2008 preliminary results9 2008 preliminary results 5 march 2009 cobham plc technology divisions’...

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2008 Preliminary Results

5 March 2009

5 March 20092008 Preliminary Results1 Cobham plc

Agenda

• Financial Results Warren TuckerChief Financial Officer

• Market Update and Business Overview Allan CookChief Executive

• Q&A


Summary Profit and Loss Account

Note: See Appendix for definitions, including underlying, used throughout this presentation. * Prior year restated due to SPARTA

40.2%1,663.91,186.6Orders Received

17.8%15.42p13.09pUnderlying Earnings Per Share

18.1%243.8 206.5 Profit Before taxation

0.1pts5.7%5.6%PV Spend %*

(1.5)pts17.2%18.7%Margin

26.6%251.6 198.8 Trading Profit

38.2%1,466.5 1,061.1 Revenue

£m£m

GrowthYear to

31/12/08Year to

31/12/07


Earnings Per Share Growth

0.620.30 0.09

1.32 15.42

13.09

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

2007 FX Translation FSTA Project Costs FX Transaction Growth 2008

pen

ce

13.1 % at constant translation exchange

2.3% 0.7%4.7% 10.1%


Cash Flow and Dividends

10.0%4.95p4.50pDividend per Share

(719.2)77.0 Decrease/(Increase) in Net Debt

51.5%202.9 133.9 Free Cash Flow from Business

25.0pts106.1%81.1%Operating Cash conversion

66.3%260.5 156.6 Operating Cash Flow

27.3%245.6 193.0 Trading Profit (ex. JV)

£m£m

GrowthYear to

31/12/08Year to

31/12/07

Net Debt £641.3m: £7m translation impact for every 1 cent movement*

*@£=US$1.42. Year end rate £=US$1.44


Cash Flow Summary

Year to 31/12/07

Year to 31/12/08

£m £m

Trading Profit (excluding joint ventures) 193.0 245.6

Depreciation and other movements 33.8 34.5

Decrease/(Increase) in working capital and provisions (27.6) 35.4

Net capital expenditure (42.6) (55.0)

Operating cash flow 156.6 260.5

Taxation paid (23.3) (58.2)

Dividends received from joint ventures 3.2 8.9

Other (3.7) (2.2)

Free cash flow 133.9 202.9

Dividends paid (43.8) (52.7)

Acquisition payments less disposal proceeds (17.7) (616.6)

Movements in funding and exchange movements 4.6 (252.8)

Decrease/(increase) in net debt 77.0 (719.2)


Revenue and Profit

17.2%18.7%Margin

26.6%251.6 198.8 38.2%1,466.5 1,061.1 Cobham Group

(2.3)(3.4)(1.0)(1.1)Head Office & Other

25.6%253.9 202.2 38.2%1,467.5 1,062.2 Operating Divisions

11.2%11.4%Margin

13.2%24.8 21.9 15.3%221.9 192.5 Cobham Aviation Services

18.4%20.7%Margin

27.1%229.1 180.3 43.2%1,245.6 869.7 Technology Divisions

Growth20082007Growth20082007£m

Trading ProfitRevenue


Technology Divisions’ Revenue Growth


Technology Divisions’ Organic Revenue Growth 2005 to 2008

9.6%17.5%

10.2%

(7.2)% 13.9%8.6%

10.8%

17.1%

8.4%

5.8%13.2%

10.3%


Technology Divisions’ Revenue and Profit

Note: Intercompany eliminations not shown.

18.4%20.7%Margin

229.1 180.3 10.3%1,245.6 869.7 Technology Divisions

17.3%20.6%Margin

52.2 54.1 8.6%302.0 262.8 Mission Systems

19.9%24.9%Margin

105.2 74.8 10.8%529.3 299.9 Defence Systems

16.6%15.9%Margin

71.7 51.9 10.2%432.8 326.9 Avionics and Surveillance

20082007OrganicGrowth20082007£m

Trading ProfitRevenue


Foreign Exchange

£0.5m PBT translation impact for every 1 cent movement

Dollar/Euro exposure predominantly hedged for 2009 & 10 with $58m @ 1.45

Transaction Exposure


Group Revenue Analysis By Destination

Drivers• Faster growing geographies• Cross-selling out of home markets• Long term investment in Washington DC, India & Middle East• Cobham teamed with primes selling in developing markets

55% of revenue is from the USA

USA55%

UK10%

Australia10%

RoW10%

Mainland Europe15%


Group Revenue Analysis By Market Driver

70% of revenue is from military and government contracts – 10% from Aviation Services

Drivers• Low commercial exposure• Securing preferred suppliers positions with certain primes• Demographics and outsourcing by primes/ governments• Suitability of technology for either OEM fit or upgrade • Demand for satellite on the move from military and developing markets• Acquisition synergies• Significant investment in selling capabilities

Aviation Services 15%

Other Communication 11%

Commercial/GA Aerospace 13%

Non US Military/Government 17%

US Military/Government 44%


H1

2

00

8H

2

$38m

$240m

£13m + £3m

contingent

$372m+ $35m deferred

$425m

$26m

USA

USA

UK

USA

USA

USA

Fixed wing autopilots

Electronic warfare technology and subsystems

Specialist cellular communications for intelligence

Intelligence, scientific, systems engineering and technical assistance services

RF, Microwave components & sub systems

Digital equipment, including video surveillance and high definition and wireless video technologies

Avionics and Surveillance

Defence Systems


Defence Systems

Defence Systems


S-TEC (January)

Sensor & Antenna Systems Lansdale (February)

MMI Research (April)

SPARTA(June)

M/A-COM(September)

GMS(October)

ConsiderationLocationActivityDivisionCompany

Acquisitions

US$1.2bn of acquisitions - integration is on or ahead of plan


• Order book increased from £1.8bn to £2.7bn, giving excellent long term revenue visibility

• Growth markets and technology focus underpin 10% organic increase in Technology Divisions’ revenue; strong growth from Cobham Aviation Services

• Underlying EPS growth of 18% (13% at constant translation exchange rates) driven by acquisitions and organic growth

• Cash conversion of 106% and free cash flow of £203m

• US$1.2bn of acquisitions completed with good progress on integration

• 10% increase in 2008 dividend; double digit compound growth since 1980

Financial Highlights


Agenda

• Financial Results Warren TuckerChief Financial Officer

• Market Update and Business Overview Allan CookChief Executive

• Q&A


The US Defence Market

What is known

• Three major budget sources– Core defence US$664bn– Homeland security US$43bn– National security

• Growth in core defence budget to Oct 2010, then ‘flat’

• Priorities include C4ISR, cyber security, recapitalisation

• Missile defence continues to be important to national security

• No programme cuts announced

• Strength in export A&D orders

• Reduction in ongoing activities in Iraq

Major growth opportunities in defence, homeland security and national security markets

Implications for Cobham

• Growth in all core budgets for Cobham

• Capabilities focused on critical intelligence and defence areas

• Priorities match core capabilities

• Ongoing demand for missile defence

• Able to benefit from new platforms and upgrades with technology

• Operational deployment is not a major driver for Cobham


Other Defence Markets

• Established positions on most major platforms and programmes

• Governments face a familiar but escalating dilemma – increased geopolitical tensions and continued threat to national security, leading to a greater dependency on intelligence assurance and homeland security opportunities for Cobham

• European defence budgets remain under pressure and account for only 16% of revenue. Cobham’s UK contracts are long term, running to 2025 and beyond with modest growth overall

• Australian markets have, so far, held up considerably better than America, rising to AUD$22.4bn. Cobham’s core Sentinel contract runs to 2019

• Compound growth of 20% forecast for India, Saudi Arabia, UAE and South Korea for the period 2008 to 2013

Major growth will occur in markets such as Asia and the friendly Middle East countries


Non Defence Markets

• Non defence markets account for 29% of Cobham revenue – Commercial and General Aviation 13%, Aviation Services 5% and other

communication 11%

• Airlines in all regions face a tough 2009 with too much capacity still in the market, with North America forecast to do slightly better than other regions

• Majority of Cobham products fitted post production of ‘green’ aircraft and less susceptible to near term decline in aircraft orders

• Business aviation subdued, although new airframes are scheduled for entry into service in 2010 and beyond

• Commercial avionics business levels should be sustained through 2009

• OEMs are seeking higher levels of systems integration from avionics suppliers

• Cobham’s success with Rockwell Collins on the communication package for the A350 is an indication of the shift in dynamics

OEMs are seeking greater levels of system integration


Cobham’s Broad Portfolio

$0.2mAMRAAM Missile

$0.2mT50

$0.2mA380

-A350

$1mV-22

$2mGlobal Hawk

-VIC-3/VIS-X

$1.5mTyphoon

2008

$2.3m

$1m

Current Ship Set Value US$

F/A-18

F-35

2020+202020182016201420122010Platform/Programme

Broad platform, programme and customer base with good revenue visibility

In order book Service life

US$200m over aircraft life

VIS-X US$1.5bn over programme lifeVIC-3


Strategy


• Cobham has been doing business in India for more than 20 years

• Many defence and non defence opportunities

• Indian Air Force– US$1bn order for six C-130J tactical transporters– US$2.1bn agreement for eight Boeing P-8I maritime patrol aircraft– US$10bn MMRCA tender to replace MiG-21– Follow on order for BAE Systems Hawk AJT – AgustaWestland VVIP AW-101– Refuelling

• Indian Army– Digital Universal Control Harness vehicle intercoms for 7,000 vehicles– Future Infantry Solider as a System: 350,000 soldiers– Mine detection systems (hand held & vehicle mounted)

• Non military– Homeland security, space, satellite, SATCOM/VSAT, slip rings for aviation and wind farms

• Partnerships– Working with Hindustan Aeronautics, Bharat Electronics, Tata and Alpha Design Technologies

Growth - Major Prospects in India

Large range of direct and indirect opportunities worth up to US$400m by 2012

Between US$750k & US$3m per aircraft

Between US$10m & US$150m

Up to US$10m in 2010

Contract values to Cobham


Technology – Building and Leveraging

Customers viewing Cobham as a strategic partner for complex assemblies and subsystems

Microwave Assemblies

MMICsComponents

Integrated Subsystems

Integrated Microwave

Assemblies (IMAs)

Line Replaceable Units (LRU’s)

Antenna Subsystems

T/R Modules

Broadband High Power Transmit

Antennas & Arrays

Broadband High Power Amplifier

Subsystems


Transformation – Shaping the Company

Beginning to think and behave like a large, global, growing company

• Collaboration– Capturing aftermarket business and cross selling – Reading across technology– Bidding collaboratively with new acquisitions

• Efficiency– Reducing sites, creating centres of excellence – Developing more effective supply chain

• Enablers– Standardising IT systems selectively– Group wide talent management – Transitioning to a single brand


Summary

• Broad portfolio of platform, programme and customers with excellent long term revenue visibility

• Opportunities exist in core and developing markets for increased level of capability

• Remain focussed on the development of distinctive technologies

• Transforming how we do business to accelerate further growth

• Strong results reflect the successful implementation of our strategy

• Confident of achieving further progress in 2009


• IR calendar

• Market position

• Ship set values

• US Budgets

• Shareholder returns

• Revenue & trading profit growth

• US$/£ translation exchange rates

• Exceptional profits from portfolio restructuring

• Working capital efficiencies

• Reconciliation of IFRS to Underlying Result

• Definitions & glossary

• Cautionary statement

Appendices


IR Calendar

1329• Investor Days

2009

DecNovOctSepAugJulJunMayAprMarFebJan

46 65• Announcements/AGM

InterimsAGM &Interim

ManagementStatement

InterimManagement

Statement

Prelims

Cobham Sensor Systems

Cobham Analytic Solutions(SPARTA)


SAS Lansdale,SPARTA

M/A-COM

High

LowBuilding Scale In Top 3

VehicleCommunications

AirRefuelling

C4ISR*

SATCOM

Avionics

Surveillance

MissionEquipment

Aviation Services

Size of bubble represents Cobham revenue * Radar, EW, ISR, Missiles, CNI

Mark

et

Gro

wth

Life Support

Avionics & Surveillance

MissionSystems

DefenceSystems

MMIResearch, GMS

A350 &380RAIMS

Market Position

LENS renamed Surveillance


Ship Set Values

Programme / Platform

2006

2008

2010

2012

Ship

Set

Val

ues

US$

F16 X X X X $1,000kF/A 18 E/F/G X X X X $2,300kF22 X X X X $1,400kF35 X X X $950kEurofighter Typhoon X X X X $1,500kHawk X X X X $600kT50 X X X X $190kGripen X X X X $760kRivet Joint X X $4,350kA330 X X X $6,000kC17 X X X X $600kC130 / KC130 X X X X $3,300kKC135 X X X X $2,960kC-160 X X X X $420kASTOR Sentinel R X X X X $520kB2 X X X X $1,360kPredator X X X X $300kAMRAAM X X X X $220kGlobal Hawk X X X X $2,030k

UAV / Missiles

Military Fast Jet/ Trainers

Medium / Large Military

Programme / Platform

2006

2008

2010

2012

Ship

Set

Val

ues

US$

EH101 / VH71 X X X X $1,200kMD902 X X X $200kEC120 X X X X $190kEC135 X X X X $300kEC155 X X X X $375kTH 57 X X X $330kALH X X X X $360kLynx X X X X $240kApache X X X X $180kV22 X X X X $1,000kA380 X X X $220kB787 X X $150kType 45 Destroyer X X X X $300kSampson Radar X X X X $3,000kEDG 1000 X X X $4,000kAegis DPYIDV X X X X $2,200kLight Vehicle X X X X $20kAmoured Fighting Vehicle X X X X $70kTanks X X X X $50k

Land

Rotary

Commercial

Naval


US Department of Defense Budget

Source: White House Office of Management and Budget, Feb ’09


US Department of Homeland Security Budget



US National Intelligence


2009 US Intelligence Budget of $75bn


Shareholder Returns

Year to 31/12/07

Year to 31/12/08 Growth

Underlying Tax Rate 28.8% 28.7%

Earnings Per Share

Underlying 13.09p 15.42p 17.8%

Basic 11.61p 8.38p

Diluted 11.55p 8.34p

Dividend Per Share 4.50p 4.95p 10.0%

Free Cash Flow Per Share 11.81p 17.83p 51.0%


Group Revenue Growth


Group Trading Profit Growth


Aviation Services Revenue Growth


US$/£ Translation Exchange Rates

£0.7m PBT translation impact for every 1 cent movement

2008

Opening Full Year Full Year

Income Statement(average rate) n/a 2.00 1.86

Balance Sheet(closing rate) 1.96 1.99 1.44

2007


Exceptional Profits from Portfolio Restructuring

Past Years2005 £5.6 m2006 £14.5 m2007 £(7.7)m

£12.4 m

2008Wimborne Site Restructuring £(2.1)mNorth American Avionics Restructuring £(2.9)mNorth American Mission Systems Restructuring £(2.4)mAdjustment to profit on divestment FR HI-Temp £2.9 m

£(4.5)m

Available to invest on furtherexceptional restructuring £7.9 m


Working Capital Efficiencies

£55m over three years


Reconciliation of IFRS to Underlying Result

Year to 31/12/07

Year to 31/12/08

Operating profit 165.8 128.5

Portfolio restructuring 9.5 7.4

Unrealised losses on revaluation of currency instruments 5.7 59.5

Amortisation of intangible assets arising on acquisition 13.8 46.8

Acquisition related adjustments:

Cost charged post-acquisition for acquired share options - 5.5

Fair value adjustments to inventory on acquisition 0.1 3.9

Costs associated with terminated acquisition 3.9 -

Trading profit 198.8 251.6

Net finance (expense)/income 7.7 (7.8)

Underlying profit before taxation 206.5 243.8


Definitions

Free cash flow is cash generated by the business before movements in funding and FX, acquisitions and disposals and dividends to shareholders

Free Cash Flow

Defined as free cash flow/average number of shares in issue

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.

Operating cash conversion is defined as operating cash flow as a percentage of trading profit, excluding profit from joint ventures.

Organic growth represents the growth of the business for the period that it was within the Group’s control, translated at constant exchange rate. Growth achieved in the first twelve months of ownership within the Group is shown as ‘acquisition’ contribution.

Company funded R&D expenditure as a percentage of technology division revenues

Free Cash Flow per share

Operating Cash Flow

OperatingCash conversion

Organic growth

PV Investment

The underlying tax rate is based on underlying profit before tax, excluding the share of post tax income from joint ventures.

Underlying Tax Rate

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 certain acquisition related charges, portfolio restructuring costs, the mark-to-market of currency instruments not realised in the period and impairments of goodwill. Acquisition related charges excluded from trading profit and underlying earnings include the amortisation of intangible assets recognised on acquisition, such as customer relationships, technology and software and the like, the writing off of the pre-acquisition profit element of inventory written up on acquisition, costs charged post acquisition, which relate to purchasing the shares of acquired companies and, in the prior year, direct costs associated with the exceptional terminated acquisition. Portfolio restructuring costs comprise exceptional profits arising on business divestments, which have funded exceptional costs associated with the restructuring of the Group’s business and site integrations. Both the divestments and the integration activity originate from the Group’s strategy announcement in September 2005.

Underlying


A&D Aerospace & DefenceAJT Advanced Jet TrainerC4ISR Command, control, communications, computers, intelligence, surveillance and reconnaissanceIMA Integrated Microwave AssemblyLRU Line Replaceable UnitMMIC Monolithic Microwave Integrated CircuitMMRCA Medium Multi-Role Combat Aircraft OEM Original Equipment ManufacturerPV Private Venture (Company funded research & development)SATCOM Satellite CommunicationT/R Transmit/ReceiveVSAT Very Small Aperture Terminal VVIP Very, Very Important People

Glossary


Cautionary statement

For the purposes of the following disclaimers, references to this “document” shall be deemed to include references to the presenters’ speeches, the question and answer session and any other related verbal or written communications.

This document contains certain “forward-looking statements” with respect to the financial condition, results of operations and business of Cobham plc (Cobham) and to certain of Cobham’s plans and objectives with respect to these items. Forward-looking statements are sometimes but not always identified by their use of 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 inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or will occur in the future. There are various factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies, political situations and markets in which the Group operates; changes in government priorities due to programme reviews or revisions to strategic objectives; changes in the regulatory and competition frameworks in which the Group operates; the impact of legal or other proceedings against or which affect the Group; changes to or delays in programmes in which the Group is involved; the completion of any acquisitions and divestitures and changes in exchange rates. All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Cobham or any other member of the Group or persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. Cobham does not intend to update these forward-looking statements.

2008 preliminary results9 2008 preliminary results 5 march 2009 cobham plc technology divisions’...

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