LONDON (Alliance News) - Shares in Cobham PLC lost a fifth of their value on Tuesday after the company issued a profit warning for 2016 following a weak first quarter and said it would launch a rights issue to shore up its financial position.
Shares in the company were down 20% to 172.00 pence on Tuesday, the worst performer in the FTSE 250.
Cobham, which makes satellite communications equipment, microelectronics products and air-to-air refuelling technology for the aviation, maritime, defence and space sectors, said its trading profit in the first quarter was GBP15.0 million, well behind the GBP50.0 million made in the first quarter of 2015.
As a result of the problems, Cobham expects underlying trading profit will be down around GBP15.0 million year-on-year in 2016, while its earnings will be more heavily-weighted to the second half.
The weaker performance was driven by operational issues in its wireless division which resulted in delayed shipments, and the company booking a GBP9.0 million one-off charge. Cobham said it expects the wireless business to improve over the course of the year and said it has taken action to strengthen internal controls and has made changes to the financial and operational management of the division.
This was exacerbated by ongoing challenges in Cobham's commercial fly-in fly-out business, particularly a slowdown among natural resources sector clients in Australia, which has resulted in reduced flying activity in this market. Cobham is trimming costs in the business, including reducing the number aircraft on its books, and is making other direct and indirect cost cuts.
In addition to those issues, Cobham has taken a hit from cost increases in development programmes in its Advanced Electronics Solution segment resulting from technical and supplier quality issues.
Cobham said it continues to trade in line with expectations across the rest of the business and said its order book grew on a like-for-like basis in the first quarter.
The hit to its earnings, coupled with investment requirements in long-term development programmes, means Cobham now expects its group leverage may be close to a net debt to earnings before interest, taxation, depreciation and amortisation ratio of 3.5 times by the end of June.
Therefore, the group has decided to cut its indebtedness and said it intends to raise GBP500.0 million through a fully-underwritten rights issue of shares in the second quarter.
Raising the new funds will allow Cobham to run the business with a view to creating value over the medium and long term, the company said, investing in major development programmes and in the capabilities of its divisions.
In addition to this, Cobham intends on cutting further costs in 2016, along with a continued focus on its working capital management and controlling capital expenditure levels. The group is planning to review cost structures across the company, targeting annualised savings of GBP30.0 million by the end of 2016.
This, Cobham said, will help offset margin pressures in the business in addition to underpinning earnings targets and cash generation.
With this strengthening the balance sheet, Cobham confirmed its intention to pay a re-based total dividend that will be flat on 2015.
"In order to put the company on a sound footing and to secure funding for our major development programmes in the longer term, we have decided to refinance the business through a rights issue to raise approximately GBP500 million," said Chief Executive Bob Murphy.
"We remain confident that continued investment in technology and know-how will enable us to maintain our leading positions in markets with good prospects leaving Cobham well placed to deliver growth over the medium term," he added.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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