Cobham faces FCA investigation over profit warning

The Financial Conduct Authority has launched an investigation into Cobham over its handling of inside information ahead of one of its many profit warnings over the last year.

The defence equipment company’s shares plunged 20 per cent last April, when the company revealed 2016 profits would be £15m below expectations, and announced a £500m rescue rights issue. The announcement was made less than two months after the group’s then chief executive, Bob Murphy, had told investors at the annual results in early March that he expected a flat performance for 2016.

Cobham said on Monday that it had been informed by a phone call that the FCA’s Enforcement division was investigating how inside information had been handled in the weeks ahead of the April profit warning.

It does not appear that Cobham directors sold any shares in the period between the announcement of annual results on March 3 and the April 26 statement. However, companies are obliged to publish material information as soon as possible, in order to avoid a false market being made in the shares. In general, in the UK this means at the start of the next trading session.

In June 2015, the FCA imposed a £4.6m fine on Asia Resource Minerals, the mining company formerly known as Bumi, for a number of breaches in the disclosure of material information, including related party transactions. The company was also found to have failed to “establish and maintain adequate procedures, systems and controls to enable it to comply with its obligations”. Photo-me, the photo booth operator, was fined £500,000 in 2010 for failing to “disclose inside information to the market as soon as possible and to avoid the creation or continuation of a false market in listed securities”.

The investigation is yet another setback for Cobham investors, who have suffered five profit warnings, and have been asked to subscribe to a second £500m rescue rights issue.
A new management team, led by chief executive David Lockwood, was put in place at the start of the year after investors demanded the departure of both Mr Murphy and the former chairman John Devaney.

The company earlier this month announced a sharply higher pre-tax loss £847.9m for last year, compared with £39.8m for 2015, and warned there would be no dividend this year.