Cobham announces another £500m rights issue as losses mount

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Cobham announced it will launch a £500m rights issue in an effort to shore up its balance sheet, as the British aerospace and defence specialist reported mounting losses in its full-year results.

The fully underwritten issue will be the company’s second in under a year. A £507m raising last June was intended to “put Cobham on a sound financial footing”, but the company warned last month that its “balance sheet is clearly not strong enough to properly support the operations of the group”.

Cobham reiterated that point again on Thursday, and said the proceeds of the latest rights issue will be used to pay down borrowings on its revolving credit facilities.

The announcement came as Cobham reported that a series of writedowns had dragged it to a pre-tax loss for 2016 of £847.9m, compared to the previous year’s £39.8m loss.

Group trading profit, the company’s preferred measure of performance, dropped almost a third to £225m, as it had predicted.

Investors in the FTSE 250 group were already braced for a difficult set of results, after Cobham issued its fifth profit warning in a little over a year last month.

Revenue declines were slightly more modest than analysts had estimated, however, with full-year revenues of £2.108bn representing a 3 per cent decline on the previous year.

The company confirmed that it “may be challenging” to match even this year’s “deeply disappointing” performance in 2017, but insisted “the board is confident that the fortunes of the company will be restored over time”.

Analysts have blamed Cobham’s woes on a costly diversification strategy pursued under its former chief executive, which was intended to reduce reliance on what was then a shrinking defence market.

Other defence groups have since benefited from an expected resurgence in global military spending, highlighted by Donald Trump’s proposal for a $54bn increase in US military spending earlier this week.

The company has already appointed a new chairman, chief executive and finance director in the last year to lead turnround efforts, and new chairman Michael Wareing said today that there will be a series of further board changes over the next two years.

David Lockwood, Cobham chief executive, said:

Given the reality of Cobham’s current financial performance and our high leverage coming into the year, we have announced actions today to strengthen the balance sheet. This is needed to reassure our customers, to give us the flexibility to drive operational improvements, and to provide us with a sustainable platform for the future.

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