09 Mar 06. Cobham Plc announced its Preliminary Results for the year ended 31 December 2005 today. At the same time it announced that it has disposed of its countermeasures and wallop pyrotechnic Divisions to Esterline. The flurry of PR activity and the appointment of McKinsey has caused speculation that Cobham is being tided up for sale. The shares added 6.00p at 1400hrs on the news but until the FSTA contract has been signed off, that could cause a drag on the share price and any purchaser. Smiths had to write-off a substantial sum on the cancellation of the Boeing tanker lease proposal in the U.S. and any delay/cancellation in the U.K. could have a knock-on effect to Cobham.
The strategic review announced in September concluded that Cobham would focus more rigorously on areas where it can exploit and enhance its technological leadership in high-growth segments of the aerospace and defence market. This strategy will help Cobham to consolidate and enhance its market leadership, allow for an increase in R&D investment, reinforce the Group’s upper quartile aerospace and defence margins and enhance the organic profit growth through market cycles.
To achieve these objectives the Group set out a plan which included portfolio rationalisation, increased collaboration across and within the divisions, a flatter simplified divisional structure and a new Chief Operating Officer function with responsibility for driving and co-ordinating efficiency improvements in procurement, integration, programme management and working capital. Key personnel are already in position with all six divisional heads appointed from within the Group.
Furthermore, plans were announced to enhance capabilities across the organisation in Group functions of strategic marketing, strategic development, mergers and acquisition, human resources, communications, internal audit and legal.
Cobham reached agreement to sell its two countermeasures businesses, Wallop Defence Systems Limited (WDSL) and FR Countermeasures Inc (FRC), to Esterline Technologies Inc (Esterline) of the United States. Esterline has been quietly building its U.K. presence over the years under the guidance of ex-RO man Mike Kelly. This acquisition should see the company biting at the heels of Chemring and BAE in particular in the fields of ammunition and countermeasures where it has built its U.S. business from scratch and won orders which caused the demise of Cobham in the U.S.
The maximum total consideration for WDSL is £43.75m, in cash, of which £10m is contingent upon the future performance of WDSL (the outcome of which is expected to be finalised during 2006). The sale of WDSL remains subject to the approval of the German competition authorities and is expected to be completed by April 2006.
The maximum total consideration for FRC is £6.1m. The initial consideration is £3.2m*, comprising of £0.6m in cash and the assumption by Esterline of certain liabilities of FRC. A further £2.9m* becomes payable once the sale of WDSL is completed.
Allan Cook, Cobham Chief Executive, said: “The sale of these businesses is another milestone in the execution of our strategy. We will use the proceeds to fund organic and acquisitive growth in high technology markets where we have competitive advantage and value creation opportunities.”
In commenting on the results Gordon Page, CBE, Chairman, commented, “This has been a successful year and the start of a transformational process. We have delivered a strong financial performance, successfully integrated our largest acquisition to date and completed a strategic review which is a defining point for Cobham. We look with confidence to the future and believe the Group is well positioned for continued organic and acquisition growth, exploiting and enhancing our leadership across high technology growth segments of the aerospace and defence market. “
2005 was a successful year for Cobham with double-digit growth in revenue, tra