By Paul Sandle
LONDON (Reuters) - British aerospace and defence company Cobham (L:COB) scrapped its final dividend on Wednesday after 2016 trading profit fell short of a target it had lowered just two months before the year-end.
Shares in the company slumped as much as 21 percent, wiping out all the gains made since it issued its last profit warning in October. They were down 16 percent at 138 pence at 1315 GMT.
A new management team, brought in after profit fell in the first half of 2016, is trying to get to grips with a business struggling on multiple fronts.
Chief Executive David Lockwood, who took over in mid-December, said he was "extremely disappointed" that his first communication with the market was to report the profit miss, which came to light after a first look at the accounts.
"We are not going to financially engineer our way out of this," he told analysts. "We need stability, we need to calm everything down and we need to focus, particularly on our customers and customer related issues."
With a market cap of 2.8 billion pounds, Cobham is Britain's third biggest aerospace and defence company after Rolls-Royce (L:RR) and BAE Systems (L:BAES). It supplies comms equipment to both the defence and commercial sectors and high tech systems such as air-to-air refuelling.
Trading profit would come in at 245 million pounds, short of its 255-275 million pound target range, the company said. Year-end net debt of 1.03 billion pounds was also higher than it expected.
The shortfall was down to continued poor trading in its communications and connectivity and advanced electronic systems units, Lockwood said.
Cobham made a $1.46 billion bet on wireless communications for commercial customers when it bought equipment maker Aeroflex in 2014.
But it miscalculated the financing, analysts have said, resulting in a level of debt it struggled to service when demand slowed, and a need for an emergency rights issue.
NEW TEAM
Cobham said on Wednesday there remained "significant uncertainty" about Boeing's KC-46 air-to-air refuelling system, on which it is working.
The new team, which includes finance chief David Mellors, who was previously at Qinetiq (L:QQ), is assessing the balance sheet and the business.
"The final dividend decision has been made on the basis of the trading that we are announcing and the debt position that we are announcing," Mellors told analysts on a call.
"And that's all we have available today, and given those, it would be the wrong thing for the business to do anything other than recommend no final dividend."
The first reading of trading profit could be adjusted after the review, including major contracts and asset carrying values, the company said.
Cobham said it was still in talks on the commercial terms for the "complex" conformity and qualification phases of the KC-46 contract.
Analyst Sandy Morris at Jefferies, who holds a "buy" rating on Cobham, said the update was disappointing, particularly the company's net debt, which was around 130 million pounds higher than expected.
"We believe Cobham is not in meltdown, but we recognise the high net debt, passing of the final dividend and the absence of agreement on KC-46 may make it appear otherwise to some observers," he said.
Commercial terms on KC-46 needed to be resolved before a measured assessment could be taken of Cobham's worth, he said.
($1 = 0.8230 pounds)