2011 Interim Results Agenda Introduction Andy Stevens Chief - - PowerPoint PPT Presentation

2011 Interim Results

4 August 2011

Cobham plc 1 2011 Interim Results 1

Agenda

• Introduction

Andy Stevens

Chief Executive Officer

• Financial Results

Warren Tucker

Chief Financial Officer

• Business Review

Andy Stevens

• Q&A

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Summary Profit and Loss Account

* Core businesses. See Appendix for definitions, including underlying, used throughout this presentation.

4%* increase in organic order intake - order book £2.5bn

2011 Interim Results

Full Year 2010 H1 2010 H1 2011 Change £m £m £m 1,902.6 Revenue 963.4 891.9 (7.4%) 348.4 Trading Profit 167.2 166.9 (0.2%) 18.3% Trading Margin 17.4% 18.7% 1.3pts 306.1 Underlying Profit before Taxation 144.6 148.9 3.0% 19.68p Underlying Earnings Per Share 9.29p 9.76p 5.1% 5.0% PV Spend %* 5.2% 5.6% 0.4pts

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Earnings Per Share Growth

2011 Interim Results

%

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Cash Flow and Dividend

Net Debt £377.6m, Net Debt:EBITDA 0.9x

2011 Interim Results *Excludes Excellence in Delivery

Full Year 2010 H1 2010 H1 2011 Growth £m £m £m 342.4 Trading Profit (ex. JV) 164.7 163.4 (0.8%) 271.4 Operating Cash Flow 135.1 158.7 17.5% 79.3% Operating Cash conversion 82.0% 97.1% 15.1pts 218.6 Free Cash Flow from Business 103.0 128.9 25.1% 86.5 Decrease/(Increase) in Net Debt 39.3 (51.5) 6.00p Dividend per Share 1.628p 1.800p 10.6%

*

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Defence Communications (ex CDS) Antenna Systems (ex CDS) Aerospace and Security (CAS) Defence Systems (CDS) Aviation Services (CAvS) Mission Systems (CMS) US Composites + Passive Microwave (ex CDS) Analytic Solutions (ex CDS)

Changes to Organisation

5 2011 Interim Results

Core businesses – seven Strategic Business Units (SBUs) Non-core businesses – two SBUs Analytic Solutions Commercial Systems

Divisions

Avionics (ex CAS) Beacons (ex CMS)

Changes effective 1 January 2011

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Core Business Revenue

2011 Interim Results

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Core Businesses - Organic Revenue Growth Cycle Over the Medium Term

Excludes FX, Acquisitions and Disposals. Prior year are proforma numbers for illustration purposes 2011 Interim Results – see appendix for definition of core businesses

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Cobham Aerospace & Security

• Strong performance from export
• riented Antenna Systems, partly
• ffsetting land and surveillance
• Increased shipments of long range

SATCOM antennas to commercial customers

• Long term awards for S61 helicopter

upgrade and new SK105 aircraft avionics

• Robust growth from repair and

refurbishment work, including work for US FAA

Excludes FX, Acquisitions and Disposals. Prior year are proforma numbers for illustration purposes 2011 Interim Results – core as defined on slide 5

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Cobham Defence Systems

Excludes FX, Acquisitions and Disposals. Prior year are proforma numbers for illustration purposes 2011 Interim Results - core as defined on slide 5

• Revenue affected by Continuing

Resolution and order shortfalls, but efficiency savings and contracts benefit margin

• Further US DARPA development

contract for US$13m on Wireless Network after Next (WNaN)

• Good shipments of integrated

microwave assemblies for TOW missile system

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Cobham Mission Systems

Excludes FX, Acquisitions and Disposals. Prior year are proforma numbers for illustration purposes 2011 Interim Results - core as defined on slide 5

• Continuing shipments of under wing

air refuelling pods and US$73m development subcontracts received for US KC-46 tanker

• Strong performance from oxygen

systems, aviation restraints and actuation subsystems, with growing aftermarket

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Cobham Aviation Services

Excludes FX, Acquisitions and Disposals. Prior year are proforma numbers for illustration purposes 2011 Interim Results - core as defined on slide 5

• Increased flying activity for resource

industry customers in Australia, with further potential opportunities

• pening up
• Strong performance from Sentinel

maritime surveillance programme and Australian freight operations

• Preparations well underway for

modification of A330 FSTA aircraft in UK

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Excellence in Delivery ... a Step Improvement in Operating Performance

• Rolling out standard, best practice,
• perating model across larger sites -
• ur Principal sites
• Integrating manufacturing
• perations of some smaller sites

into Principal sites to capture scale and standardisation benefits

• Implementing a standard ERP

system in Principal sites to enable further scale economies

• Driven by improved product delivery and

customer service, but also: – Improved operating efficiency – Estimated cost savings of £65m, with

• ne-off costs of £131m

– Reduced inventory levels – working capital savings – A simpler, more scalable business The Programme has 3 Elements … and Offers Numerous Benefits

12 12 12 2011 Interim Results

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By the End of 2013, EiD is Expected to Deliver £65m in Benefits Annually

55 Benefit impact 2010-13, £m 2010 2011 2012 2013 26 72 106 131

Cumulative exceptional cost

Benefits Exceptional costs

Exit run-rate for 2013 is £65m

13

Actual Forecast Plan

• 26

H1

• 34
• 25
• 23
• 46
• 19

15 H1

9 30 42 55 9

H2 H2

65

2011 Interim Results

30 Will deliver £21m of year over year benefit

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• US Defence and Security challenging period; non-US and Commercial growing
• Core business trend continues at slightly negative
• EPS up 6% at constant translation
• EiD really making a difference – 2011 savings already in place
• Operating cash flow conversion 97%, free cash flow £129m
• Dividend up 10.6%, £61m shares bought back to 30 June

Financial Highlights

2011 Interim Results - core as defined on slide 5

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Agenda

• Introduction

Andy Stevens

Chief Executive Officer

• Financial Results

Warren Tucker

Chief Financial Officer

• Business Review

Andy Stevens

• Q&A

2011 Interim Results

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Market Development

• Challenging conditions in the US defence/security market

– We‟re in the more attractive sectors

• Improving marketing and pipeline in stronger markets

– Wins on Chinese C919, French SK 105, Korean KT-1 & T-50 & Brazilian AF-1 – Good pipeline of opportunities in India, Middle East and South America – Commercial revenue almost one third of our core business

• Greater focus on aftermarket

– Aftermarket revenue increased to 17% – Winning US Army, Navy and Air Force business

• Getting more products on major platforms

– Scope of supply on the US tanker will be more than refuelling equipment

2011 interim results 16

More customers are identifying us as a strategic supplier

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Technology Investment

• Rate of PV investment increased to secure next

generation of programmes and upgrades – Invested 5.6% of revenue for core businesses

• Our focus is on developing technically differentiated

products and services – Weight, size and power performance are key factors

• Good progress developing products that straddle

multiple markets – Completed qualification testing of RAIMS for A350 – selected for A400M – Leveraging COGS technology – Developing SATCOM antennas for Inmarsat

2011 interim results COGS (Ceramic Oxygen Generating System) RAIMS (Radio & Audio Interface Management System) 17

Technology differentiation is at the heart of our competitive advantage

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Technology Investment

Lighter, Smaller, Innovative SATCOM Antenna

2011 interim results *Based on Airbus analysis 18

Targeting OEMs, airlines & retrofit markets – 24 airlines have adopted our product

certification

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Technology Investment

OBIGGS - Military Gas Inerting Technology for Commercial Markets

2011 interim results OBIGGS – On Board Inert Gas Generation Systems 19

Smaller and lighter than comparable systems

Time

◊ C17 production ◊ Platform „X‟ ◊ Platform „Y‟

Fixed wing Unmanned

◊ Under development ◊ B787

Commercial Regional

◊ Under development

Retrofit

◊ FAA mandate ◊ C17 retrofit ◊ C130 retrofit

Military Civil

◊ AH64, MH-47, MH-60, V22

Rotary

◊ UH-1

Civil OEM adoption Military OEM adoption

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Operational Excellence

EiD is Making Good Progress

• Standard Operating Framework

– Production system implementation now live across 10 of our 14 principal locations – Engineering framework design underway

• Integration

– Five sites closed and a further four underway

• New IT System

– Completed concept work based on a standard ERP system

2011 interim results 20

Customers are very supportive of this programme

Key: live site

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• World class delivery and quality performance an additional differentiator
• Streamlining reduces product development cycles and time to market
• Improved engineering efficiency creates further capacity for new product

development

• Standardardised operating model enables greater synergy benefits from

acquisitions

Operational Excellence

EiD is Transforming Our Operational Performance

21 2011 interim results

Excellence in Delivery is key to our growth

• Improvement example (Nashua)

Jan ’11 Jun ’11

• Deliveries to customer (on time to promise)

92% 100%

• Inventory turns

7.3 11.3

• Avg. manufacturing lead time

30 days 10 days

• Productivity improvement

+25%

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Portfolio Optimisation

Focusing on Higher Growth Markets

2011 interim results - core as defined on slide 2. Group revenue analysis on slide 34 22

Growth across 50% of the business – Commercial & non US defence/security

USA 51% (2010: 55%) Other EU countries 15% (2010: 14%) Australia 14% (2010: 11%) UK 10% (2010: 10%) RoW 10% (2010: 10%)

Geography Market Revenue analysis for core businesses

US Defence / Security 42% (2010: 47%) Non US Defence / Security 29% (2010: 26%) Commercial/GA 21% (2010: 17%) Other Communication 8% (2010: 10%)

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HIGHER LOWER BUILDING SCALE IN TOP 3 Commercial Systems (Avionics & Beacons) Aviation Services MARKET GROWTH

Portfolio Optimisation

Strategy is to Build Scale and Leadership

2011 interim results 23

Defence/ Security Commercial

Size of bubble represents Cobham revenue

Analytic Solutions Antenna Systems Mission Equipment

Homeland security acquisitions performing well - integrated into TC&S & Mission Equipment

Tactical Comms & Surveillance (TC&S) Sensor Systems Aerospace Comms Life Support

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Summary

• Order intake improving with revenue growth in Commercial, non-US defence/security and

aftermarket

• EPS up 6%, despite challenging US Defence and Security market, underpinned by savings

from Excellence in Delivery (EiD) programme

• Increasing technology investment and reconfiguring the business to capture opportunities
• Technically differentiated products and services in more attractive and resilient market

segments

• Strong and flexible balance sheet for organic and acquisitive investment
• Actively responding to market conditions and confident of making progress over the

medium term

2011 interim results 24

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1.

IR calendar

2.

Key Performance Indicators

3.

Ship set values

4.

Surveillance and mesh network example

5.

Shareholder returns

6.

Cash flow summary

7.

Revenue & profit

8.

Group revenue analysis

9.

Foreign exchange transaction exposure

10.US$/£ translation exchange rates 11.Reconciliation of IFRS to Underlying Result 12.Group Revenue and Trading Profit Re-stated Segmental Results – Full Year 13.Strategy summary 14.Definitions & glossary 15.Cautionary statement

Appendices

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Investor Relations Calendar

2011 - 2012 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Announcements Exhibitions/ Air Shows

8 Preliminary Results 26 AGM & Interim Management Statement w/c 9 Farnborough Air Show 9 Interim Management Statement w.c. 12 DSEI Exhibition, London 9 (TBC) Interim Results

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Key Performance Indicators

2011 interim results

Full Year 2010 H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 0.7% Core Businesses Organic Revenue Growth 5.8% 5.9% 12.0% 1.5% 3.0% (2.6)% 3.8% Earnings Per Share Growth (constant translation) 9.9% 15.3% 19.2% 18.7% 3.6% 5.8% 79.3% Operating Cash Conversion 71.1% 75.1% 116.3% 87.4% 82.0% 97.1% 5.0% Core Businesses PV Spend % * 6.3% 5.7% 6.1% 6.0% 5.2% 5.6% Defence/Security (8)% Commercial 12% (2.6)%

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Programme/Platform Ship Set Values US$k Military Fast Jets / Trainers F16 $500-$800 F/A 18 E/F/G $880-$4,000 F35 $1,300 Eurofighter Typhoon $1,500 Hawk $500 Rafale $150 PC-7 $160 T50 $220 Gripen $160-$500 Medium / Large Military C17 $500 C130/KC130 $700-$4,000 UAV / Missiles Predator/Reaper $300-$600 AMRAAM $120 AARGM $140 PAC3/Patriot $200 Global Hawk $1,900-$2,200 Rotary EH101 $400-$600 Apache $580 CH53K $400 MH60/UH60 $300-$650 V22 $1,000 Commercial A320 $60 A350 $100 A380 $230 B737 $120 B787 $110-$150 C919 $35 SK105 $350 Naval DDG 1000 $2,600 Aegis DPYIDV $2,400

28

Ship Set Values

2011 interim results

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Increasing Ship Set Value on F-35

Estimated >3,000 aircraft to be produced - Cobham ship set value still increasing

2040

Ship Set Value Aircraft Production

$1,200 Some reduction in LRIP $20 $410 $500 $700 $950 $1,300

$0 $400 $800 $1,200 $1,600 $2,000 Ship Set Value US$k 50 100 150 200 250 Aircraft

4 5 6 7 8 1 2 3 4 5 6 7

2011 interim results

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Surveillance and Mesh Network Capability Example

SOLO Transmitter Camera Camera Mobile surveillance Camera Camera Camera Car Camera Camera Camera Mobile surveillance SOLO Transmitter

Key

Mesh 1 Mesh 2 SOLO link out

Police command Police command

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Shareholder Returns

Full Year 2010 H1 2010 H1 2011 Growth 26.5% Underlying Tax Rate 26.5% 25.5% Earnings Per Share 19.68p Underlying 9.29p 9.76p 5.1% 13.27p Basic 6.55p 6.96p 13.20p Diluted 6.50p 6.93p 6.00p Dividend Per Share 1.628p 1.800p 10.6% 19.00p Free Cash Flow Per Share 8.96p 11.26p 25.7%

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Cash Flow Summary

Full Year 2010 H1 2010 H1 2011 £m £m £m 342.4 Trading Profit (excluding joint ventures) 164.7 163.4 57.9 Depreciation and other movements 27.8 23.8 (71.8) Decrease/(Increase) in working capital and provisions (29.6) (4.9) (57.1) Net Capital expenditure (27.8) (23.6) 271.4 Operating cash flow 135.1 158.7 (21.6) Taxation paid (14.9) (17.4) 6.0 Dividends received from JVs 2.8 4.5 (37.2) Interest (20.0) (16.9) 218.6 Free cash flow 103.0 128.9 (64.6) Dividends paid

• (49.8)

(13.4) Restructuring costs (0.3) (20.1) (5.9) Acquisition payments less disposal proceeds, other related costs and loans to JVs (9.4) (72.0) (28.8) Product damages award

• 7.1

Issue of share capital less purchase of treasury shares 10.0 (65.7) (26.5) Exchange movements (64.0) 27.2 86.5 Decrease/(Increase) in net debt 39.3 (51.5) 326.1 Net Debt 373.3 377.6 0.8 Net Debt : EBITDA 0.9 0.9

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£m H1 2010 H1 2011 Organic Growth H1 2010 H1 2011 Cobham Aerospace and Security 355.9 309.3 (4.9)% 80.2 68.8

Margin 22.5% 22.2%

Cobham Defence Systems 179.3 149.8 (11.0)% 22.5 27.3

Margin 12.5% 18.2%

Cobham Mission Systems 157.7 167.7 4.1% 26.5 35.0

Margin 16.8% 20.9%

Cobham Aviation Services 131.3 149.9 7.5% 15.7 21.4

Margin 12.0% 14.3%

Head Office and eliminations (3.6) (4.0) 4.0 1.0 Core Group businesses 820.6 772.7 (2.6)% 148.9 153.5

Margin 18.1% 19.9%

Non core businesses 142.8 119.2 18.3 13.4 Cobham Group 963.4 891.9 (3.9)% 167.2 166.9

Margin 17.4% 18.7%

Revenue Trading Profit

33 2011 Interim Results 33 33

Revenue and Profit

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Group Revenue Analysis

2011 interim results 34

USA 56% (2010: 60%) Other EU countries 13% (2010: 13%) Australia 12% (2010: 9%) UK 9% (2010: 9%) RoW 10% (2010: 9%)

US Defence / Security 47% (2010: 51%) Non US Defence / Security 25% (2010: 23%) Commercial/GA 20% (2010: 16%) Other Communication 8% (2010: 10%)

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Foreign Exchange Transaction Exposure

Transaction Exposure:

Historic average effective rate 2007 $1.83 : £1 2008 $1.93 : £1 2009 $1.70 : £1 2010 $1.58 : £1

Dollar/Euro exposure predominantly hedged for 2011 with $43m @ 1.38, 2012 $32m @ 1.35

2011 Total 2013 to 2014 $195m Hedging in place $183m $73m 94% hedged for 2011 Avg hedge rate $1.56: £1 $90m Avg hedge rate $1.61: £1 Hedging in place Avg hedge rate $1.61: £1 2012

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US$/£ Translation Exchange Rates

2011 interim results 36

2011

Full Year Opening Half Year Half Year Income Statement (average rate) 1.55 1.53 1.61 Balance Sheet (closing rate) 1.57 1.61 1.50 1.61

2010

£0.8m PBT translation impact for every 1 cent movement

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Reconciliation of IFRS to Underlying Result

Full Year 2010 H1 2010 H1 2011 £m £m £m 230.1 Operating profit 119.9 113.4 17.5 Business restructuring (1.1) 19.2 2.8 Unrealised losses/(gains) on revaluation of currency instruments 14.7 (1.1) 63.3 Amortisation of intangible assets arising on acquisition 32.7 33.6 28.8 Settlement of commercial dispute

• 5.9

M&A deferred & contingent payment & expenses 1.0 1.8 348.4 Trading profit 167.2 166.9 (42.3) Net underlying finance expense (22.6) (18.0) 306.1 Underlying profit before taxation 144.6 148.9

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Group Revenue and Trading Profit Re-stated Segmental Results – Full Year

2011 interim results 38

£m Year to 31/12/09 Year to 31/12/10 Organic Growth Year to 31/12/09 Year to 31/12/10 Cobham Aerospace and Security 704.6 681.8 (4.6)% 162.2 155.7

Margin 23.0% 22.8%

Cobham Defence Systems 362.2 361.7 (1.3)% 56.3 53.2

Margin 15.5% 14.7%

Cobham Mission Systems 290.3 320.8 9.8% 50.1 65.1

Margin 17.3% 20.3%

Cobham Aviation Services 230.9 273.5 7.2% 31.3 36.4

Margin 13.6% 13.3%

Head Office and eliminations (11.6) (7.8) (0.1) 1.7 Core Group businesses 1,576.4 1,630.0 0.7% 299.8 312.1

Margin 19.0% 19.1%

Non core businesses 304.0 272.6 37.2 36.3 Cobham Group 1,880.4 1,902.6 (0.3)% 337.0 348.4

Margin 17.9% 18.3%

Revenue Trading Profit

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Our Strategy

Focus on Defence, Security & Commercial markets Sell technically differentiated products & services Build sustainable scale positions Actively manage the portfolio

• Maintain an appropriately focused portfolio on the defence, security and commercial markets, such

that we can can add value and manage risk across the portfolio

• Sell technically differentiated products and services that meet customer‟s needs in markets that have

attractive characteristics, and in which we can maintain a sustainable competitive advantage

• Continue to provide core Tier 3 capabilities and selectively offer Tier 2 to meet customer needs
• Develop and maintain top 3 positions in our markets
• Build or maintain scale positions in these markets to ensure we have the necessary scale to support

investment, maintain market leadership and deliver long term business growth

• Actively manage the portfolio, exiting businesses that do not fit with our strategy
• Acquire businesses that build scale, allow us to exploit our existing capabilities in adjacent segments or

deliver distinctive technologies or capabilities to accelerate our organic growth

Deliver operational excellence

• Achieve Excellence In Delivery for our customers, capturing cost synergies through simplifying and

standardising processes, integrating operations and building operational capabilities

• Attract, develop and retain superior talent and manage it across the business

1 2 3 4 5

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Definitions

Underlying To assist with the understanding of earnings trends, the Group has included within its published statements trading profit and underlying earnings results. Trading profit has been defined as operating profit from continuing operations excluding the impacts of certain transaction related costs and business restructuring costs as detailed below. Also excluded are the marking to market of currency instruments not realised in the period and items deemed by the Directors to be of an exceptional nature. Underlying earnings are defined as trading profit less net underlying finance expense, which excludes the unwinding of acquisition related discounting, and after deducting taxation and non- controlling interests. Transaction related costs excluded from trading profit and underlying earnings include the amortisation of intangible assets recognised on acquisition, the writing off of the pre-acquisition profit element of inventory written up on acquisition and other direct costs associated with business combinations and disposals. Business restructuring costs Net debt Business restructuring costs comprise exceptional costs or profits associated with the restructuring of the Group‟s businesses including costs associated with the Excellence in Delivery programme. Net debt is defined as the net of cash and cash equivalents less borrowings at the balance sheet date. Operating Cash Flow Operating cash flow is defined as cash generated from operations, after cash flows from the purchase or disposal of tangible fixed assets. Operating cash conversion is defined as operating cash flow as a percentage of trading profit, excluding profit from joint ventures. Free cash flow is operating cash flow after net interest and taxation. Free Cash Flow per share Organic revenue growth PV Investment Core businesses Defined as free cash flow/average number of shares in issue Organic revenue growth is defined as revenue growth stated at constant translation exchange rates, excluding the incremental effect of acquisitions and disposals. Private Venture (PV or company funded R&D – Research and Development) measures exclude Aviation Services, where there is no technology investment. All numbers referring to „core businesses‟ exclude Analytic Solutions and Commercial Systems as the Group plans to divest these activities.

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Glossary

AARGM Advanced Anti-Radiation Guided Missile Acq Acquisition AMRAAM Advanced Medium-Range Air-to-Air Missile C4ISR Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance CAGR Compound Annual Growth Rate CAS Cobham Aerospace and Security CAvS Cobham Aviation Services CDS Cobham Defence Systems CMS Cobham Mission Systems COGS Ceramic Oxygen Generating Unit DoD Department of Defense EBITDA Earnings Before Interest Tax Depreciation and Amortisation EiD Excellence in Delivery EPS Earnings Per Share ERP Enterprise Resource Planning EW Electronic Warfare FAA Federal Aviation Authority FX Foreign Exchange GA General Aviation IED Improvised Explosive Device IFRS International Financial Reporting Standards JSF Joint Strike Fighter JV Joint Venture MIDAESS Missile Defence Agency Engineering and Support Services MFTS Military Flying Training Services OCI Organisational Conflict of Interest OEM Original Equipment Manufacturer PBT Profit Before Tax PV Private Venture (Company funded R&D) RAIMS Radio and Audio Interface Management System R&D Research & Development RDT&E Research, Development, Test and Evaluation RoW Rest of World SATCOM Satellite Communication SBU Strategic Business Unit SOF Standard Operating Framework UAV Unmanned Aerial Vehicle WnAN Wireless network After Next

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2011 interim results 42

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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

• perations 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

• perates; 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 currency exchange rates. All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Cobham or any

• ther 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.

2011 interim results