systems.The Division now has well established positions on the F-22 tactical fighterwith over 150 microwave modules per aircraft in production and almost 100modules per aircraft already in development for the F-35 Joint Strike Fighter,with this number growing. The Division's aftermarket business was strengthenedwith a $20m multi-year spares and repairs contract with the USAF for F-15, F-16and C-130 aircraft. Subsystem growth was evident in the supply of commercial weather radar antennas,military search and surveillance radars, waveguide pallet assemblies and frontend assemblies for ground based SATCOM terminals. There was also strong organicgrowth for ground communication antennas, including SATCOM and high bandwidthdata link, and EW antenna systems. Two contracts were received for a total of circa 7,000 ultra high frequencySATCOM antennas for MRAP vehicles, with orders for a similar quantity expectedin 2008. Shipments of telescoping masts for use in combat conditions rose by 50%in 2007 to nearly 8,000 units, with orders from the US Marines, the Ukraine,Romania and India. In the UK, the Division was selected to supply Direction Finding equipment andnavigation/communication antennas for the AgustaWestland Future Lynx programme.Cobham will provide complete tailfin assemblies for 70 aircraft utilisingcomposite technology with integrated, conformal antennas. The completion of the acquisition of Lansdale, based in Pennsylvania, USA, wasannounced for a cash consideration of US$240m on 25 February 2008. Lansdale is aworld leading developer of Electronic Warfare (EW) technology and supplier of EWsubsystems for military aircraft. The acquisition is highly complementary to theexisting Cobham Defence Electronic Systems US microwave business bringingadditional subsystem product and resource and will accelerate Cobham's plans toestablish itself as a premier RF front end subsystem provider. On 16 January 2008, the agreement to purchase SPARTA, a company run fromWashington DC, USA was announced for a cash consideration of US$416m. Theacquisition is subject to regulatory and SPARTA shareholder approvals and isexpected to complete towards the end of the second quarter of 2008. SPARTA willtransform Cobham's position in the high growth US intelligence market and willadd technology focused systems engineering and support capabilities forthrough-life programmes across defence markets. The acquisition of SPARTArepresents a major step forward in Cobham's technology strategy, as asignificant integrated business supplying the US Department of Defense andIntelligence needs. Cobham Mission Systems Cobham Mission Systems was formed from a combination of the Life Support and AirRefuelling and Auxiliary Mission Equipment Divisions. £m 2006 2007 Organic Revenue Growth______________________________________________________________________________Revenue 253.1 262.8 13.9%Trading profit 44.9 54.1______________________________________________________________________________ Cobham Mission Systems delivered excellent organic growth. As previously guided,the air refuelling business began to return to its long term growth trend withmargins normalising and the order book reaching a record level. Headline revenuewas adversely impacted by the 2006 disposal of DrTM?ger Aerospace and by theimpact of currency translation. Highlights • First deliveries for the Royal Australian Air Force marks delivery of Cobham's 1,000th air refuelling system • Exceptionally strong sales of High Mobility Multipurpose Wheeled Vehicle (HMMWV) Improved Restraint Systems • Record sales and order intake for microclimate cooling systems First deliveries have been made to EADS-CASA for the Royal Australian Air ForceA330 Multi-role Tanker and Transport aircraft marking the delivery of Cobham's1,000th air refuelling system. The same 90X pod type, developed under PV, isoffered for the UK FSTA and the US Northrop Grumman KC-45A solutions. The Division started to make deliveries against the 16 shipsets ordered toprovide buddy store refuelling for the Su-30 fast jet aircraft. Revenue for the754 buddy store is expected to continue alongside sales of the Su-30 aircraftover the next five years. The telescopic probe for the V-22 Osprey tilt-rotoraircraft entered full rate production with a multi-year buy contract fordeliveries to 2017. The Division secured an important development contract tosupply telescopic probe hardware for the F-16 conformal air refuelling tanksystem. This programme will enable the F-16 aircraft to demonstrate probe anddrogue compatibility - a key requirement for the upcoming Indian Air ForceMedium Multi-Role Combat Aircraft competition. Full rate production of the BRU-61/A Small Diameter Bomb (SDB) carriage systemand Tranche 2 deliveries of the Eurofighter Typhoon aircraft system havecommenced. The order book for both programmes was significantly enhanced withthe award from Boeing for SDB Lot 4 and from BAE Systems for Saudi Arabia. On Board Inert Gas Generating System follow on orders were received for the C-17aircraft with new contracts for the CH-53K helicopter and VH-71 Presidentialhelicopter. Initial deliveries for the Boeing 787 aircraft fuel tank inertingsystem, which was developed with PV funding, were completed on schedule. The HMMWV Improved Restraint System programme for the US Army's Tank-automotiveand Armament Command fleet of HMMWVs was exceptionally strong, securing neworders to retrofit an additional 20,000 ship sets with ongoing productionincreasing the installed base to 100,000 vehicles. The Division will look toleverage this success to new requirements for MRAP vehicles and JLTV. The Division had record sales and order intake for microclimate cooling systemsas new orders continued for the US Army Air Warrior application and the productwas successfully adapted to a new ground vehicle application in the Strykerarmoured vehicle. Over 5,000 microclimate cooling systems have been fielded withthe US Army by the year end. On 10 December 2007, the acquisition of the assets and intellectual property ofAssociated Design and Development Electronics Inc (ADDE) was completed for acash consideration of US$5m. ADDE is a market leader in miniature linearcryogenic cooler products used in military and commercial infrared systems forobservation, guidance, targeting and missile warning detection and will enable afully optimised cryocooler-controller subsystem to be offered to customers. Thebusiness will be integrated into Cobham's Mission Systems unit in Iowa, USAduring the first half of 2008. Cobham Aviation Services Cobham Aviation Services is the renamed Cobham Flight Operations and Services. £m 2006 2007 Organic Revenue Growth______________________________________________________________________________Revenue 188.4 192.5 2.5%Trading profit 20.1 21.9______________________________________________________________________________ Cobham Aviation Services' revenue grew in line with medium term expectations.Trading profit was up strongly due to engineering modification programmesoccurring in the second half and a strong performance in the FBH Heliservices(FBH) Joint Venture. Highlights • The Australian Sentinel contract commenced service on schedule • A five year expanded agreement, worth up to AUS$300m, secured with Qantas • Strategic NATO Air Warfare contract secured for mainland Europe The AUS$1bn Sentinel contract commenced with the new Dash 8 aircraft deliveredaccording to schedule, to enhance the capabilities of the Australian BorderPatrol Command operation from January 2008. The aircraft have been extensivelymodified by Cobham's engineers to accommodate new electro-optics, infraredsensors, radars and satellite communications, forming a system which is morecapable than the military assets of many of the world's air forces. In total,approximately AUS$2.5m of Cobham sensor and communications equipment isinstalled on these aircraft. In the first quarter an agreement worth up to AUS$300m was secured to operateQantaslink's entire operational fleet of 11 B717 aircraft for five years,expanding the fleet from eight aircraft.The Australian business continues to grow with new and repeat orders from themining and resource industry. A 17-year relationship with Santos, one ofAustralia's most prominent oil and gas companies, was strengthened with a fiveyear extension to provide a larger 84-seat aircraft. A strategic win for the Air Warfare training business was achieved in December2007 with the award of a NATO EW training contract. This contract will help topromote the Group's services throughout Europe and support advancing growthopportunities in the Middle East. An agreement has been reached with Hawker Beechcraft for Cobham AviationServices to be their UK civil and military modification centre which willcomplement the Division's special mission modification capability. FBH had another excellent year, winning a significant order for £65m to providea further four helicopters to the UK Ministry of Defence for 20 years andrenewing a £9m contract to operate aircraft in Cyprus. AgustaWestland joined theteam of FBH, Bristow Helicopters and Serco bidding for the harmonised UK Searchand Rescue contract. Forward Looking Statements Nothing in this press release should be construed as a profit forecast or beinterpreted to mean that the future earnings per share of Cobham willnecessarily be the same as, or greater than, the earnings per share forcompleted financial periods. This document contains 'forward-looking statements' with respect to thefinancial condition, results of operations and business of Cobham and to certainof Cobham's plans and objectives with respect to these items. Forward-looking statements are sometimes but not always identified by their useof a date in the future or such words as 'anticipates', 'aims', 'due', 'could','may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal',or 'estimates'. By their very nature, forward-looking statements are inherentlyunpredictable, speculative and involve risk and uncertainty because they relateto events and depend on circumstances that may or will occur in the future. There are various factors that could cause actual results and developments todiffer materially from those expressed or implied by these forward-lookingstatements. These factors include, but are not limited to, changes in theeconomies, political situations and markets in which the Group operates; changesin government priorities due to programme reviews or revisions to strategicobjectives: changes in the regulatory or competition frameworks in which theGroup operates; the impact of legal or other proceedings against or which affectthe Group; changes to or delays in programmes in which the Group is involved;the completion of acquisitions and divestitures and changes in exchange rates. All written or verbal forward-looking statements, made in this document or madesubsequently, which are attributable to Cobham or any other member of the Groupor persons acting on their behalf are expressly qualified in their entirety bythe factors referred to above. Cobham does not intend to update theseforward-looking statements. Consolidated income statementFor the year ended 31 December 2007 £m Note 2007 2006________________________________________________________________________________Continuing operationsRevenue 2 1,061.1 1,012.1Cost of sales (717.3) (679.2)________________________________________________________________________________Gross profit 343.8 332.9Selling and distribution costs (61.3) (57.1)Administrative expenses (116.8) (102.6)Share of post-tax results of joint ventures 5.8 4.7Unrealised (loss) / gain on revaluation of currencyinstruments (5.7) 10.8________________________________________________________________________________Operating profit 2 165.8 188.7Finance income 5 49.0 47.2Finance expense 5 (41.3) (50.7)________________________________________________________________________________Profit on continuing operations before taxation 173.5 185.2Tax on continuing operations 6 (47.3) (50.7)________________________________________________________________________________Profit on continuing operations after taxation 126.2 134.5Discontinued operationsProfit after taxation from discontinued operations 10 5.8 13.8________________________________________________________________________________Profit after taxation for the year 132.0 148.3================================================================================ Profit attributable to equity shareholders 131.7 148.1Profit attributable to minority interests 0.3 0.2________________________________________________________________________________Profit after taxation for the year 132.0 148.3================================================================================ Earnings per ordinary share 8- Basic 11.61p 13.13p- Diluted 11.55p 13.00p Earnings per ordinary share from continuing operations 8-Basic 11.10p 11.90p-Diluted 11.04p 11.79p Trading profit is calculated as follows:£m Note 2007 2006________________________________________________________________________________Operating profit from continuing operations 165.8 188.7Adjusted to exclude:Loss / (gain) on portfolio restructuring 4 9.5 (1.5)Unrealised loss / (gain) on revaluation of currencyinstruments 3 5.7 (10.8)Costs of terminated acquisition 3 3.9 -Amortisation of intangible assets arising onacquisition including fair value adjustment 3 13.9 9.1________________________________________________________________________________Trading profit from continuing operations 198.8 185.5Trading profit from discontinued operations - 0.8________________________________________________________________________________Trading profit 3 198.8 186.3________________________________________________________________________________ Consolidated balance sheetAs at 31 December 2007 £m Note 2007 2006________________________________________________________________________________AssetsNon-current assetsIntangible assets 476.1 482.6Property, plant and equipment 203.8 187.6Investment properties 7.2 6.4Investments in joint ventures 18.8 15.7Trade and other receivables 10.7 9.2Derivative financial instruments 7.0 8.6Deferred taxation assets 8.3 6.9________________________________________________________________________________ 731.9 717.0________________________________________________________________________________Current assetsInventories 170.1 160.2Trade and other receivables 236.6 182.6Corporation tax 2.8 3.2Derivative financial instruments 4.9 7.0Cash and cash equivalents 444.5 364.3________________________________________________________________________________ 858.9 717.3________________________________________________________________________________LiabilitiesCurrent liabilitiesBorrowings (243.1) (231.2)Trade and other payables (220.6) (182.6)Derivative financial instruments (2.2) (1.8)Corporation tax (65.3) (45.1)Provisions (29.5) (38.0)________________________________________________________________________________ (560.7) (498.7)________________________________________________________________________________Non-current liabilitiesBorrowings (123.5) (132.2)Trade and other payables (10.6) (7.8)Derivative financial instruments (1.9) (2.5)Deferred taxation liabilities (22.5) (25.6)Provisions (30.3) (22.9)Retirement benefit obligations (37.2) (29.6)________________________________________________________________________________ (226.0) (220.6)________________________________________________________________________________ ================================================================================Net assets 804.1 715.0================================================================================ Capital and reservesCalled up share capital 28.4 28.3Share premium account 98.8 94.2Translation reserve 1.4 (8.9)Other reserves 17.9 16.0Retained earnings 657.2 585.3________________________________________________________________________________Total shareholders' equity 803.7 714.9Minority interest in equity 0.4 0.1________________________________________________________________________________Total equity 804.1 715.0================================================================================ Net cash 9 77.9 0.9 Consolidated cash flow statementFor the year ended 31 December 2007 £m Note 2007 2006________________________________________________________________________________Cash flows from operating activities Cash generated from operations 9 199.2 192.4Corporation taxes paid (23.3) (46.2)Interest paid (16.5) (27.6)Interest received 17.6 20.3________________________________________________________________________________Net cash from operating activities 177.0 138.9================================================================================ Cash flows from investing activities Dividends received from joint ventures 3.2 4.3Proceeds on disposal of property, plant and equipment 25.5 15.2Purchase of property, plant and equipment (67.4) (52.9)Purchase of intangible assets (0.5) (1.4)Capitalised expenditure on intangible assets (0.2) (0.3)Acquisition of subsidiaries net of cash acquired (11.2) (12.2)Acquisition of minority interests - (4.2)Payment of deferred and contingent consideration (3.1) (7.3)Disposal of undertakings (0.3) 83.5Net contingent consideration received 5.4 2.9Restructuring costs (3.7) -Special pension contributions relating to disposalsin prior years (5.3) (11.5)Costs of terminated acquisition (3.2) -________________________________________________________________________________Net cash (used in) / from investing activities (60.8) 16.1================================================================================ Cash flows from financing activities Issue of share capital 4.7 6.9Dividends paid 7 (43.8) (39.7)New borrowings 89.3 78.6Repayment of borrowings (96.7) (81.9)Repayment of obligations under finance leases (0.3) (0.2)________________________________________________________________________________Net cash used in financing activities (46.8) (36.3)================================================================================ Net increase in cash and cash equivalents 69.4 118.7 Cash and cash equivalents at start of year 360.4 246.6Exchange movements 2.2 (4.9)________________________________________________________________________________Cash and cash equivalents at end of year 432.0 360.4================================================================================ Consolidated statement of recognised income and expenseFor the year ended 31 December 2007 £m 2007 2006________________________________________________________________________________Profit after taxation for the year 132.0 148.3 Net translation differences on investments in overseassubsidiaries 10.3 (10.8)Actuarial (loss) / gain on pensions (23.7) 32.8Actuarial loss on other retirement obligations - (0.5)Movement on cash flow hedges (2.1) 0.4Deferred tax relating to items charged directly to retainedearnings 7.1 (9.7)Deferred tax credit relating to share-based payments 0.2 1.3________________________________________________________________________________Net (expense) / income recognised directly in equity (8.2) 13.5________________________________________________________________________________ Total recognised income for the year 123.8 161.8================================================================================ Attributable to:Equity holders of the parent 123.5 161.6Minority interest 0.3 0.2________________________________________________________________________________ 123.8 161.8================================================================================ 1. Basis of preparation The attached unaudited financial information has been prepared in accordancewith International 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 2006. These financial statements have been prepared on a going concern basis under thehistorical cost convention, as modified by the revaluation of certain borrowingsand derivative contracts 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 thereporting period. Although these estimates are based on management's bestknowledge of the amount, event or actions, actual results ultimately may differfrom those estimates. The following new standard and amendment to an existing standard have beenadopted from 1 January 2007: • IFRS 7, Financial Instruments: Disclosures, and a complementary amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures • Revised IAS 23, Borrowing Costs The revision to IAS 23, Borrowing Costs, has been adopted early with effect from1 January 2007 and no adjustments to Group accounting policies were required onadoption of this amendment. The financial information set out in this statement does not constitute theGroup's statutory accounts for the years ended 31 December 2007 and 31 December2006. The auditors have not yet reported on the statutory accounts for 2007.Statutory accounts for the year ended 31 December 2006 have been delivered tothe Registrar of Companies. The auditors have reported on the 2006 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 2007 will be delivered to the Registrar of Companies following theCompany's Annual General Meeting. 2. Business segmentsDuring the year, the Group reviewed the organisation of its businesses andhaving considered the respective risks and rewards, determined that in order topresent more reliable and relevant information regarding the segmentation of itsresults, a consolidation based on four operating divisions was more appropriatethan that based on the six divisions previously presented. The new divisions arethe basis on which primary segmental information is reported.The principal activities of the Group's operating divisions are: Cobham Providing a suite of end-to-end avionics products, lawAvionics and enforcement and national security solutions, and satelliteSurveillance communication equipment for land, sea and air applications. Cobham Defence Critical technology for network centric operations, movingElectronic information around the digital battlefield, with customised andSystems off the shelf solutions for people and systems to communicate on land, sea and air. Cobham Mission Providing safety and survival systems for extreme environments,Systems nose-to-tail refuelling systems and wing-tip to wing-tip mission systems for fast jets, transport aircraft and rotor craft. Cobham Delivering outsourced aviation services for military and civilAviation customers worldwide through military training, special missionServices flight operations, outsourced commercial aviation and aircraft engineering. 'Other Activities' include head office (net of recoveries), the central projectcosts relating to the Future Strategic Tanker Aircraft project and thepre-disposal results of the composites and countermeasures operations disposedof during 2006. Details for these primary segments are shown below. As required by IAS 8, Accounting Policies, Changesin Accounting Estimates and Errors, comparatives have been restated following the divisionalreorganisation. Defence Avionics and Electronic Mission Aviation Other £m Surveillance Systems Systems Services Activities Total__________________________________________________________________________________________________________ RevenueYear to 31 December 2007Revenue 326.9 299.9 262.8 192.5 (1.1)Inter-segmental revenue (12.7) (7.8) (1.3) - 1.9__________________________________________________________________________________________________________Total third party revenue 314.2 292.1 261.5 192.5 0.8 1,061.1__________________________________________________________________________________________________________Year to 31 December 2006Revenue 281.0 300.7 253.1 188.4 7.1Inter-segmental revenue (12.7) (6.5) (1.4) (0.1) 2.5__________________________________________________________________________________________________________Third party revenue - continuingoperations 268.3 294.2 251.7 188.3 9.6 1,012.1Third party revenue - discontinuedoperations - - - - 3.6 3.6__________________________________________________________________________________________________________Total third party revenue 268.3 294.2 251.7 188.3 13.2 1,015.7__________________________________________________________________________________________________________ Defence Avionics and Electronic Mission Aviation Other £m Surveillance Systems Systems Services Activities Total__________________________________________________________________________________________________________ResultYear to 31 December 2007Result before joint ventures 47.0 67.2 53.3 15.6 (23.1) 160.0Share of post-tax results ofjoint ventures - - - 5.8 - 5.8__________________________________________________________________________________________________________Operating profit from continuingoperations 47.0 67.2 53.3 21.4 (23.1) 165.8Portfolio restructuring - - - - 9.5 9.5Costs of terminated acquisition - - - - 3.9 3.9Unrealised loss on revaluation ofcurrency instruments - - - - 5.7 5.7Amortisation of intangible assets onacquisition 4.9 7.6 0.8 0.5 0.1 13.9__________________________________________________________________________________________________________Total trading profit 51.9 74.8 54.1 21.9 (3.9) 198.8__________________________________________________________________________________________________________ Year to 31 December 2006Result before joint ventures 42.1 67.4 44.0 15.3 15.2 184.0Share of post-tax results of joint ventures - - - 4.7 - 4.7__________________________________________________________________________________________________________Operating profit from continuingoperations 42.1 67.4 44.0 20.0 15.2 188.7Portfolio restructuring - - - - (1.5) (1.5)Unrealised gain on revaluationof currency instruments - - - - (10.8) (10.8)Amortisation of intangible assets on acquisition 3.8 4.3 0.9 0.1 - 9.1__________________________________________________________________________________________________________Trading profit from continuingoperations 45.9 71.7 44.9 20.1 2.9 185.5Trading profit from discontinuedoperations - - - - 0.8 0.8__________________________________________________________________________________________________________Total trading profit 45.9 71.7 44.9 20.1 3.7 186.3__________________________________________________________________________________________________________ 3. Underlying profit and earnings per share In addition to the information required by IAS 33, Earnings per share, the directorsbelieve that it is helpful to calculate an underlying earnings per share figure. Underlying earnings exclude the impacts of the amortisation of intangible assetsrecognised on acquisition, fair value adjustments to inventory on acquisition, themarking to market of currency instruments not realised in the period and impairments ofgoodwill. There has been no impairment to goodwill in the current or comparativeperiods. Underlying earnings also exclude portfolio restructuring costs, which compriseexceptional profits or losses arising on disposals actually completed during the period,as well as exceptional costs or profits associated with the restructuring of the Group'sbusiness and property portfolio, and direct costs associated with exceptional terminatedacquisitions. 2007 2006 __________ ______________________________________ £m Note Total Continuing Discontinued Total operations operations _________________________________________________________________________________________________ Revenue 1,061.1 1,012.1 3.6 1,015.7================================================================================================= Operating profit 165.8 188.7 0.8 189.5Loss/(gain) on portfolio restructuring 9.5 (1.5) - (1.5)Unrealised loss/(gain) on revaluation of currencyinstruments 5.7 (10.8) - (10.8)Costs of terminated acquisition 3.9 - - -Amortisation of intangibleassets arising on acquisitionincluding fair value adjustment 13.9 9.1 - 9.1_________________________________________________________________________________________________Trading profit 198.8 185.5 0.8 186.3Net finance income/(expense) 5 7.7 (3.5) 0.1 (3.4)_________________________________________________________________________________________________Underlying profit before taxation 206.5 182.0 0.9 182.9Taxation charge on underlying profit (57.8) (51.0) (0.1) (51.1)Minority interest (0.3) (0.2) - (0.2)_________________________________________________________________________________________________Underlying profit aftertax attributable to equityshareholders 148.4 130.8 0.8 131.6=================================================================================================Underlying basic EPS 13.09p 11.66pUnderlying diluted EPS 13.01p 11.55p Underlying administrative expenses amounted to £89.5m (2006:£95.0m). Thisexcludes portfolio restructuring costs, costs of the terminated acquisition andamortisation of intangible assets recognised on acquisition. 4. Portfolio restructuring During 2007 the Group undertook a number of restructuring projects. Consolidationof the diving products business based in Mississauga, Canada, into existingfacilities in Iowa, USA and the integration of the antennas business based inSouthampton, UK, into the new purpose designed facility in Marlow, UK were bothcompleted. A project to redevelop the Wimborne, UK, site of Cobham Mission Systemshas commenced and will continue in 2008. In October 2007, £5.8m of contingent consideration was received relating to thesale of the Group's Countermeasures business in 2006. Consistent with the treatmentadopted for this business in 2006, the profit on sale that this represents has beentreated as part of discontinued businesses and excluded from the underlying resultsof the Group. During 2006, portfolio restructuring activity was focussed on the sale and closureof a number of businesses. Profits from all of these activities have been excluded from trading profit andunderlying earnings for the Group. Restructuring costs and the profit on disposalof continuing activities are included within administrative expenses. £m 2007 2006________________________________________________________________________________Restructuring costs (9.5) -Profit on disposal of continuing activities - 1.5Profit on disposal of discontinued activities 5.8 13.0________________________________________________________________________________ (3.7) 14.5Tax effect of portfolio restructuring 2.9 0.7________________________________________________________________________________ (0.8) 15.2================================================================================ 5. Finance income and expense £m 2007 2006________________________________________________________________________________Finance income:Bank interest 20.3 21.2Expected return on pension scheme assets 28.1 25.3Other interest 0.6 0.8________________________________________________________________________________Total finance income 49.0 47.3________________________________________________________________________________ Finance expense:Interest on bank overdrafts and loans (17.7) (27.5)Interest on pension scheme liabilities (22.7) (22.5)Other interest (0.9) (0.7)________________________________________________________________________________Total finance expense (41.3) (50.7)================================================================================Net finance income / (expense) 7.7 (3.4)================================================================================ Included in bank interest received in 2006 is £0.1m relating to discontinued operations. 6. Income tax £m 2007 2006________________________________________________________________________________Current tax 44.0 44.2Deferred tax 3.3 6.6________________________________________________________________________________Income tax expense for the year 47.3 50.8================================================================================ In 2006, the tax charge included a £0.3m charge to current tax and a £0.2mcredit to deferred tax in respect of discontinued operations. The total income tax expense is analysed between UK andoverseas tax as follows: £m 2007 2006________________________________________________________________________________United Kingdom 20.4 33.7Overseas 26.9 17.1________________________________________________________________________________Total tax charge for the period 47.3 50.8================================================================================Tax charge included in share of post-tax results of joint ventures 1.7 1.4================================================================================ Income tax for the UK is calculated at the standard rate of UK corporation taxof 30% (2006:30%) 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 credit of £7.3m (2006: £8.4m charge) has been recognised in equityin the year as shown in the statement of recognised income and expense. 7. Dividends The following dividends were authorised and paid during theyear: £m 2007 2006________________________________________________________________________________Dividends on Ordinary SharesFinal dividend of 2.64p for 2006 (2005: 2.40p) 30.0 27.1Interim dividend of 1.22p for 2007 (2006: 1.11p) 13.8 12.6________________________________________________________________________________ 43.8 39.7================================================================================ In addition to the above, the directors are proposing a final dividend inrespect of the financial year ended 31 December 2007 of 3.28 pence per share which will absorb an estimated £37.2m 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 1 July 2008 to shareholders who are on the register of members as at 30 May 2008. The total dividend in respect of the financial year ended 31 December 2007 will therefore be 4.50 pence per share (2006: 3.75 pence). The total amount paid in respect of 2007 will be £51.0m (2006: £42.6m). 8. Earnings per Ordinary Share From continuing and discontinued operations 2007 2006 _______________________________________________________________________ Weighted Weighted average Per- average Per- number share number share Earnings of shares amount Earnings of shares amount £m million pence £m million pence________________________________________________________________________________________________________Basic earnings per share (EPS) Earnings attributableto ordinary shareholders 131.7 1,134.0 11.61 148.1 1,128.3 13.13Effect of dilutive securities:Options 6.4 10.9________________________________________________________________________________________________________Diluted EPS 131.7 1,140.4 11.55 148.1 1,139.2 13.00======================================================================================================== From continuing operations 2007 2006 _______________________________________________________________________ Weighted Weighted average Per- average Per- number share number share Earnings of shares amount Earnings of shares amount £m million pence £m million pence________________________________________________________________________________________________________ Basic earnings per share (EPS) Earnings attributable to ordinary shareholders 131.7 148.1Earnings from discontinuedoperations (5.8) (13.8) ____________ _____________Earnings from continuingoperations 125.9 1,134.0 11.10 134.3 1,128.3 11.90Effect of dilutive securities:Options 6.4 10.9________________________________________________________________________________________________________Diluted EPS 125.9 1,140.4 11.04 134.3 1,139.2 11.79======================================================================================================== 9. Notes to the consolidated cash flow statement Cash flows from operating activities £m Note 2007 2006________________________________________________________________________________Profit after taxation for the year 132.0 148.3 Adjustments for:Tax 6 47.3 50.8Share of post-tax profits of joint ventures (5.8) (4.7)Finance income 5 (49.0) (47.3)Finance expense 5 41.3 50.7Depreciation 35.3 36.0Amortisation of intangible assets arising onacquisition 14.8 9.6including fair value adjustmentProfit on sale of property, plant and equipment (1.5) (2.6)Portfolio restructuring 4 9.5 (14.5)Contingent consideration received 4 (5.8) -Costs of terminated acquisition 3.9 -Unrealised loss / (gain) on revaluation of currencyinstruments 5.7 (10.8)Pension contributions in excess of pension expenditure (5.5) (1.9)Share-based payments 4.6 3.0Decrease in provisions (2.2) (16.8)________________________________________________________________________________Operating cash flows before movements in working capital 224.6 199.8Increase in inventories (9.4) (20.6)Increase in trade and other receivables (45.7) (16.5)Increase in trade and other payables 29.7 29.7________________________________________________________________________________Movements in working capital (25.4) (7.4)________________________________________________________________________________Cash generated from operations 199.2 192.4================================================================================ Reconciliation of net cash flow to movement in net cash £m 2007 2006________________________________________________________________________________Increase in cash and cash equivalents in the year 69.4 118.7Net repayment of borrowings 7.7 3.3Borrowings of undertakings sold - 9.9Exchange movements (0.1) 37.3________________________________________________________________________________Movement in net cash in the year 77.0 169.2Net cash / (debt) at beginning of year 0.9 (168.3)________________________________________________________________________________Net cash at end of year 77.9 0.9================================================================================ 10. Acquisitions and disposals The following acquisitions took place during the year to 31 December 2007: Name of Date of business Principal acquisition Proportion Cost ofacquired activity acquired of shares acquisition________________________________________________________________________________Patriot Antenna Design and 28 August Asset US$18m plusSystems manufacture of 2007 purchase contingent parabolic consideration up to antennas US$27m ADDE Cryostatic 10 December Asset US$4.5m cooling 2007 purchase products ________________________________________________________________________________ No businesses were sold or classified as discontinued during the year to 31December 2007. Contingent consideration totalling £5.8m was received during 2007 in relation tothe disposal of Wallop Defence Systems Limited, which was completed in March2006, and is included in the results of discontinued operations. 11. Events after the balance sheet date On 3 January 2008, the Group acquired 100% of the share capital of S-TECCorporation for US$38m on a debt and cash free basis. This company designs,certifies and manufactures autopilots for general aviation aircraft.The acquisition of the Surveillance and Attack business unit from BAE SystemsInc (Lansdale) for US$240m on a debt and cash free basis was completed on 22February 2008. In January 2008, the agreement to purchase SPARTA Inc for US$416m on a debt andcash free basis was announced, subject to regulatory approval. US$35m of thisconsideration is payable over the first three years following completion of thetransaction. This acquisition is expected to be completed in the second quarterof 2008. On 22 January 2008, the Group announced the agreement of a new US$700macquisition financing facility. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Cobham