Defence technology group Cobham has raised its full-year dividend by a third on the back of strong profits and cash generation in 2011, however sales growth was more subdued.
Basic pre-tax profit jumped 24% from £189m to £234m, while the underlying pre-tax profit rose 7% from £306m to £328m. The underlying trading margin improved to 19.7% from 18.3% in 2010. Meanwhile operating cash flow (after capital expenditure but before interest tax payments) rose from £271m to £337m.
The recommended full-year dividend was raised by 33% from 6p per share to 8p per share (Consensus: 6.6p).
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The run rate of annualised Excellence in Delivery savings at the end of 2013 is now expected to increase from £65m to £75m, at an unchanged cost of £131m.
Group revenue fell 3% from £1,903m to £1,854m (Consensus: £1,838m), held back by US dollar exchange rates and the net impact of acquisitions and disposals. Organic growth was also in negative territory, falling by 0.6%, due to the performance of the non-core business, mainly the now-divested Analytic Solutions division.
In the core businesses, organic revenue rose by 0.3% despite US defence/security revenue falling by 7% as investment outlays at the Department of Defense fell by 10%. Non US defence/security revenue increased by 5%.
The group said that while significant uncertainty remains in the US defence/security market, the US government is said to be "making some progress towards developing a sustainable 10-year plan".
"Conditions in the group's markets, including the positive trends in export and commercial markets are expected to continue in 2012. The board expects to achieve some underlying progress this year, before the full year net impact of the Analytic Solutions divestment and the share buy-back," said Executive Chairman John Devaney.
According to analysts at US broker Jefferies, "it is difficult to know, even from consensus estimates, exactly what was expected of Cobham in 2011 and how the market really viewed the outlook for 2012. We believe that the 2011 result represents a robust performance and lays the foundations for a similar performance in 2012."
As well, these same analysts highlight that the company has the wherewithal to defend its dividend policy, adding that, "If worst comes to worst, we believe it evident that Cobham's strong balance sheet and cash flows give it considerable scope to further reduce the dividend cover or to do further share buy-backs.
"(...) We sense that sentiment towards Cobham remains quite negative, but that could change rapidly, in our view."
BC
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