Aerospace giant rocked by scandal: Cobham fires top bosses for accounting irregularities
Cobham shares plunged nearly 18 per cent as the British engineer was rocked by a financial scandal in one of its electronics divisions.
The firm, which pioneered air-to-air refuelling, has sacked the operations and finance directors in its wireless communications arm over accounting irregularities.
And it proposed to tap shareholders for £500million in a bid to shore up its finances to avoid breaching the terms of its loans or a fire sale of its assets.
Cobham shares plunged nearly 18 per cent as the British engineer was rocked by a financial scandal in one of its electronics divisions
The financial bombshells forced the company to shoulder a £9million one-off charge to put its books right and it issued a profit warning.
Chief executive Bob Murphy said: ‘We’re not happy about this. It’s extremely unfortunate.’
Cobham’s accounting irregularities happened in its wireless division, which makes equipment for mobile operators such as Vodafone. Bosses had discovered that the unit had been booking profits before it should.
But the firm also revealed full-year profits would be £15million lower than the previous forecast of £315million.
It has begun a cost-cutting programme to save £30million a year.
To compound its woes, Cobham, which employs about 12,500 staff, with many based in its head office in Wimborne Minster, Dorset, has been hit with increased costs at its American defence business Advanced Electronics Solutions.
It won a series of contracts to develop technology for the US military, such as components for the guidance systems of air-to- air missiles. It had agreed to accept a fixed price, but due to a series of hitches the cost of producing the components was more than expected.
And it was also hit with a steep drop in demand for its fly-in fly-out business. It operates a fleet of 25 BAE 146 aircraft transporting miners to remote regions, mainly in Australia.
The planes are built to withstand landing on rugged airstrips in isolated areas close to pits.
However, falling commodity prices mean natural resources firms have scaled back production, which has affected demand for Cobham’s AES arm.
Murphy said: ‘The remainder of the group continues to trade in line with the board’s expectations, with the order book slightly ahead of the year-end position on a like-for-like basis.’
Breakthrough: Cobham, the firm which pioneered air-to-air refuelling, won a series of contracts to develop new technology for the US military such as components for the guidance systems of air to air missiles
The fall in profit means its ratio of debt to earnings could fall below the limit agreed with lenders – when this happens it is known as breaching banking covenants.
Cobham’s problem has not been helped by the 2014 acquisition of US communications equipment maker Aeroflex Holding for £1billion.
If Cobham breaches its banking commitments, lenders can recall loans or in some cases swap debt for equity, taking control of firms.
To avoid this happening Cobham issued the £500million rights issue, which is where existing shareholders are offered the chance to buy more shares at a discount to the current price.
Harry Breach, an analyst at broker Raymond James, said of the Aeroflex deal: ‘Cobham has miscalculated how to finance the deal. The debt level got to a place where it couldn’t absorb the working capital and capital expenditure needs of the business.’
Shares in Cobham fell 17.5 per cent or 37.6p to 177.6p.
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