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BETTER NEWS FROM COBHAM

10 Mar 05. The FT reported that solid growth in its aerospace business saw Cobham, the UK aerospace and defence company, cushion the fallout from cost overruns for Airbus A380 components and the loss of a Pentagon contract, though
it remains vulnerable to the sliding US dollar.

Even with these setbacks early in 2004, the group saw pre-tax profits rise 8.6 per cent to £146.9m. Two of its three divisions showed revenue and profit growth, and the company is still celebrating the award of preferred bidder status for the UK defence ministry’s air tanker contract.

“Things seem to be back on the straight and narrow, even if some problems have still to be resolved,” said Sandy Morris, aerospace analyst at ABN-Amro.

The rising development cost of pumps destined for the A380 had created concern over whether the company’s reputation for good management and efficient delivery was in doubt. These doubts were compounded when a $38m Pentagon contract to provide flares and other defence countermeasures to the US army was awarded to a rival after Cobham had built a factory in Tennessee to manufacturer the items.

“We probably underestimated the sentiment of the City as to whether we had these problems under control,” Allan Cook, Cobham CEO, said on Thursday.

Despite liabilities from the two projects having cost the company £13m, Thursday’s long-awaited results have reassured analysts that Cobham should again trade at a premium.

“What they have done with these results is reveal that the problems were localised and not symptomatic of any kind of wrongdoing in the group,” said Zafer Khan, aerospace analyst at SG Securities.However, vulnerability to the declining value of the US dollar has dampened relief at the solid foundation revealed in the annual results owing to growing sales and production in the US. The company has a 12-month rolling hedging policy but faces costs of £250,000 for every one cent slide in the value of the dollar against sterling, threatening the 16 per cent EBITA margin revealed on Thursday. “In order to stand still at a 16 per cent margin we have to make up 0.5 basis points in 2005,” Mr Cook said. “The solution is to get as much of our business done as dollar-to-dollar. That’s easy to say, and very difficult to do,” he said.

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