Cobham Regulatory News (COB)

24 October 2016

Cobham Trading Update

Overall trading in the third quarter has remained challenging and is behind management's expectations. This has been driven by underperformance in the SATCOM and Wireless business units in the Communications and Connectivity Sector and in the Integrated Electronic Solutions business unit within the Advanced Electronic Solutions Sector. Underlying demand conditions and performance within the Aviation Services Sector have been as anticipated. The Mission Systems Sector has traded broadly in line with expectations, but is subject to certain risks related to the US KC-46 tanker, as set out below.

Demand conditions in maritime SATCOM have continued to be subdued, offset in part by limited growth in revenue from next generation Ka band products. In addition, while good progress is being made in Wireless by the new management team, this has been at a slower pace than expected, with some revenue deferral and additional costs incurred from increased resource requirements. In Integrated Electronic Solutions there have also been some additional costs and deferred revenue relating to the previously reported technical issues on a small number of space related development programmes. However, these have largely been resolved in the third quarter.

The Mission Systems Sector supplies the hose and drogue refuelling system and body fuel tanks for the Boeing US KC-46 tanker. This aircraft received Milestone C approval from the US Department of Defense in August, signalling it is ready to enter production. Having successfully completed flight test in support of this milestone, Cobham is progressing with the complex US Federal Aviation Administration conformity process and is also in discussions with its customer on the commercial terms for the conformity and qualification phases. While risks to the overall outcome of these discussions remain, it is anticipated that a satisfactory conclusion will be reached, although the exact timing of this cannot be determined. This is currently impacting cash receipts and could continue to do so through the year-end.

Following the underperformance in the third quarter, the Group expects an improvement in fourth quarter trading from increased volumes in a number of areas. However, despite this the Group's anticipated full year outcome is now below the Board's previous expectations, largely resulting from a continuation of issues seen in the year to date. Within this, some quarter on quarter volume growth is anticipated in SATCOM. Wireless is expected to execute against an encouraging order pipeline, notably for in-building wireless products, although its overall performance in 2016 will remain significantly lower than previously anticipated. In Integrated Electronic Solutions there will be some increase in revenue from delayed development programmes and book and ship orders.

Overall, after undertaking a detailed assessment of the likely outcome for the full year, the Board now anticipates that Group trading profit1 for 2016, including favourable currency impacts, will be in the range of £255m to £275m.

It is now anticipated that the Group's 2016 year end net debt/EBITDA gearing ratio will be around 2.6x, after taking into account the updated assessment of the Group's trading prospects for the full year.

As previously announced in August 2016, Bob Murphy, Cobham Chief Executive Officer (CEO), is to step down, with David Lockwood having been appointed as the Group's new CEO. David will join Cobham no later than 1 January 2017. In June 2016, the Group also announced the appointment of David Mellors as Chief Financial Officer who is also expected to join Cobham no later than 1 January 2017. He will replace Simon Nicholls, whose resignation was announced in January 2016.

Cobham's preliminary results for the year ended 31 December 2016 will be announced on 2 March 2017.

This document has been determined to contain inside information.

There will be a conference call for investors and analysts at 08.00 UK time on Monday, 24 October. The call can be accessed by ringing +44 (0)1452 555566, code 6854174. A replay facility will be available until 31 October, by dialling +44 (0)1452 550000, code 6854174.

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Enquiries:

Notes:

1. The Group includes within its published statements non-GAAP measures including trading profit and underlying earnings results. Trading profit has been defined as operating profit from continuing operations excluding the impacts of business acquisition and divestment related activity and business restructuring costs as detailed below. Also excluded are changes in the marking to market of non-hedge accounted derivative financial instruments, impairments of intangible assets and items deemed by the Directors to be of an exceptional nature.

Business acquisition and divestment related items excluded from trading profit and underlying earnings include the amortisation of intangible assets recognised on acquisition, adjustments to businesses held for sale, the writing off of the pre-acquisition profit element of inventory written up on acquisition and other direct costs associated with business combinations and terminated divestments. Business restructuring costs relate to the restructuring of the Group's portfolio which are incremental to normal operations. In 2015, these relate primarily to the integration of the Aeroflex businesses acquired in 2014.

Underlying earnings are defined as trading profit less net underlying finance costs, which exclude acquisition related items, and after deducting associated taxation and non-controlling interests.

2. This document contains 'forward-looking statements' with respect to the financial condition, results of operations and business of Cobham and to certain of Cobham's plans and objectives with respect to these items.

Forward-looking statements are sometimes but not always identified by their use of a date in the future or such words as 'anticipates', 'aims', 'due', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans', 'targets', 'goal', or 'estimates'. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that may or will occur in the future.

There are various factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, changes in the economies, political situations and markets in which the Group operates; changes in government priorities due to programme reviews or revisions to strategic objectives; changes in the regulatory or competition frameworks in which the Group operates; the impact of legal or other proceedings against or which affect the Group; changes to or delays in programmes in which the Group is involved; the completion of acquisitions and divestitures and changes in commodity prices, inflation or exchange rates.

All written or verbal forward-looking statements, made in this document or made subsequently, which are attributable to Cobham or any other member of the Group or persons acting on their behalf, are expressly qualified in their entirety by the factors referred to above. Cobham does not intend to update these forward-looking statements.

3. Cobham is a leading global technology and services innovator, respected for providing solutions to the most challenging problems, from deep space to the depths of the ocean. We employ around 11,000 people on five continents, and have customers and partners in over 100 countries, with market leading positions in: wireless, audio, video and data communications, including satellite communications; defence electronics; air-to-air refuelling; aviation services; life support and mission equipment.