* Early readout puts trading profit at 245 mln stg
* Group's already lowered target range was 255-275 mln stg
* Scraps dividend after poor result on profit and debt
* Shares fall as much as 21 pct
(Adds CEO, CFO comments from analyst call)
By Paul Sandle
LONDON, Jan 11 British aerospace and defence
company Cobham scrapped its final dividend on Wednesday
after 2016 trading profit fell short of a target it had lowered
just two months before the year-end.
Shares in the company slumped as much as 21 percent, wiping
out all the gains made since it issued its last profit warning
in October. They were down 16 percent at 138 pence at 1315 GMT.
A new management team, brought in after profit fell in the
first half of 2016, is trying to get to grips with a business
struggling on multiple fronts.
Chief Executive David Lockwood, who took over in
mid-December, said he was "extremely disappointed" that his
first communication with the market was to report the profit
miss, which came to light after a first look at the accounts.
"We are not going to financially engineer our way out of
this," he told analysts. "We need stability, we need to calm
everything down and we need to focus, particularly on our
customers and customer related issues."
With a market cap of 2.8 billion pounds, Cobham is Britain's
third biggest aerospace and defence company after Rolls-Royce
and BAE Systems. It supplies comms equipment to
both the defence and commercial sectors and high tech systems
such as air-to-air refuelling.
Trading profit would come in at 245 million pounds ($298
million), short of its 255-275 million pound target range, the
company said. Year-end net debt of 1.03 billion pounds was also
higher than it expected.
The shortfall was down to continued poor trading in its
communications and connectivity and advanced electronic systems
units, Lockwood said.
Cobham made a $1.46 billion bet on wireless communications
for commercial customers when it bought equipment maker Aeroflex
But it miscalculated the financing, analysts have said,
resulting in a level of debt it struggled to service when demand
slowed, and a need for an emergency rights issue.
Cobham said on Wednesday there remained "significant
uncertainty" about Boeing's KC-46 air-to-air refuelling system,
on which it is working.
The new team, which includes finance chief David Mellors,
who was previously at Qinetiq, is assessing the balance
sheet and the business.
"The final dividend decision has been made on the basis of
the trading that we are announcing and the debt position that we
are announcing," Mellors told analysts on a call.
"And that's all we have available today, and given those, it
would be the wrong thing for the business to do anything other
than recommend no final dividend."
The first reading of trading profit could be adjusted after
the review, including major contracts and asset carrying values,
the company said.
Cobham said it was still in talks on the commercial terms
for the "complex" conformity and qualification phases of the
Analyst Sandy Morris at Jefferies, who holds a "buy" rating
on Cobham, said the update was disappointing, particularly the
company's net debt, which was around 130 million pounds higher
"We believe Cobham is not in meltdown, but we recognise the
high net debt, passing of the final dividend and the absence of
agreement on KC-46 may make it appear otherwise to some
observers," he said.
Commercial terms on KC-46 needed to be resolved before a
measured assessment could be taken of Cobham's worth, he said.
($1 = 0.8230 pounds)
(Editing by Kate Holton and Alison Williams)