Cobham Shares Tumble After Company Announces Rights Issue
April 26 2016 - 5:30AM
Dow Jones News
Shares in British defense equipment supplier Cobham PLC tumbled
almost 20% after the company announced it would raise about £ 500
million ($725 million) in equity to ease mounting debt
concerns.
The company that makes air-to-air refueling systems for Boeing
Co. and Airbus Group SE military tanker planes also said full-year
earnings would be £ 15 million below previous expectations after a
slow start to the business. Profit for the first quarter ended
March 31 was £ 15 million, down from £ 50 million for the same
period a year earlier, the company said.
Cobham said it would raise the money by a way of a rights issue.
The entire amount of the rights issue has been fully underwritten
on a standby basis by Bank of America Merrill Lynch and Jefferies
International Ltd., it said. The company hopes to complete the
rights issue by midyear, it said.
Cobham's debt levels haven't been coming down as planned, in
part reflecting the weak British currency and investments made to
secure new business. Debt, which rose to $1.3 billion at the end of
March, was at risk of reaching a covenant limit in June, driving
the company to shore-up its financial position.
"We haven't reached this decision lightly," Chief Executive Bob
Murphy said. "We needed to get the level of debt in the company
addressed rapidly," he added. The move should bring net debt to
about two times earnings before interest, taxes, depreciation and
amortization.
The company said it planned to pay a £ 126 million dividend, the
same total as last year. The decision to maintain the dividend even
as the company pursued a rights issue drew criticism from
analysts.
Cobham said it would seek to cut costs through restructuring
measures, a reduction in overhead, and by outsourcing some
manufacturing. It is targeting £ 30 million in annual savings by
the end of the year, with £ 10 million to be booked for 2016.
Earnings in the first quarter were hit by delayed shipments in
its wireless business and a £ 9 million charge against the
business, cost increases on some development programs, and lower
activity in its passenger flying operations.
Shares in the company were trading down 41.80 pence, or 19%, at
173.40 pence in London at 0840 GMT.
Write to Robert Wall at robert.wall@wsj.com and Olga Cotaga at
olga.cotaga@wsj.com
(END) Dow Jones Newswires
April 26, 2016 05:15 ET (09:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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