Fifth profit warning at defence pioneer
TROUBLED defence giant Cobham issued its fifth profit warning in 15 months as it announced extra costs of £811m.
The air-to-air refuelling pioneer has now seen £2.8bn wiped from its value and may have to issue a second rights issue as it was dragged down by its wireless technology units and problems with equipment it is making for Boeing.
As shared plunged 15.3pc, or 20.7p, to 114.7p yesterday, there were also fears it could be ripe for a takeover.
Chief executive David Lockwood spoke of an ‘incredibly turbulent and disappointing year’ as the company admitted things could get even worse, adding: ‘Execution failure in many businesses led us to mix expectations badly and provides a poor entry point into 2017.
The £811m includes a £574m writedown at three wireless, semi-conductor and electronics units due to lower production and growth.
The units include parts of Cobham’s £1.1bn purchase of US communications maker Aeroflex in 2014, which was criticised at the time as being far too expensive, and forced the company into a rights issue. It must also find £150m to finish the KC-46 programme to develop air-to-air refuelling tankers for Boeing, which has caused huge headaches for both companies.
Cobham said there had been long-standing technical issues with the work, but that crunch talks over the past few weeks had put work back on track.
‘This schedule remains challenging and is being put in place against the ongoing background of onerous commercial arrangements,’ it added.
The Dorset-based company is also putting aside an extra £25m to cover estimated costs for legal, environmental and other regulatory matters. Lockwood said these related to around ten matters across the group, without specifying what they were.
Last year its chief executive, finance chief and chairman all left, and Lockwood said a wider talent drain was part of the problem.
Jefferies analyst Sandy Morris said Cobham had been hit by the fall in the pound as its debt is held in dollars, adding an estimated £200m to its costs. Yesterday Cobham also revised down by £20m its expected profit for 2016, saying it would now be around £225m. No takeover bid for Cobham has been made but Morris said it could be in buyers’ sights. He said: ‘If they are of the same mind as I am – that 80pc of the business is fine – then they may be thinking, “I might be able to get a bargain here.”’
Analysts at Berenberg said: ‘It looks increasingly likely that another rights issue is the route that will be taken, in our view.
‘Again, this will need to be discounted and will be dilutive to existing shareholders.’
Results for the year ended December 2016, and a performance update, are expected on March 2.