UPDATE 1-Cobham says more cautious on post-2014 outlook

Thu Aug 8, 2013 4:52am EDT

Related Topics

* Revises post-2014 outlook to mid-single-digit growth

* Says revision reflects more conservative U.S. view

* H1 pretax profit falls 3 pct, organic revenue down 3 pct

* Could take on 600-650 mln stg in debt for acquisitions

By Brenda Goh

LONDON, Aug 8 (Reuters) - British defence supplier Cobham tempered its post-2014 outlook slightly on Thursday, blaming uncertainty over U.S. military spending after it reported a 3 percent fall in first-half pretax profit.

Cobham, whose products help aircraft and military vehicles communicate, said it now expects "mid-single-digit organic growth" after 2014, compared to March, when it forecast organic growth "above mid-single digit".

"We are more cautious," Chief Executive Bob Murphy told reporters. "We've really not seen any real progress in the U.S. as far as how they're going to effectively deal with a declining budget environment."

The company, which said organic revenue declined by 3 percent over the six months to the end of June, said it saw the potential for modest growth in 2014, although it had become more conservative on the United States.

"We need to rectify some of the volatility so we have included the word 'potential', versus just 'modest' for 2014," he said.

Defence contractors have been hit by delays and uncertainty over contracts as the United States began reducing its spending by $37 billion for the fiscal 2013 year in March. The country's budget is set to shrink by $50 billion annually over the next nine years, unless Congress acts to avoid such cuts.

Organic revenue at its U.S. defence and security business, which makes up 38 percent of Cobham's sales, fell 7 percent over the six months and dropped by 9 percent at its non-U.S. defence arm.

At its commercial business, which has grown to account for 36 percent of sales, organic revenue rose by 8 percent.

"Given its exposure to the U.S. defense market, we think this caution is realistic, especially if the sequester remains in place as we expect," RBC Capital Markets analyst Rob Stallard said.

Cobham has been trying to lower its reliance on defence and the impact of such spending reductions by making acquisitions in the commercial sector and cost-cutting. Recently it bought communications firm Axell Wireless and gained full control of FB Heliservices.

Murphy said the company remained on the lookout for further acquisitions that fit its strategy and could take on 600 million to 650 million pounds ($931 million to $1 billion) in debt to finance such buys.

He said Cobham's cost-cutting programme had been accelerated and was now set to save 19 million pounds in 2013 compared to a previous estimate of 17 million pounds, bringing total savings to 67 million pounds since the programme started in 2010.

The company left its full-year guidance for 2013 unchanged. Its profit before tax fell 3 percent to 137 million pounds over the first half and it increased its dividend by 10 percent to 2.64 pence in line with its progressive dividend policy.

At 0816 GMT, shares in Cobham were down 1.67 percent at 294 pence.

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