11th Sep 2007 07:02
Cobham PLC11 September 2007 11 September 2007 INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2007 Cobham plc, the aerospace and defence company, today announces first halfresults: 2006 2007 Change Orders received (2006 includes Sentinel(1)) £865.5m £575.3m (33.5)%Total revenue(2) £517.2m £493.8m (4.5)%Underlying(3) trading margin 16.0% 16.9% +0.9ptsUnderlying(3) profit before tax (PBT) £78.9m £86.1m +9.1%Underlying(3) earnings per share 4.97p 5.48p +10.3%Basic earnings per share 6.87p 4.43pOperating cash conversion(4) 71.1% 75.1%Interim dividend 1.11p 1.22p +10% • Solid order intake, order book of £1.7bn• Good organic revenue growth of 7.8% across the technology divisions• Success with several significant R&D projects; PV up to 6.2%• Group trading margin increased as a result of portfolio restructuring and operational efficiencies• Excellent underlying EPS growth of 10.3% (15.3% at constant translation exchange)• Acquisitions remain a key element of the growth strategy Gordon Page, CBE, Chairman, commented,"Another set of strong results underline the Group's progress halfway into the implementation of its three year strategic plan. We continue to deliver operationalefficiencies, enhance our technology base, win positions on long term programmesand make progress with our acquisition strategy." Enquiries: Cobham plc Telephone: +44 (0) 1202 882020Allan Cook, Chief Executive +44 (0) 207 067 0700 (on the day)Warren Tucker, Group Financial DirectorJulian Wais, Director of Investor Relations Weber Shandwick Financial +44 (0) 207 067 0700Susan Ellis, Louise Robson Notes:An extract of the Interim Report is attached. A presentation of the results willbe available as a webcast by 4.30pm on 11 September, and the published Interim Report as a download file on 26 September, at www.cobham.com. 1. Sentinel is also known as Coastwatch, a 12 year AUS$1bn contract awarded in March 2006. Order intake was up 6.6% excluding Sentinel The following notes apply throughout this interim report. 2. 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, which was sold in March 2006. Other businesses disposed of but not classified as discontinued in 2006 included Precision Antennas (April 2006) and Drager Aerospace (July 2006). 3. In order to assist with the understanding of earnings trends, trading profit and underlying earnings have been defined to exclude the impact of the amortisation of intangible assets arising on acquisition and the impact of marking to market foreign exchange derivatives not realised in the period. All underlying measures include the operational results of both continuing and discontinued businesses up to the point of sale, but exclude exceptional profits or losses arising from portfolio restructuring and integration activities undertaken in the period and exceptional costs directly associated with terminated acquisitions. Any impairments of goodwill and mark to market of inventory upon acquisition would also be excluded from underlying measures but none exist in the current or comparative period. Details of these adjustments may be found in the table on page 4. 4. 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 Continued emphasis on the strategy announced in September 2005 has producedtangible results for Cobham with further strong organic revenue growth,underlying EPS growth and cash generation after a further increase in technologyinvestment. The Group measures its performance against the following financialkey performance indicators (KPIs): Half Half Full KPI Year Year Year Annual Target 2006 2007 2006 Actual Actual Actual +---------------------------------------------------------------------------------+|Technology divisions organic ||growth (revenue) 8.3% 7.8% 5.8% High single digit || ||Underlying EPS growth ||(at constant translation exchange ||rates) 10.0% 15.3% 10.7% High single digit || ||Operating cash conversion 71.1% 75.1% 84.3% >80% || ||PV expenditure 5.9% 6.2% 6.0% 7% in medium term || |+---------------------------------------------------------------------------------+ Future revenue growth is underpinned by solid demand in a number of the Group'smarkets, with an order book of over £1.7bn. Excluding Sentinel (formerlyCoastwatch), the March 2006 AUS$1bn contract, orders received increased by 6.6%over the prior period, although there was a decrease to £575.3m (2006: £865.5m)in the headline order intake. There was a strong performance across the Group onboth military and commercial aerospace programmes, with the technology divisionsmaintaining a book to bill ratio in excess of one. The proportion of revenue generated from the important US market in the periodincreased to 47% (2006: 45%) of total revenue. The Group won important newmilitary and commercial business in the US, including Cobham's largest evermilitary antenna award, which could be worth up to $248m over 5 years. It isexpected that the percentage of Cobham's revenue in the higher growth US marketwill continue to increase over time. Military revenue was also higher at 55%(2006: 54%) with military land sales increasing to 24% (2006: 21%). Cobham has increased its focus on a selected number of faster growth countries.In India, where a sales office was opened in 2006, the Group has concentrated onmaking strategic alliances with local partners to generate long-term growth.Orders were received for antennas for the Indian Light Combat Aircraft andInterim Jet Fighter. A permanent presence has also been established in SouthKorea and Cobham's antenna and avionics products have been selected for theindigenous KHP (utility helicopter) programme. In the Middle East, the Grouprecently won a contract for battlefield communications in Saudi Arabia. Cobhamremains optimistic about prospects in these markets. In line with the strategy of increasing investment in technology, PV expenditure(or company funded R&D) increased in the period to 6.2% (2006: 5.9%) of thetechnology divisions' revenue. The Group has a goal to increase PV expenditureto around 7% in the medium term in order to accelerate development of theGroup's chosen technologies and drive growth. Various PV funded projects weresubstantially completed in the period. These included the Eagle tacticalnetworked radio and significant elements of the EFIS (Electronic FlightInstrument System) suite of products that comprise 'the Cobham cockpit'. OngoingPV funded projects include the ceramic oxygen generating system, digital videolinks, advanced low profile antennas and the next generation of microwaveintegrated circuits. In the first half of 2007, the Group made progress on a number of projects tofurther integrate operations. In the Life Support Division, the consolidation ofthe diving products business, formerly based in Mississauga, Canada, into theCarleton Life Support Systems business, based in Davenport in the USA wascompleted. Within the Antennas Division, the relocation of the Racal Antennasbusiness based in Southampton, UK, into Chelton Limited's new purpose designedfacility in Marlow, UK, commenced. The project to relocate and streamline theAir Refuelling and Auxiliary Mission Equipment Division's Wimborne, UK facilityinto a purpose built factory on an adjacent site has made further progress. Implementation of business lean practices continue in order to reduce inventory,improve cycle times, provide better customer service and improve operatingperformance. More effective management of the supply chain has also shownpositive results across the Group. Group procurement teams, using the mostup-to-date supply chain software, have improved pricing and terms from keysuppliers. In the UK, Cobham is a signatory to the SC21 initiative (a UK wideapproach to Supply Chain management sponsored by the Society of BritishAerospace Companies), which will further improve procurement activities. On 28 August the Group announced the completion of the acquisition of PatriotAntenna Systems (Patriot) for cash consideration of $18m, with additionalconsideration of up to $27m, contingent on future performance. Patriot is basedin the USA and designs and manufactures parabolic antennas and a range ofspecialist Radio Frequency equipment. It provides a product, technology andcapability set that can be exploited across Cobham's antenna business,particularly in the growing US government and military Satellite On The Movemarket. Acquisitions remain a key element of the growth strategy to reinforce existingstrengths by enhancing key Group technologies and market positions. The Grouphad previously identified over 100 acquisition opportunities and, during theperiod, in addition to the successful purchase of Patriot Antennas, has been inadvanced negotiations regarding several other transactions that did notcomplete. The largest of these was a US company, on which the Group incurredcosts of £3.9 million on due diligence, legal, financing and class 1 circularexpenses. Active discussions are ongoing regarding a number of further potentialacquisitions. The Group remains confident it can utilise its balance sheet onacquisitive growth, within its investment criteria. In June the UK Government approved the Private Finance Initiative solution forthe Future Strategic Tanker Aircraft (FSTA). The Group successfully negotiated areduction in its shareholding in the AirTanker consortium to 13.3% in order tomore closely align it with its contractual share of work. The next step for FSTAis the completion of the financing competition, with the focus on closure by theend of 2007. Jeff Edington, a non executive Director of Cobham, retired from the Board at theAGM. The Board would like to thank Jeff for his excellent contribution to Cobhamduring his eleven years of service as a non executive director. In addition,Mark Ronald was appointed to the Board with effect from 8 January 2007. Aspreviously announced, Alex Hannam will retire as an executive Director at theend of 2007. FINANCIAL REVIEW Half Year to Half Year to Year to 30.06.06 30.06.07 31.12.06-----------------------------------------------------------------------------------Trading profit is calculated as follows:£mResult before joint ventures and associates 91.1 63.7 184.0Share of post-tax results of joint ventures and associates 1.7 1.8 4.7-----------------------------------------------------------------------------------Operating profit from continuing operations 92.8 65.5 188.7Adjusted to exclude: (Gain)/loss on portfolio restructuring (1.9) 5.5 (1.5) (Gain)/loss on revaluation of currency instruments (10.7) 2.1 (10.8) Costs of terminated acquisition - 3.9 - Amortisation of intangible assets arising on acquisition 1.6 6.4 9.1-----------------------------------------------------------------------------------Trading profit from continuing operations 81.8 83.4 185.5Trading profit from discontinued operations 0.8 - 0.8-----------------------------------------------------------------------------------Trading profit (underlying operating profit) 82.6 83.4 186.3----------------------------------------------------------------------------------- -----------------------------------------------------------------------------------Underlying profit before tax is calculated asfollows:£mProfit on continuing operations before taxation 89.0 68.2 185.2Adjusted to exclude: (Gain)/loss on portfolio restructuring (1.9) 5.5 (1.5) (Gain)/loss on revaluation of currency instruments (10.7) 2.1 (10.8) Costs of terminated acquisition - 3.9 - Amortisation of intangible assets arising on acquisition 1.6 6.4 9.1-----------------------------------------------------------------------------------Underlying profit before taxation fromcontinuing operations 78.0 86.1 182.0Underlying profit before taxation fromdiscontinued operations 0.9 - 0.9-----------------------------------------------------------------------------------Underlying profit before taxation 78.9 86.1 182.9----------------------------------------------------------------------------------- -----------------------------------------------------------------------------------Profit after tax used in the calculation ofunderlying EPS is calculated as follows:£mProfit after taxation attributable to equityshareholders 77.4 50.2 148.1Adjusted to exclude (after tax): (Gain)/loss on portfolio restructuring (after tax) (15.0) 3.6 (15.2) (Gain)/loss on revaluation of currency instruments (after tax) (7.5) 1.4 (7.6) Costs of terminated acquisition (after tax) - 2.7 - Amortisation of intangible assets arising on acquisition (after tax) 1.1 4.2 6.3-----------------------------------------------------------------------------------Underlying profit after tax 56.0 62.1 131.6-----------------------------------------------------------------------------------Underlying earnings per ordinary share (pence) 4.97 5.48 11.66----------------------------------------------------------------------------------- Total Group revenue in the first half of 2007 was £493.8m (2006: £517.2m). TheGroup achieved organic revenue growth in the year, before the impact of adversecurrency translation and net business disposals made in 2006. The key driver hasbeen the technology divisions which achieved organic revenue growth of 7.8%(2006: 8.3%). Cobham Flight Operations and Services revenue was broadlyunchanged. An analysis of the major changes in the technology divisions' revenuein the first half of 2007 is as follows: Technology Divisions H1 FX Disposals Acquisitions Organic H1 2006 Translation Growth 2007-------------------------------------------------------------------------------- £407.7m -£26.4m -£18.8m +£2.0m +£31.8m £396.3m -6.5% -4.6% +0.5% +7.8%-------------------------------------------------------------------------------- Average H1 2006 US$/£ exchange rate = $1.79/£1. Average H1 2007 US$/£ exchange rate = $1.97/£1. Group trading profit in the first half of 2007 increased to £83.4m (2006:£82.6m) but again was affected by adverse currency translation. The Group'sunderlying trading margin increased by a further 0.9% points to 16.9% (2006:16.0%). This was due to the continued focus on operational efficiencies and theprior year disposal of non core businesses. As a consequence of theseinitiatives, the technology divisions' margin has increased by some 3.5percentage points since the first half of 2005 to 19.5% in the period. As PVexpenditure increases in the medium term, the margin for the technologydivisions is expected to trend back towards the level previously guided. The key driver of Group trading profit growth was the technology divisions whereorganic growth was 10.3% (2006: 8.7%). Cobham Flight Operations and Services'trading profit declined to £9.1m (2006: £9.6m) due to the timing of engineeringwork done in the UK and AVdef (a joint venture company) contracts. An analysisof the major changes in the technology divisions' trading profit in the firsthalf of 2007 is as follows: Technology Divisions H1 FX Disposals Acquisitions Organic H1 2006 Translation Growth 2007--------------------------------------------------------------------------------£73.2m -£3.7m -£0.3m +£0.5m +£7.5m £77.2m -5.1% -0.4% +0.7% +10.3%-------------------------------------------------------------------------------- In the first half of 2007, Cobham invested £24.6m (2006: £23.9m) in PV,equivalent to 6.2% (2006: 5.9%) of the technology divisions' revenue for theperiod. Additionally there was a significant level of externally funded researchand development expenditure, raising total research and development expenditurein the technology divisions to more than 10% of revenue. Net finance income in the period was £2.7m (2006: expense of £3.7m), reflectingthe Group's disposals, net cash position and increased finance income in pensionschemes of £2.7m (2006: £0.3m). Underlying profit before tax increased by 9.1%to £86.1m (2006: £78.9m). On an underlying basis, the effective tax rate for the period fell to 28.0%(2006: 29.4%), including the impact of the future fall in the UK corporation taxrate on deferred tax items. The underlying tax rate is calculated by dividingthe Group's underlying tax charge by its underlying profit before tax, excludingthe share of post-tax results of joint ventures and associates. The strong revenue growth in the technology divisions, improved margins andfavourable interest impact from business disposals resulted in an increase inunderlying earnings per share (EPS). For the first half of 2007, underlying EPSincreased 10.3% to 5.48p (2006: 4.97p) or 15.3% at constant translation exchangerates. Basic earnings per share were lower than the comparable period at 4.43p (2006:6.87p). This was due to losses on the marking to market of currency hedges(2006: profit), an increase in the charge for amortisation of intangiblesrecognised on business combinations and £3.9m of non underlying terminatedacquisition costs (2006: Nil). In addition, a total of £5.5m of non underlyingportfolio restructuring and integration costs (2006: £15.0m income) wereincurred, consistent with the Group's strategic plan and prior guidance. Todate, portfolio restructuring has produced exceptional profits of £20.1m which,after taking into account the restructuring costs in the first half of 2007,gives a cumulative net profit of £14.6m. The Group is actively working onintegration and restructuring plans to invest the remaining exceptional profits,as previously indicated. Operating cash inflow in the year, after capital expenditure and PV (which isexpensed in the income statement) but before the payment of tax and interest was£61.3m (2006: £57.5m), representing 75.1% (2006: 71.1%) of trading profit beforethe Group's share of post-tax results of joint ventures and associates. Afterthe payment of tax, terminated acquisition and restructuring costs, net interestand the receipt of dividends from joint ventures, the Group generated free cashflow of £46.7m (2006: £30.4m). The Group ended the first half of 2007 with net cash balances of £58.6m (31December 2006: £0.9m). Included within the net cash balances are significantsterling cash deposits and US dollar denominated borrowings. The Group continuesto benefit from the policy of holding US dollar borrowings, as these act as anatural hedge against related assets and dollar earnings from US subsidiaries.Movements in exchange rates reduced net US dollar denominated borrowings ontranslation in the first half by some £6.9m (2006: £23.7m). An interim dividend of 1.22p (2006: 1.11p), representing a 10% increase on thecomparable period last year, has been approved by the Board and will be paid on13 December 2007 to all shareholders on the register as at 16 November 2007. DIVISIONAL REVIEW Cobham Air Refuelling & Auxiliary Mission Equipment Half Year Half Year Organic£m 2006 2007 Revenue Growth--------------------------------------------------------------------------------Revenue 41.2 40.1 1.1%Trading profit 3.8 3.8-------------------------------------------------------------------------------- The financial performance in the first half reflects the continuing dip in airrefuelling business throughput. Strong underlying aftermarket business accountedfor a significant proportion of first half revenue. Cobham continues to expectthe Division to at least maintain its prior year trading profit in 2007 and tostart to revert to its medium term growth trend in 2008 as programmes alreadysecured come on stream. In the USA, the aftermarket support centre at Hurlburt Field Air Force Base isnow fully operational supporting the fleet of C130H Combat Talon II tankeraircraft for the US Special Forces. The support centre, in partnership withBoeing, provides first line maintenance and repair capabilities on site andreflects the Division's increased focus on the aftermarket and strongrelationship with the end customer. PV investment in the 90X air refuelling technology platform for the A330MRTT andA400M tanker aircraft continues with the development programme on schedule. Thefirst 905E wing pods have been delivered to EADS-CASA allowing first flight ofthe Australian A330MRTT in June, this also being Cobham's 1,000th refuellingsystem delivered. PV investment continues in the USA on the development ofautonomous UAV to UAV refuelling. Further trials are awaiting Federal AviationAdministration (FAA) approval. The Boeing V-22 Osprey tilt-rotor aircraft has achieved initial operatingcapability with the Division's refuelling probe and the focus is now on fullrate production following agreement with Boeing on the structure of a multi-yearbuy programme. A lean manufacturing flow-line has been established to supportfull rate production. Following new orders from Boeing, the BRU-61/A Small Diameter Bomb launcher isnow in full rate production with a lean flow line established in the USA. Theengineering phase for the launcher concluded ahead of schedule, with the BRU-61/Arepresenting the first of a new series of pneumatic weapon carriage andrelease systems developed by Cobham. Development work was also completed on apneumatic multi-store carrier for the F/A-18 which positions Cobham for theupcoming US Navy Multi-Purpose Bomb Rack competition. Cobham Antennas Half Year Half Year Organic£m 2006 2007 Revenue Growth--------------------------------------------------------------------------------Revenue 92.0 80.8 5.1%Trading profit 20.0 18.4-------------------------------------------------------------------------------- Operating results were impacted by the disposal of Precision Antennas in April2006, which contributed revenue of £9.4m in 2006, and by the impact of adversecurrency translation. Solid underlying organic revenue growth was maintained,which is pleasing given the strong growth already achieved in 2006. Margins wererobust due to the benefit of operational efficiencies achieved. The transfer of operations into the new Chelton Centre at Marlow wassuccessfully completed and consolidation of Racal product manufacture fromSouthampton to Marlow has commenced. As previously referred to above, the acquisition of Patriot Antennas in the USAwill add a product, technology and capability set that can be exploited acrossthe business, particularly in the growing US government and military SATCOMmarkets. Military land contracts included the US$30m US Marine Corp TEAMS award for 34metre electromechanical hoisted masts. These increase the range and utility ofline of sight radio systems and can be transported on any High MobilityMultipurpose Wheeled Vehicles (HMMWV) without permanent modification. Orderswere also received for masts for the UK FALCON programme. In the commercial aerospace market, the division has enjoyed success on a rangeof wide bodied and single aisle aircraft. Significantly, the HGA-7001 SatelliteCommunications Antenna System was selected by Rockwell Collins for the Boeing787 Dreamliner with the same antenna system selected by Boeing for the 777 and747-8 aircraft. Cobham Antennas' position in the military aerospace antenna market remainsstrong, with several contracts agreed for the supply of antennas and the tailfinfor the Augusta Westland future Lynx programme. Pre-production orders werereceived from India for equipment on the new Light Combat Aircraft and InterimJet Fighter, with follow-on orders for antennas on the Su-30 aircraft. In the UK, the C130 upgrade programme continues to be supported and a seven year£7m support contract was received for Tornado composite nose radomes. The growthin Terrestrial Trunk Radio (TETRA) systems around the world reflects demand forinteroperable and secure airborne communications systems. Orders for TETRA radiosystems were received from the UK MoD and shipments were made to the SouthAfrican Police. At sea, demand continues to increase for marine stabilised broadband satelliteantenna systems, with large orders received for VSAT systems. A new range ofcompact TV receive antennas was introduced to the leisure boat market, helpingto increase total order intake for marine antennas by more than 20% over thesame period last year. Cobham Avionics and Surveillance Half Year Half Year Organic£m 2006 2007 Revenue Growth--------------------------------------------------------------------------------Revenue 100.8 119.5 21.7%Trading profit 13.4 20.8-------------------------------------------------------------------------------- An excellent performance was achieved in the period with growth in revenue andtrading profit across the division, in particular reflecting growth in thecovert Law Enforcement and National Security (LENS) market and improvement inthe French operating units. The market for avionic products developed under PV programmes remains robust,particularly for rotary wing aircraft with the division continuing to securepositions with helicopter Original Equipment Manufacturers (OEMs). Cobham wasselected by L-3 Communications to supply the United States Navy with acomprehensive suite of avionics equipment for the TH-57 training helicopterretrofit programme, being the Navy version of the Bell 206 JetRanger. Cobhamwill be integrating its Electronic Flight Instrument System (EFIS), EngineIndication and Crew Alerting System (EICAS), VHF and tactical radios, audiocontrol, and Emergency Locator Transmitter (ELT) to create a 'Cobham Cockpit'.The HeliSAS helicopter autopilot developed with PV funding is nearing FAAcertification on the Robinson R-44, the best selling helicopter in the world.Given the diverse range of opportunities opening up to it, the Division licencedthe EFIS software for use on a small number of non core platforms and,consequently, received licence fee income in the period. Sales of wireless digital video and audio surveillance technology have beenstrong in the LENS market, with digital video datalinks being actively sought byrobotics OEMs. Covert subject and internet surveillance product sales are beingdriven by increased security concerns worldwide. These concerns are alsoincreasing sales of the Division's multi-mission radio. The performance of business units in France has further improved, with strongsales of avionics equipment and digital intercom systems to Airbus, Eurocopterand other aircraft OEMs, including special mission helicopters and fixed wingmilitary trainers. The Division's LENS businesses have been consolidated and the new structure isestablishing itself with consolidation of the avionics businesses underway. Theconsolidated offerings will improve technology transfer, establish a greaterpresence in the marketplace and provide the scale necessary to support largercustomer programmes. Cobham Defence Electronic Systems Half Year Half Year Organic£m 2006 2007 Revenue Growth--------------------------------------------------------------------------------Revenue 100.7 94.0 0.8%Trading profit 23.3 21.8-------------------------------------------------------------------------------- At constant exchange rates, the Division's strong H1 2006 revenue wasmaintained. Since the first half of 2005, cumulative organic revenue growth inthe Division has been well ahead of the target low double digit growth rates.Cobham continues to expect further organic revenue growth in full year 2007.Consistent with previous guidance, it is anticipated that margins will trendbelow the exceptional levels achieved in 2006. A long term Indefinite Delivery, Indefinite Quantity contract has been secured for digital vehicle communication systems. In total, nearly 100,000 units have now been sold worldwide. Cobham Defence Communications based in Blackburn received a Queen's Award for Enterprise in the International Trade Category in recognition of its 300% increase in export sales in the past five years. The Division continues to introduce new communication and situational awarenessproducts into the military market, including the product launch of the EagleClose Combat Radios developed in collaboration with ERA Technology, anotherCobham Group company. Initial orders have already been received from the UK MoD,Egypt and New Zealand. The order backlog for microwave components and rotary systems is at a recordlevel. Orders were received for upgrades to NATO and USAF Airborne Warning andControl System aircraft, as well as new airborne antennas and radome systems forElectronic Warfare (EW), Communications and Radar applications. Follow on orders were received for the F-22 Radar, EW and Communication,Navigation and Identification systems, as well as the ALR-67 F-18 Radar Warning Receiver and F-35 EW systems. Further R&D development was also secured forthese and other platforms, including awards for new product applications for theAARGM missile, and a number of F-16 and F-18 aircraft avionics systems. Ordersand revenue for ground mobile and fixed tactical and strategic army antennacommunications systems have been strong. The Division's focus on technology was rewarded with development programmes forthe second phase of the USAF Scaleable Panel for Efficient Affordable Radars(SPEAR) program and additional Digital Receiver Exciter (DREX) contracts. SPEARis a ground based low power density antenna panel being developed for futureBallistic Missile Defence Systems Radars. DREX will support multiple signalprocessing for the next generation of phased array radar systems. Cobham Life Support Half Year Half Year Organic£m 2006 2007 Revenue Growth--------------------------------------------------------------------------------Revenue 73.0 61.9 5.6%Trading profit 12.7 12.4-------------------------------------------------------------------------------- Underlying revenue growth in the period was in line with medium term targetgrowth rates. Reported revenue was lower than 2006 due to the disposal of Drager Aerospace (Drager) in July 2006, which contributed revenue of £9.3m in H12006, and to adverse currency translation. There was an improvement in theDivision's underlying trading profit margin due both to the sale of Drager andthe ongoing operational improvement programme. Integration efforts have continued, resulting in a reduction from five sites tothree. In keeping with this plan, the scheduled integration of H Koch and Sonsfrom California to operations in Florida was completed in the first quarter withthe cycle time for ground vehicle products reduced by more than 50%. Divingproduct manufacture was successfully consolidated from Ontario, Canada to Iowa,USA utilising space made available through lean manufacturing techniques. Further orders were won for passenger restraints with strong shipments for theseproducts to the US Army's Tank-automotive and Armament Command. These systemsare being installed on all new production vehicles and retrofitted to theexisting fleet of HMMWVs. Orders worth US$15m were received for the Division's microclimate coolingsystems (MCUs) for the US Army Stryker vehicle, bringing the number of systemsfielded with the US Army on various helicopters and ground vehicles to over5,000. With growing interest in microclimate cooling units on the StrykerVehicle, work is underway to increase the adoption of its cooling technologyacross the US fleet of tactical vehicles. The Group is currently qualifying itstwo and six man cooling systems and working with the US Army to continue thetactical vehicle testing of its range of units on the HMMWV and Bradley fightingvehicles. An order was also received from the US Army for retrofit of MCUs ontoUH-60 Blackhawk, CH-47 Chinook and OH-58 Kiowa helicopters. Cobham's On Board Inert Gas Generating System (OBIGGS) enjoyed continued successwith receipt of a follow on order for the Boeing C-17 Globemaster III Airlifter.An initial OBIGGS production order for the B787 Dreamliner was received, whichwill be the first commercial aircraft fitted with the system. In the rotary wingmarket, the Division also secured an order for the development and production ofits OBIGGS system for the VH-71 Presidential helicopter. As the oxygen systems provider for the C-27, the Division will benefit from theselection of the C27-J aircraft for the US Army and Air Force $2bn Joint CargoAircraft (JCA) programme. Cobham will supply the oxygen systems to Alenia NorthAmerica. Cobham Flight Operations and Services Half Year to Half Year to Organic£m 30.6.06 30.6.07 Revenue Growth--------------------------------------------------------------------------------Revenue 96.4 94.5 -Trading profit 9.6 9.1-------------------------------------------------------------------------------- Trading in the first half of 2007 was slightly behind the prior year due to thetiming of engineering work in the UK and AVdef (a joint venture company)contracts. In March the Division secured an agreement worth up to AUS$300m to operateQantaslink's entire operational fleet of 11 B717 aircraft on a longer termbasis. Cobham currently provides pilots, cabin crew and first line maintenancefor eight B717 aircraft for Qantas on a short term basis, and will now operate11 B717 aircraft for five years to 2012. The first of the three additional 115seat aircraft has begun flights on schedule, operating from Perth. The AUS$1bnSentinel programme remains on schedule with the fifth of the ten all electronicDash 8 aircraft delivered. This improved capability will enhance the AustralianBorder Patrol Command operation. In the UK, performance on existing long term contracts remains robust. Inparticular, the primary air warfare training contract is operating successfully,with a number of supplementary tasks received for specialised mission systemssupport. Cobham Flight Inspection was formed in the period to consolidate flightinspection activities in the UK and Germany. A five year contract was renewedwith the Manchester Airport Group and a new short-term contract secured from thePortuguese Air Force. The FB Heliservices (FBH) joint venture secured a £9m contract extension to 2010to provide helicopters and support to British Forces Cyprus. In line with the UKDefence Industrial Strategy, a twenty year partnering contract was also securedfor the provision of support services for a further four helicopters. FBH has formed a team with Bristow Helicopters and Serco to bid for the UK wideharmonised search and rescue contract, aiming to improve the service currentlyprovided by six RAF, two Navy and four Bristow coastal bases. The first stage ofthe competitive process has completed, with contract award anticipated in mid2009. The FSAS joint venture in Malaysia operating a single aircraft was closed,incurring some exceptional closure costs. OUTLOOK Another set of strong results underline the Group's progress with theimplementation of its three year strategic plan. Delivery of operationalefficiencies, enhancements to the technology base and programme wins continue,as does progress on the acquisition strategy. Since 2005 four divisions, beingAntennas, Avionics & Surveillance, Defence Electronic Systems and Life Supporthave all grown strongly and above the previously guided medium term growthtargets set for them. In the last three years, Air Refuelling and AuxiliaryMission Equipment and Cobham Flight Operations and Services have been successfulin securing a number of contracts that will firmly underpin their long termrevenue. Cobham is well placed in growth markets around the world, withpreferred supplier positions on major air, land and marine programmes. Cobham has identified a number of potential acquisitions and continues to beactive on significant opportunities that would enhance key Group technologiesand market positions. Since 2005, the Group has deepened its technology base and broadened its rangeof distinctive capabilities. This, together with cross divisional collaboration,has improved the Group's competitive position as further market share is securedfrom competitors in established and adjacent markets such as homeland security.Benefits will continue to be realised from ongoing operational improvements andthe Group remains committed to further investment in technology, capabilitiesand business integration. The Board remains confident about the Group's organic and acquisition growthprospects and looks forward to achieving further progress in 2007 and beyond. Consolidated income statement (unaudited)For the half year ended 30 June 2007 Note Half year to Half year to Year to 30.06.07 30.06.06 31.12.06£m ---------------------------------------------------------------------------------- Continuing operationsRevenue 3 493.8 513.6 1,012.1Cost of sales (336.7) (354.3) (679.2)---------------------------------------------------------------------------------- Gross profit 157.1 159.3 332.9 Selling and distribution costs (30.3) (29.5) (57.1)Administrative expenses (61.0) (49.4) (102.6)Share of post-tax results of joint ventures and associates 1.8 1.7 4.7(Loss) / gain on revaluation of currency instruments 10 (2.1) 10.7 10.8---------------------------------------------------------------------------------- Operating profit 3 65.5 92.8 188.7 Finance income 4 29.6 20.6 47.2Finance expense 4 (26.9) (24.4) (50.7)---------------------------------------------------------------------------------- Profit on continuing operations before taxation 68.2 89.0 185.2Tax on continuing operations 7 (17.6) (25.3) (50.7)---------------------------------------------------------------------------------- Profit on continuing operations after taxation 50.6 63.7 134.5 Discontinued operationsProfit after taxation from discontinued operations 11 - 13.9 13.8---------------------------------------------------------------------------------- Profit after taxation for the period 50.6 77.6 148.3---------------------------------------------------------------------------------- Profit attributable to equity shareholders 50.2 77.4 148.1Profit attributable to minority interests 0.4 0.2 0.2---------------------------------------------------------------------------------- Profit after taxation for the period 50.6 77.6 148.3---------------------------------------------------------------------------------- Earnings per Ordinary Share 5 -Basic 4.43p 6.87p 13.13p -Fully diluted 4.40p 6.80p 13.00p Dividends -Proposed per share (not accrued) 1.22p 1.11p 2.64p -Authorised per share (accrued) 2.64p 2.40p - -Paid per share - - 3.51p -Proposed £ million (not accrued) 13.8 12.5 29.8 -Authorised £ million (accrued) 29.9 27.1 - -Paid £ million - - 39.7 Trading profit is calculated as follows:-------------------------------------------------------------------------------- Note Half year to Half year to Year to£m 30.6.07 30.6.06 31.12.06-------------------------------------------------------------------------------- Operating profit from continuing operations 65.5 92.8 188.7 Adjusted to exclude (from administration expenses)Loss / (gain) on portfolio restructuring 6 5.5 (1.9) (1.5)Loss / (gain) on revaluation of currency instruments 10 2.1 (10.7) (10.8)Costs of terminated acquisition 3.9 - -Amortisation of intangible assets arising on acquisition 6.4 1.6 9.1-------------------------------------------------------------------------------- Trading profit from continuing operations 83.4 81.8 185.5Trading profit from discontinued operations 11 - 0.8 0.8-------------------------------------------------------------------------------- Trading profit 83.4 82.6 186.3-------------------------------------------------------------------------------- Consolidated balance sheet (unaudited)As at 30 June 2007 As at As at As at£m Note 30.6.07 30.6.06 31.12.06-------------------------------------------------------------------------------- AssetsNon-current assetsIntangible assets 471.0 527.4 482.6Property, plant and equipment 8 188.6 193.2 187.6Investment properties 6.4 4.0 6.4Investments in joint ventures 15.8 13.3 15.7Trade and other receivables 9.3 10.0 9.2Derivative financial instruments 10 10.2 10.9 8.6Deferred taxation assets 7.2 6.4 6.9-------------------------------------------------------------------------------- 708.5 765.2 717.0-------------------------------------------------------------------------------- Current assets Inventories 174.9 179.9 160.2Trade and other receivables 195.9 199.1 182.6Corporation tax 0.9 1.9 3.2Derivative financial instruments 10 5.4 7.4 7.0Cash and cash equivalents 401.5 279.2 364.3-------------------------------------------------------------------------------- 778.6 667.5 717.3-------------------------------------------------------------------------------- LiabilitiesCurrent liabilitiesBorrowings (228.0) (237.8) (231.2)Trade and other payables (227.8) (212.2) (182.6)Derivative financial instruments 10 (1.0) (1.4) (1.8)Corporation tax (46.8) (44.9) (45.1)Provisions (38.1) (41.3) (38.0)-------------------------------------------------------------------------------- (541.7) (537.6) (498.7)-------------------------------------------------------------------------------- Non-current liabilitiesBorrowings (114.9) (126.3) (132.2)Trade and other payables (9.7) (5.8) (7.8)Derivative financial instruments 10 (4.7) (6.7) (2.5)Deferred taxation liabilities (26.0) (14.2) (25.6)Provisions (20.9) (36.5) (22.9)Retirement benefit obligations (24.3) (72.7) (29.6)-------------------------------------------------------------------------------- (200.5) (262.2) (220.6)-------------------------------------------------------------------------------- Net assets 744.9 632.9 715.0-------------------------------------------------------------------------------- Capital and reservesCalled up share capital 28.4 28.2 28.3Share premium account 97.6 92.5 94.2Translation reserve (7.1) (5.7) (8.9)Other reserves 19.7 13.8 16.0Retained earnings 605.8 504.0 585.3-------------------------------------------------------------------------------- Total shareholders' equity 744.4 632.8 714.9Minority interest in equity 0.5 0.1 0.1-------------------------------------------------------------------------------- Total equity 744.9 632.9 715.0-------------------------------------------------------------------------------- Net cash / (debt) 58.6 (84.9) 0.9Gearing n/a 13.4% n/a-------------------------------------------------------------------------------- Consolidated cash flow statement (unaudited)For the half year ended 30 June 2007 Note Half year to Half year to Year to£m 30.06.07 30.06.06 31.12.06-------------------------------------------------------------------------------- Cash flows from operating activities Cash generated from operations 2 77.2 73.7 192.4Corporation taxes paid (13.9) (25.4) (46.2)Interest paid (14.7) (13.8) (27.6)Interest received 15.1 9.1 20.3-------------------------------------------------------------------------------- Net cash from operating activities 63.7 43.6 138.9-------------------------------------------------------------------------------- Cash flows from investing activities Dividends received from joint ventures 12 1.6 3.0 4.3Proceeds on disposal of property, plant and equipment 8 22.1 13.2 15.2Purchase of property, plant and equipment (37.4) (29.1) (52.9)Purchase of intangible assets (0.4) (0.2) (1.4)Capitalised expenditure on intangible assets (0.2) (0.1) (0.3)Acquisition of subsidiaries net of cash acquired 1.0 (12.3) (12.2)Acquisition of minority interests - (4.2) (4.2)Payment of deferred and contingent consideration (0.9) (3.0) (7.3)Disposal of undertakings (0.2) 48.8 83.5Contingent consideration received - - 2.9Restructuring costs 6 (2.7) - -Special pension contributions relating to disposals - (6.4) (11.5)-------------------------------------------------------------------------------- Net cash (used in) / from investing activities (17.1) 9.7 16.1-------------------------------------------------------------------------------- Cash flows from financing activities Issue of share capital 5 3.5 5.1 6.9Dividends paid - - (39.7)New borrowings 17.6 8.8 78.6Repayment of borrowings (30.6) (36.4) (81.9)Repayment of obligations under finance leases (0.1) - (0.2)-------------------------------------------------------------------------------- Net cash used in financing activities (9.6) (22.5) (36.3)-------------------------------------------------------------------------------- Net increase in cash and cash equivalents 37.0 30.8 118.7Cash and cash equivalents at start of period 360.4 246.6 246.6Exchange movements 2.1 (2.9) (4.9)-------------------------------------------------------------------------------- Cash and cash equivalents at end of period 399.5 274.5 360.4-------------------------------------------------------------------------------- Cash and cash equivalents above are shown net of bank overdrafts of £2.0m(31.12.2006: £3.9m; 30.06.2006: £4.7m). These are classified as borrowings inthe balance sheet. Statement of recognised income and expense (unaudited)For the half year ended 30 June 2007 Half year Half year Year to£m Note to 30.6.07 to 30.6.06 31.12.06-------------------------------------------------------------------------------- Profit after taxation for the period 50.6 77.6 148.3 Net translation differences on investments in overseas subsidiaries 1.8 (7.6) (10.8)Actuarial gain on pensions - - 32.8Actuarial loss on other retirement obligations - - (0.5)Movement on cash flow hedges 10 2.1 3.1 0.4Deferred tax relating to items charged directly to retained earnings (0.3) (0.8) (9.7)Deferred tax credit relating to share-based payments (0.2) - 1.3-------------------------------------------------------------------------------- Net income / (expense) recognised directly in equity 3.4 (5.3) 13.5-------------------------------------------------------------------------------- Total recognised income for the period 54.0 72.3 161.8-------------------------------------------------------------------------------- Attributable to:Equity holders of the parent 53.6 72.1 161.6Minority interest 0.4 0.2 0.2-------------------------------------------------------------------------------- 54.0 72.3 161.8-------------------------------------------------------------------------------- Notes to the Interim Report (unaudited) 1. Basis of preparation This unaudited consolidated interim report has been prepared in accordance withthe Listing Rules of the Financial Services Authority. It comprises theconsolidated income statement, the consolidated balance sheet, the consolidatedcash flow statement, the consolidated statement of recognised income and expenseand the related notes ("the interim financial report"). The accounting policies remain as published in the financial statements for theyear ended 31 December 2006 and are expected to be applied for the year ended31 December 2007, in accordance with International Financial Reporting Standards(IFRS), as adopted by the EU, and International Financial ReportingInterpretation Council (IFRIC) interpretations issued and effective at the timeof their preparation. Portfolio restructuring costs include the exceptional profits or losses on thesale of businesses and costs associated with restructuring the Group's businessand property portfolio. These costs have been excluded from underlying profit,consistent with accounting policies previously applied, which also exclude theimpact of the amortisation of intangible assets recognised on acquisition andthe impact of marking to market of foreign exchange derivatives not realised inthe period. All underlying measures also include the revenue and operationalresults of both continuing and discontinued businesses until the point of sale,but exclude exceptional profits or losses arising on disposals actuallycompleted during the period, exceptional costs directly associated withterminated acquisitions, impairments of goodwill and the impact of fair valueadjustments to inventory on acquisition. Neither of these last two items haveoccurred in the period to 30 June 2007 or comparative periods. The Group has chosen not to early adopt IAS 34, Interim Financial Reporting, inthe preparation of this interim financial report. This interim financial report has been prepared on a going concern basis underthe historical cost convention, as modified by the revaluation of certainborrowings and derivative contracts which are held at fair value. New standards and interpretations to existing standards which are mandatory andhave been adopted from 1 January 2007 are as follows: • IFRS 7, Financial Instruments: Disclosures. The financial statements for the year ended 31 December 2007 will comply with the increased disclosure requirements of IFRS 7. • IFRIC 7, Applying the restatement approach under IAS 29 financial reporting in hyperinflationary economies. • IFRIC 8, The Scope of IFRS 2. • IFRIC 9, Reassessment of embedded derivatives. • IFRIC 10, Interim financial reporting and impairment. The revised standard IAS 23, Borrowing Costs, has been adopted early with effectfrom 1 January 2007. No changes to previously published accounting policies or other adjustments wererequired on the adoption of these new standards, revised standards andinterpretations of existing standards. The translation reserve and retained earnings as shown on the balance sheet asat 30 June 2006 have been restated to reflect the re-assessment of thecumulative translation reserve as disclosed in note 27 of the Cobham plc 2006Annual Report. This interim financial report and the comparative figures for the year ended 31December 2006 do not constitute full accounts within the meaning of theCompanies Act 1985. Full accounts for that year, which include an unqualifiedaudit report and no statements under sections 237(2) or (3) of the CompaniesAct 1985, have been delivered to the Registrar of Companies. This report was approved by the Board of directors and approved for issue on 11September 2007. It is being sent to shareholders and will be available tomembers of the public at Cobham plc's registered office at Brook Road, Wimborne,Dorset, BH21 2BJ, UK and on the company's website, www.cobham.com. 2. Notes to the consolidated cash flow statement Cash flows from operating activities Half year to Half year to Year to£m Note 30.06.07 30.06.06 31.12.06----------------------------------------------------------------------------------------Profit after taxation for the period 50.6 77.6 148.3 Adjustments for:Tax 7 17.6 25.4 50.8Finance income 4 (29.6) (20.7) (47.3)Finance expense 4 26.9 24.4 50.7Portfolio restructuring 6 5.5 (15.0) (14.5)Costs of terminated acquisition 3.9 - -Loss / (gain) on revaluation of currency instruments 10 2.1 (10.7) (10.8)Share of post-tax profits from joint ventures and associates (1.8) (1.7) (4.7)Depreciation 8 16.4 18.5 36.0Amortisation of intangible assets 6.8 1.9 9.6Profit on sale of property, plant and equipment 8 (0.4) (2.2) (2.6)Pension contributions in excess of pension expenditure (2.5) (0.6) (1.9)Share-based payments 2.3 1.6 3.0----------------------------------------------------------------------------------------Operating cash flows before movements in working capital and provisions 97.8 98.5 216.6Decrease in provisions (1.3) (4.6) (16.8)Increase in working capital (19.3) (20.2) (7.4)----------------------------------------------------------------------------------------Movements in working capital and provisions (20.6) (24.8) (24.2)----------------------------------------------------------------------------------------Cash generated from operations 77.2 73.7 192.4---------------------------------------------------------------------------------------- Reconciliation of net cash flow to movement in net cash / (debt) Half year to Half year to Year to£m 30.06.07 30.06.06 31.12.06----------------------------------------------------------------------------------------Increase in cash and cash equivalents in the period 37.0 30.8 118.7Net repayment of borrowings 13.1 27.6 3.3Borrowings of undertakings sold - - 9.9Exchange movements 7.6 25.0 37.3----------------------------------------------------------------------------------------Movement in net cash / (debt) in the period 57.7 83.4 169.2Net cash / (debt) at beginning of period 0.9 (168.3) (168.3)----------------------------------------------------------------------------------------Net cash / (debt) at end of period 58.6 (84.9) 0.9---------------------------------------------------------------------------------------- During the period to 30 June 2007 borrowings of AUS$37.4m (£15.3m) were drawndown against an existing facility and the total amount borrowed of AUS$67.7m(£27.8m) was repaid. In addition, loan notes of US$5.0m (£2.5m) were repaid inthe period. 3. Segmental analysis by business The Group is organised into six operating divisions and one non-operatingdivision which includes head office and other activities. These divisions arethe basis on which the Group reports its segmental analysis. The principal activities of the Group's operating divisions are: Cobham Air Refuelling and Auxiliary Mission Equipment Air refuelling equipment and pneumatic weapons carriage release systemsCobham Antennas Antenna components and sub-systemsCobham Avionics and Surveillance Electronic products for airborne, marine and land applicationsCobham Defence Electronic Systems Air, ground and ship board antenna sub-systems, positioners, radomes and high-power microwave componentsCobham Life Support Aviation oxygen, pneumatic technology for fin actuation in missiles and cryostatic cooling productsCobham Flight Operations and Services Operation and maintenance of aircraft in aerospace and defence markets 'Other Activities' includes head office, the central research facility, the central project costs relating tothe Future Strategic Tanker Aircraft project and the results of the Countermeasures operations disposed of during 2006. Air Refuelling Flight and Auxiliary Avionics Defence Operations Mission and Electronic Life and Other£m Equipment Antennas Surveillance Systems Support Services Activities Total-----------------------------------------------------------------------------------------------------------------------RevenueHalf year to 30 June 2007Revenue 40.1 80.8 119.5 94.0 61.9 94.5 10.5Inter-segmental revenue (1.0) (3.6) (1.9) (1.0) - - ------------------------------------------------------------------------------------------------------------------------Total third party revenue 39.1 77.2 117.6 93.0 61.9 94.5 10.5 493.8----------------------------------------------------------------------------------------------------------------------- Half year to 30 June 2006Revenue 41.2 92.0 100.8 100.7 73.0 96.4 17.5Inter-segmental revenue (1.1) (2.4) (2.8) (1.6) - (0.1) ------------------------------------------------------------------------------------------------------------------------Third party revenue - continuing operations 40.1 89.6 98.0 99.1 73.0 96.3 17.5 513.6Third party revenue - discontinued operations - - - - - - 3.6 3.6-----------------------------------------------------------------------------------------------------------------------Total third party revenue 40.1 89.6 98.0 99.1 73.0 96.3 21.1 517.2----------------------------------------------------------------------------------------------------------------------- Year to 31 December 2006Revenue 90.4 182.2 206.0 191.6 141.4 188.4 28.7Inter-segmental revenue (1.1) (6.5) (6.0) (2.9) - (0.1) ------------------------------------------------------------------------------------------------------------------------Third party revenue - continuing operations 89.3 175.7 200.0 188.7 141.4 188.3 28.7 1,012.1Third party revenue - discontinued operations - - - - - - 3.6 3.6-----------------------------------------------------------------------------------------------------------------------Total third party revenue 89.3 175.7 200.0 188.7 141.4 188.3 32.3 1,015.7----------------------------------------------------------------------------------------------------------------------- ResultHalf year to 30 June 2007Result before joint ventures and associates 3.8 17.9 19.0 18.3 12.0 7.1 (14.4) 63.7Share of post-tax results of joint ventures and associates - - - - - 1.8 - 1.8-----------------------------------------------------------------------------------------------------------------------Operating profit from continuing operations 3.8 17.9 19.0 18.3 12.0 8.9 (14.4) 65.5Portfolio restructuring - - - - - - 5.5 5.5Costs of terminated acquisition - - - - - - 3.9 3.9Gain on revaluation of currency instruments - - - - - - 2.1 2.1Amortisation of intangible assets on acquisition - 0.5 1.8 3.5 0.4 0.2 - 6.4-----------------------------------------------------------------------------------------------------------------------Total trading profit 3.8 18.4 20.8 21.8 12.4 9.1 (2.9) 83.4----------------------------------------------------------------------------------------------------------------------- Half year to 30 June 2006Result before joint ventures and associates 3.8 19.2 12.1 24.2 12.3 7.9 11.6 91.1Share of post-tax results of joint ventures and associates - - - - - 1.7 - 1.7-----------------------------------------------------------------------------------------------------------------------Operating profit from continuing operations 3.8 19.2 12.1 24.2 12.3 9.6 11.6 92.8Portfolio restructuring - - - - - - (1.9) (1.9)Gain on revaluation of currency instruments - - - - - - (10.7) (10.7)Amortisation of intangible assets on acquisition - 0.8 1.3 (0.9) 0.4 - - 1.6-----------------------------------------------------------------------------------------------------------------------Trading profit from continuing operations 3.8 20.0 13.4 23.3 12.7 9.6 (1.0) 81.8Trading profit from discontinued operations - - - - - - 0.8 0.8-----------------------------------------------------------------------------------------------------------------------Total trading profit 3.8 20.0 13.4 23.3 12.7 9.6 (0.2) 82.6----------------------------------------------------------------------------------------------------------------------- Year to 31 December 2006Result before joint ventures and associates 12.8 39.8 28.7 43.2 26.4 15.3 17.8 184.0Share of post-tax results of joint ventures and associates - - - - - 4.7 - 4.7-----------------------------------------------------------------------------------------------------------------------Operating profit from continuing operations 12.8 39.8 28.7 43.2 26.4 20.0 17.8 188.7Portfolio restructuring - - - - - - (1.5) (1.5)Gain on revaluation of currency instruments - - - - - - (10.8) (10.8)Amortisation of intangible assets on acquisition - 1.4 3.5 3.2 0.9 0.1 - 9.1-----------------------------------------------------------------------------------------------------------------------Trading profit from continuing operations 12.8 41.2 32.2 46.4 27.3 20.1 5.5 185.5Trading profit fromdiscontinued operations - - - - - - 0.8 0.8-----------------------------------------------------------------------------------------------------------------------Total trading profit 12.8 41.2 32.2 46.4 27.3 20.1 6.3 186.3----------------------------------------------------------------------------------------------------------------------- 4. Finance income and expense Half year to Half year to Year to£m 30.6.07 30.6.06 31.12.06------------------------------------------------------------------------------Finance income:Continuing operationsBank interest 15.2 8.5 21.1Other interest 0.3 0.8 0.8Expected return on pension scheme assets 14.1 11.3 25.3------------------------------------------------------------------------------ 29.6 20.6 47.2Discontinued operationsBank interest - 0.1 0.1------------------------------------------------------------------------------Total finance income 29.6 20.7 47.3------------------------------------------------------------------------------Finance expense:Continuing operationsInterest on bankoverdrafts and loans (15.2) (13.1) (27.5)Other interest (0.3) (0.3) (0.7)Interest on pension scheme liabilities (11.4) (11.0) (22.5)------------------------------------------------------------------------------Total finance expense (26.9) (24.4) (50.7)------------------------------------------------------------------------------Net finance income/(expense) 2.7 (3.7) (3.4)------------------------------------------------------------------------------ 5. Earnings per Ordinary Share Half year to Half year to Year to 30.06.07 30.06.06 31.12.06------------------------------------------------------------------------------Basic EPSEarnings attributable to ordinary shareholders £m 50.2 77.4 148.1Weighted average number of shares million 1,133.3 1,126.9 1,128.3Basic EPS pence 4.43 6.87 13.13------------------------------------------------------------------------------ Fully diluted EPS------------------------------------------------------------------------------Earnings attributable to ordinary shareholders £m 50.2 77.4 148.1 Weighted average number of shares million 1,133.3 1,126.9 1,128.3Effect of dilutive securities:Options 6.7 10.0 10.9Long term incentive plans 1.5 1.2 -------------------------------------------------------------------------------Fully diluted number of shares million 1,141.5 1,138.1 1,139.2------------------------------------------------------------------------------Fully diluted EPS pence 4.40 6.80 13.00------------------------------------------------------------------------------ Underlying EPS------------------------------------------------------------------------------Profit after taxation attributable to equity shareholders £m 50.2 77.4 148.1Loss / (gain) on portfolio restructuring (after tax) 3.6 (15.0) (15.2)Loss / (gain) on revaluation of currency instruments (after tax) 1.4 (7.5) (7.6)Costs of terminated acquisition (after tax) 2.7 - -Amortisation of intangible assets arising on acquisition (after tax) 4.2 1.1 6.3------------------------------------------------------------------------------Underlying profit after taxation £m 62.1 56.0 131.6------------------------------------------------------------------------------Weighted average number of shares million 1,133.3 1,126.9 1,128.3Underlying EPS pence 5.48 4.97 11.66------------------------------------------------------------------------------ The tables above include results of both continuing and discontinued operations.The EPS arising from discontinued operations is shown in note 11. During the half year to 30 June 2007, Cobham plc issued 3,595,821 shares (yearto 31 December 2006: 7,749,649, half year to 30 June 2006: 6,052,680) upon theexercise of share options for total cash consideration of £3.5m. 6. Portfolio restructuring In the first half of 2007, exceptional costs of £5.5m were incurred inimplementing elements of the Group's three-year strategic plan, announced inSeptember 2005. These include closures and integrations of a number of theGroup's operations. During 2006, portfolio restructuring activity was focused on the sale andclosure of a number of businesses. Profits from all of these activities have been excluded from trading profit andunderlying earnings for the Group. Note Half year to Half year to Year to£m 30.6.07 30.6.06 31.12.06---------------------------------------------------------------------------------------- Restructuring costs (5.5) - -Profit on disposal of continuing activities - 1.9 1.5Profit on disposal of discontinued activities 11 - 13.1 13.0---------------------------------------------------------------------------------------- (5.5) 15.0 14.5Tax effect of portfolio restructuring 1.9 - 0.7---------------------------------------------------------------------------------------- (3.6) 15.0 15.2---------------------------------------------------------------------------------------- Restructuring costs and the profit on disposal of continuing activities areincluded within administrative expenses. 7. Taxation charge Half year Half year to Year to£m to 30.06.07 30.06.06 31.12.06------------------------------------------------------------------------------------ Continuing operationsUnited Kingdom 4.1 13.4 33.6Overseas 13.5 11.9 17.1------------------------------------------------------------------------------------ Tax on continuing operations 17.6 25.3 50.7Tax on discontinued operations - 0.1 0.1------------------------------------------------------------------------------------ Total tax charge for the period 17.6 25.4 50.8------------------------------------------------------------------------------------ Tax charge included in share of post-tax results of joint ventures and associates 0.6 0.7 1.4 8. Property, plant and equipment Half year Half year to Year to£m to 30.06.07 30.06.06 31.12.06------------------------------------------------------------------------------------- Carrying amount at start of period 187.6 202.8 202.8Additions 37.4 28.1 52.9Acquisition of subsidiaries - 1.5 1.1Disposal of undertakings - (3.2) (8.3)Disposals (21.9) (11.0) (12.6)Depreciation (16.4) (18.5) (36.0)Reclassification to investment properties - - (3.0)Foreign exchange adjustments 1.9 (6.5) (9.3)------------------------------------------------------------------------------------- Carrying amount at end of period 188.6 193.2 187.6------------------------------------------------------------------------------------- Proceeds of disposals 22.1 13.2 15.2------------------------------------------------------------------------------------- Property, plant and equipment disposed of during the period to 30 June 2007includes items with a carrying value of £0.2m written off as a result ofrestructuring activities (see note 6). Commitments for the acquisition of property, plant and equipment relate mainlyto aircraft for the Australian Sentinel contract and are as follows: £m As at 30.6.07 As at 30.6.06 As at 31.12.06-------------------------------------------------------------------------------- Commitments 32.2 40.7 33.2-------------------------------------------------------------------------------- 9. Contingent liabilities There have been no material changes in contingent liabilities since 31 December2006. 10. Derivative financial instruments Interest rate swaps ------------------- Cash Fair Currency flow value translation£m hedge hedge derivatives Total----------------------------------------------------------------------------------Fair value at 1 January 2006 1.7 (2.5) 1.5 0.7Movements in half year to 30 June 2006- Fair value loss through income statement - hedged items - (4.3) - (4.3)- Fair value gain through income statement - not hedged - - 10.7 10.7- Fair value gain through reserves 3.1 - - 3.1---------------------------------------------------------------------------------- Fair value at 30 June 2006 4.8 (6.8) 12.2 10.2 Movements in half year to 31 December 2006- Fair value gain through income statement - hedged items - 3.7 - 3.7- Fair value gain through income statement - not hedged - - 0.1 0.1- Fair value loss recycled from equity to income statement (0.9) - - (0.9)- Fair value loss through reserves (1.8) - - (1.8)----------------------------------------------------------------------------------Fair value at 31 December 2006 2.1 (3.1) 12.3 11.3 Movements in half year to 30 June 2007- Fair value loss through income statement - hedged items - (1.4) - (1.4)- Fair value loss through income statement - not hedged - - (2.1) (2.1)- Fair value loss recycled from equity to income statement (0.6) - - (0.6)- Fair value gain through reserves 2.7 - - 2.7----------------------------------------------------------------------------------Fair value at 30 June 2007 4.2 (4.5) 10.2 9.9 Interest rate swaps are accounted for using hedge accounting. Movements in fairvalues are matched against the corresponding liabilities or reflected inreserves as appropriate. All cash hedges were fully effective and hence there isno effectiveness in cash flow hedges to be reported through the incomestatement. Currency translation derivatives are not accounted for using hedge accountingand movements in fair values are reflected in the income statement. 11. Discontinued operations No businesses were sold or classified as discontinued during the period to 30 June 2007. The results of Wallop Defence Systems Limited were reported within discontinuedoperations in 2006. This company was sold on 8 March 2006, completing thedisposal of the Group's Countermeasures operations, which was initiated in2005. The results of Wallop Defence Systems Limited included in the consolidatedincome statement are as follows: Half year to Half year to Year to£m 30.6.07 30.6.06 31.12.06--------------------------------------------------------------------------------Revenue - 3.6 3.6Expenses - (2.7) (2.7)--------------------------------------------------------------------------------Profit from discontinued operations before tax - 0.9 0.9Tax - (0.1) (0.1)--------------------------------------------------------------------------------Profit for the period after tax - 0.8 0.8Profit on disposal before tax - 13.1 13.0Tax on profit on disposal - - ---------------------------------------------------------------------------------Total profit after taxation from discontinued operations - 13.9 13.8-------------------------------------------------------------------------------- Earnings per Ordinary Share of discontinued operations (including profit on disposal) -basic - 1.23p 1.22p -fully diluted - 1.22p 1.21p 12. Related party transactions Transactions between Cobham plc and its subsidiaries, which are related partiesof the Company, have been eliminated on consolidation and are not disclosed inthis note. Details of transactions between the Group and other related partiesare disclosed below. Trading transactions and balances Half year to Half year to Year to£m 30.06.07 30.06.06 31.12.06----------------------------------------------------------------------------------------------------Transactions between Group entities and joint ventures during the period:Sales of goods and services 0.5 0.6 1.3Dividends received 1.6 3.0 4.3 At the period end balances with joint ventures were as follows:Amounts owed by related parties to Group entities 0.1 - 0.1Amounts owed to related parties by Group entities 0.1 - ----------------------------------------------------------------------------------------------------- Sales of goods to related parties were made at the Group's usual list prices forsales to non-related parties. Goods are bought on the basis of the price listsin force with non-related parties. The amounts outstanding are unsecured and will be settled in cash. No guaranteeshave been given or received from related parties. No expense has been recognisedin the period for bad or doubtful debts in respect of the amounts owed byrelated parties. 13. Events after the balance sheet date In May 2007, the Cobham Antennas division agreed to acquire the assets ofPatriot Antenna Systems in the USA for US$18m plus contingent consideration ofup to US$27m. This acquisition was completed on 28 August 2007. Independent review report to Cobham plc IntroductionWe have been instructed by the Company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated interimbalance sheet as at 30 June 2007 and the related consolidated interim statementsof income, cash flows and total recognised income and expense for the six monthsthen ended and related notes. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. The interim report has been prepared in accordance with the basis set out innote 1. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom.A review consists principally of making enquiries of management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit and thereforeprovides a lower level of assurance. Accordingly we do not express an auditopinion on the financial information. This report, including the conclusion, hasbeen prepared for and only for the company for the purpose of the Listing Rulesof the Financial Services Authority and for no other purpose. We do not, inproducing this report, accept or assume responsibility for any other purpose orto any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PricewaterhouseCoopers LLPChartered AccountantsSouthampton11 September 2007 Notes: (a) The maintenance and integrity of the Cobham plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Cobham