3 Min Read
* Says rights issue will reduce debt ratio, reassure customers
* Underlying trading profit falls 32 pct
* Shares down 3.6 pct (Adds details, shares)
LONDON, March 2 (Reuters) - British engineer Cobham said it would raise 500 million pounds ($614 million) in a rights issue to put the company on a stronger footing after a "deeply disappointing" performance in 2016.
The company, which two weeks ago issued its fifth profit warning in 15 months, has suspended its dividend and taken charges of more than 800 million pounds.
"Given the reality of Cobham's current financial performance and our high leverage coming into the year, we have announced actions today to strengthen the balance sheet," Chief Executive David Lockwood said on Thursday.
"This is needed to reassure our customers, to give us the flexibility to drive operational improvements and to provide us with a sustainable platform for the future."
Cobham, which is best known for its air-to-air refuelling technology, reported a statutory pretax loss of 848 million pounds, reflecting the impairments. On an underlying basis, operating profit fell 32 percent to 225 million pounds.
Its shares, down 44 percent in the last 12 months, were up 1 percent in early trading on Thursday.
Lockwood, who took over in December, said Cobham had suffered from weaknesses in management and financial controls, contractual and commercial failures and, in a few businesses, more challenging market conditions.
It has had to write down the value of assets, including those acquired in the ill-fated takeover of communications equipment maker Aeroflex in 2014.
The slump in profit pushed the group's debt-to-earnings ratio to 3.0, which it said was within its covenant thresholds but not strong enough to support its operations, given the important role it plays in many customer programmes.
Lockwood, who has targeted a debt-to-earnings ratio of 1.5, said a stronger balance sheet would underpin the confidence of its customers and support its recovery in the medium term.
The company said given the scale of the problems facing the group, its performance could be worse this year than in 2016, but it said its board was confident that the fortunes of the company would be restored over time.
The rights issue is underwritten by Bank of America Merrill Lynch, JP Morgan Cazenove and Barclays Bank, the company said. It is anticipated to be completed during the second quarter of 2017. ($1 = 0.8150 pounds) (Reporting by Paul Sandle; editing by Kate Holton)