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UPDATE 2-Cobham reassures on 2015 growth as defence cuts hit this yr
August 7, 2014 / 6:53 AM / in 3 years

UPDATE 2-Cobham reassures on 2015 growth as defence cuts hit this yr

* Maintains guidance for 2014, sees growth next year

* HY profit down 14 pct due to lower military spending

* Shares rise 3.3 pct (Adds CEO comment, analyst comment, share price)

By Sarah Young

LONDON, Aug 7 (Reuters) - British defence company Cobham said growth would return in 2015 as it maintained its outlook for declines this year, with U.S. military spending cuts and currency headwinds lowering its half-year profit by 14 percent.

Western defence firms are being squeezed as their biggest customers in the United States and Europe reduce spending amid a withdrawal from Afghanistan and Iraq, prompting firms like Cobham to look to new sectors and markets.

For the year Cobham said it was maintaining its guidance for organic revenue decline in the low-to-mid single digits, with a return to organic mid-single digit revenue growth in 2015.

Growth next year would come from a moderating rate of decline in U.S. defence spending plus increasing revenue from defence opportunities outside of the U.S., and strong commercial growth, Cobham said.

“We’ve seen demand from the Middle East. We are continuing to see as things progress, more demand in that region for services,” Chief Executive Bob Murphy told reporters on a call.

Cobham has also sought to expand its exposure to commercial or non-defence markets, with a focus on providing technology to the satellite and telecommunications sectors.

In May it announced a $1.46 billion acquisition of U.S. communications equipment maker Aeroflex Holding Corp which is due to complete in the third quarter.

Cobham shares were up 3.3 percent to 296.5 pence at 0837 GMT with analysts saying it was reassuring that the company was sticking to its guidance, following a month when the company’s shares lost 9 percent of their value.

“Having successfully managed expectations, these results from Cobham are in line - which is a good achievement given the plethora of issues that have been a headwind in the first half,” said Royal Bank of Canada analysts, who hold a “neutral” rating on the stock.

Cobham reported underlying pretax profit of 118 million pounds ($199 million) in the six months to the end of June, down from 137 million a year earlier. That beat a consensus forecast of 111 million pounds from an analysts poll.

After stripping out currency changes the drop in profit reduced to 10 percent. The British pound gained more than 3 percent in the first six months of the year against a trade-weighted basket of currencies.

Cobham also faced a 10 percent decline in defence and security revenues due to shrinking U.S. military budgets and a delay to a new satellite network being launched by Inmarsat , for which Cobham provides a linking terminal.

Organic revenue, Cobham’s preferred metric, fell 4 percent in the half year as the decline of the defence business outpaced growth of 8 percent in its commercial business.

The FTSE 250 company said it would raise its interim dividend by 10 percent to 2.904 pence per share.

$1 = 0.5938 British Pounds Reporting by Sarah Young; editing by Jason Neely

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