Cobham group revenue analysis

Taking Stock: Strong order book boosts Cobham confidence

Cobham looks for growth in commercial markets while pulling in new defence orders

Cobham has spent much of the past 12 months focusing its activities on its core areas of defence and security, shedding concerns that fall outside those key areas, to great success. “The core businesses, which excludes Analytic Solutions which has now been divested and other smaller businesses yet to be divested, achieved modest organic revenue growth of 0.3 per cent in the year driven by a good performance from Mission Systems and the Aviation Services business,” said CEO Andy Stevens. “Revenue from both commercial and rest of the world defence/security markets, representing 56 per cent of core business revenue, grew strongly. As anticipated, revenue growth was constrained by continued uncertainty in the US defence/security market.”

Group order intake in the year increased 16 per cent, with the book-to-bill ratio at 1.10 times. At the year end, the Group order book was £2.5bn, an increase of 7 per cent on the previous year.

A strong order book points the way towards a lucrative future with several important long-term deals signed during the year. These include the initial orders for engineering and manufacturing development on the US KC-46A aerial refuelling tanker totalling $73m and orders for the Brazilian KC-390 aerial refuelling tanker worth $72m.

Other significant orders included a $40m deal from Inmarsat to be the maritime terminal launch partner on its Global Xpress broadband service and a €45m contract to a Cobham joint venture to provide helicopter air reconnaissance capability to the Dutch Caribbean Coastguard.

Further progress has been made in 2012, with another significant award on the KC-46 tanker programme for the supply of body fuel tanks, with an initial engineering order received and other significant bids submitted.

“Overall, US defence/security revenue in the core businesses was down 7 per cent, in a year when US Department of Defense investment outlays declined 10 per cent,” Stevens added. Encouragingly, non US defence/security revenue increased 5 per cent, driven by air refuelling and electronic subsystems exports following significant investments in PV and the development of customer relationships.

“Cobham has a unique set of differentiated technologies with leading positions in all its core markets,” Stevens said. “It has invested to maintain and build on these positions, with a view to generating revenue over a sustained period. Examples of this investment include next generation wireless video links which have numerous airborne and ground security applications, early threat detection on oil and gas wells and broadcast applications, including for the 2012 Olympics.”

Like many global organisations Cobham has been streamlining its internal processes to enhance profitability. The company’s scheme, dubbed Excellence in Delivery, has produced better than expected results on the past 12 months, increasing confidence for the future.

For any high-tech organisation research and development is the lifeblood of future growth and by committing in excess of 5 per cent of its revenue, £129m, on R&D, Cobham has shown that it has the funds to invest in the future. “It is our ability to generate cash which provides us with the funds to continue our significant investment in the business and pay a progressive dividend to shareholders,” said executive chairman John Devaney.

Having made significant steps towards focusing the Cobham’s interest on markets where it has a technical advantage as a leading player the company is seen to be heading in the right direction by analysts.

“The US Government has confirmed defence and security priorities that favour Cobham and has made some progress in reconciling these to budgetary imperatives,” Devaney concluded. “The continued delivery of the strategy gives the Board confidence that we will continue to make progress over the medium term.”

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