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British Defense Group Cobham Lowers Profit Forecast for 2016, Signals Tough Year Ahead

8:15 AM, Feb 16, 2017 — British aerospace and defense group Cobham (COB.L) has lowered its forecast for group underlying trading profit in the full year 2016 after an internal review revealed negative adjustments arising from bad debt charges, additional amortization on amounts capitalized in prior years and expenditure on IT security compliance.

The group, which employs 11,000 people, said that it expects its group underlying trading profit to be 225 million pounds ($281 million) for the 2016 year, 20 million pounds lower than its last forecast, which was given in January, according to a trading update published on Thursday. January’s projection also marked a revision, from a previous range of 250 million pounds to 275 million pounds that had been predicted by management in October.

The 20 million pound reduction from its January forecast included 6 million pounds of additional amortization on amounts capitalized in prior years, 4 million pounds relating to expenditure on IT security compliance, 2 million pounds being the sum of several year end accruals not booked in the draft management accounts and 8 million pounds of bad debt charges and other sundry items, according to the update.

The group added that there would be further amounts that would be recognized as exceptional items and excluded from underlying trading profit, saying that it would recognize a total non-cash impairment of goodwill and other intangible fixed assets of 574 million pounds. It said that a charge of 33 million pounds had also been taken against other assets in the balance sheet following a revision of the carrying value of these assets. It will also absorb a charge of 179 million taken against certain contracts reflecting increased estimates of costs to complete and, in some cases, lower recovery from customers. This includes a 150 million-pound charge taken on work related to Boeing’s KC-46 tanker program, the update stated.

“2016 was an incredibly turbulent and disappointing year for Cobham,” David Lockwood, Cobham’s chief executive, said in the statement. “Execution failure in many businesses led us to miss expectations badly and provides a poor entry point into 2017.”

The group said it has difficulty forecasting performance for 2017. “Whilst market uncertainties undoubtedly exist, the ability of the group to forecast performance is also not as strong as it should be,” the group said. “The group has many operational issues which require attention in addition to reversing the current negative performance trajectory.” It signaled that delivering a similar performance this year to that of 2016 “may be challenging.”

Shares in the group were 15% lower in London at the time of writing.

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