Cobalt Blue Holdings Limited Annual Report 2015

FY2015 Annual Report · Cobalt Blue Holdings Limited

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Cobham plc

Annual Report and Accounts 2015

The most important thing we build is trust

Highlights of the year

COBHAM OFFERS AN INNOVATIVE RANGE
OF TECHNOLOGIES AND SERVICES TO SOLVE
CHALLENGING PROBLEMS IN COMMERCIAL,
DEFENCE AND SECURITY MARKETS

Front cover image:
A technology leader in connectivity solutions
Cobham is a world leading supplier of high
performance equipment and solutions that
enable connectivity for voice, data and video
applications while on the move. Its small and
light products have low power consumption
and excel in demanding environments such
as on aircraft or in large infrastructure where
reception is poor including buildings, tunnels,
airport terminals and stadiums.

Inside cover image:
Global coverage for aircraft connectivity
Cobham provides a range of technology
for aircraft, including content on every Airbus.
It provides sophisticated antennas, avionics
and SATCOM products for communication
and navigation, with applications in the cockpit
and cabin for a commercial aircraft as well as
providing signal jamming and radar technology
for military aircraft, in addition to leading missile
guidance capabilities.

Cobham is a leading global technology and services innovator,
respected for providing solutions for the most challenging problems,
from deep space to the depths of the ocean.

We employ 11,500 people on five continents, and we have
customers and partners in more than 100 countries.

Dividend

11.18p

(2014: 10.65p)

Total revenue

£2,072m

(2014: £1,852m)

Earnings per ordinary share – underlying*

Earnings per ordinary share – basic**

19.5p

(2014: 18.5p)

(3.3)p

(2014: 2.6p)

Contents

Strategic Report
Group at a Glance
Chairman’s Statement
What We Do
Our Capabilities and Investment Attributes
Our Markets
Chief Executive Officer’s Statement
Our Strategy and Key Performance Indicators
Communications and Connectivity Sector
Mission Systems Sector
Advanced Electronic Solutions Sector
Aviation Services Sector
Financial Review
Principal Risks
Corporate Responsibility and Sustainability

Corporate Governance

Board of Directors

Corporate Governance Report

Compliance with the UK
Corporate Governance Code

Nomination Committee Report

Audit Committee Report

Directors’ Remuneration Report

Other Statutory Information

Statement of Directors’ Responsibility

Group Financial Statements

Independent Auditors’ Report

Group Financial Statements

Parent Company
Independent Auditors’ Report

Parent Company
Financial Statements

Other Information
Group Financial Record
Shareholder Information
Glossary
Definitions

2
4
6
8
10
12
14
18
20
22
24
26
32
38

119

120

128
129
130
132

Visit us online at
www.cobham.com
You can also view this Annual
Report and Accounts online at
www.cobhaminvestors.com

The Company is registered in England and Wales under
company number 30470. The Company’s registered
office is Brook Road, Wimborne, Dorset, BH21 2BJ, UK.

The Annual Report and Accounts contains certain
forward looking statements with regard to the operations,
performance and financial condition of the Group. By their
nature, these statements involve uncertainty since future
events and circumstances can cause results to differ from
those anticipated. Nothing contained in this Annual Report
and Accounts should be construed as a profit forecast.

– Robust performance driven by the full year contribution from the Aeroflex
acquisition; integration accelerated and anticipated to be complete by the
end of 2017 with total costs and benefits in line with original expectations

– Group order intake up 13% and book-to-bill of 1.04x; Group benefiting

from multi-year orders on missile programmes

– Total revenue growth of 12% and trading profit increase of 16%; Group

organic revenue declined 1%, with good non-US defence/security growth
offset by commercial headwinds

– Private Venture investment increased to £138m or 8.2% of revenue

(2014:≈£97m or 6.7%); technology investment closely aligned to attractive
market opportunities

– Net debt reduction to £1,207m (2014: £1,223m) includes benefit of
divestments but also £80m adverse foreign exchange impact and
accelerated Aeroflex integration costs

– Proactive portfolio divestments to allow increased focus on core

capabilities; Surveillance divestment completed in early 2016

– Statutory profit, £(40)m, and EPS, (3.3)p, include non-underlying charges
associated with the acquisition and integration of Aeroflex, net profit
from divestments and goodwill impairment

– Recommended 5% increase in full year dividend

* For definitions, please refer to page 132.
** After M&A related costs, net profit from divestments and goodwill impairment.

www.cobham.com

Cobham plc
Annual Report and Accounts 2015

COBHAM HAS AN INCREASINGLY BALANCED
PORTFOLIO, WITH EXPOSURE TO COMMERCIAL
MARKETS WHICH ARE UNDERPINNED BY
LONG TERM GROWTH CHARACTERISTICS

Revenue by Sector (%)

Trading profit by Sector (%)

Aviation Services
19%

Communications &
Connectivity 37%

Aviation Services
18%

Communications &
Connectivity 34%

Advanced
Electronic
Solutions
26%

Mission Systems
18%

£2,072m

£332m

Sector percentages for revenue and trading profit exclude head office
results and eliminations: see note 3 on page 89.

Mission Systems
22%

The Group in 2015
In line with its strategic objectives, the Group has
brought more balance to its portfolio over time
between commercial and defence markets. 38%
of the Group’s revenue in 2015 was derived from
commercial markets, with 36% coming from US
defence and 26% from non-US defence markets.
The Group favours businesses with technology that
can be applied to both commercial and defence
markets, allowing it to benefit from growth in both.

Our Sectors
Cobham has four Sectors, each with differentiated
technology and know-how, having leading market
positions in markets with long term growth
characteristics. The Sectors’ focus is on leading edge
technologies at the subsystem and component level.
The specialist Aviation Services Sector benefits from
multi-year contracts which bring additional visibility
and a long term underpinning to profitability.

Communications and Connectivity
Provides aircraft and in-building communication
equipment; satellite communication equipment
for land, sea and air applications; and test and
measurement instrumentation for radio frequency,
cellular communications and wireless networking.

Mission Systems
Provides safety and survival systems for extreme
environments, nose-to-tail aerial refuelling systems
and wing-tip to wing-tip mission systems for fast
jets, transport aircraft and rotorcraft. It also provides
remote controlled robots for bomb disposal.

Operating locations
United States, United Kingdom, Denmark, France,
South Africa, Finland and Sweden.

Operating locations
United Kingdom, United States and Germany.

Revenue

£772m

(2014: £697m)

Trading profit

Revenue

£108m

(2014: £118m)

£382m

(2014: £334m)

Trading profit

£68m

(2014: £36m)

See page 18 for more information.

See page 20 for more information.

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comGroup at a GlanceMarkets (% of revenue)

Geography (% of revenue)

Commercial
38%

US defence/security
36%

ROW 5%

Asia 11%

UK 11%

Non-US defence/
security
26%

Australia 11%

Other EU 15%

USA 47%

Employees worldwide*

11,505

(2014: 12,707)

* Total permanent headcount
at the year end.

Advanced Electronic Solutions
Provides critical solutions for communication
on land, at sea, in the air and in space, through
off-the-shelf and customised products including
radio frequency, microwave, and high reliability
microelectronics, antenna subsystems and motion
control solutions. This incorporates defence, wireless/
mobile and fixed broadband, X-ray imaging, medical
and industrial markets.

Aviation Services
Delivers outsourced aviation services for military and
commercial customers worldwide through military
training, special mission flight operations, outsourced
commercial aviation, fly-in fly-out services to the
natural resources industry and aircraft engineering.

Operating locations
Australia and United Kingdom.

Operating locations
United States and Mexico.

Revenue

£538m

(2014: £410m)

Trading profit

£81m

(2014: £64m)

Revenue

£390m

(2014: £412m)

Trading profit

£57m

(2014: £55m)

See page 22 for more information.

See page 24 for more information.

For further information visit us
online at www.cobham.com

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT

Chairman’s Statement

“ Our focus in 2015 has
been on integrating
Aeroflex, streamlining
the portfolio, embedding
continuous improvement
and positioning the
Group to generate
growth and cash.”

However, we have encountered unexpected
headwinds in some of our commercial markets
primarily as a result of slowing growth in Asia-Pacific
and the impact of the reduction in the price of oil
and gas. The Board believes that the fundamental,
long term macro growth drivers in these markets,
for which our technology is well positioned,
remain unchanged.

It is these unexpected headwinds which have
held back Group revenue growth during the year,
with Cobham posting a slight organic revenue
decline overall. Further, the headwinds have masked
the solid progress that we have made to improve the
business. This has included our increased investment
to grow our pipeline of new and improved products
and services. In addition, there has been very good
progress on our major aerial refuelling development
programmes. Although challenges remain as we
move through the critical flight test phase on the
US KC-46 tanker programme during 2016, we have
made progress including the first successful transfer
of fuel to a US Navy aircraft in early February 2016.
Our progress here is, in part, testament to the
ongoing commitment to increasing critical skills
and capabilities in the business and to embedding
a continuous improvement culture. This targets
enhancements to our engineering skills as well
as ongoing improvements to key operational and
customer delivery metrics including on time delivery,
quality and also supplier performance, which are
all critical to the ongoing health of the business.

We are extremely encouraged by the excellent
progress made in integrating the former Aeroflex
businesses into the Group. Integration is now
expected to be complete by the end of 2017 with
costs and benefits in line with original expectations.

In addition, we have streamlined and simplified
the Group’s portfolio by exiting certain markets
and technologies, allowing us to focus on our
core capabilities. This has reduced complexity and
enables us to concentrate our investment in markets
with the most attractive long term potential.

COBHAM IS NOW MUCH
MORE COHESIVE WITH
STRONGER POSITIONS
FROM WHICH TO GROW

Full year dividend

11.18p

(2014: 10.65p)

Growth in full
year dividend

(2014: 10%)

Overview
Following the 2014 acquisition of Aeroflex for
some US$1.5bn, our focus has been on integrating
the former Aeroflex businesses, streamlining
and simplifying the portfolio, and continuing to
embed a continuous improvement culture in the
business. These actions, together with our focus
on technology and customers, position the Group
to deliver growth and generate cash.

This year, we have seen signs of stabilisation and,
in some regions, improvement in our defence
and security markets, which have been through
a periodic downcycle. The new bipartisan budget
agreement in the US covering 2016 and 2017, which
includes an increase to the investment accounts, has
underpinned this, even though there is a continuing
time lag between budgetary approval and outlays,
or the spending of the budget. Elsewhere, there is
evidence of modest increases in some European
defence/security budgets, with growth continuing
in Asia-Pacific and in Middle East markets.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com13% CAGR over ten years in dividend (pence)

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

See page 28 for more information.

3.75

4.50

4.96

5.45

6.00

8.00

8.80

9.68

10.65

11.18

For further information visit us
online at www.cobham.com

These divestments have contributed to Cobham’s
cash generation in the year and we ended the
year with lower net debt, despite unhelpful year
end translation rates, as the Group’s debt is primarily
denominated in foreign currencies. Operating cash
generation and free cash flow remain areas of
increased focus for the Group in 2016.

When I look back at the considerable progress
made over the past few years, Cobham is now
a much more cohesive entity with stronger and
more focused positions from which to grow in
its markets. It has strengthened its leading market
positions through selected acquisitions and judicious
technology investments and it has exited weaker
market positions by divesting some of its more
peripheral activities. It has a greater balance in
revenue from its main markets with more scale in
attractive commercial segments. It has a redesigned
organisation and management structure which has
closely aligned management and reporting lines with
the drive to deliver revenue growth. It has reduced
its fixed cost base, with some of the efficiencies
generated being used to increase investment in the
business. It continues to transform its operational
performance and customer delivery, to enable it to
meet and exceed customer expectations and grow
market share over time.

In addition, there has been an increase in our focus
on risk management processes, on ethics and on
employee satisfaction, with Cobham’s ongoing
Group-wide employee engagement and initiative
feedback programme expected to include former
Aeroflex employees for the first time during 2016.

The Board
We announced in January 2016 that Simon Nicholls,
Chief Financial Officer (CFO), will be leaving Cobham
to become CFO at Wolseley plc. The search to
replace him is underway and, to ensure a smooth
transition, Simon will remain in place until his
successor has been identified.

We have also welcomed Alan Semple to the Board
as a Non-executive Director in February 2015.
Alan was previously CFO at John Wood Group plc.
He subsequently became Chairman of the Audit
Committee in April 2015, replacing Mike Wareing,
who remains a member of the Committee.

Dividend
The Board is recommending a final dividend for
2015 of 8.13p (2014: 7.746p). This, together with
the interim dividend of 3.05p (2014: 2.904p), will
result in a total dividend per share for 2015 of
11.18p (2014: 10.65p), an increase of 5%.

This increase is consistent with the Group’s policy,
which I first set out in the 2014 Annual Report
and Accounts, of growing the dividend so that it
is broadly aligned with underlying earnings growth,
while rebuilding dividend cover over time. The Board
continues to consider that this approach will give
the Group the flexibility to invest to drive growth
and maximise shareholder returns.

The Board is mindful that Cobham has a long
track record of dividend growth, this being the
45th consecutive year in which the full year dividend
has been increased, and it remains committed to
a progressive dividend policy.

Conclusion
We have continued to make excellent progress
on the delivery of our strategic objectives during the
year, including excellent progress with the integration
of the Aeroflex business. In addition, we have exited
certain markets and technologies, allowing us to
focus on our core capabilities, and in so doing we
have reduced our risk profile.

The Board remains confident that the continued
investment in technology and know-how will enable
us to maintain our leading positions in markets with
good prospects, leaving Cobham well placed to
deliver growth over the medium term.

John Devaney
Chairman
2 March 2016

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTWhat We Do

CONTINUALLY INVESTING IN OUR
TECHNOLOGY AND KNOW-HOW IS
KEY TO THE SUCCESS OF THE GROUP

Our business model
Our business model combines our longstanding
customer relationships with a deep understanding
of customer needs. It includes understanding
how to nurture and sustainably grow businesses
with specialist technologies, while continuously
improving our operational performance. We also
have a focus on ethics, safety and developing
and enhancing the critical skills and capabilities
of our employees.

The success of our model is also dependent on the
rigour we apply to our risk management processes.
We have clearly defined risk identification and
mitigation processes in place and an established risk
appetite through which risks can be managed with
appropriate controls and assurance measures.

See pages 32 to 37 for more information.

o siti o

1. Leading market p

2. Invest

Highest ethical
standards
page 38

t i

Safe working
environment
page 39

Understanding
and response to
customer needs

Talented
and engaged
employees
page 39

t
i

ellence

s
et

g into new mark

Managing
environmental impacts
page 40

3 .

L e v

g i n

Investing in skills and expertise
Being able to recruit and develop employees
with the appropriate level of skills and expertise
is a key component underpinning Cobham’s
delivery of shareholder value over the longer term.
At the end≈of 2015, Cobham employed 4% of
its UK workforce as apprentices, graduates and
undergraduate placements and is on track to
meet its 5% commitment by 2019.

See page 39 for more information.

1. Leading positions in our markets
Cobham primarily designs and assembles subsystems
and components and, as such, operates principally at
Tier 3 and 4 of its chosen markets, with some limited
participation at the Tier 2 level. The Group does not
participate at the Tier 1 level, which includes the
manufacture and integration of complete aircraft
platforms, ships, missiles, medical and industrial
equipment, and satellites.

The Group’s leading market positions and its
ongoing programme of investment combine to
create effective barriers to entry in its markets,
while optimising financial returns.

The chart below summarises the tier structure of
our markets, including a small number of examples
of products which demonstrate Cobham’s
participation in each.

Tier

Platforms / Fully Integrated Systems
– Cobham does not participate here

Major subsystems – significant and
recognisable parts of a platform or programme
– Aerial refuelling systems
– Electronic warfare (jamming) pods
– SATCOM consoles

Smaller subsystems – comprise
a number of components
– Avionics products
– Antennas
– Integrated microwave assemblies for radar
or jamming systems
– Power distribution modules for satellites

Components – the smallest
identifiable parts of a subsystem
– Small electronic components
such as diodes, capacitors, limiters, filters
– Static dischargers
– Actuation components
for parachute releases

Cobham in action
Cobham Semiconductor Solutions supplies
application specific integrated circuits for CT
(or computerised tomography), digital X-ray
and ultrasound scanners, which are specifically
designed for use in high radiation environments.
The specialised microelectronic solutions offered
by Cobham enjoy strong market positions, being
supplied to four of the top five global medical
equipment manufacturers.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com

Financial characteristics
The financial characteristics of the business have
remained essentially unchanged over a long period
of time. Differentiated technology and leading
market positions in specialist markets have enabled
the business to deliver strong trading margins.
This, combined with its relatively low capital intensity,
has enabled the business to generate good levels
of free cash flow over time. More information on
the financial characteristics of the business is set
out on page 9.

Trading margin

16.0%

(2014: 15.5%)

Free cash flow (after restructuring)

£106m

(2014: £114m)

3. Leveraging existing technology
products and services into
new markets

An advantage of operating at the component
and subsystem level is that Cobham’s leading
edge technology will often have applications in
different end markets. This enables the Group to
serve a diverse customer base and deliver growth
through economic cycles, as it is not dependent
on demand in one specific market, helping shift
the focus of its portfolio over time. Each one
of Cobham’s Sectors now has commercial and
defence/security market exposure.

Revenue from commercial markets

38%

(2014: 39%)

Cobham in action
Cobham is a leader in defence markets for fuel
tank inerting technology, which reduces the risk
of combustion of flammable material in aircraft
fuel tanks, so improving safety. Cobham has invested
to develop this life saving defence technology
for application in commercial markets and has
gained a significant position in commercial aircraft
production, being on the Boeing 787 wide-body
aircraft. It is also on the new Mitsubishi Regional Jet,
which completed its maiden development flight in
2015. In addition to new build opportunities, it is
gaining traction in retrofit markets, with a significant
new award won from an airline during the year on
the Boeing 737NG.

2. Investment in high value, leading
edge technology and know-how
Cobham’s success is dependent on it bringing to
market new and improved products and services,
with a focus on markets with positive, long term
macro trends, favouring products and services which
have application across a number of markets. Making
targeted investments across its leading technologies
is therefore crucial to delivering increasing revenue.
During the year, the Group invested £138m (2014:
£97m) in Private Venture (PV or company funded
R&D – Research and Development), including a full
year contribution from Aeroflex. This represents
8.2% of revenue (2014: 6.7%). The Group has aligned
this spending with developing products and services
in growing markets including avionics, SATCOM,
wireless and microelectronics.

PV investment

£138m

(2014: £97m)

Total R&D investment

£258m

(2014: £198m)

Cobham in action
In 2015, Cobham introduced its new electric
propulsion xenon regulator and latch valve for
satellites. These products, which were developed
using company funding, allow commercial satellites
to reach orbit in reduced time and to remain
active for longer periods, so helping customers
maximise their satellite investment. This, along
with the Cobham products’ lower weight and its
other operational cost savings, position the Group
to benefit from the increasing number of satellite
launches expected over the coming years.

See pages 14 to 17 for information on our strategy

and key performance indicators.

For further information visit us
online at www.cobham.com

4. Programme management and

continuous improvement

Cobham’s continuing success is dependent on
its ability to deliver products and services to its
customers on time, on budget and to the required
specification. The Group’s leading edge technologies
are critical to its customers and these need to be
combined with industry leading quality and on
time delivery.

The Group’s programme management capabilities –
critical for the successful design, testing and delivery
of new and improved products on time, on cost and
to specification – are a particular focus. Success here
will enable it to grow market share and optimise its
investment in technology by being the supplier of
choice for its customers.

The Group also delivers year-on-year improvements
to its operational execution and production processes,
to keep ahead of the competition and deliver lower
prices for its customers, while maintaining its trading
margins. It achieves this through implementing a
culture of continuous improvement (CI), underpinned
by a well established suite of best practice processes
called the Cobham Standard Operating Framework.
Operational performance is monitored and managed
using a well defined set of performance metrics.

Number of CI professionals within
Cobham’s businesses

(2014: 20)

Cobham in action
During the year, Cobham doubled the number
of its CI professionals, drawing on internal experts
as well as recruiting experienced individuals with
best practice backgrounds from outside the
business. These professionals, with a range of
deep subject matter expertise, are key catalysts
in the drive to deliver business benefits including
cost saving initiatives, increased cash generation
and improvements to customer delivery.

Graduates and apprentices
recruited since 2010

Graduates and apprentices in
Cobham’s UK workforce

213

(2014: 172)

(2014: 3%)

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT
Our Capabilities

COBHAM IS FOCUSED ON A FEW
SPECIALIST TECHNOLOGIES

Cobham has a portfolio of leading edge technologies
and capabilities which are focused on a small number
of specialist areas where it has an in-depth expertise
and longstanding customer relationships.

Our key capabilities:

1. Communication

products for sending
and receiving voice,
data and video signals

Participating
Sectors:

Communications
& Connectivity

Advanced Electronic
Solutions

2. Pneumatic and

actuation systems

Mission Systems

3. Nose-to-tail aerial
refuelling systems

Mission Systems

Image courtesy of Airbus

4. Military and commercial

outsourced
aviation services

Aviation Services

Proportion of Group Revenue:

63%

11%

19%

Cobham is a leading supplier
of communications products
for commercial and defence
customers where there is a need
to communicate on the move and
in demanding or harsh environments
including on aircraft, in space and
at sea. It also offers a range of high
end test and measurement products
for wireless markets.

Cobham’s market leading safety
and survival systems increase
mission effectiveness and the
survivability of people and assets
by leveraging specialist technology
expertise in actuation, pure oxygen,
gas management, water sensing, and
restraint and release applications.

With over 80 years’ experience,
Cobham is the most technically
advanced supplier of aerial
refuelling systems in the world.
Cobham has delivered more than
2,000 aerial refuelling systems to
defence customers worldwide.

Cobham delivers specialist
outsourced aviation services
for military and commercial
customers worldwide through
military training, special mission
flight operations, outsourced
airline services, fly-in fly-out
services and aircraft engineering.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comOUR LEADING CAPABILITIES
RESULT IN DIFFERENTIATED
SUBSYSTEMS AND COMPONENTS

Our investment attributes:

– Growth prospects

Cobham is focused on end markets with long term growth prospects, in
particular driven by an increasing demand for mobile communication and
increased global demand for air travel.
– Leading market positions

Cobham has leading positions in high-tech specialist markets with a particular
focus on connectivity, where it designs and assembles subsystems and
components. There are significant barriers to entry when these leading
positions are combined with its ongoing investment to continually improve and
refresh its capabilities. This enables it to maintain its competitive differentiation.

– Balanced market exposure

Cobham has significant exposure to global commercial and defence/security
markets, positioning it to grow through cycles. The Group aims to leverage its
technology across these markets as demand dictates.

– Broad programme participation

The Group supports a wide range of programmes across air, land, sea and
space domains, so reducing the risk from any single platform or programme.
This broad participation presents opportunities for cross-selling, which helps grow
the business and increases the financial returns on its technology investment.

– Operational excellence

Cobham has embedded a continuous improvement philosophy with a focus
on leading edge production techniques, improving customer delivery metrics
and driving efficiency in its production planning, supply chain and engineering
functions. This positions the Group as an efficient, cost effective provider,
enhancing its ability to increase market share over time.

Leveraging our technology and know-how

Cobham favours technologies
which have applications in
different markets, as this enables
the Group to maximise its return
on investment and to grow
through economic cycles.

Core

Growth

Emerging

Space

Medical

Industrial

WHICH TARGET THESE RESULTS

Cobham’s high reliability
electronics, which are designed
to operate in environments
where there are high levels
of radiation such as space,
are now being used in medical
applications, including digital
X-ray and CT scanners. New
industrial markets are also
being accessed including
airport security and data
centre applications.

– Top and bottom line growth over the long term
Building and maintaining leading market positions, through leveraging
innovative technology and customer insights, will enable the Group to
deliver sustainable top and bottom line growth.

– Return on invested capital

Organic revenue growth, a strong trading margin and effective asset utilisation
contribute to a return on invested capital which is greater than the Group’s
estimated weighted average cost of capital.

See pages 15 to 16 for more information.

– Trading margins

See page 15 for more information.

– Progressive dividend

The Group’s leading positions in specialist markets with hard-to-replicate
intellectual property contributes to its strong trading margins.

Cobham’s objective is to pay a progressive dividend and it has a long track
record of dividend growth spanning 45 consecutive years.

See page 27 for more information.

– Cash conversion

The Group’s trading margin characteristics combined with its relatively low
capital intensity results in its consistent, good cash conversion potential.
The Group has a threshold for 80% operating cash conversion in any year.

See page 28 for more information.

Key performance indicator used by management.

See page 5 for more information.

Cash conversion

71%

(2014: 73%)

Underlying EPS

19.5p

(2014: 18.5p)

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT

Our Markets

TECHNOLOGIES AND KNOW-HOW THAT ARE
USED IN GLOBAL COMMERCIAL, AND DEFENCE
AND SECURITY MARKETS, WITH AN EMPHASIS
ON CONNECTIVITY SOLUTIONS

Commercial

38%

(2014: 39%)

US defence/security

36%

(2014: 34%)

Non-US defence/security

26%

(2014: 27%)

The desire to communicate more
is a positive long term trend
Cobham’s markets are driven by a small number of
long term macro growth trends which underpin its
financial performance. Foremost among these is
the desire on the part of the global population for an
ever increasing and enhanced ability to communicate.
Put simply, people want to be able to communicate
no matter where they are and what they are doing.
This demand encompasses video, data and voice
communication. This trend is driven by increased
urbanisation, a growing middle class and long term
global economic growth.

Global mobile data traffic is expected to grow
significantly. To deliver this growth, there is a
constant focus on new technology, innovation and
the optimisation of equipment, as well as network
performance. Cobham makes specialist products for
the mobile communication market, with a particular
emphasis on communication in harsh or difficult
environments. The technology challenges which this
represents is well aligned to Cobham’s strategy and
its high-end technology.

Cobham also maintains leading positions in specialist
aviation services markets, principally in Australia, and
in aerospace markets, where it supplies differentiated
products for a range of aircraft including large transport
jets, regional jets, business jets and helicopters.
Cobham’s focus is again on communication related
products in these markets, which are driven by the
growing demand for air travel, with the production
of new aircraft continuing to increase.

Our response
The growth attributes of these communication
markets are attractive to Cobham and it has aligned
its technology investment to take advantage of
them. Cobham’s commercially focused connectivity
businesses, such as its SATCOM and Wireless business
units, invest a double digit percentage of their revenue
annually in developing new and improved products,
to meet customers’ evolving technology requirements.

Furthermore, Cobham has invested to acquire
companies which are primarily focused on
commercial connectivity markets. These fit Cobham’s
strategic imperatives and include having leading
positions in long term growth markets, with the ability
to discriminate its product offering based on real
technology differentiation. In doing this, Cobham
has reinforced its market positions and brought more
balance to its market exposures.

The US defence market is nearing
the end of a prolonged downturn
US defence spending on procurement, and research,
development, testing and evaluation (RDT&E) has
fallen significantly in recent years, principally due to
the withdrawal of troops from Iraq and Afghanistan.
The decline in investment spending is beginning
to stabilise.

Since the start of the downturn, the US Government
has consistently stated that it is refocusing its
investment spending on a ‘Pivot to Asia’ strategy.
In its June 2015 document, ‘The National Military
Strategy of the United States of America’,
the investment priorities include enhancing

Global monthly mobile data traffic (exabytes*)

US DoD budget (US$bn)

2015

2016

2017

2018

2019

5.3

8.4

12.7

19.2

27.7

2015

2016

2017

2018

2019

111

102

107

113

*1 Exabyte = 1018 bytes
Source: Ericsson Mobility Report Nov 2015
* One exabyte equals one billion gigabytes.

Procurement

RDT&E

Source: US Department of Defense (DoD) Future
Years Defense Program.

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Annual Report and Accounts 2015

Cobham plc

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Our commercial
markets include

Specialist Aviation
Services

Aerospace

Marine SATCOM

Wireless

Space

Demand conditions in non-US
defence/security markets continue
to improve
Demand conditions in non-US defence/security
markets have continued to improve. In particular,
there is a good level of demand in Asia-Pacific and in
the Middle East, where there are heightened regional
security tensions and local conflicts. The Group has
continued to benefit from these market conditions,
including orders from a number of different countries
for missile control subsystems on high volume
air-to-ground missiles and laser guided munitions.

In Europe, some countries have started to increase
their defence budgets modestly in response to
heightened security threats. However, budgetary
increases are not being applied throughout the region
and overall public deficits and indebtedness remains
high. This is likely to continue to hold back growth
in defence/security investment.

Our response
Cobham aims to leverage its technologies and
capabilities into accessible markets worldwide outside
of the US, either by benefiting from export orders
won by its US and non-US defence/security customers
or by direct sales to the end customer, as its critical
subsystems and components are used globally on
a diverse range of platforms and programmes.

It has also won and operates significant aviation
services contracts around the world, including for
governments in the UK, Australia, the Middle East,
the Caribbean and Asia.

“ We have focused on
bringing more balance
to the portfolio between
our commercial and
defence markets.”

communications, networked intelligence, and the
swift and decisive projection of force around the
world. These priorities are aligned to the Group’s
differentiated communication related technologies,
with its components and subsystems having a variety
of applications including for electronic warfare, radar,
missile guidance systems, and satellite actuation
and power distribution modules. Cobham also has
leading positions in aerial refuelling, and pneumatic
and actuation products primarily for aircraft platforms.
Many of these platforms are key to the achievement
of the customers’ strategic priorities.

Our response
Cobham considers that its defence/security capabilities
are well aligned with current US Government strategic
priorities and the Group has increased investment in
developing new and improved products to position
Cobham on the significant, multi-year opportunities
which are being awarded.

As a result of this investment, the Group has
succeeded in securing good positions on priority
platforms such as the KC-46 aerial refuelling tanker and
the F-35 Joint Strike Fighter, as well as on important
upgrade programmes including next generation
radar, ballistic missile defence and electronic warfare
programmes. Many of these are expected to benefit
from increased funding over the coming years.
However, it is expected that there will be a two-way
impact in this market as there will be reduced funding
for legacy positions, as these are wound down to
support the increased investment in next generation
platforms and programmes. The Group continues
to believe that, over the coming years, the ability to
grow in this market will be determined by company
positioning on key programmes and platforms.

Medium term global defence expenditure
growth estimates

MENA*

Latin America

Asia-Pacific

Africa

Europe

-2%

* MENA – Middle East and North Africa, excluding
inaccessible countries.
Sources: Cobham analysis, SIPRI, IMF, Strategic
Defence Intelligence.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT
Chief Executive Officer’s Statement

THERE IS NOW MORE BALANCE
IN THE PORTFOLIO AND WE
ARE FOCUSED ON MARKETS
WHICH ARE UNDERPINNED
BY FAVOURABLE LONG
TERM TRENDS

PV investment

8.2%

(2014: 6.7%)

Aeroflex efficiencies
achieved

US$37m

(2014: US$5m)

Strategy and progress overview
We have continued to progress our strategy of
creating value for our shareholders by building
and maintaining leading positions in our chosen
markets through leveraging our innovative
technology and know-how with a deep insight
into our customers’ needs.

We now have more balance in the portfolio
between our defence/security revenue, with the
portfolio focused in areas of customer priority in our
chosen segments, and commercial revenue, where
we are focused on markets that are underpinned by
favourable, long term macroeconomic trends. This
includes an ever increasing demand for enhanced
communication, which is a positive market trend
over the long term. We favour businesses with an
ability to leverage differentiated technology into
commercial and defence/security markets and all
our Sectors now have a presence in both of these
broad markets. We have five strategic actions and are
measuring progress against them, as set out below.

“ We have continued to
invest in the business; in
particular in technology,
skills and capabilities, and
in our infrastructure.”

1. Understanding customer needs and
developing customer relationships

We continue to focus on opportunities to improve
customer satisfaction and to anticipate future
requirements. We have undertaken a comprehensive
survey of our largest customers, which identified
opportunities to deepen key relationships and to
underpin our position as a preferred supplier of high
quality products and services. Increasing emphasis
on customer engagement has led to regular contact
with key customers on market developments,
new business opportunities and ideas for next
generation products and technologies. As a result,
we are identifying targeted PV investment to further
grow our market share.

2. Improving operational performance
We have continued to make good progress
with our continuous improvement activities.
This progress is reflected in improvements over
the past five years to key operational metrics such
as on time delivery, supplier defective parts per
million and supplier on time delivery. The positive
trend has continued during the year, culminating
in operational performance levels not previously
achieved by the Group. These continuous
improvement activities are also vital to delivering
lower inventory and working capital levels in the
future and, despite the increase in 2015, we are
seeing encouraging progress in a number of areas.

We have successfully completed the initial
implementation of our new Enterprise Resource
Planning (ERP) IT system at the pilot manufacturing
location, with the system fully operational at the
site. The ERP system will be progressively rolled out
across our other operating locations over the next
three years.

Cobham plc
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Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com3. Investing in and applying discriminating

technology

We have continued to invest in technology to drive
growth. Company funded PV investment increased
significantly to £138m (2014: £97m), primarily
reflecting the full year impact of Aeroflex. This
investment represents some 8.2% (2014: 6.7%) of
revenue. We have continued to align this spending
with developing differentiated products and services
in growing markets, including for avionics, SATCOM,
wireless and microelectronics applications.

Specific examples of our technology investments
in 2015 include:
− Cobham SATCOM achieved the first voice

call over Inmarsat’s SwiftBroadband aviation
communication service using its new
AVIATOR 200S compact unit. This unit is the
first of several solutions that will be available
to airlines in anticipation of the new generation
SwiftBroadband Safety service in 2016;
− Cobham Wireless launched a new TeraVM
cyber security threat analysis solution that
assesses infrastructure defences by replicating
real-life incidents, including denial of service
and database related injection attacks;
− Initial orders were received for the Mission
Systems Sector’s new lightweight polymer
lined, high pressure gas storage vessels. This
technology, developed utilising experience
gained in military and space applications, is
being targeted at commercial industrial markets,
including compressed natural gas vehicles. It
offers customers superior fuel preservation
and improved safety;

− The Advanced Electronic Solutions Sector
continues to align its investments to US
defence/security priorities specifically in
radio frequency technology differentiation.
Additionally, it continues to invest in
high-reliability electronics for commercial
space, medical and industrial applications.

In addition to company funded PV, customer
funded research and development (R&D) was
£120m (2014: £101m), primarily relating to aerial
refuelling development programmes. We have
continued to make encouraging progress, with the
Airbus A400M entering low rate initial production
at the end of the year. Also, the KC-46 entered
its flight test phase at the end of the third quarter
2015, with free air stability testing and receiver
contact trials undertaken. This was followed by the
successful transfer of fuel to a US Navy F/A-18 in
February 2016. It is expected that the rate of R&D
investment in these programmes will moderate in
2016, as we move from development into low rate
initial production.

4. Allocating capital to be aligned with

growing markets

Following on from our September 2014 Aeroflex
acquisition, we have made excellent progress
integrating this business, achieving some £25m
(US$37m) of year-on-year efficiencies in 2015.
The efficiencies have been achieved through a
combination of site integration activity, reduced
Aeroflex head office costs, and direct and indirect
supply chain benefits for the combined Group.
Business restructuring costs incurred in the year,
primarily relating to the Aeroflex integration, were £67m.

Strategic overview
1. Focus on customers
2. Improve operational performance
3. Invest in technology
4. Allocate capital for growth
5. Enhance skills and capabilities

See pages 16 to 17 for more information.

We anticipate that this progress will continue,
resulting in the Aeroflex integration programme
being complete by the end of 2017, with the
total costs and benefits in line with our original
expectations. Our expected completion of the
integration programme ahead of schedule will
be a major achievement.

As set out on page 8 in more detail, Cobham is
focused around four main areas of capability
which comprise connectivity, pneumatics and
actuation, aerial refuelling systems, and military and
commercial specialist outsourced aviation services.
During the year we have exited certain markets and
technologies, enabling us to further focus on these
core capabilities. These divestments comprise:
− Weinschel and Inmet in June 2015, for US$80m;
− The Group’s composites businesses in November

2015, for US$200m;

− Metelics in December 2015, for US$38m.

In January 2016 we also divested the Surveillance
business for US$10m.

Commercial

End markets (% of revenue)

2011

2012

2013

2014

2015

US defence/security

2011

2012

2013

2014

2015

Non-US defence/security

2011

2012

2013

2014

2015

Although resulting in earnings dilution, these
divestments have reduced portfolio complexity,
helping us to concentrate our investment in markets
with the most attractive long term potential.

5. Enhancing the skills and capabilities

of employees

We have increased our focus on key functional
capabilities in the year, following the completion of
the previously reported organisation design project.
This includes continued activity to enhance our
project and programme management capabilities,
which will help ensure that our investments are being
made effectively and efficiently. There has been a
rigorous approach to assessing the competencies
of individuals, complemented by a comprehensive
training and development programme, which
has led to a significant increase in the number
of professional qualifications being achieved.
This approach is now being extended to all other
critical functions including engineering, operations
and supply chain, finance, compliance, contracts,
and human resources.

Conclusion
This has been another year of significant progress
against the delivery of our strategic objectives.
The excellent progress with the integration of the
former Aeroflex business is a key highlight and we
have continued to invest in our technology, our
capabilities, our businesses and our infrastructure
to underpin the drive for growth.

Bob Murphy
Chief Executive Officer
2 March 2016

For further information visit us
online at www.cobham.com

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTOur Strategy and Key Performance Indicators

DELIVERING AGAINST
OUR STRATEGIC
PRIORITIES ...

We have a clearly defined vision and strategy
statement. These are underpinned by our strategic
actions, which give us the focus and direction to
execute an improving performance.

Our strategic actions are linked to key performance
indicators, which are used to monitor the ongoing
performance and health of the business. To see
how these indicators are linked to management
remuneration, see pages 58 to 66.

Of course, how we work and deliver our results is as
important to us as what we deliver. Our values, and
the behaviours that underpin them, are fundamental
to delivering sustainable success from what we do.
These are the foundations on which everything we
do is built. The most important thing we build is trust.

Our vision
Working together to be a leading
global technology and services
innovator, respected for
providing solutions to the
most challenging problems

Our strategy
Build and maintain leading positions in our
chosen markets by leveraging innovative
technology and know-how with a deep insight
into customer needs

Our strategy drives our technology and

know-how based business model, see pages 6 to 7.

Strategic actions
1. Focus on customers, 2. Improve operational performance,
3. Invest in technology, 4. Allocate capital for growth,
5. Enhance skills and capabilities

We use best practice enterprise
risk management, see pages 32 to 37.

SPIRIT Values
Safety, Performance, Innovation, Relationships, Integrity,Trust

We understand that corporate responsibility and sustainability (CR&S)

is a key driver of shareholder value, see more on this and our SPIRIT values on pages 38 to 41.

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Cobham plc

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online at www.cobham.com

We believe that the following financial metrics measure the overall strength and performance of the Group.
They also reflect how effectively the Group has performed against its five strategic actions.

Target: high single
digit growth

Underlying EPS was 5% higher than the prior year,
primarily due to the net impact of acquisitions and
divestments, and cost efficiencies. At constant
currency, underlying EPS was up 7% on the prior year.

Earnings

Underlying EPS (pence)

2011

2012

2013

2014

2015

Cash generation

Operating cash conversion (%)

2011

2012

2013

2014

2015

Shareholder value

Return on invested capital (%)

2011

2012

2013

2014

2015

22.1

22.6

21.6

18.5

19.5

105

71%

Target: >80%

11%

Target: >10%

See pages 26 to 31 for more information on our financial performance.

Operating cash conversion was broadly consistent
with the prior year. This included the impact of
increased working capital and, as anticipated,
increased capital expenditure, with Aviation
Services continuing to invest in its aircraft fleet.

Return on invested capital was slightly lower than
the prior year, primarily due to the impact of the
Aeroflex acquisition which, including cost synergies,
is expected to beat the Group’s cost of capital in the
third full year of ownership.

Key performance indicator used by management.

Used as a measure for determining executive
remuneration.

For definitions, see page 132.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTOur Strategy and Key Performance Indicators continued

... DRIVES CASH GENERATION
AND CREATES SHAREHOLDER VALUE
S

Strategic actions

1. Focus on customers

2. Improve operational performance

3. Invest in technology

4. Allocate capital for growth

5. Enhance skills and capabilities

Description

Importance

We develop a deep understanding of
our customers’ needs and we look to
build close relationships with them.

We seek to drive improvement in our
operational performance to ensure
our customers’ needs are being met.

We look to invest in technologies, which

We constantly review our market place

are innovative, discriminating and which

to ensure capital is being allocated to

We enhance the skills and capabilities

of our employees to create long term

align with our technology road maps.

This will underpin our growth.

achieve sustainable value creation

through a focus on growing markets.

competitive advantage.

Understanding customer needs and their priorities
is crucial to developing products and services that
are relevant to and priorities for the market place.

Delivering products and services in line with
customer schedules, in line with budget and to the
agreed performance and quality metrics is essential
to maintaining and increasing our market share.

Developing products and services which not only

Reviewing the market place constantly ensures we

Enhancing the skills and capabilities of our

meet customer needs but which are differentiated

are focusing our organic and non-organic investment

employees, through value added learning and

from other competitive offerings is how we keep

in those areas which will deliver the best financial

development, as well as recruiting and developing

our existing customers and also how we win new

returns, by optimising our revenue and profits.

the next generation of skilled employees, is essential

customers to grow market share.

in a technology led business to delivering the

promises we have made to our customers.

Links to principal risks

Failure to understand customer demand and market
environment, see risk 1 on page 35.

Failure to successfully execute continuous
improvement, see risk 8 on page 37.

Failure to execute strategy, see risk 2 on page 35.

Failure to deliver shareholder value from the Aeroflex

Failure to deliver targeted benefits with appropriate

acquisition, see risk 6 on page 36.

skills and talent recruited/retained, see risk 4 on

page 36.

Ineffective project and programme execution,
see risk 5 on page 36.

Progress

Group revenue (£m)

Staff safety - major accident incident rate*

Invested in support of AMSA contract:

2011

2012

2013

2014

2015

1.854

1.749

1.790

1.852

2011

2012

2013

2014

2.072

2015

465

586

326

423

269

jet aircraft

Commentary

Target: mid-single digit organic revenue growth

Target: 400 Aspiration: 0

Target: 6%

Target: <10%

Organic revenue growth declined 1% in the year
driven by adverse demand conditions in some of our
commercial markets. This was despite good revenue
growth in our non-US defence/security markets.

We believe that health and safety is one of a
number of indicators of operational performance.
All the Group’s leading indicators on training, risk
assessment, workplace inspections and near miss
reporting met their targets.

See page 27 for more information on revenue.

See pages 39 to 40 for more information on staff safety.

Company funded PV investment has increased

Investment and modifications to three of four

After a number of years of beating the target,

again in the year, primarily due to the full year impact

Bombardier Challenger jet aircraft are well underway,

voluntary employee turnover increased in the year

of Aeroflex. The Group has aligned this investment,

which will be used to deliver the new 12-year

and this is attributed to the organisation design

which it believes to be a primary driver of future

growth, with developing differentiated products

AUS$640m contract for the Australian Maritime

project which was largely undertaken in the prior

Safety Authority (AMSA). Flying operations are

year. This programme involved changes in role or

and services in growing markets.

expected to commence in 2016. This investment

reporting lines for some employees. The higher

See page 27 for more information on Group PV investment.

will support future organic growth.

See pages 24 to 25 for more information.

turnover in the year is considered to be a short

term impact from these changes.

See page 39 for more information.

Key performance indicator used by management.

* per 100,000 employees.

Used as a measure for determining
executive remuneration.

For definitions, see page 132.

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Strategic actions

1. Focus on customers

2. Improve operational performance

3. Invest in technology

4. Allocate capital for growth

5. Enhance skills and capabilities

Description

Importance

We develop a deep understanding of

our customers’ needs and we look to

build close relationships with them.

We seek to drive improvement in our

operational performance to ensure

our customers’ needs are being met.

We look to invest in technologies, which
are innovative, discriminating and which
align with our technology road maps.
This will underpin our growth.

We constantly review our market place
to ensure capital is being allocated to
achieve sustainable value creation
through a focus on growing markets.

We enhance the skills and capabilities
of our employees to create long term
competitive advantage.

Understanding customer needs and their priorities

Delivering products and services in line with

is crucial to developing products and services that

customer schedules, in line with budget and to the

are relevant to and priorities for the market place.

agreed performance and quality metrics is essential

to maintaining and increasing our market share.

Links to principal risks

Failure to understand customer demand and market

Failure to successfully execute continuous

environment, see risk 1 on page 35.

improvement, see risk 8 on page 37.

Ineffective project and programme execution,

see risk 5 on page 36.

Developing products and services which not only
meet customer needs but which are differentiated
from other competitive offerings is how we keep
our existing customers and also how we win new
customers to grow market share.

Reviewing the market place constantly ensures we
are focusing our organic and non-organic investment
in those areas which will deliver the best financial
returns, by optimising our revenue and profits.

Enhancing the skills and capabilities of our
employees, through value added learning and
development, as well as recruiting and developing
the next generation of skilled employees, is essential
in a technology led business to delivering the
promises we have made to our customers.

Failure to execute strategy, see risk 2 on page 35.

Failure to deliver shareholder value from the Aeroflex
acquisition, see risk 6 on page 36.

Failure to deliver targeted benefits with appropriate
skills and talent recruited/retained, see risk 4 on
page 36.

Progress

Group PV investment (% of revenue)*

Invested in support of AMSA contract:

Voluntary staff turnover (%)

2011

2012

2013

2014

2015

jet aircraft

4.9%

5.3%

6.2%

6.7%

8.2%

2011

2012

2013

2014

2015

8.4%

8.7%

6.9%

6.3%

11.2%

Commentary

Target: mid-single digit organic revenue growth

Target: 400 Aspiration: 0

Target: 6%

Target: <10%

Organic revenue growth declined 1% in the year

We believe that health and safety is one of a

driven by adverse demand conditions in some of our

number of indicators of operational performance.

commercial markets. This was despite good revenue

All the Group’s leading indicators on training, risk

growth in our non-US defence/security markets.

assessment, workplace inspections and near miss

reporting met their targets.

See page 27 for more information on revenue.

See pages 39 to 40 for more information on staff safety.

Company funded PV investment has increased
again in the year, primarily due to the full year impact
of Aeroflex. The Group has aligned this investment,
which it believes to be a primary driver of future
growth, with developing differentiated products
and services in growing markets.

See page 27 for more information on Group PV investment.

Investment and modifications to three of four
Bombardier Challenger jet aircraft are well underway,
which will be used to deliver the new 12-year
AUS$640m contract for the Australian Maritime
Safety Authority (AMSA). Flying operations are
expected to commence in 2016. This investment
will support future organic growth.

See pages 24 to 25 for more information.

After a number of years of beating the target,
voluntary employee turnover increased in the year
and this is attributed to the organisation design
project which was largely undertaken in the prior
year. This programme involved changes in role or
reporting lines for some employees. The higher
turnover in the year is considered to be a short
term impact from these changes.

See page 39 for more information.

* excluding Aviation Services.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT

Communications and Connectivity

ENABLING RELIABLE
CONNECTIVITY
ANYWHERE, ANYTIME

Provides aircraft and in-building communication
equipment; satellite communication equipment
for land, sea and air applications; and test and
measurement instrumentation for radio frequency,
cellular communications and wireless networking.

Revenue
Total revenue at constant currency increased by
£85m due to the contribution from the former
Aeroflex wireless business, net of the Composites
divestment. Organic revenue declined by 4%.

The Sector saw good organic revenue growth in its
defence/security markets including higher retrofit
and aftermarket revenue for avionics products
and increased Surveillance shipments. Within its
commercial markets, there was also strong growth
in aerospace revenue driven by higher volumes
of SATCOM and avionics products. However, this
was more than offset by significantly lower marine
SATCOM revenue due to reduced demand in oil
and gas, and in commercial shipping markets. There
was also lower organic revenue in commercial land
markets impacting in particular wireless products,
after a strong 2014.

Trading profit
Trading profit was £108m (2014: £113m at
constant currency) reflecting the impact of the
reduced volumes in the shorter cycle commercial
businesses. This was partially offset by the full
year impact of the Aeroflex acquisition net of the
Composites divestment and a good contribution
from efficiencies, including from integration.

Reflecting the above factors, the Sector’s trading
margin was 14.0% (2014: 17.0%).

Other notable events in the year included:
− Cobham Wireless deployed the world’s first
intelligent digital distributed antenna system
(idDAS) covering Berlin’s Fan Mile, with an
idDAS order also received for a Swedish
tunnel programme;

− Rockwell Collins selected Cobham’s Aviator 200S
modem for the Chinese COMAC C919 aircraft.
This secures a future commitment for hundreds
of shipsets over the life of the aircraft and adds
to the SATCOM antenna award already secured
on this aircraft;

− Inmarsat has selected Cobham SATCOM to
deliver an advanced mobile satellite services
terminal for its S-band European aviation
connectivity network. This is part of its
recently announced European aviation
network high-speed inflight connectivity
solution, which it anticipates will enter
commercial service at the end of 2016; and
− Cobham Aerospace Communications has

received an award from Dassault for its Rafale
fighter aircraft, adding a standard fit intercom
system with crew alert capability to other
Cobham products already on this aircraft,
including antennas and lights.

(27)

772

Sector revenue (£m)
102

697

800
700
600
500
400
300
200
100
0

2014 Acquisitions,
divestments
and currency
translation

Organic
growth

2015

Sector trading profit (£m)

125

100

(13)

118

108

2014 Acquisitions,
divestments
and currency
translation

Net
other

2015

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Annual Report and Accounts 2015

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Revenue by geography (%)
Revenue by geography (%)

Revenue growth

UK 9%

Asia 18%

ROW 9%

Australia 1%

USA 33%

11%

(2014: 3%)

Other EU 30%

Revenue by market (%)

% of Group revenue

Maritime/other
45%

Commercial
aerospace/
general aerospace
21%

US defence/
security 15%

37%

(2014: 38%)

Non-US defence/
security
19%

Cobham SATCOM’s SAILOR 100 GX antenna, an
advanced Ka-band system for marine applications,
provides connectivity to the Inmarsat GX network, the
first commercial Ka-band global high-speed network.

Main image
Cobham Wireless is a global leader in the provision of
advanced wireless coverage and mobile communication
systems. It provides wireless coverage in buildings,
tunnels, stadiums, metro systems and on trains. It is
a global provider of network test solutions, to develop
and test network functions.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTMission Systems

LEADING CAPABILITIES IN AERIAL
REFUELLING AND SURVIVAL SYSTEMS
FOR EXTREME ENVIRONMENTS

Provides safety and survival systems for extreme
environments, nose-to-tail aerial refuelling systems
and wing-tip to wing-tip mission systems for fast
jets, transport aircraft and rotorcraft. It also provides
remote controlled robots for bomb disposal.

Revenue
Total revenue increased by £33m at constant
currency, with organic revenue increasing by 10%.
Organic revenue was driven by the commencement
of a new multi-year C-130 production contract for
the US Air Force and Marine Corps and higher aerial
refuelling engineering and development revenue
on the US KC-46 tanker programme. In addition,
there was increased revenue from actuation control
subsystems for air-to-ground missiles and laser
guided munitions.

Trading profit
Trading profit was £68m (2014: £39m at constant
currency) and benefited from the impact of higher
production volumes and the non-repeat of the £15m
aerial refuelling provision taken in 2014. Reflecting the
above factors, the Sector’s trading margin improved
to 17.8% (2014: 10.8%).

Building on the organic revenue in the year,
the Sector has continued to make good
progress, in particular:
− Representing a significant milestone, the Boeing
KC-46 flight test programme commenced in
September 2015. Cobham is supporting Boeing
through the test programme with 18 aircraft to
be delivered to the US Air Force by August 2017;
− Low rate initial production deliveries of the wing

dispense aerial refuelling equipment commenced
in October 2015 for the Airbus A400M final
assembly line;

− An initial agreement with a launch customer

for the new high performance and long life air
separation module (ASM) for Boeing 737NG
operators. The ASM is the heart of the safety
system which delivers inert gas to aircraft fuel
tanks, so reducing fire risk; and

− Robust missile actuation orders continued for

control subsystems on high volume air-to-ground
missiles and laser guided munitions.

Sector revenue (£m)

500

400

300

200

100

382

334

2014

Currency
translation

Organic
growth

2015

Sector trading profit (£m)

2014

Currency
translation

Net
other

2015

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Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com

Revenue by geography (%)
Asia 9%

ROW 2%

Australia 3%

Other EU 14%

Revenue growth

UK 6%

15%

(2014: (7)%)

USA 66%

Revenue by market (%)

% of Group revenue

Non-US defence/
security 35%

Maritime/other
1%

Commercial
aerospace/
general aerospace
5%

18%

(2014: 18%)

US defence/
security 59%

Image adapted from Boeing Dreamscape CC 2.0

Cobham’s fuel tank inerting technology, initially
developed for military aircraft, is gaining traction
in commercial aviation markets. In 2015, Cobham
received its first retrofit award from a Boeing 737NG
operator. The Cobham solution offered is light and
compact, keeping the aircraft running costs low.

Main image
The Boeing KC-46 tanker aircraft commenced flight
trials in 2015 and testing will continue through 2016.
Each KC-46 utilises state of the art Cobham aerial
refuelling equipment.

179 KC-46 aircraft are currently on order from the
US Air Force with entry into service planned for 2017.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTAdvanced Electronic Solutions

PROVIDING CRITICAL
ELECTRONICS ON LAND, AT SEA,
IN THE AIR AND IN SPACE

Provides critical solutions for communication
on land, at sea, in the air and in space, through
off-the-shelf and customised products including
radio frequency, microwave, and high reliability
microelectronics, antenna subsystems and
motion control solutions. This incorporates
defence, wireless/mobile and fixed broadband,
X-ray imaging, medical, and industrial markets.

Revenue
Total revenue increased by £96m at constant
currency largely due to the contribution from
the former Aeroflex microelectronics business,
net of divestments.

Organic revenue growth declined by 7%. This
included the benefits of increased volumes of
microelectronic components and subsystems, with
good growth in missile, electronic warfare and radar
programme revenue for US and non-US defence/
security customers. However, this was more than
offset by significantly lower US defence/security
volumes on some mature production programmes
and reduced revenue from rotary joints, used on
radar or microwave communication systems, and
from wave guide products.

Trading profit
Trading profit was £81m (2014: £68m at constant
currency) including the full year impact of Aeroflex,
net of divestments, and a good contribution from
efficiencies relating to the Aeroflex integration.

The Sector’s trading margin was 15.0% (2014:
15.6%), impacted by lower mature production
programme volumes and lower margin programmes
in development and in low rate initial production.

Notwithstanding the lower organic
revenue, the Sector has leading positions in
its markets and differentiated technologies
including on several franchise programmes
that will contribute to future revenue:
− Increasing production of the F-35 Joint
Strike Fighter on which the Sector has
significant content;

− Increasing demand for radio frequency
electronics, with positions on a number
of growing missile programmes, including
the Standard Missile-6 and the Advanced
Medium-Range Air-to-Air Missile; as well as
the Boeing P-8 Poseidon, an anti-submarine
warfare aircraft;

− Further investments to improve ship survivability,

including increased funding for the Surface
Electronic Warfare Improvement Program;
− Continuing strong demand for mixed signal
application specific integrated circuits for
medical and industrial applications; and

− Several important space awards, including on

the NASA Mars 2020 Rover programme, where
the Sector provides critical actuators that drive
the Rover wheels, operates its steering, deploys
its remote sensing mast and operates two of
its cameras.

Sector revenue (£m)

160

(32)

538

410

600

500

400

300

200

100

2014 Acquisitions,
divestments
and currency
translation

Organic
growth

2015

Sector trading profit (£m)

100

(2)

2014 Acquisitions,
divestments
and currency
translation

Net
other

2015

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Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

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Revenue by geography (%)
Asia 5%

ROW 1%

Other EU 3%

Revenue growth

UK 1%

31%

(2014: 10%)

USA 90%

Revenue by market (%)

% of Group revenue

Non-US defence/
security 7%

Maritime/other
14%

Commercial
aerospace/
general aerospace
3%

26%

(2014: 22%)

US defence/
security 76%

Cobham received an order in the year for the
production of antenna array panel assemblies used
in the Block II configuration of the US Navy Surface
Electronic Warfare Improvement Program, to
defend against modern missile threats.

Arleigh Burke-class destroyers (pictured) are some of
the first US Navy ships to receive the upgrade which
will be rolled out to all major US ship types.

Main image
Cobham Semiconductor Solutions is a world leader
in the design and manufacture of high-reliability
integrated circuits, with product offerings for space,
medical and industrial markets. Its high-tech radiation
test facility, containing a full suite of specialised test
equipment, is used to verify microelectronic designs
for use in extreme environments.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTAviation Services

DELIVERING SPECIALIST AVIATION
SERVICES FOR MILITARY AND
COMMERCIAL CUSTOMERS

Delivers outsourced aviation services for military and
commercial customers worldwide through military
training, special mission flight operations, outsourced
commercial aviation, fly-in fly-out services to the
natural resources industry and aircraft engineering.

Revenue
Total revenue increased by £3m at constant
currency. Organic revenue was 1% higher, primarily
due to increased government special mission and
helicopter services revenue. This included increased
fixed wing revenue in Australia, partially offset by
lower operational readiness training activity in the
Middle East. Revenue from commercial markets was
broadly flat, although the second half was impacted
by a deepening of the Australian resource industry
downturn. There was some increased commercial
airline services activity with Qantas, reflecting the
additional aircraft brought into service in the first half
of 2014, but this was balanced by some change of
scope in the services provided under the contract.

While the market is quite volatile, Aviation
Services has continued to achieve successes,
which should benefit revenue:
− Mobilisation of an additional two Boeing 717s is
progressing well, ahead of their introduction into
service with Qantas in early 2016. This will bring
the total number of aircraft operated by Cobham
on behalf of this customer to 20;

− A two-year extension was secured with the UK
Ministry of Defence to continue services under
the Defence Helicopter Flying School until the
end of March 2018;

− Modifications are well underway for three of
four aircraft for the 12 year AUS$640m AMSA
contract. Flying operations are scheduled to
commence in the second half of 2016; and

− An agreement was signed with General Atomics

to create an affiliation covering whole life
support arrangements, focusing on Predator®
and B/MQ-9 Reaper® unmanned systems in
the UK and in Australia.

Trading profit
Trading profit was £57m (2014: £52m at constant
currency) with a Sector trading margin of 14.7%
(2014: 13.2%). This margin improvement is largely
linked to the extension of some key contracts and
associated life reassessment.

Sector revenue (£m)

(25)

412

390

500

400

300

200

100

2014

Currency
translation

Organic
growth

2015

Sector trading profit (£m)

(3)

2014

Currency
translation

Net
other

2015

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Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com

Revenue by geography (%)

Revenue growth

UK 32%

Other EU 2%

(5)%

(2014: 13%)

Asia 6%

ROW 6%

Australia 54%

Revenue by market (%)

% of Group revenue

Non-US defence/
security 56%

Commercial
aerospace/
general aerospace
44%

19%

(2014: 22%)

Cobham provides operational readiness training for
complex and demanding missions for air forces around
the world, including the Royal Air Force, the Royal Saudi
Air Force and for NATO exercises.

Main image
In 2015, Cobham began the modification of three of
the four Bombardier Challenger CL-604 aircraft which
have been purchased to deliver flying operations for the
AUS$640m AMSA contract. The aircraft are scheduled to
commence flying operations in the second half of 2016.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTFinancial Review

ENCOURAGING ORDER
INTAKE WITH BOOK-TO-BILL
OF 1.04X

Group revenue
increased by

12%

(2014: 3%)

Total PV investment

£138m

(2014: £97m)

Summary of underlying results

£m
Revenue
Trading profit
Trading margin
Underlying net finance expense
Underlying profit before tax
Underlying tax
Underlying tax rate
Underlying profit after tax

Weighted average number
of shares (millions)

2015
2,072
332
16.0%
(52)
280
(60)
21.5%
220

2014
1,852
287
15.5%
(30)
257
(52)
20.3%
205

1,130

1,108

Underlying EPS (pence)

19.5

18.5

Total Group revenue increased by 12% to £2,072m,
primarily driven by the 2014 acquisition of Aeroflex,
net of divestments. There was a net benefit from
foreign currency translation, with organic revenue
declining by 1%.

The Group’s trading profit was £332m (2014: £287m),
an increase of £45m, including a full year contribution
of £23m from acquisitions net of divestments.
This result also included the positive impact from
efficiency savings, Aeroflex integration benefits
and the non-repeat of the £15m aerial refuelling
provision taken in 2014. There was a partial offset
to this from the adverse impact of lower shorter
cycle commercial volumes and the adverse revenue
mix in the Advanced Electronic Solutions Sector.
The trading margin increased to 16.0% (2014: 15.5%).

“ The Group’s primary
focus in 2015 remained
the integration of
Aeroflex and optimising
cash generation.”

Total R&D investment was higher at £258m (2014:
£198m). This included the full year impact on PV
from Aeroflex and higher customer funded R&D
investment primarily relating to aerial refuelling
development programmes.

Underlying EPS was 19.5p (2014: 18.5p), an increase
of 5% on the prior year. The primary drivers of this
increase were the net impact of acquisitions and
divestments, and efficiencies, partially offset by the
dilutive impact of the May 2014 share placing and
adverse foreign currency translation. At constant
currency, underlying EPS was up 7% on the prior year.

Operating cash flow, which is stated after net capital
expenditure but before interest and tax payments,
increased to £235m (2014: £208m). Operating cash
conversion was broadly consistent with the prior year
at 71% (2014: 73%). This included increased working
capital of £49m and, as anticipated, increased capital
expenditure, which was £24m higher, with the
largest increase being within the Aviation Services
Sector. The increased capital expenditure reflected
continuing investment in the aircraft fleet as a result
of winning multi-year awards in 2014.

Free cash flow was £106m (2014: £114m), after
restructuring payments of £48m primarily relating
to the Aeroflex integration (2014: £32m – Excellence
in Delivery and Aeroflex integration). Also included
within free cash flow were interest payments of
£49m (2014: £25m), which included the full year
impact of the Aeroflex acquisition debt.

At the year end, the Group’s net debt had
decreased to £1,207m (2014: £1,223m) with
the net debt/EBITDA ratio at 2.9x.

Orders
Group order intake was up 13% at £2,148m
(2014: £1,908m). Excluding the full year impact
of the Aeroflex acquisition and the impact of
divestments, order intake on a like-for-like basis
was 2% higher. Order intake benefited from the
receipt of some significant orders in the Advanced
Electronic Solutions Sector and the Mission Systems
Sector for subsystems and components for a
number of multi-year missile programmes.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comOrganic revenue growth

Commercial

(6)%

(2014: 5%)

US defence/security

(1)%

(2014: (4)%)

Non-US defence/
security

(2014: (6)%)

The Group’s book-to-bill ratio was 1.04x (2014:
1.03x). The book-to-bill ratio was 1.09x (2014: 1.01x)
excluding the Aviation Services Sector, which is
characterised by the receipt of large multi-year orders.
At the year end, the Group’s order book was £2,477m
(2014: £2,508m). This represents an increase of 1%
at constant exchange rates after taking into account
the divestments completed during the year. Included
within this, the Aviation Services Sector’s order book
was £1,067m (2014: £1,187m).

Revenue
A summary of changes to Group revenue in the year
is as follows:

2014

FX
translation
£1,852m £12m

Acquisitions/
divestments

Organic
2015
growth
£235m £(27)m £2,072m

Total Group revenue increased by 12% to £2,072m
(2014: £1,852m), primarily driven by the full year
impact of the Aeroflex acquisition, net of divestments
completed during the year. There was also a £12m
net benefit from foreign currency translation, primarily
relating to the US dollar. This was partially offset by an
adverse impact principally from the Australian dollar,
the euro and the Danish krone.

Group organic revenue declined 1% in the year.
There was good growth of 4% in non-US
defence/security markets, where there was higher
retrofit and aftermarket revenue for avionics products
within the Communications and Connectivity Sector
and increased revenue from actuation products for
air-to-ground munitions within the Mission Systems
Sector. In the US defence/security market, organic
revenue declined 1%. There was increased aerial
refuelling revenue from the Lockheed Martin
C-130 and the Boeing KC-46 programmes within
the Mission Systems Sector, but this was offset
by lower volumes of integrated assemblies and
microelectronics due to the continued run off
of certain mature production programmes in
the Advanced Electronic Solutions Sector.

The overall growth in defence/security markets
was offset by a 6% decline in organic revenue
in commercial markets, principally within the
Communications and Connectivity Sector. The Sector
benefited from growth in aerospace markets, driven
by higher volumes of SATCOM and avionics products.
However, this was offset by significantly lower marine
SATCOM volumes, particularly in the fourth quarter,
which was due to reduced demand in oil and gas,
and shipping markets. There was also lower organic
revenue from wireless products, after a strong 2014.

Technology investment
Company funded PV investment increased in the
year to £138m (2014: £97m), primarily due to the
full year impact of Aeroflex. This represents some
8.2% (2014: 6.7%) of revenue.

In addition to company funded PV, customer
funded R&D was £120m (2014: £101m) primarily
relating to aerial refuelling development programmes.
The Group has continued to make encouraging
progress with this development activity with the
Airbus A400M entering low rate initial production
at the end of the year. The KC-46 entered its flight
test phase at the end of the third quarter 2015.

It is expected that the rate of R&D investment in
these programmes will moderate in 2016, as the
Group moves from development into low rate
initial production.

Trading profit
The Group’s trading profit was £332m (2014:
£287m), an increase of £45m including a full
year contribution of £23m from acquisitions
net of the impact of divestments. This result also
included the positive impact from efficiency savings,
Aeroflex integration benefits and the non-repeat of
the £15m aerial refuelling provision taken in 2014.
There was a partial offset to this from the adverse
impact of lower shorter cycle commercial volumes
and the adverse revenue mix in the Advanced
Electronic Solutions Sector. The trading margin
increased to 16.0% (2014: 15.5%).

Group statutory operating profit was £12m
(2014: £57m). The most significant items not
included in underlying profit were additional
amortisation expense on intangible assets arising
on business combinations of £177m (2014: £114m).
This relates primarily to the full year impact of
the Aeroflex acquisition. In addition, there were
increased business restructuring costs of £67m
primarily relating to the integration of Aeroflex
(2014: £52m – Excellence in Delivery programme and
Aeroflex integration). There was also an impairment
of goodwill of £27m (2014: £nil) relating to the
Group’s unmanned systems business and amounts
provided related to businesses held for sale of £69m
(2014: £nil). This related to the Surveillance business
which was divested shortly after the year end. These
items were offset in part by business acquisition and
divestment related items of £39m (2014: £41m loss),
primarily the net profit on divestments completed
in the year.

Underlying net finance expense and
underlying profit before tax
The Group’s net underlying finance charge for
the year was £52m (2014: £30m). The underlying
net expense on cash and debt holdings was £49m
(2014: £26m), with the increase primarily reflecting
the full year impact of interest on borrowings related
to the Aeroflex acquisition. There was also a net
adverse impact from foreign currency translation of
£4m. The non-cash net finance charge from pension
schemes was £3m (2014: £4m). In 2016, the Group’s
non-cash net finance charge from pension schemes
is expected to be £2m.

The Group’s underlying profit before tax was £280m
(2014: £257m) and the statutory loss before tax was
£40m (2014: profit of £24m).

Taxation
The Group’s underlying tax rate increased to
21.5% (2014: 20.3%) from an underlying tax charge
of £60m (2014: £52m) reflecting the full year impact
of the former Aeroflex businesses, where the Group
has a higher marginal tax rate.

Earnings per share (EPS)
Underlying EPS was 19.5p (2014: 18.5p), an increase of
5% on the prior year. The primary drivers of the increase
in underlying EPS were the net impact of acquisitions
and divestments, and efficiencies, partially offset by
the dilutive impact of the May 2014 share placing

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT

Financial Review continued

Operating cash flow

£235m

(2014: £208m)

Reconciliation of underlying measures

£m
Operating profit
Adjusted to exclude:
Business restructuring
Derivative financial instruments
Amortisation of intangible assets arising on business combinations
Impairment of goodwill
Exceptional legal costs
Amounts provided related to businesses held for sale
Other business acquisition and divestment related items
Total operating reconciling items
Trading profit
Underlying profit before tax is calculated as follows:
Profit before taxation
Adjusted to exclude:
Total operating reconciling items as above
Non-underlying finance costs
Underlying profit before taxation
Taxation charge on underlying profit
Underlying profit after taxation
Underlying EPS (pence)

2015
12

2014
57

67
19
177
27
–
69
(39)
320
332

52
22
114
–
1
–
41
230
287

(40)

320
–
280
(60)
220
19.5

230
3
257
(52)
205
18.5

and adverse foreign currency translation. At constant
currency underlying EPS was up 7% on the prior year.

Basic EPS was a loss of 3.3p (2014: profit of 2.6p),
principally due to the impact of the items set out in
the paragraph on statutory operating profit above.

Cash flow
Operating cash flow, which is stated after net capital
expenditure but before interest and tax payments,
increased to £235m (2014: £208m). Operating cash
conversion was broadly consistent with the prior year
at 71% (2014: 73%). This included increased working
capital of £49m and, as anticipated, increased capital
expenditure, which was £24m higher, with the
largest increase being within the Aviation Services
Sector. The increased capital expenditure reflected
continuing investment in the aircraft fleet as a result
of multi-year awards won in 2014. In addition,
the Group increased its expenditure on IT as it
commenced the roll-out of its new ERP system.

The increase in working capital was in part due to
higher inventory levels in shorter cycle businesses,
as production was increased in anticipation of
customer demand that did not materialise. In
addition, there was a net working capital increase
from development programmes, reflecting the
ongoing high level of investment, despite the receipt
of significant customer milestone payments in the
year. Partially offsetting this, there was good progress
in some business units, where improved operational
execution resulted in lower inventory and debtors.

Free cash flow was £106m (2014: £114m) after
restructuring payments of £48m, primarily relating
to the Aeroflex integration (2014: £32m – Excellence
in Delivery and Aeroflex integration). Also included
within free cash flow were interest payments of
£49m (2014: £25m), including the full year impact of
the Aeroflex acquisition debt and an adverse foreign
currency translation impact. In addition, there were
tax payments of £32m (2014: £37m).

Below free cash flow, the Group paid dividends in
the year of £122m (2014: £108m). The increased
dividend payments reflect the Group’s progressive
dividend policy and the impact of the additional
shares issued via the prior year placing.

Net divestment proceeds of £137m (2014: £897m
net acquisition payments) in the year primarily
comprised the proceeds from the divestments of
Weinschel and Inmet, the Composites businesses
and Metelics, partially offset by final acquisition
costs relating to Aeroflex.

In addition, there was a £25m outflow (2014:
£180m – net receipt, primarily from the issuance of
new shares) relating to the net purchase of treasury
shares held to satisfy future vesting of Director and
employee awards and options under the Group’s
share based payment schemes.

Dividends and dividend policy
The Board is recommending a final dividend for
2015 of 8.13p (2014: 7.746p). This, together with
the Group’s interim dividend of 3.05p (2014: 2.904p),
will result in a total dividend per share for 2015 of
11.18p (2014: 10.65p), an increase of 5%.

Cobham has a long track record of dividend
growth and remains committed to a progressive
dividend policy. The Group’s strategy is to build and
maintain leading positions in its markets with the
aim of growing earnings sustainably and generating
robust cash flows.

At the 2014 full year results, the Board announced
that future dividend increases would be broadly
aligned with underlying earnings growth, while
rebuilding dividend cover over time. In 2015,
underlying earnings per share increased 5%, or 7% at
constant translation rates, and accordingly the Board
has recommended a 5% increase in the dividend.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comCash flow

£m
Trading profit
Depreciation, amortisation and other items
Pension contributions in excess of service cost and administration cost
Increase in working capital
Net capital expenditure
Operating cash flow
Operating cash/trading profit
Net interest paid
Taxation paid

Restructuring costs
Free cash flow
Dividends paid
Acquisition payments less divestment proceeds and other related costs
Net purchase of treasury shares and placing

Exchange movements

Decrease/(increase) in net debt

Opening net debt

Closing net debt

Cash conversion

71%

(2014: 73%)

2015
332
68
(18)
(49)
(98)
235
71%
(49)
(32)
(48)
106
(122)
137
(25)
(80)

(1,223)

2014
287
83
(17)
(71)
(74)
208
73%
(25)
(37)
(32)
114
(108)
(897)
180
(59)

(770)

(453)

(1,207)

(1,223)

Treasury
The Group’s treasury activities are managed centrally
by the Group Treasury function, which reports to
the Chief Financial Officer. The Treasury function
operates within written policies and delegation
levels that have been approved by the Board. It is the
Group’s policy that trading in financial instruments is
used for financial risk management purposes only.

Debt and financing
At the year end, the Group’s net debt had decreased
to £1,207m (2014: £1,223m), including the cash
proceeds from divestments completed in the year.
There were also adverse exchange movements of
£80m (2014: £59m) at the year end, which were
in large part driven by the strengthening US dollar,
which impacts translation of the Group’s debt. It is
the Group’s policy to hold a significant proportion of
its borrowings in foreign currency, as a natural hedge
against earnings denominated in that currency. At
the year end, the net debt/EBITDA ratio was 2.9x.

Included within net debt are cash deposits, which
are primarily denominated in UK pounds, US dollars
and euros, as well as borrowings. At 31 December
2015, the Group held total cash and short term
bank deposits, net of offsettable overdrafts and all
with an original maturity of three months or less,
of £295m (31 December 2014: £225m).

Under the terms of its borrowing facilities,
the Group is required to maintain its ratio of net
debt/EBITDA at or below 3.5 times and its interest
cover ratio at or above 3.0 times. For covenant
purposes, net debt is expressed at average foreign
currency translation rates. EBITA, EBITDA and net
interest numbers include proforma adjustments
related to joint venture interests, acquisitions and
divestments and restructuring.

Debt covenants

2015

2014

Net debt (£m) – balance sheet

(1,207)

Net debt (£m) – average rate

(1,161)

EBITDA (£m)

Net debt to EBITDA
(not to exceed 3.5 times)

EBITA (£m)

Net interest (£m)

Interest cover
(not less than 3.0 times)

(1,223)

(1,159)

440

2.6

298

396

2.9

333

6.8

10.5

The Group successfully refinanced the remaining
US$370m of its short term acquisition bridge
finance facility, which was originally agreed in May
2014 to partially finance the acquisition of Aeroflex.
The refinancing was completed during May 2015
and secured additional funding which matures in
tranches in 2018, 2020 and 2022. The refinancing
was carried out in the bank market.

At the year end, a summary of the Group’s principal
borrowings included the following:
− A US$360m multi-currency credit agreement,
of which US$90m expires in October 2016 and
US$270m expires in October 2018. Interest is
payable at the applicable benchmark rate of the
drawn currencies plus margin. US$293m had been
utilised at the year end;

− A €70m multi-currency credit agreement expiring
in October 2018. Interest is payable at the applicable
benchmark rate of the drawn currencies plus
margin. €56m had been utilised at the year end;
− A DKK525m multi-currency credit agreement
expiring in October 2018. Interest is payable at
the applicable benchmark rate of the drawn
currencies plus margin. The facility was undrawn
at the year end;

− An AUS$90m multi-currency credit agreement
expiring in October 2018. Interest is payable at
the applicable benchmark rate of the drawn
currencies plus margin. AUS$59m had been
utilised at the year end;

For further information visit us
online at www.cobham.com

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTFinancial Review continued

Loans refinanced

US$370m

− A US$185m facility expiring in October 2018.

Interest is payable at the applicable benchmark
rate plus margin. The facility was fully drawn at
the year end;

− US$1,213m of senior notes maturing in tranches
in 2016, 2017, 2019, 2020, 2021 and 2024, with
an average coupon of 4.4%;

− US$155m of senior notes maturing in 2017

and 2018, with an interest rate at the applicable
LIBOR rate plus margin;

− €135m and US$40m raised from banks and
maturing in tranches in 2020 and 2022, with
interest at the applicable floating rate
benchmark plus margin; and

− A US$75m fixed rate agreement which expires
in 2031 and under which the lender has a series
of options exercisable every three years from
December 2016.

The Group has exposure to a number of financial
risks, including liquidity risk and credit risk, which are
described in note 23 of the notes to the Group
Financial Statements. In addition, it has exposure to
the effects of changes in foreign currency exchange
rates and interest rates, and these are described below.

Maturity profile of Group’s outstanding
debt facilities (£m)

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

1,623

1,456

1,371

844

615

461

291

288

–

£1,207m net debt at
31 December 2015

Foreign currency translation
The following are the average and closing rates for
those foreign currencies that have the most impact
on the translation of the Group’s income statement
and balance sheet:

Income statement – average rate

2015

2014

US$/£

AUS$/£

€/£

DKK/£

Balance sheet – closing rate

US$/£

AUS$/£

€/£

DKK/£

1.53

2.03

1.38

10.27

1.47

2.03

1.36

10.13

1.65

1.83

1.24

9.25

1.56

1.91

1.29

9.60

Foreign exchange translation exposure arises on the
earnings of operating companies largely based in the
US, Europe and Australia. These are partially offset
by foreign currency denominated interest costs due
to the Group’s policy, as set out above, of generally
funding acquisitions with borrowings denominated
in the same currency. This provides a partial hedging
of currency denominated profits.

After taking into account the hedging of the Group’s
foreign exchange translation exposure within the
income statement, a combined 1 cent movement
against the pound sterling in the average rate over
one year’s trading for the currencies above would
have had a £1.1m impact on Group profit before
tax in 2015. The Group estimates that the US dollar
accounts for approximately two thirds of this impact.

Foreign currency transaction
The Group’s aim is to reduce, or eliminate
whenever practical, foreign exchange transaction
risk, of which the US dollar/pound sterling and the
US dollar/Danish krone exchange rates are the most
significant. The Group has a number of other, smaller
foreign exchange transaction exposures, including
the euro/US dollar.

The chart on page 31 summarises the Group’s
main foreign currency transaction exposures
and the hedging in place to mitigate it.

All foreign exchange hedging transactions are
approved under delegated authority from the
Board. A number of financial instruments are
used to manage transactional foreign exchange
exposure, such as forward rate contracts. The
Group has a policy of hedging at least 80% of
estimated transactional exposure for the next
12 months, a proportion of exposures between
12 and 36 months, and firm exposures on long
term contracts. Details of the most significant of
these instruments are described in notes 21 and
23 of the notes to the Group Financial Statements.

Some 92% of the Group’s anticipated transaction
exposure to the US dollar/pound sterling exchange
rate is hedged for 2016 at an average rate of
US$1.53/£1, with additional hedging in place to
partially cover anticipated exposure in subsequent
years. 81% of the US dollar/Danish krone exposure is
hedged for 2016 at an average rate of US$1/DKK6.76,
again with additional hedging in place to partially
cover anticipated exposure in subsequent years.

Interest rates
Cobham has various long and short term borrowings
at both fixed and floating rates of interest. The Group
monitors its exposure to movements in interest rates
to bring greater stability and certainty to its borrowing
costs, with the policy being to assess the proportion of
borrowings that are fixed and floating in the context
of prevailing market conditions.

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Cobham plc

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Foreign exchange transaction exposure

US$/DKK

US$/£

2016 Total

US$122m

Hedging in place

US$99m

US$119m

US$109m

Hedging in place
2017

US$67m

US$62m

2018 to 2022

US$2m

US$37m

Hedged for 2016
US$/£ - 92%
US$/DKK - 81%

Avg hedge rates
US$1.53:£1
US$1:DKK 6.76

Avg hedge rate
US$1.52:£1
US$1:DKK 6.50

Avg hedge rate
US$1.57:£1
US$1:DKK 6.07

2016 US$ transaction
exposure hedged

92%

Retirement obligations
Cobham operates a number of defined benefit
pension schemes, with the largest being the
Cobham Pension Plan in the UK. At the year end, the
estimated deficit for accounting purposes, which is
the difference between the value of the schemes’
assets and the present value of the future liabilities,
was £57m before deferred tax (2014: £102m).
A reconciliation of the movements in the pension
deficit in the year is shown in the table below.

Pension deficit at 1 January 2015

Interest charge

Net employer funding

Actuarial gains

Exchange differences

Pension deficit at 31 December 2015

£m

(102)

(3)

(1)

(57)

Significant movements within the actuarial gains
of≈£30m above were:
− An increase in discount rate assumptions, which
are based on corporate bond rates, resulting in
lower liabilities. This is net of the investment in
de-risking strategies that were undertaken in
previous years; and

− A favourable impact from the triennial valuation

of the main scheme at 1 April 2015.

The £19m reduction in the deficit from net employer
funding above relates to employer contributions
made in the year in excess of scheme service costs
and administration expenses.

The Scheme is being closed to future accrual
from 1 April 2016, having been closed to new
entrants since 2003, with alternative defined
contribution schemes offered in all cases.
Cobham remains committed to the support of
the legacy defined benefit pension schemes within
the Group and continues to work with the trustees
of those schemes to ensure that net deficit issues
are managed appropriately. This has included the
undertaking of a significant buy-in transaction in
2013 which eliminated the Group’s exposure to
interest rate, inflation and longevity risks associated
with the pension population at the time of the
transaction. In addition, there was an investment
in 2014 in liability driven investments to provide
further cover against interest and inflation volatility.

Further details on the Group’s retirement benefit
schemes in the year, including the primary
assumptions, the amounts recognised in operating
profit and the changes in value of defined benefit
schemes are given in note 22 of the notes to the
Group Financial Statements.

Going concern
The Group’s business activities, together with factors
likely to affect its future development, performance
and position, are set out in the business overview
on pages 1 to 25 and the principal risks on pages
32 to 37. In addition, notes 1, 14, 21 and 23 of the
notes to the Group Financial Statements include
the Group’s objectives, policies and processes for
managing its capital, financial risk management,
details of financial instruments and hedging activities,
and its exposure to credit, liquidity and other risks.

The Group has considerable financial resources
with liquidity available on the balance sheet from
its cash resources and it has a spread of maturities
on its debt. Its operations have delivered good
levels of free cash flow over time, driven by above
average trading margins for its markets and relatively
low capital intensity. It has a mix of shorter and
longer term contracts and leading market positions
with customers across different geographic areas.
As a consequence, the Directors believe that the
Group is well placed to manage its business risks
successfully. Accordingly, after making enquiries,
the Directors have formed a judgement at the time
of approving the financial statements that it is their
expectation that the Company and the Group as a
whole have adequate financial resources to continue
in operational existence for the foreseeable future.
For this reason, they continue to adopt the going
concern basis in preparing the Group and Parent
Company Financial Statements. See also the Group’s
Viability Statement on page 34.

Simon Nicholls
Chief Financial Officer
2 March 2016

Cobham plc

Annual Report and Accounts 2015

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www.cobham.comwww.cobham.comSTRATEGIC REPORT

Principal Risks

THE EXECUTION OF OUR OBJECTIVES
IS SUPPORTED BY AN EFFECTIVE
RISK MANAGEMENT PROCESS

How we manage risk
The Board sets the policy for managing risk in the
business. It recognises the importance of having
effective processes and procedures for identifying,
actively monitoring, mitigating and managing the
financial and non-financial risks facing the Group.

By regularly reviewing the principal risks reported
across the Group by businesses and functions, and
satisfying itself that these risks are managed within
the Group’s stated risk appetite, the Board ensures
that the Group’s risk exposure remains appropriate
and that this links to the effective delivery of its
strategic objectives.

The Board has ultimate accountability for the
execution of risk management systems and
internal controls, with the Risk Committee,
comprising members of the Group Executive,
responsible for overseeing execution of risk
management throughout the Group.

The Board has delegated responsibility for
the detailed monitoring and reviewing of the
effectiveness of the Group’s internal control
and risk management systems to the Audit
Committee. Assurance over the effectiveness
of these systems is provided by a combination
of regular management reporting to the Audit
Committee and, for the Advanced Electronic
Solutions Sector, which contains classified US
Defense programs and so operates under a US DoD
Special Security Arrangement (SSA), via specific
assurances and authorised assurance reports given
by representatives of the SSA Board. The Group’s
CEO and CFO both sit on the Board of the SSA.
Improvements to the effectiveness of governance
and assurance procedures between the Group and
the SSA are continually reviewed.

The process for monitoring and controlling risk,
illustrated below, emphasises ongoing evaluation
and monitoring by the management teams at
each appropriate entity level: business unit, Sector,

1 st Line

i o nal Management

Monitoring
& Reporting

I
n

e
r

L
i
n

al Audit

Risks &
Actions

s
n
o
i
t
c
n
u

a l & H orizontal F
2n d Line

ERM

Policy &
Controls

Ve r t i c

specialist function or at Group level. The Group’s
Enterprise Risk Management (ERM) framework is
structured to ensure that risks are identified promptly
by management teams, to support the achievement
of their strategic objectives and to ensure that they
are mitigated and managed appropriately in support
of the delivery of the Group’s strategic plan. Risks
are categorised in terms of inherent risk (before
mitigation) and current risk (after existing mitigation).
This allows the Group to identify risks that are heavily
dependent on internal mitigating controls and to
allocate resources appropriately.

The risks identified through this process have been
captured in a dedicated software system that is
used to track, monitor and document ownership
and management of individual risks. Data from this
system has been aggregated and themed, reviewed
under the Governance structure outlined above and
has been used as the basis for the Group’s principal
risk disclosure on pages 35 to 37.

The Group manages risk by operating a ‘three lines
of assurance’ risk and control model. The first line
consists of operational management implementing
and maintaining effective internal controls and
risk management procedures. They are supported
by a number of Group functions which, together
with performance management procedures, form
the second line. Internal audit, which is part of the
third line, is empowered to provide an independent
assessment of the effectiveness of internal controls
(guided by the risk appetite) and risk management
processes and procedures, as well as identifying areas
for improvement. Internal audit primarily reviews
controls over financial, property management, US
Government sensitivity, export compliance and IT
risks. As part of the governance, risk and assurance
(GRA) project it is the intention to expand the scope
of assurance to cover a broader range of strategic
risks. The internal audit function reports directly to
the Audit Committee to ensure its independence
and objectivity. In addition, the Audit Committee
takes account of the views of the external auditors.

These lines of assurance include the Group’s
ethics reporting system, enabling employees to
raise concerns over ethics and compliance matters.
This control mechanism highlighted a concern
over revenue recognition practices at one of
the business units at the year end. A thorough
independent investigation conducted by senior
management confirmed that the concerns raised
were founded but isolated only to that business
and to the 2015 year end. Misstatements identified
have been quantified and corrected within these

Cobham plc
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Cobham plc

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Contract risk and effective project
and programme management
We describe the risk associated with effective
project and programme management
execution on page 36.

Raising standards in project and
programme management
Insufficient project and programme
management (PPM) capabilities and Life
Cycle Management (LCM) rigour can lead to
poor programme execution, while excessive
application is wasteful, both from a cost and
administrative burden perspective.

Cobham’s LCM framework risk categorises
projects and programmes, both customer and
company funded, allowing us to assess the
inherent risk in a project or programme and
allocate management resources appropriately.

How we are managing the risk
We are enhancing our PPM capabilities at
assessment centres. Leadership and PPM
competencies are assessed against defined
professional standards over three days, with
personal development plans created, and
further training provided through a virtual
training academy. This allows us to assess
individuals’ suitability to manage different
types and categories of project/programme.

Outcomes and lessons learned
The priority has been training project and
programme managers who are running our
highest risk, customer funded contracts. This has
resulted in an increasing number of individuals
becoming formally qualified following the
rigorous training received, benefiting the
individual, the customer and Cobham.

financial statements. Control enhancements are in
the process of being implemented to ensure that
this matter does not recur.

principles based approach defining what each
means for a given risk subcategory.

Risk appetite
Under the sponsorship of the CFO, the project to
review the Group’s GRA framework has established
a≈risk appetite baseline through which Cobham’s
risks can be managed with appropriate controls and
assurance measures. The framework builds on best
practice COSO ERM principles (see Glossary for
definition). Under these principles, risk events can
be categorised under four main headings: Strategic,
Operational, Reporting/Financial and Compliance.
The Group has broken down these risk categories
into a number of subcategories and defined its
risk appetite for each. The risk appetite is articulated
as conservative, balanced or assertive across the
various elements of the risk framework, with a

As shown on the risk appetite diagram below,
typically there is a balanced appetite for taking risk
across the Operational and Reporting/Financial risk
subcategories – the cost of taking the risk is carefully
weighed against the resultant benefits.

There is a more assertive appetite for areas of strategic
risk including the promotion of growth, for example
in business and product portfolios and in the strategic
planning processes.

There is a conservative appetite for Compliance risk.

The Group’s controls, mitigation activities and
associated assurance measures implemented reflect
the risk appetite for each position.

Increasing risk appetite

Conservative

Balanced

Assertive

Strategic
Risk

Operational
Risk

Financial/
Reporting
Risk

Compliance
Risk

The risk appetite position for each principal risk is shown on pages 35 to 37.

Cobham plc

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Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTPrincipal Risks continued

Significant business interruption risk
We describe the risk associated with significant
business interruption on page 37.

Minimising the threat of disruption from fire
and natural catastrophe events
The threat of fire causing a significant supply
chain disruption is inherent in the manufacturing
environment. Natural catastrophe risks, such as
flood, earthquake and windstorm, are largely
dependent on location.

Both the likelihood and the impact of most
loss events can be positively impacted through
prudent management activity and loss
prevention programmes.

How we are managing the risk
Working in close consultation with our insurers,
we aim to eliminate or manage inherent fire and
natural catastrophe threats, and to ensure that
effective business continuity management (BCM)
is in place. This helps to ensure that the business
interruption risks that are inherent in our business
are appropriately managed.

Viability Statement
Assessing the prospects of the Company
The Directors consider viability as part of their
continuing programme of monitoring and managing
risk. The Board has concluded that the most
relevant time period for this review should be three
years, taking account of the diversity in demand
characteristics of its end markets. These range from
relatively long cycle businesses, such as Cobham’s
Aviation Services and aerial refuelling businesses
which both contain predominantly multi-year
contracts, to the less predictable, largely commercial,
shorter cycle businesses, such as Cobham’s SATCOM
and Wireless businesses, which typically operate
with an order backlog of a few months or less.

The starting point in assessing the prospects of the
Company and events that may prevent successful
achievement of these, as required by provision
C.2.2 of the UK Corporate Governance Code, was
the annual strategic planning process. A description
of Cobham’s strategic planning process can be
found in the Audit Committee report on page 52.
While this process and associated financial plan
covers a period of five years, the first three years
of the plan are considered to contain all of the key
underlying assumptions that will provide the most
appropriate information realistically on which to
assess the Group’s viability.

For our larger manufacturing locations, we have
an ongoing commitment to meet or exceed
insurance industry best practice loss prevention
guidance. This includes investing in fixed automatic
fire protection in areas of significant fire risk.

For our smaller locations we focus on implementing
more basic but effective loss prevention programmes
and incident management plans, with some
targeted investment in physical protection measures.

Outcomes and lessons learned
We look to continuously improve the standards
of property loss prevention and BCM across our
manufacturing footprint. These efforts have seen
the majority of our larger manufacturing facilities
being recognised as best in class from a property
loss prevention perspective.

It is important that we continue to improve the
standards achieved and we use third parties to
verify our loss prevention and BCM efforts.

Cobham’s Marlow facility in the UK is the latest facility
to be recognised, by its property damage and business
interruption insurer, FM Global, for its property loss
prevention efforts. Each facility is assessed against
FM Global’s industry recognised standards.

Assessing viability
In making their assessment, the Directors took
into account the potential impact of the principal
risk events identified in the strategic planning
process that could prevent the Group from
achieving its strategic objectives. These principal
risks are described in detail in the Principal Risks
section of this report on pages 35 to 37. Sensitivity
analyses were run to model the financial and
operational impact of plausible downside scenarios
of these risk events occurring individually or in
combination. These included the impacts of a further
deterioration in the macroeconomic environment,
underperformance in executing the Group’s strategy
to return to organic revenue growth, failure to derive
targeted benefits from the Group’s operational
and cash generation improvement initiatives,
underperformance on major contract cost estimates
and associated programme management controls,
the impact of a significant business interruption
event and a change in regulations impacting the
Group’s internal financing structure. Consideration
was also given to the plausibility of the occurrence
of other individual events that in their own right
could have a material impact on the Group’s viability.
None of these events was considered plausible.

Based on the consolidated financial impact of the
sensitivity analysis and associated mitigating internal
controls and risk management actions that are either
now in place, as described in detail for each principal
risk on pages 35 to 37, or could be implemented,
the Directors have been able to conclude that the
Group will be able to operate within its existing bank
covenants and maintain sufficient bank facilities to
meet its funding needs over the three-year period. In
coming to this conclusion, it has been assumed that
a successful renewal including the £300m of mixed
currency bank facilities is achieved in October 2018.

Confirmation of longer term viability
Based upon the assessment of the principal risks
facing the company and robust downside sensitivity
analysis, all of which are described above and on
pages 32 to 37, the Directors have a reasonable
expectation that the Company will be able to
continue in operation and meet its liabilities as
they fall due over the period to December 2018.

The Group’s Going Concern Statement is detailed
on page 31.

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1. Deterioration in the

macroeconomic environment
adversely impacting our markets

Risk
The Group’s revenue is derived from commercial
and global defence/security markets. Underlying
customer demand is dependent on a complex mix
of macroeconomic, fiscal, and strategic defence and
security imperatives.

Variations in government/customer demand levels or
other external factors resulting from changes in these
macroeconomic factors could lead to programme/
contract terminations or delays, or changes in market
growth rates.

Impact
Deterioration in demand affecting shorter cycle
businesses or a fundamental shift in how customers
procure products or services could have an adverse
effect on the Group’s future results leading to:
− Missed growth targets
− Reduced earnings
− Failure to win new business, resulting in adverse
performance against the Group’s strategic plan

Mitigation
A review of near and long term market trends is
conducted as part of the Group’s annual strategic
planning process to ensure that actual and anticipated
impacts from macroeconomic risks are minimised and
managed effectively.

Regular reviews of externally sourced market
demand data, with the re-forecasting and adjustment
of internal planning in line with market demand.

Increased emphasis is being placed on identifying
adjacent markets in which the Group’s proven and
transferable technologies can be applied.

2. Failure to execute strategy, to
deliver performance in line
with financial plans supported
by effective value creating
M&A activity

Risk
The Group’s ability to generate profitable organic
revenue growth consistently is a key strategic
objective and driver of value creation. Insightful,
complementary and well executed M&A activity
in line with the Group’s strategic objectives has
supplemented this value creation.

Failure to define and execute the Group’s growth
strategy effectively will lead to impaired business
performance.

Impact
Failure to grow leads to an impaired competitive
position and can also result in reduced trading
margins and a declining return on invested capital.

The Group will experience an impact on employee
recruitment and retention, potential reputational
damage and a reduced ability to invest for future
growth.

Mitigation
Carry out effective strategic planning – maintain
robust and dynamic processes to ensure the Group
is exposed to growth markets and creates value
through business cycles.

A continued focus on and investment in
programme management to ensure customer
expectations are met, which underpins the Group’s
ability to grow. Continued appropriate investment
in future technologies with alignment to identified
market growth areas and customer needs.

The Group has achieved more balance in its portfolio
towards commercial markets, with the aim to achieve
sustainable growth through economic cycles.

A cycle of budgets and forecasts together with
tracking of actual performance including reasons
for variances against plans.

A culture of continuous improvement will enable
Cobham to have market leading operating
performance, while reducing costs. This will
enable Cobham to grow market share and remain
competitive in the face of volume declines or price
pressures, and while retaining flexibility to adjust the
cost base appropriately to changing market conditions.

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Cash conversion
− Return on invested capital

Risk appetite
Assertive

Risk status indicator
Global macroeconomic conditions remain uncertain.

Rigorous M&A disciplines (both pre- and
post-transaction), aligned with the Group’s strategic
planning process, improves the ability to successfully
execute and deliver value from transactions.

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Group PV investment
− Cash conversion
− Return on invested capital
− Voluntary staff turnover

Risk appetite
Balanced

Risk status indicator
The Group’s portfolio is being actively managed
to optimise the total performance in continued
challenging market conditions.

Unchanged

Increasing risk

Decreasing risk

Emerging new risk

3. Failure to comply with
laws and regulations

Risk
Cobham operates in a highly regulated environment
and is subject to the laws, regulations and restrictions
of many jurisdictions, notably including those of the
US and the UK.

These include anti-bribery provisions, import and
export controls, tax, government contracting rules,
US DoD regulations regarding conduct of business
under the Group’s SSA, human rights, environmental,
and health and safety regulation.

A lack of understanding of legal and regulatory
restrictions in force in the jurisdictions in which
it operates could lead to the Group being in
contravention of laws or regulations.

Impact
Sanctions for failure by the Group, its sales
intermediaries, or others acting on its behalf to comply
with laws, regulations and restrictions could include
fines, penalties, legal claims, suspension or debarment
of the Group from future government contracts
for a period of time, as well as having a potentially
significant impact on the Group’s reputation. Such
sanctions could also have an impact on the Group’s
financial position and future operations.

Mitigation
Cobham employs rigorous procedures to ensure it
remains in compliance with all legal requirements
and regulations, and continues to drive a culture that
ensures that ethical, environmental, and health and
safety considerations are embodied in all that it does.

Policies and procedures are included in the Group’s
corporate framework to ensure all of the Group’s
compliance requirements are met. This is regularly
reviewed and audited, including procedures related
to the use of sales and marketing representatives,
anti-bribery and anti-corruption, gifts and hospitality,
whistleblowing, and investigation of ethics and
compliance concerns, along with Cobham’s Code
of Business Conduct.

Mandatory training is undertaken by all
employees on a variety of compliance related
subjects including US Government contracting
and anti-bribery and corruption.

See the CR&S section on pages 38 to 41 for
information on human rights, environmental,
and health and safety actions.

Link to KPIs
− Underlying EPS growth
− Return on invested capital
− Staff safety

Risk appetite
Conservative

Risk status indicator
The regulatory landscape remains broadly
unchanged.≈However, increased scrutiny in
certain areas has been noted.

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Annual Report and Accounts 2015

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www.cobham.comwww.cobham.comSTRATEGIC REPORT
Principal Risks continued

4. Failure to derive targeted benefits
from organisational design within
an effective governance framework,
with appropriate skills and talented
employees recruited and retained

5. Contract risk and effective project

6. Failure to deliver shareholder value

and programme execution

from the Aeroflex acquisition

Risk
Key to the execution of the Group’s strategic plan
is the effective implementation and embedding
of the organisation design (OD) project within an
enhanced governance framework. This project aligns
the Group’s management and reporting structures
with the drive to deliver sustainable growth.

Failure to deliver the OD project, resulting in the lack
of an appropriately skilled and effectively deployed
workforce and management team, will see the
Group’s ability to deliver against its strategic plan
to return to growth impaired.

Impact
This will lead to suboptimal financial performance,
loss of investor confidence and a failure to deliver
shareholder value.

Mitigation
Implementation of the OD concepts and
structures remain on track to deliver the desired
‘operating company’ construct for the Group.
A key focus remains to ensure that key talent
is recruited and retained.

The CFO led project, to enhance the Governance,
Risk and Assurance Framework in accordance with
best practice enterprise risk management, remains
on course to deliver an appropriate yet flexible
level of control across the business. This will allow
appropriate risk taking within the Group’s stated
appetite, and drive improvements in performance
through application of effective governance and
best practice principles.

See the CR&S section on pages 38 to 41 for
information on talent management actions.

Risk
The Group designs, develops and delivers products
and services that are often customised, utilising
complex technologies, under fixed price contracts
that can be long term in nature. This gives rise to
the risks of failure to execute contracts profitably,
the supply of defective or delayed product, the
occurrence of other contractually related liabilities, or
damage to reputation and commercial relationships.

Impact
Failure by Cobham to execute or deliver a project
or programme gives rise to the risk of increased
programme costs, damages, litigation and other
financial liabilities, reduced future profitability and
reputational risk.

Poor operational performance could also lead to
customers withholding new and existing business
from the Group.

Mitigation
LCM and programme management procedures are
intended to ensure that the Group’s key contract and
programme management policies and procedures
are applied consistently and appropriately across all
areas of the business. These procedures also provide
increased focus on improvements to its LCM and
programme management capabilities.

There is monthly reporting of progress against
agreed LCM improvement actions to the Group
Executive, and semi-annually to the Audit
Committee.

Application of the Group’s revised contracts policy
will ensure appropriate levels of risk transfer/sharing
commensurate with our risk appetite.

Link to KPIs
− Underlying EPS growth
− Cash conversion
− Return on invested capital
− Voluntary staff turnover

Risk appetite
Balanced

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Cash conversion
− Return on invested capital

Risk appetite
Balanced

Risk status indicator
The OD project has been implemented and
the governance, risk and assurance initiative
continues to support the execution of the
Group’s vision and strategy.

Risk status indicator
The Company continues to be in a significant phase
of engineering and development activity on various
programmes and platforms.

Risk
Failure to deliver the planned synergies and growth
from the Aeroflex acquisition, which was completed
in 2014, will have a detrimental impact on the
Group’s financial performance and returns.

Impact
The Aeroflex transaction is important to the
achievement of the Group’s strategic plan.

Failure to deliver the business case will lead to
poor financial results and will adversely impact
the Group’s reputation.

Mitigation
A comprehensive due diligence process was
undertaken during the pre-acquisition process.

Post-acquisition, detailed assessments have been
undertaken against the due diligence findings and
comprehensive integration plans established.

Aeroflex performance is continuously monitored
against the due diligence plan with regular
oversight from the Group’s M&A Committee.

Retention plans are in place for key individuals
and the integration programme is subject to
the comprehensive LCM review process.

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Cash conversion
− Return on invested capital
− Voluntary staff turnover

Risk appetite
Assertive

Risk status indicator
It is anticipated that the multi-year integration
programme will be complete by the end of 2017.

Unchanged

Increasing risk

Decreasing risk

Emerging new risk

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com

7. Significant business
interruption risk

Risk
The Group’s businesses could be impacted by natural
disasters or fire events affecting its operational
locations or suppliers, by other significant events in
the supply chain or by IT systems failures (including
from cyber attack), rendering critical systems or
manufacturing locations unable to function.

Impact
Unscheduled interruption to business activities would
result in reduced profits, loss of customer satisfaction,
potential cost outlays, and reputational impact.

Mitigation
The Group maintains major incident/IT failure
business continuity plans. Employees are trained
in relevant procedures.

8. Failure to successfully execute
continuous improvement
programmes, including the
implementation of standard
IT services and security, across
the portfolio

Risk
Failure to deliver growth and improvements in
operational performance that are sustainable.

Linked to this is the deployment of standard IT
services, for example an effective cyber security
and enterprise resource planning system across
the Group, which underpin the Group’s CI initiatives.

Impact
Project, programme, production and service
delivery will be adversely affected, increasing
costs and reducing customer satisfaction.

Mitigation
CI benefits are built into budgets with progress
monitored at quarterly business review meetings.

IT security and capability are continually monitored
and strengthened when needed.

CI sustainment training has been delivered to
business management teams.

The Group maintains appropriate insurance cover
and works closely with insurers and other third
party experts to ensure operating infrastructure and
processes include robust risk improvement activities.

Assessment and accreditation processes have been
developed to assess sites with respect to CI and to
identify areas for improvement.

See the CR&S section on pages 38 to 41 for further
details on mitigating actions against business
interruption risk arising from environmental factors.

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Return on invested capital
− Staff safety

Risk appetite
Balanced

Risk status indicator
IT security threats continue to escalate. The Group
has increased exposure to site specific IT risks
through the additional sites that were acquired as
part of the Aeroflex transaction. See the case study
on page 34 for details of how the Group manages
fire and natural catastrophe risks.

Robust management of plans to ensure site
readiness and planning of implementation resources
into site budgets for ERP and other standard
IT service implementations, including targeted
improvements to cyber security.

Detailed application test planning and ERP execution,
including stress and load tests, application performance,
network and security tests.

Link to KPIs
− Organic revenue growth
− Underlying EPS growth
− Cash conversion
− Return on invested capital

Risk appetite
Balanced

Risk status indicator
CI professionals have been embedded in the
business unit management teams, with CI
resources increased during the year.

9. Deterioration in trading

performance or in cash generation
leading to higher debt and
increased gearing

Risk
Delivery of below target business performance and
cash generation, leading to higher than anticipated
debt and higher gearing.

Impact
Higher debt and gearing would lead to reduced
capacity to fund organic investment and M&A,
possible breaches of bank covenants and associated
reputational risk.

Mitigation
Cash performance across the Group is closely
monitored and regularly reviewed by the CFO.
Monthly performance and cash flow forecasts are
reviewed by the CFO and CEO. This is reported to
the Board on a monthly basis. There are robust
policy controls and processes covering the Group’s
treasury activities including cash policy, credit
collection policies, working capital metrics and other
performance targets. See pages 26 to 31 for more
information. The business proactively aligns its cost
base when market conditions necessitates this.

Link to KPIs
− Underlying EPS growth
− Cash conversion

Risk appetite
Balanced

Risk status indicator
All Group operating units are actively engaged
to optimise cash generation and to implement
efficiency saving initiatives. The Group is focused
on working capital improvement and also requires
business units to prepare formal investment
appraisals to support capital expenditure and
major investments. CI programmes also help to
further mitigate risk as this supports operational
improvements, leading to increased cash generation
and trading profit.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORT

Corporate Responsibility and Sustainability

“Corporate responsibility
and sustainability is a
key driver of shareholder
value, presenting
opportunities for growth
and efficiencies, as well
as risks for mitigation.
We welcome feedback
on our approach
and performance.”

CORPORATE RESPONSIBILITY AND
SUSTAINABILITY IS A KEY DRIVER
OF SHAREHOLDER VALUE

Introduction
There is an increasing trend towards responsible
investment among large investors, with many
signatories to the United Nations’ supported
Principles for Responsible Investment. The approach
typically involves screening out companies that do
not act responsibly or by integrating environmental,
social and corporate governance (ESG) issues
into their investment analysis. Cobham recognises
this and strives to proactively address investors’
ESG expectations.

Maintaining high ethical standards
Approach
Much of Cobham’s business is within highly
regulated markets. Compliance with applicable laws
and regulations is a key Group principal risk (refer to
risk 3 on page 35), and Cobham’s policy is to comply
with all applicable laws and regulations. The Group
is also committed to sustaining an ethical culture,
as acting responsibly and sustainably with full legal
compliance is a critical operational requirement
and a source of potential competitive advantage.

Approach to corporate responsibility
and sustainability
Cobham’s approach to CR&S is developed and
implemented through the central CR&S team and
overseen by the CR&S Committee chaired by the
CEO. The role of the CR&S team is to engage key
stakeholders to identify material ESG risks to the
Group’s business objectives and work with the
businesses to mitigate these risks through policy,
standards, tools, training and information disclosure.

Identified material ESG risks are included in the
CEO’s papers to the Board as well as through various
Board and Executive committees which consider
their short and long term value impacts. The Board
receives training on key topics such as ethics and
health and safety.

All material ESG disclosures are verified internally and
external statements reviewed by Cobham’s auditors,
which in this regard is KPMG, see page 70 for more
information. The Group obtains external limited
assurance on its greenhouse gas emissions.

To help drive the right culture, Cobham has an
ethics and compliance programme, including
policies, processes and activities. This is overseen
by the Business Ethics & Compliance Committee and
ultimately the Board. The programme is underpinned
by the Code of Business Conduct (COBC), which
contains Cobham’s core values and expectations of
behaviour on a range of issues, including anti-bribery.
All employees receive training and this is tracked.
Cobham also maintains an independent hotline
and website where suspected COBC violations can
be reported. Further details on Cobham’s approach
to ethics and compliance can be found at www.
cobhamsustainability.com/at-a-glance/
downloads.aspx.

A related risk area is the use of third party
intermediaries as a route to market. Failure to comply
with laws and regulations or to act responsibly can
impact the Group’s reputation as well as lead to
significant fines or debarments from government
contracts or new business with customers. Cobham’s
Anti-Bribery and Anti-Corruption policy requires

intermediaries to undergo a comprehensive due
diligence and approval process before engagement.
See Audit Committee Report on page 53 for further
information on compliance, whistleblowing and
fraud reporting.

Performance in 2015
In 2015, 100% of Cobham’s employees completed
COBC training.

Cobham has voluntarily engaged with Transparency
International (TI), a non-governmental organisation
that works with government and business to put
in place measures to tackle corruption. Based on
publicly available data on its policies and practices,
Cobham was benchmarked within band B in TI’s
2015 Defence Companies Anti-Corruption Index.
When incorporating both public and internal
Cobham data, the Group was benchmarked as
within band A. Further information on the results
and methodology used is at http://companies.
defenceindex.org/.

Cobham is in the process of adopting best practice
in managing its supply chain responsibly. The Group’s
Responsible Supply Chain Management (RSCM) policy
is to prefer suppliers that demonstrate responsible
and sustainable business practices. The approach
considers how suppliers positively address potentially
material ESG risks that could impact their ability to
supply Cobham or impact Cobham’s reputation on
a risk prioritised basis. These risks include bribery and
corruption; human rights issues such as slavery and
human trafficking; and conflict minerals, hazardous
materials legislation and resource efficiency.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.com
Cobham’s RSCM policy is available at
www.cobhamsustainability.com/at-a-glance/
downloads.aspx.

Females/Total (%)
Board of
Directors

2015
2/10
(20%)

2014
2/9
(22%)

2013
1/9
(11%)

Safety

Cobham’s SPIRIT values

Senior
Management1

20/135
(15%)

24/154
(16%)

17/1474
(12%)

Senior
Management2

21/144
(15%)

18/129
(15%)

10/117
(9%)

Performance

Provide a safe workplace for
our people, ensure the safety
of the products and services
we provide, and take care of
the world we live in.

Consistently deliver and seek
to exceed expectations while
improving what we do and
how we do it everyday.

Create an environment
to encourage new ideas,
regardless of where they come
from, and have the courage to
try, fail, learn and then succeed.

Develop trusted interpersonal
and customer relationships by
listening, appreciating diversity,
striving to understand, being
inclusive and delivering on our
commitments.

Act ethically in all that we do,
not only in compliance with
the laws and regulations that
govern us but also in the spirit
of ethical behaviour and doing
what is right.

Be open, transparent: we say
what we’ll do and do what
we say.

Innovation

Relationships

Integrity

Trust

Code of Business
Conduct training

100%

Target: 100%
(2014: 100%)

Voluntary staff
turnover

11.2%

Target: <10%
(2014: 6.3%)

Looking forward
Cobham will continue to build its ethics programmes
by focusing on training employees, conducting due
diligence and actively engaging its business partners
to act responsibly and sustainably.

Attraction and retention of talented
and engaged employees
Approach
Attracting and retaining talented and engaged
employees is critical to the ability to execute strategic
growth plans, deliver on key programmes and meet
service level requirements. Failure to do so could result
in a reduced ability to meet customer requirements
and grow the business (refer to risk 4 on page 36).

Cobham’s approach is to identify, attract and retain
employees with the right skills and capabilities through
strategic workforce planning, leadership and functional
competency development, employee engagement,
diversity and inclusion, and competitive reward
practices. The talent and engagement programmes
are overseen by the Board.

Performance in 2015
Cobham has continued the development of
functional competency frameworks and expanded
its leadership, graduate and apprenticeship
development programmes. At the end of 2015,
Cobham employed 3.7% of its UK workforce as
apprentices, graduates and undergraduate placements
(summer placements and year-in-industry placements)
and is on track to meet its 5% commitment by 2019
(www.5percentclub.org.uk).

In addition, Cobham continues to roll out its
three-year Institute of Leadership and Management
accredited line management training programme.

Cobham uses voluntary staff turnover to measure the
effectiveness of its talent management and employee
engagement approach. In 2015, Cobham’s voluntary
employee turnover was 11.2%, above the 10% target.
This is attributed to the OD project which was largely
implemented in the prior year. This significant project
involved changes in role or reporting lines for some
employees. The higher turnover is considered to be a
short term impact arising from these changes. Providing
a rewarding work environment and engaging employees
continues to be a focus of the Group’s Great Place
to Work® initiative. Following an employee opinion
survey, each business facilitated listening sessions
to identify key issues, root causes and solutions. Site
management is tasked with implementing local actions
with common issues addressed on a Group-wide
basis. One action arising from this initiative is the
adoption of a set of corporate values and a strategic
framework to help employees understand how they
can contribute to the Group’s objectives.

In 2015, Cobham became a core member of the
Employer’s Network for Equality and Inclusion (enei),
one of the UK’s leading employer networks addressing
workplace equality and inclusion issues. Working with
enei, Cobham launched its revised Diversity and Inclusion
strategy and policy establishing North American,
European and Asia-Pacific regional line led councils,
with quarterly reporting. In addition, its outsourced
recruitment partner now provides a diversity specialist.

Total
workforce3

3,649/
12,658
(29%)

3,001/
10,9414
(27%)

2,785/
10,0914
(28%)

1 Statutory definition – Directors of a subsidiary company.
2 Cobham definition – Vice President grade or higher.
3 Total workforce data is an average over 2015, all other data is
as at 31 December 2015.
4 Correction from previously stated value.

Cobham’s gender diversity profile in 2015 included
29% (2014: 27%) female representation within the
workforce. Based on the statutory definition of Senior
Managers, comprising Directors of subsidiary legal
entities, female representation was 15% (2014: 16%).
Under Cobham’s definition, comprising Vice President
grade and above, female Senior Managers were 15%
(2014: 15%) of the total. There continued to be two
female Non-executive Directors but the proportion
decreased from 22% to 20%, with the appointment of
an additional male Non-executive Director in the year.

Looking forward
Cobham continues to focus on embedding a strategic
workforce planning methodology to ensure it has
the right skills and capabilities in the business. It also
continues to drive functional excellence through
competency frameworks, established career path
development and strong partnerships with academia
and subject matter experts. Cobham will also continue
to invest in its development programmes including its
accredited, in-house certificate in management for
line managers. In relation to employee engagement,
further management training, deployment of its
SPIRIT values and a follow-up Great Place to Work®
survey are scheduled for 2016. Diversity and inclusion
training will be provided to senior management
focusing on the business case, recognition of bias
and inclusive management practices.

Providing safe working environments,
products and services
Approach
Cobham strives to provide a safe working environment
for all employees, contractors and visitors and
recognises that strong health and safety processes
drive benefits in many areas of its operations. Further,
the provision of reliable, safe products and services
is critical to customers. Failure to deliver consistently
high standards of safety and health could lead to
accidents or incidents resulting in prosecutions, fines,
loss of assets, business interruption and widespread
reputational damage (refer to risk 3 on page 35).

Cobham’s most significant safety risk is in the
operation and maintenance of aircraft in the Aviation
Services Sector. This is addressed through robust,
regulator-approved safety management systems.

In terms of workplace risks, manual handling, repetitive
strain, and slip and trip injuries are the most common
causes of injury or illness. Cobham’s approach to
workplace health and safety, called ‘Zero Harm’,
promotes a continuous improvement health and
safety culture that strives to minimise injuries and

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTCorporate Responsibility and Sustainability continued

illnesses occurring in the workplace and promote
employee wellbeing. This is implemented through
the consistent application of 10 safety, health and
environment (SHE) standards covering management
behaviour, processes, training and documentation.
They are implemented through a three tiered
performance matrix (Level 1 Foundation, Level 2
Target and Level 3 World Class). Level 1 is compliance
and risk management driven to ensure compliance
with the law, addressing SHE risk on a priority basis.
Level 2 focuses on continuous improvement and
maps directly to the internationally recognised
OHSAS18001 and ISO14001 management standards.
Level 3 focuses on opportunities to develop competitive
advantage with customers and suppliers.

Cobham also provides its businesses with 12 SHE
Technical Standards against which they are required
to self-assess and report quarterly. The Technical
Standards address common SHE management
processes and risks including employee consultation,
managing contractors, emergency response, manual
handling, occupational health, risk assessment,
safety training and housekeeping. Accountability for
implementing the Group’s SHE approach rests with
line management and this is monitored by a steering
committee with Board oversight.

Leading and lagging workplace safety indicators
are used to measure Cobham’s SHE performance.
Management drives correct behaviours through
monitoring safety training, risk assessments, workplace
inspections and the reporting of near misses, while
the incidence and severity of workplace injuries and
illness measure the effectiveness of the Group’s
approach. Further details on Cobham’s SHE policy,
management standards and performance are at
www.cobhamsustainability.com/at-a-glance/
downloads.aspx.

Major accident
incident rate*

269

Target: 400
Aspiration: 0
(2014: 423)

* Work-related injury/illness cases

with three or more lost work days
per 100,000 employees.

Manual spray painting of antenna parts
at Marlow, UK
Cobham Antenna Systems in Marlow, UK is the
first site in the Group to achieve verified World
Class status against Cobham’s SHE Management
Standards. The site was also awarded an
International Safety Award 2015 (with Merit)
from the British Safety Council. Effective site
leadership, competent personnel, a high level
of staff engagement and a commitment to
continuous improvement were the drivers of
this result.

Safety, Health and Environment
Management Standards

Leadership &
Management
Commitment

Monitoring &
Assurance

Communication
& Engagement

Incident
Management

Risk
Management

Emergency
Management

Planning &
Resources

Competency

Regulatory
& Corporate
Compliance

Continuous Improvement

Performance in 2015
In 2015, management set a target for all principal
manufacturing and aviation locations to achieve
Level 2 of Cobham’s SHE maturity matrix with the
remaining smaller sites at Level 1. Out of 42 sites, 26
sites achieved the target and a further nine exceeded
it. The remaining seven sites (17%) are required to
meet the target in 2016. All the leading indicators
on training, risk assessment, workplace inspections
and near miss reporting met the targets. The Group
improved its major accident incident rate to 269
(2014: 423) and there were no fatalities in the year.
The Group’s minor accident and recordable injury/
illness incident rate increased slightly although the
severity of injuries decreased. Of the 192 recordable
injuries reported in the year, 32% were caused by
repetitive motion and manual handling, 16% from
slips and trips, and 12% from collision with fixed or
stationary objects. The remaining 40% were from a
range of causes including cuts, falls, stress, exposure to
harmful substances and contact with moving objects.

Looking forward
Management has set a target for all manufacturing,
R&D and aviation locations to achieve Cobham’s Level
2 target (the equivalent of OHSAS18001) by the end
of 2016 with all former Aeroflex sites targeted to be
at Level 1. Key performance indicator targets have also
been increased in a challenge to improve further. A
dedicated Group Head of SHE joined Cobham early in
2016 to further mature its systems and performance.

Managing environmental impacts
Approach
Cobham recognises that its operations, activities,
products and services have an impact on the
environment and that the environment also impacts
Cobham. Part of Cobham’s value proposition is to
optimise material use and energy efficiency to reduce
customer operational cost. The focus will intensify as
resource access and pricing becomes more volatile.

The Group’s most significant environmental impact
is its greenhouse gas emissions from burning
aviation fuel needed to deliver customer contracts.
Other significant impacts include greenhouse gas
emissions from logistics, business travel and facility
energy consumption as well as the consumption of
water and raw materials in facilities, manufacturing
processes and the supply chain.

The two most significant environmental impacts on
Cobham are the potential for adverse weather events
(e.g. flooding, wildfire) to cause significant business
interruption at its facilities and in its supply chain,
together with increasing environmental legislation,
carbon taxes and customer requirements which are
anticipated following the global climate deal agreed
in Paris in 2015.

Cobham promotes an environmentally responsible
culture to manage its impacts, comply with
increasing environmental legislation, meet customer
requirements, reduce operating costs and minimise
business interruption. Many of Cobham’s products
and services aim to derive competitive advantage
from the efficient use of materials, fuel and low
power consumption, which can provide operational
benefits to users.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comFacility energy
intensity reduction*

11%

Target: 10%
(2014: 8%)

* MWh per £1m revenue,

excluding Aeroflex.

Failure to effectively manage environmental impacts
could result in prosecutions, fines, loss of business,
business interruption and reputational damage across
its stakeholders.

Cobham seeks to manage its environmental impact
by using a series of measures including:
− Reducing legacy aircraft fuel consumption and
transitioning to more fuel efficient aircraft as
appropriate. For example, the Aviation Services
Sector has introduced the Embraer 190 in Australia.
This is a next generation jet-engine aircraft, and
the first of its type to be engaged in the closed
charter fly-in fly-out market there;

− Including a ‘Design for Environment’ approach to

the Group’s engineering strategy. This ensures legal
compliance and reduced environmental impacts,
lower costs and competitive advantage by
designing small and light products with reduced
power requirements;

− Reducing facility level greenhouse gas emissions
across a number of operating sites through
practical efficiency measures, including: lighting,
heating, ventilation and air conditioning upgrades,
sensor lighting and destratification fans;

− Reinforcing business continuity measures and
effective emergency response planning, in
preparation for adverse weather events and
natural disasters.

Its performance banding decreased from A to B
primarily due to its absolute emissions performance.
Further detail on CDP’s scoring methodology can be
found at https://www.cdp.net/Documents/
Guidance/2015/CDP-climate-change-scoring-
methodology.pdf.

For the first time Cobham has been requested to
provide carbon emissions data for commercial
customers through the CDP supply chain programme.
These customers are seeking to identify the significant
sources of carbon in their product lines. An increasing
number of such requests is anticipated in the future.

All the Group’s principal manufacturing locations have
maintained the highly protected risk status through
compliance with insurers’ standards. This enables
Cobham to mitigate risks associated with extreme
weather events such as flooding.

Looking forward
Cobham will continue to set ambitious annual energy/
carbon reduction targets for its facilities and develop
fuel burn targets for aircraft under its operational
control. In addition, it is looking at developing best
practice science based targets for emission reductions.
This will help the Group contribute towards the UN’s
goal of keeping global warming within two degrees of
pre-industrial temperatures.

Cobham measures a range of related metrics
including greenhouse gas emissions, environmental
management, water consumption and resource
efficiency. For further information, see the Group’s
website at http://www.cobhamsustainability.
com/environment.aspx.

Performance in 2015
Cobham’s overall carbon footprint increased by 15% in
the year driven by the full year impact from the former
Aeroflex businesses with these being more energy
intensive than existing Cobham businesses.

However, excluding Aeroflex, and despite some
additional flying activity in the Aviation Services Sector
from additional customer awards, energy intensity
decreased by 11%. This is due to the implementation
of efficiency measures (see above) and the
divestment, closure and integration of operating sites.

Further details on greenhouse gas emissions can be
found in the Directors’ Report on pages 68 and 69.

Cobham has complied with the UK’s Energy
Saving Opportunity Scheme Regulations 2014 by
undertaking independently reviewed energy audits
at all its major UK locations. The audit identified
potential annual savings of £360,000 across the UK
portfolio based on a £1m capital investment with
payback under three years. Cobham is evaluating
the recommendations, which include installation
of light-emitting diodes, and voltage and building
management system optimisation, to decide whether
to implement them ahead of the next review in 2019.

Cobham’s score in the 2015 Carbon Disclosure Project
(CDP) climate change investor survey increased from
92% to 97% due to improved disclosure of its climate
change strategy and risks.

Cobham Aviation Services’ fuel efficiency
awareness poster

IF A
3 ENGINE TAXI
WAS CARRIED OUT
ON ALL
ARRIVALS
INTO PERTH FOR A YEAR
THE FUEL SAVED
would be enough to OPERATE
A RETURN FLIGHT
ON A BOEING 747
FROM SYDNEY
TO AUCKLAND

AUCKLAND

SYDNEY

DESCENT

100kg

15kg

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comSTRATEGIC REPORTBoard of Directors

Chairman

Executive Directors

Non-executive Directors

1. John Devaney
Non-executive Chairman
BEng, CEng, FIMechE, FIEE

2. Robert (Bob) Murphy
Chief Executive Officer, Executive Director

4. Mike Wareing
Senior Independent Non-executive Director
CMG, FCA, FCCA, MCSI

Age: 69
Appointed: Director February 2010, Chairman May 2010
Skills and experience: John’s executive career was built
in engineering companies within the Varity Group. John has
previously served as Non-executive Director of Northern
Rock Asset Management (between 2007 and 2010),
Chairman of Marconi plc, later renamed Telent, and
Chairman of National Express Group plc. He was President
of Perkins Engines in the mid-1980s, and he went on to be
President of Kelsey-Hayes, the automotive components
manufacturer. He was subsequently Chief Executive of
Eastern Electricity, the largest regional electricity company
in the UK at the time. Following its acquisition by Hanson,
he was appointed Chairman of Hanson’s electricity division.
John retired from his role as Non-executive Chairman
of NATS (National Air Traffic Services) in August 2014.
External appointments: None.
Committee membership: Chair of the Nomination
Committee.

Age: 58
Appointed: June 2012
Skills and experience: Bob was with BAE Systems for
13 years from 1999, serving as a member of the Executive
Committee of BAE Systems plc as Executive Vice President
for the global operations of the product sectors business
for BAE Systems, Inc., including the Electronic Systems,
Land and Armaments and Platform Solutions Sector. He
has also held a number of other senior operational and
financial roles with BAE Systems. Prior to this, Bob spent
18 years with General Electric (GE) company, where he
held numerous financial leadership positions, culminating
in his role as CFO of the military engines operation of the
GE Aircraft Engines Group. Previously, Bob has served on
the Board of Trustees for the US National Defense Industrial
Association and the Board of Visitors for the Clark School of
Engineering at the University of Maryland.
External appointments: None.
Committee membership: Chair of the Executive
Directors Committee.

3. Simon Nicholls
Chief Financial Officer, Executive Director
BSc (Hons), ACA

Age: 51
Appointed: May 2013
Skills and experience: Simon was CFO of Senior plc,
the FTSE250 international manufacturing group
providing engineered products for aerospace, defence
and commercial industrial applications, a position he held
from 2008. Previously, Simon was CFO of Hanson North
America and prior to that he was Financial Controller for
Hanson plc for three years. Simon spent nine years with
Price Waterhouse, now PwC, in the UK and Canada, and
four years working in senior financial positions. Simon
served as a Non-executive Director of AIM listed
Hamworthy plc from September 2011 until its takeover
in February 2012. Simon is a Chartered Accountant, holding
a Bachelor of Science in Mathematics, Operational Research,
Statistics and Economics from the University of Warwick.
External appointments: None.
Committee membership: Member of the Executive
Directors Committee.

Age: 62
Appointed: December 2010
Skills and experience: Mike worked for KPMG from
1973 until 2009 when he retired. Between 2005 and 2009,
he was International Chief Executive Officer, KPMG;
Chairman, KPMG International Executive Team; and
Chairman, KPMG Iberoamerica Board. He was formerly the
Prime Minister’s Envoy for Reconstruction in Southern Iraq.
Mike retired from his role as Non-executive Director and
Chairman of the Audit Committee of Wolseley plc in
November 2014.
External appointments: Senior Independent
Non-executive Director and Chairman of the
Audit Committee of Intertek Group plc, and
Economic Development Adviser to the Government
of Afghanistan.
Committee membership: Member of the Audit and
Nomination Committees.

5. Alison Wood
Independent Non-executive Director
MA, MBA

Age: 52
Appointed: July 2011
Skills and experience: Alison is engaged with a mix of
not for profit and non-executive activities in the UK and
New Zealand. She was formerly Global Director Corporate
Development and Strategy for National Grid plc. Previously,
she was Group Strategic Development Director for BAE
Systems plc responsible for corporate strategy, mergers
and acquisitions, and strategic business development
across the UK and US. She has held three previous
Non-executive Directorships: BTG plc from 2004 to 2008,
THUS plc from 2007 to 2008 and GCHQ from 2009 to 2011.
External appointments: Non-executive Director and
Senior Independent Director of e2v technologies plc.
Non-executive Director and Chairman of the Remuneration
Committee of Costain Group plc and British Standards
Institution, a Royal Charter company.
Committee membership: Chair of the Remuneration
Committee and member of the Nomination Committee.

Cobham plc
Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comNon-executive Directors

10.

6. Alan Semple
Independent Non-executive Director
BA, CA

8. David (Jonathan) Flint
Independent Non-executive Director
CBE, MBA, BSc, FREng, FInstP

10. Mark Ronald
Independent Non-executive Director
CBE, BA, BScEE, MScEE

Age: 74
Appointed: January 2007
Skills and experience: Mark was, until his retirement
at the end of 2006, Chief Operating Officer of BAE
Systems plc and Chief Executive Officer of BAE Systems
Inc., its wholly owned US subsidiary. Previously he was
Vice-President, Programme Management with Litton
Industries and Chief Operating Officer of AEL Industries.
Mark was a Non-executive Director of ATK Inc. Mark was
also a Non-executive Director of Aeroflex Holdings Inc.
until the acquisition of the Group by Cobham plc in
September 2014.
External appointments: Non-executive Director of
Anaren, Inc., and DRS Technologies, Inc., a subsidiary of
Finmeccanica. Senior Adviser of Veritas Capital LLC and a
management consultant.
Committee membership: Member of the Remuneration
and Nomination Committees.

Age: 56
Appointed: February 2015
Skills and experience: Alan was formerly CFO and
a Director of John Wood Group plc, a role he had held
since 2000, and retired in May 2015. Prior to this, he
held a number of senior finance roles in the John Wood
Group from 1996. Alan previously served as the Group
Finance Director of GRT Bus Group plc from 1994 to 1995,
one of two companies which merged to form FirstGroup
plc. Between 1987 and 1994, he was Finance Director at
Seaforth Maritime Group Limited.
External appointments: Non-executive Director of
Teekay Corporation.
Committee membership: Chair of the Audit Committee
and member of the Nomination Committee.

7. Mike Hagee
Independent Non-executive Director

Age: 71
Appointed: December 2008
Skills and experience: Mike served in the US Marine
Corps for almost 39 years ending his career in 2007 as
Commandant of the Marine Corps and a member of the
Joint Chiefs of Staff. His numerous military assignments
included Commanding General, 1st Marine Expeditionary
Force, Deputy Director of Operations at the US European
Command and Executive Assistant to the Director of
Central Intelligence. He also served in a number of diplomatic
missions including the presidential diplomatic mission to
Somalia. Mike retired from his role as Non-executive Director
of Remington Outdoor Company Inc. in February 2015.
External appointments: President and CEO of the
Admiral Nimitz Foundation in Fredericksburg, Texas, US,
Co-Chairman of the Commission on Energy and Geopolitics,
Non-executive Director of SGI Corp. and DynCorp
International Inc., and Outside Manager on the Government
Security Committee of the Special Security Agreement
of TE SubCom, a TE Connectivity Limited company.
Committee membership: Member of the Audit and
Nomination Committees.

Age: 55
Appointed: May 2013
Skills and experience: Jonathan is currently CEO
of Oxford Instruments plc, a leading provider of high
technology tools and systems for research and industry,
a position he has held since 2005. Prior to this, he was
the UK Managing Director of Vislink plc and has also
held management positions with BAE Systems and GEC
Marconi Avionics. A physics graduate from Imperial
College London, Jonathan was made a CBE in 2012.
External appointments: CEO of Oxford Instruments plc.
Committee membership: Member of the Audit
and Nomination Committees.

9. Birgit Nørgaard
Independent Non-executive Director
MA, MBA

Age: 57
Appointed: April 2014
Skills and experience: Birgit, a Danish national, currently
holds a number of non-executive roles in the private and
public sectors in the UK and overseas. Birgit’s last executive
role was as both the Chief Executive Officer of Grontmij
Carl Bro, the Danish engineering consultancy group as well
as the Chief Operating Officer of Grontmij NV, the Dutch
parent company. An economics graduate from Copenhagen
Business School, Birgit has an MBA from INSEAD.
External appointments: Non-executive Director of IMI
plc. Birgit is a Non-executive Director at WSP Global Inc,
a global consulting engineering company listed in Canada,
and DSV A/S an international transportation company listed
on the Copenhagen Stock Exchange. She also holds Board
positions in private companies and public sector positions.
Committee membership: Member of the Remuneration
and Nomination Committees.

Cobham plc

Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

www.cobham.comwww.cobham.comCORPORATE GOVERNANCECorporate Governance Report

FOCUS ON EXECUTION AND
PORTFOLIO REBALANCING

“ We made good progress
on our strategic objectives,
in particular the key
objective to integrate the
former Aeroflex business
into the Group, assisting
the Company to return to
growth, despite current
headwinds in certain
commercial markets.”

Corporate Governance Index
1. Board of Directors

2. Corporate Governance Report

3. Compliance with the UK Corporate Governance Code

4. Nomination Committee Report

5. Audit Committee Report

6. Directors’ Remuneration Report

7. Other Statutory Information

8. Statement of Directors’ Responsibility

Dear Shareholder,
We have made great progress with the Aeroflex integration combining the
skill sets of the existing Cobham and Aeroflex employees in the newly enlarged
Group and realised synergy benefits comfortably ahead of our original plan.
The combination broadens our commercial footprint, and is helping us to
make considerable headway in rebalancing the portfolio between defence
and commercial markets.

The Group’s new organisational structure came to life on 1 January 2015,
creating a more simplified and streamlined organisation. We encountered
some hardware subsystem development and design maturity issues within
our air-to-air refuelling business, which led to a £15m provision, announced
in February 2015. We have recovered well from these issues and it is pleasing
to recognise that these programmes are now in a much more stable state,
in part due to the strengthening of our engineering and programme
management capabilities.

We launched a new employee engagement initiative under the banner of
Great Place to Work®, which is aimed at building increased levels of trust
within the workplace so that all of our employees can work together to achieve
Cobham’s full potential and truly become a great place to work. We are pleased
with progress so far.

The Board has remained fairly static during 2015. Alan Semple joined us in
February 2015 and is settling in to his new role as Chair of the Audit Committee,
but other than that there have been no changes at Board level. Mark Ronald steps
down as a Non-executive Director after serving nine years, at the forthcoming
AGM. We thank Mark for his invaluable contribution to the Group over this period
and wish him every success in the future.

Our markets in 2016 will, no doubt, continue to challenge and we will continue to
work hard to respond to those challenges. I trust we can rely on your continued
support for the foreseeable future.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

The Directors present their report and the audited Group and Parent Company
Financial Statements of Cobham plc for the year ended 31 December 2015.

Highlights of 2015
− The integration of the Aeroflex businesses purchased in 2014 has advanced

Statement of compliance with the provisions of the Code
The ordinary shares are listed on the London Stock Exchange. In accordance
with the Listing Rules of the UK Listing Authority, the Company confirms that
throughout the year ended 31 December 2015 and at the date of this Annual
Report, it was compliant with the provisions of the UK Corporate Governance
Code (Code), please refer to page 49 for further details.

This part of the Annual Report describes how the Company has applied,
and complied with, the Code. The Code is published by the Financial Reporting
Council (FRC) and is available from its website www.frc.org.uk.

Responsibility statements
Statements relating to the responsibilities of the Directors are on page 71,
and those relating to the auditors are on pages 76 and 119.

Share capital
Details of the share capital of the Company and the powers of the Directors in
relation to allotment, issue and market purchases of shares are given on page 67.

Financial reporting
In the Directors’ view, the Annual Report and Accounts for 2015, together with
the trading updates, the interim report and other reports made during the year,
present a fair, balanced and understandable assessment of the Group’s position
and prospects.

The Audit Committee, supported by management, has adopted a detailed
process to enable the Board to take this view. The structured approach (identified
in the Audit Committee report on page 55) has been adopted for the preparation
and production of this Annual Report and Accounts, which the Board formally
signed off at its meeting in February 2016.

The Board’s assessment of the fair, balanced and understandable nature of
the Annual Report and Accounts is further assisted by, amongst other matters,
the following:
− The Annual Report and Accounts is drafted by senior management

with overall responsibility for each section. Comprehensive reviews of the
draft Annual Report and Accounts are undertaken by Executive Directors
and other members of the senior management team, and in relation to
certain sections by the Company’s external auditors and other advisers;
− An internal verification process is undertaken by the internal reviewers

to ensure factual accuracy; and

− The drafts of each relevant section are reviewed as they are prepared
through an iterative drafting process by the Chairs of appropriate
Committees of the Board and the final draft is reviewed by those
Committees prior to consideration by the Board.

At its February 2016 meeting, the Board reviewed and was satisfied that the
Annual Report and Accounts for the 2015 financial year, taken as a whole, is
fair, balanced and understandable and the Board believes that the information
contained provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy.

The Directors have adopted the going concern basis in preparing the Annual
Report and Accounts as stated in the Financial Review on page 31.

Role and focus
The Board’s main duties are to:
− Lead the Group with a view to the creation of strong, sustainable financial

performance and long term shareholder value;

− Review and agree the Group’s strategy;
− Ensure that the necessary resources are in place;
− Monitor management performance; and
− Supervise the conduct of the Group’s activities within a framework of

prudent and effective internal controls.

and synergies have been recognised earlier than originally planned;
− The organisational redesign for the business was formally launched on

1 January 2015;

− Oversight of the development programmes with increased LCM and

engineering capabilities to support;

− A new Sector President for Communications and Connectivity has been
appointed this year. In addition, other key appointments to the Group
Executive in: IT; Engineering; and Operations/Supply Chain Management. All
of these changes have been made to further enhance the strength of the
senior management team. The succession plan for this team, including the
Sector teams, was fully reviewed during the year;

− The strategy adopted during 2014 was further refined and the Group’s

strategic objectives reviewed;

− Continued oversight of the restructuring of the portfolio with planned

disposals of businesses, which are no longer considered core to the Group.
Four transactions involving entity disposals and one relating to a business
sale have been completed in the year;

− The Board members visited four sites during 2015, primarily to familiarise
themselves with the acquired Aeroflex businesses but also to review the
change programmes under way in the rest of the business;

− The Group’s dividend policy was revised with future dividend growth now
aligned with earnings growth and with a view to rebuilding dividend cover
over time; and

− Evaluated and approved four large bid submissions above authority
limits delegated to the Executive Directors outside of the regular
Board meeting agenda.

Priorities for 2016
− Continued oversight of the strategic agenda;
− Review performance against agreed strategic actions, as identified on

pages 16 and 17;

− Focus on driving customer satisfaction through improved operational

execution and continuous improvement through the business;

− Drive employee engagement to respond to concerns identified as part
of the Great Place to Work® initiative. Oversee a further survey during
the year, to include the former Aeroflex employees for the first time;

− Retain focus on market evaluation and strategic development; and
− Continue to rebalance the portfolio in line with strategy.

Board meeting attendance for 2015
13 Board meetings were held during the year, attended as follows:

John Devaney

Bob Murphy

Simon Nicholls1

Jonathan Flint

Mike Hagee

Birgit Nørgaard2

Mark Ronald

Alan Semple3

Mike Wareing

Alison Wood

Unable to attend

Attended

1 Simon Nicholls missed one Board meeting due to ill health.
2 Birgit Nørgaard missed a short notice Board meeting due to other business
commitments.
3 Alan Semple joined the Board on 25 February 2015.

www.cobham.comwww.cobham.comCobham plcAnnual Report and Accounts 2015CORPORATE GOVERNANCECorporate Governance Report continued

The Board composition
The Board comprises a Non-executive Chairman (John Devaney), a CEO
(Bob Murphy), a CFO (Simon Nicholls) and seven other Non-executive Directors
of whom Mike Wareing is the Senior Independent Director. All Non-executive
Directors are considered to be independent and the Chairman was considered to
be independent on appointment. They all held office throughout the year except
Alan Semple, who joined the Board on 25 February 2015. Mark Ronald will stand
down from the Board, having completed nine years as a Non-executive Director,
at the conclusion of the 2016 AGM. No new Board appointments are planned as
Alan joined as an additional Board member in 2015.

Biographies of the Directors, giving details of their experience and other
significant commitments, are set out on pages 42 and 43. The wide ranging
experience and backgrounds of the Non-executive Directors enable them to
support, debate and constructively challenge management in relation to both
the development of strategy and the performance of the Group. The attendance
of Directors at Board meetings is set out on the previous page and attendance at
principal Board Committee meetings as members of such committees during the
year is set out in the reports from each committee on pages 50, 53 and 59.

The rules for the appointment and replacement of Directors are set out in
the Company’s Articles of Association (the Articles), copies of which can be
obtained from Companies House in the UK or by contacting the Company
Secretary. Changes to the Articles must be approved by shareholders passing
a special resolution. The Directors and the Company (in the latter case by
ordinary resolution) may appoint a person who is willing to act as a Director,
either to fill a vacancy or as an additional Director.

All the Non-executive Directors have confirmed that they have sufficient time
to meet their time commitments to the Group. Copies of their appointment
letters are available on request to the Company Secretary and will be available
for inspection at the AGM.

In accordance with the Code, which recommends that all Directors of
FTSE350 companies seek re-election by shareholders on an annual basis, all
eligible Directors currently in office will retire and seek re-election at the AGM.
The Chairman confirms to shareholders when proposing re-appointment that
the individual’s performance continues to be effective and that the individual
continues to demonstrate commitment to the role. Non-executive Directors
are subject to Companies Act provisions relating to the removal of a Director.

The Chairman is, among other things, responsible for chairing Board meetings
and leading the Board. The CEO’s responsibilities include operational performance,
corporate social responsibility, and the development and implementation of the
Group’s strategy. He also focuses on long term growth and development of the
Group, its people and customer relationships. The Board’s policy is that the roles
of Chairman and CEO should be performed by different people.

The Senior Independent Director’s responsibilities include the provision of
an additional channel of communication between the Chairman and the
Non-executive Directors. He also provides another point of contact for
shareholders if they have concerns that communication through the normal
channels of Chairman, CEO or CFO has failed to resolve, or where these
contacts are inappropriate.

Board proceedings
Board meetings, scheduled in accordance with the annual timetable, were
held six times during the year on a face to face basis and three were held
by telephone. In addition, there were four short notice meetings to support
Board decisions required prior to the next scheduled meeting. There is also
contact between meetings to progress the Group’s business as required.
Meetings are held in London and at an international operational location.

In 2015, the Board visited sites in Stevenage and Chesham in the UK, and
San Jose and Colorado Springs in the US. In addition, members of the Board
made individual trips to other sites. Jonathan Flint and Mike Wareing visited
Wimborne, UK to increase their understanding of the air-to-air refuelling
development programmes. Mike also visited the Davenport and San Diego
sites in the US. Alan Semple and Birgit Nørgaard visited a number of sites as
part of their induction. Site visits help the Board to understand the business,
its strategy, problems being faced and how they may be able to help.
The Board is, by necessity, a very diverse group of individuals, some with
business backgrounds and others with more general management experience.
We need this level of diversity to make sure the decisions made at this level
have the right input and challenge. It is also important for the Board to try to
understand and influence the culture around the business, which cannot be
achieved from inside the Boardroom.

Mike Wareing, the Senior Independent Director, held a meeting with the
Non-executives, in the absence of the Chairman, to appraise the Chairman’s
performance and to consider his re-appointment as Chairman for a further three
year period. The Non-executives agreed to the re-appointment as Chairman,
subject to his re-appointment to the Board being approved, by shareholders,
at the 2016 AGM. The Chairman has also held meetings with the Non-executives
in the absence of the Executive Directors, and 1:1 performance appraisals with
each Non-executive Director to discuss, amongst other matters, feedback from
the Board evaluation exercise.

The Board has adopted a schedule of matters reserved for its specific approval.
The schedule provides the framework for those decisions which can be made by
the Board and those which can be delegated either to committees or otherwise.
Among the key matters on which the Board alone may make decisions are the
Group’s business strategy, its five year financial plan, its consolidated budget,
Group policies, dividends, acquisitions and disposals, and all appointments
to and removals from the Board. Authority is delegated to management on a
structured basis in accordance with the provisions of the Corporate Framework
ensuring that proper management oversight exists at the appropriate level.
Matters delegated in this way include, within defined parameters: the approval
of bids and contracts, capital expenditures and financing arrangements.

The Board has adopted procedures relating to the conduct of its business,
including the timely provision of information, and the Company Secretary is
responsible for ensuring that these are observed and for advising the Board
on corporate governance matters. The Company Secretary is appointed, and
can only be removed, by the Board.

If a Director were to have a concern that cannot be resolved this would be
recorded in the Board minutes. On resignation, Non-executive Directors are
invited to provide a written statement to the Chairman for circulation to the
Board if they have concerns. No such statements were made during 2015.

All potential situational and transactional conflicts of interest are disclosed,
noted and authorised. Procedures are in place and operating effectively to
keep such disclosures up to date.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comBoard and committees performance evaluation
The Board conducts an evaluation of its activities on an annual basis.
During 2015, the Board and its committees undertook an external evaluation.
The evaluation contract was awarded to Armstrong Bonham Carter (ABC),
following a full tender process, which included five other service providers.
The exercise consisted of an interview with all Board members and the
Company Secretary, which took place around the December Board meetings.
The agenda for these interviews was circulated to each participant prior to
the meetings and was designed to understand whether the Directors had
thoroughly discussed and agreed the use of shareholders’ funds to ensure the
Company is successful whilst managing the risks inherent in the strategy, plans
and the operating environment. This is then augmented by an assessment of
how effective the Board is in ensuring the Group Executive implements the
strategy, and plans and manages all the other activities of the Company.

The interviews with the members of the Board also included individual
Director appraisals. The results of those appraisals were fed back independently
to the Chairman with the exception of the report on his own performance,
which was provided to the Senior Independent Director.

The performance of each of the Board’s committees was also subject to
review, and reports were provided to each respective chair.

ABC collated all feedback collected and produced a series of recommendations
to the Board, which were considered at their February 2016 meeting. The
Board approved an action plan to address the recommendations. A table of
actions agreed from this and the previous performance evaluation is included
below. During 2016, the Board will consider how to approach their evaluation
for the year. As the 2015 exercise was an in-depth external review, for 2016,
it is likely to be an internal exercise.

Evaluation year

Observations

Actions to be taken

2015

Due to the importance of Private Venture (PV) investment
in ensuring the Company grows sustainably, the Board needs
to have a comprehensive understanding of the opportunities
across the diverse portfolio to ensure PV is allocated to the
greatest opportunities.

Secondly, the Board should, along with the Group Executive,
review regularly the information on customer requirements
and satisfaction.

The Board will examine the PV process as part of the annual
strategic review.

The Board needs to ensure the new organisation design
is implemented successfully.

The Board will be monitoring the resolution of the issues
encountered in the initial implementation of the Cobham
Business Operating System (CBOS).

2014

PV investment.

Continued development of the strategic planning process.

The Board will oversee the plans to improve culture and staff attitudes
and consider assisting the Group Executive in communicating the
strategy and the benefits of the organisational design during the
Non-executive Directors’ usual personal visits to improve their
knowledge of the Company and through visits to the sites by the
Board as a whole.

The Board plans to gain a deeper understanding of the timing and
benefits of the Continuous Improvement (CI) programme to
ensure, in the event of further revenue weakness, that there are
plans to further reduce cost without putting the strategy at risk.

The continued investment in the products of the business to
ensure currency of technology is recognised as key and more
emphasis is being placed on pursuing (and monitoring) strategic
opportunities through such investment.

The Board identified a number of additional pieces of work they
would like to see as part of the 2015 Strategic Review. These were
all scheduled into the work cycle and delivered during the 2015
Board strategy discussions, which took place in May 2015.

Specific strategic actions have been set for the CEO and the Group
Executive team for 2016, see pages 16 and 17.

The performance of the Executive Directors in the context of their management and operational responsibilities is appraised under the same personal
development review (PDR) system used throughout the business. Under this process, the Chairman appraises the performance of the CEO, and the CEO
reviews the performance of the CFO and members of the Group Executive. The results of these appraisals are reviewed by the Remuneration Committee
and feed directly into performance awards under the Annual Incentive Plan (AIP).

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCE
Corporate Governance Report continued

Summary of 2015 investor relations activity

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Preliminary
2014 results

AGM and
Trading update*

Webcast &
conference call

Investor
conference

Interim results
2015

Webcast &
Webcast &
conference call
conference call

Trading update*

Industry
exhibition and
investor
conference

Investor
conference

Site visit

Capital Markets
Day

Investor
conference

Industry
exhibition and
investor
conferences

Site visit

Investor meetings

*The Trading update is a short quarterly update on the Group’s trading, significant events and financial position.

Board committees
The Board is supported in its work by a number of committees. The Company
Secretary acts as secretary to all Board committees. Committee chairs provide
oral reports on the work undertaken by their committees at the following Board
meeting. Information relating to the activities of each committee may be found
on the pages that follow. All Board committees are provided with sufficient
resources to undertake their duties.

The other principal Board committee is the Executive Directors Committee.
The Executive Directors are the only members of this Committee, under the
chairmanship of the CEO. The purpose is to assist the CEO in the performance
of his duties and its terms of reference include: establishing and implementing
internal policies, systems and controls to ensure that potential inside information
is communicated to it, considered, verified and released to the market where
required; the discharge of obligations arising under the Company’s share plans;
the determination of the remuneration of the Non-executive Directors; the
approval of banking facilities; and the approval of bids and contracts above
the limits delegated to the Sectors. This Committee met on 14 occasions
during the year and, in addition, decisions were made as required to respond
to business needs and market conditions.

Management committees
The Group Executive Committee and the other principal management
committees are shown in the table below. All of the below is in addition to
formal business, business development and functional reviews, all of which
are held on a quarterly basis.

Board of Directors

Audit
Committee

Nomination
Committee

Remuneration
Committee

Executive Directors
Committee

Shareholder relations
The Board recognises the importance of maintaining an effective two-way
communication programme with Cobham’s shareholders and potential
shareholders. This approach assists investors’ understanding of the value
drivers within the Group, including its strategy, business model and
remuneration structure, and allows the Board to understand shareholder
views when formulating and discussing strategy and policies. This two-way
flow of information helps to ensure the interests of the Company and its
investors are aligned. Cobham’s annual programme of shareholder interaction
is pursued overall in a way which is intended to promote this aim.

Both the Strategic Report section of the Annual Report and Accounts and
the investors section of the website (www.cobhaminvestors.com) include
information on the Group that is intended to be of interest to shareholders,
including the Group’s strategy, its businesses, historical financial information,
and the Board and governance matters.

During the year, presentations were given by the CEO and CFO to investors
and analysts on the morning of the announcement of the Group’s interim
and preliminary results and there was an opportunity provided to ask questions
at each presentation. The presentations were accompanied by a live webcast
and audio conference call for investors unable to attend in person. Copies of the
associated presentation materials, together with webcasts, can be accessed on
Cobham’s website, where they remain for subsequent viewing. The Group also
held a Capital Markets Day in October 2015, which included presentations by
the management teams running the main businesses acquired with the 2014
Aeroflex acquisition. There was also an opportunity provided to ask questions
and to meet the management teams informally before and after the event.
The Director of Investor Relations is also available through the year to deal
with shareholder queries as they arise.

Group Executive (incorporating the Risk Committee)

Board Directors are available at the AGM and shareholders have the opportunity
to question the Board and to meet the Directors informally.

Merger &
Acquisitions
Committee

Corporate
Responsibility
& Sustainability
Committee

I have recently written to our major shareholders, reminding them that I am
available to meet whenever they consider it appropriate.

Internal Audit
Sub-committee

Talent Board

John Devaney
Chairman
2 March 2016

Vertical
leadership teams
and horizontal
council meetings

Business Ethics
& Compliance
Committee

Safety, Health
& Environment
Committee

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com
Compliance with the UK Corporate Governance Code

A. Leadership
A1. The Board’s role
In 2015, the Board met nine times in order to review the Company’s
performance and strategy against set objectives and a further four times
outside of the normal sequence of meetings to deal with urgent Board
decisions. The Board’s role is to lead the Group with a view to the creation of
strong, sustainable financial performance and long-term shareholder value, to
approve the Group’s Strategic Plan, and to monitor management performance
against plan. The Board also sets the Group’s risk appetite, and monitors the
Company’s risk management processes. The Board has adopted a clear schedule
of matters reserved for its specific approval, including a framework for those
decisions which can be delegated to committees or otherwise. Further details
can be found in the Corporate Governance Report starting on page 44.

A2. A clear division of responsibilities
The Board’s policy is that the roles of Chairman and CEO should be performed
by different people. The division of responsibilities is documented and clearly
understood. The Chairman is responsible for the leadership and effectiveness
of the Board, and the CEO is responsible for leading the day-to-day management
of the Company within the strategy set by the Board.

A3. Role of the Chairman
The Chairman sets the agendas for meetings, manages the meeting timetable
and facilitates open and constructive dialogue during the meetings.

A4. Role of the Non-executive Directors
The Board has appointed a Senior Independent Director to provide a sounding
board for the Chairman and to serve as an intermediary for the other Directors
where necessary. The Senior Independent Director is available to shareholders,
should they have concerns which contact through the normal channels of
communication has failed to resolve.

The Chairman has held regular meetings with the Non-executives in the
absence of Executive Directors, providing an opportunity for any concerns
to be discussed.

B. Effectiveness
B1. The Board’s composition
The Board currently consists of ten individuals: the Chairman, two Executive
Directors and seven independent Non-executive Directors. The composition
of the Board is reviewed regularly by the Nomination Committee to ensure
that there is an appropriate mix of skills, and a range of diverse experience.
Board members’ biographies are provided on pages 42 and 43 and identify
the experience each Director brings to the Board. A table identifying the skills
and experience of the Board members may also be found on page 51. The
Board determines, through the Nomination Committee, the independence
of its members. Conflicts of interest are also monitored and updated at least
annually and more frequently as and when required.

B2. Board appointments
The appointment of new Directors to the Board is led by the Nomination
Committee. The Nomination Committee’s Terms of Reference, as published
on the Company website, document their responsibility regarding Board
appointments. The Committee consists of all the Non-executive Directors
and the Chairman. Further details of succession planning, including the Board’s
policy on diversity, including gender, can be found on page 51.

B3. Time commitments
The time commitments of Non-executive Directors are defined on appointment
and regularly evaluated. The Chairman gives consideration to new directorships
which may impact existing time commitments.

B4. Training and development
On appointment, Directors undertake a structured induction programme, which
is supplemented by visits to key locations and meetings with senior executives.
Further training for Directors is offered when taking a new role on a committee
and is otherwise available as required. Further details can be found in the
Directors’ professional development section on page 51.

B5. Provision of information and support
The Chairman, in conjunction with the Company Secretary, ensures that all
Board members receive accurate and timely information. All the Directors have
access to independent professional advice, at the Company’s expense, where
the Directors judge it necessary to discharge their responsibilities.

B6. Board and committee performance evaluation
The Board and the committees undertook an external evaluation in 2015. Details
of the process undertaken, and a table of actions instigated by this evaluation are
included on page 47. The Senior Independent Director also held a meeting with
the Non-executives in the absence of the Chairman to appraise the Chairman’s
performance.

B7. Directors re-election
All Directors were subject to shareholder election or re-election, as appropriate,
at the AGM.

C. Accountability
C1. Financial and business reporting
The Statement of the Directors’ Responsibility is set out on page 71, and the
Independent Auditors’ Report is on pages 72 to 76. The Company’s business
model is explained on pages 6 and 7.

C2. Risk management and internal control systems
The Board sets the Company’s risk appetite and conducts a robust assessment
of the principal risks, along with an annual review of the effectiveness of the
Company’s risk management, and internal control systems. The activities of
both the Audit and Risk Committee (part of the Group Executive Committee),
which assist the Board with its responsibilities in relation to risk management,
reporting and assurance, are set out on pages 32 to 37.

C3. Role and responsibilities of the Audit Committee
Details of the composition of the Audit Committee and how the Committee has
discharged its responsibilities during the year is provided in the Audit Committee
Report on pages 52 to 57. The Terms of Reference for the Audit Committee are
reviewed annually and are available on the Company website.

D. Remuneration
D1. Levels and components of remuneration
The Board believes that the Group’s remuneration policy is appropriately
designed to promote the long term success of the Company, while enabling
the Group to attract, retain and motivate the executive talent required for
the delivery of its business strategy. For further information, see the Directors’
Remuneration Report, and summarised Remuneration Policy, on pages 58 to 66.

D2. Development of remuneration policy and packages
The membership of the Remuneration Committee is made up of
Non-executive Directors only. The Terms of Reference for the Remuneration
Committee are reviewed annually and are available on the Company website.
The Remuneration Committee has delegated authority for setting the
remuneration of Executive Directors and the Chairman. The fees payable to
the Non-executive Directors are determined by the Board, on recommendation
from the Executive Directors Committee.

E. Relations with shareholders
E1. Shareholder engagement and dialogue
Effective communication and engagement with investors is of paramount
importance to the continued success of the Company. The Company maintains
a relationship with shareholders through a series of road shows completed
through the year, which are usually attended by the CEO and the CFO. The
Chairman makes himself available to meet with shareholders at their request
and in January 2016 also invited the largest of the Company’s shareholders to
meet with him independently. Further details can be found in the Corporate
Governance Report on page 48.

E2. Constructive use of general meetings
The Board values all general meetings as an important opportunity to engage
with investors. Attendees at general meetings have the opportunity to ask
questions to the Board and to speak to individual Directors following the
formal business of the meeting.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCENomination Committee Report

FOCUS ON STRENGTHENING
THE GROUP’S SUCCESSION PLAN

“ The Board has remained
relatively stable through
the year, the focus has
been on talent attraction,
identification and
development further down
the management chain.”

Dear Shareholder
The Committee has had a relatively quiet 2015. Alan Semple joined the Board
and Audit Committee at the beginning of 2015. There have been no other new
Board appointments as the Board is currently at full strength, and considered to
be operating effectively.

As part of the implementation of the new organisational design, there has been
an increase in our focus on succession planning, which has been led by the Board.
A detailed review of potential successors for the CEO role and all of his direct line
reports, together with their development needs, was performed in the year by
the full Board. The Committee retained the responsibility for succession planning
for the Non-executives.

After the year had ended, the Board announced that our current CFO, Simon
Nicholls, would be moving on to perform the role of CFO for Wolseley plc,
a FTSE50 company. We wish him well in his new role and thank him for
his leadership contribution over the past three years. The process to recruit
his successor has commenced and we will be considering both internal and
external candidates.

Role and focus
The Nomination Committee’s main duties are to:
− Review the structure, size and composition of the Board; and
− Consider succession planning for Directors and other senior executives.

Highlights of 2015
− Reviewed the structure, size and composition of the Board;
− Led by Mike Wareing, the Senior Independent Director, reviewed my
performance as Chairman of the Group, and any succession issues
arising from this being my last three year term; and

− Considered the succession plan and concluded that this should be an

area for focus for the Board during 2015/16.

Priorities for 2016
− Oversight of the search for the new CFO;
− Continue to review succession plans for the Board members and key

roles across the business; and

− Continue to review Board composition to ensure competencies remain
aligned with the Strategic Plan and that the Board continues to be
appropriately balanced.

The Committee’s Terms of Reference, which were reviewed during the year,
are available on Cobham’s website or on application to the Company Secretary.

Membership and attendance
Two Nomination Committee meetings were held during the year, attended
as follows:

John Devaney (Chair)

Jonathan Flint

Mike Hagee

Birgit Nørgaard

Mark Ronald

Alan Semple

Mike Wareing

Alison Wood

One of the meetings was to review the Chairman’s performance and agree his re-appointment.

Unable to attend

Attended

Other attendees
CEO, by invitation.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Skills and experience
The table below identifies the skills and experience of the Board members.

Independence

Years with
Cobham

Skills

Experience

John Devaney
Bob Murphy
Simon Nicholls
Jonathan Flint
Mike Hagee
Birgit Nørgaard
Mark Ronald
Alan Semple
Mike Wareing
Alison Wood

•
•
•
•
•
•
•

6
3
2
2
7
2
9
1
5
4

Leadership

Strategy

UK
Corporate
Governance

•
•
•
•
•
•
•
•
•
•

•
•
•
•

•

•
•
•

Corporate

Engineering

Defence

Finance

US Market

UK Listings

Risk

•

•
•
•

•
•
•
•

•
•
•
•
•

•

•
•

•
•
•
•

•

•
•

•
•
•
•
•

•
•
•
•

•
•
•
•
•

•
•
•
•
•
•
•
•
•
•

•

•
•
•

Directors’ professional development
On appointment, Directors undertake a structured induction programme
in the course of which they receive information about:
− The operations and activities of the Group;
− The role of the Board and the matters reserved for its decision;
− The Group’s corporate governance practices and procedures;
− Their duties, responsibilities and obligations as Directors of a listed

public limited company; and

− Specific duties as a member of one of the Board committees.

This is supplemented by visits to key locations and meetings with, and
presentations by, members of the senior management team. Alan Semple
followed this model in undertaking his induction at the end of 2014 and
into 2015.

Development for Directors is available as required and is provided mainly
by means of internal briefing from senior management or advisers and
external courses. In addition, Directors’ knowledge of the legal and regulatory
environment is updated through the provision of information by the Group’s
advisers and by means of regular updates from the Company Secretary and
the legal team.

Site visits are considered critical to ensure that the Directors remain close to
the business of the Group, refer to page 46 for details of site visits organised
during the year.

Succession planning for Board members
Succession planning takes place on a regular basis to ensure that the Group
is managed by executives with the necessary skills, experience and knowledge.
The Board has a role to play in overseeing the development of management
resources in the Group. Specifically, the Board wants to see depth and quality
in management, and robust processes are in place to help them in this task.

Succession planning for Non-executive Directors is based on maintaining a
depth of knowledge and experience on the Board. The Nomination Committee
actively manages Non-executive Director succession having regard to anticipated
retirement dates for existing Directors and initiates focused searches for
Non-executive Directors as positions are required.

John
Devaney
Mark
Ronald
Mike
Hagee
Mike
Wareing
Alison
Wood
Jonathan
Flint
Birgit
Nørgaard
Alan
Semple

2007

2012

2015

2017

2022

2027

1st term

2nd term

3rd term

The current Board composition in relation to the Non-executive Directors in
terms of length of service and current term is shown diagrammatically above.

Diversity and inclusion
The Committee is cognisant of the
need for diversity when considering
the composition of the Board. In
recruiting for Board roles, targets
have been set around ensuring a
proportion of female applicants are
included in the candidate pool for
Non-executive Director positions.
The representation of women on
the Board is currently 20%.

During the year, the Board have set up
a Culture and Talent Advisory Panel,

including representation from the
Board, with an aim of supporting
the diversity and inclusion initiative
currently under way in the business.
More details of work under way in
this area can be found on page 39.

John Devaney
Nomination Committee Chair
2 March 2016

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEAudit Committee Report

INCREASED ANALYSIS OF
THE GROUP’S RISK MANAGEMENT
AND INTERNAL CONTROL SYSTEMS

“ One of the key focus areas
for 2015 was the tender of
the Group’s external audit.”

Dear Shareholder
I am pleased to present my first report as Chair of the Audit Committee.

2015 was a busy year for the Audit Committee: we conducted a comprehensive
external audit tender, resulting in a recommendation for the re-appointment
of PwC as the Group’s external auditors; we approved the appointment
of a new Head of Internal Audit and Assurance (IA&A), and assisted in his
development of a risk-based internal audit programme for 2016; we increased
our interaction with Sector Finance leads, through the addition of a regular
meeting presentation slot; we contributed to the development of the viability
statement, and reviewed the corresponding sensitivity analysis; and we have
kept close watch over the long term development programmes and on the
further strengthening of LCM capabilities.

At the 2016 AGM, I and the fellow members of the Committee will be available
to respond to any questions shareholders may wish to raise on this report or the
Committee’s activities.

Highlights of 2015
− Conducted a comprehensive external audit tender;
− Implemented a new policy on the provision of non-audit services for

the external auditors;

− Approved the appointment of a new Head of IA&A;
− Increased the Committee’s interaction with Sector Finance leads;
− Contributed to the development of the viability statement;
− Oversaw the progress of the governance, risk and assurance initiative;
− Increased analysis of IT controls (including cyber security and disaster

recovery); and

Priorities for 2016
− Continued focus on the effectiveness of Group’s risk management systems;
− Oversight of a revised risk-based internal audit programme;
− Ongoing review of the internal audit scope;
− Oversight of the progressive transition of non-audit services away from

the external auditors;

− Continued oversight of the Group’s internal controls, including assurance

over the SSA control environment;

− Increased focus on the implementation of CBOS;
− Continued oversight over the Group’s development programmes, LCM

and IT security procedures; and

− Assist in the search and selection process for the new CFO.

Responsibilities
The Committee’s Terms of Reference include all matters indicated by Disclosure
and Transparency Rule 7.1 and the Code. The terms of reference, which were
reviewed and updated in December 2015, in line with the latest regulatory
developments, are available on Cobham’s website or on application to the
Company Secretary.

The Audit Committee’s main responsibilities are to:
− Monitor the integrity of the Group’s Financial Statements and any formal

announcements relating to its financial performance, reviewing accounting
policies used and judgements applied;

− Oversee the Group’s risk management procedures, and internal

control systems;

− Monitor and review the effectiveness of the Group’s internal audit function;
− Make recommendations on the appointment, terms of engagement and

− Continued to oversee the development of stronger LCM capabilities.

remuneration of the external auditors;

− Review and monitor the external auditors’ independence and objectivity

and the effectiveness of the audit process;

− Develop and implement a policy on the engagement of the external auditor

to supply non-audit services; and

− Monitor and review the Group’s policies and practices concerning business

conduct and ethics, including whistleblowing arrangements.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comComposition
The Committee consists of independent Non-executive Directors only.
The current members, aside from me, are Jonathan Flint, Mike Hagee and
Mike Wareing. Following the 2016 AGM, Mike Wareing will be leaving the Audit
Committee in order to join the Remuneration Committee, due to Mark Ronald’s
departure from the Board. Biographical details for all of the Committee members
may be found on pages 42 and 43. The members bring a wide range of financial,
risk and business expertise to the Committee’s deliberations. The particular skills
and experience of each member may be found on page 51.

Key issues and activities

Financial statements and reports

Full year results
Half year results
Fair, balanced and understandable
assessment

External audit

Feb

Apr

Jul

Oct Nov Dec

I am a Chartered Accountant, and was Chief Financial Officer of John Wood
Group plc until May 2015. The Board therefore considers that I have recent
and relevant financial experience for the purposes of the Code.

Meetings
Six Audit Committee meetings were held during the year, attended as follows:

Alan Semple (Chair)1

Jonathan Flint

Mike Hagee

Mike Wareing2

1 Alan Semple was appointed to the Committee on 25 February 2015 and became the
Chair of the Committee on 23 April 2015.
2 Mike Wareing stepped down as Chair of the Committee on 23 April 2015.

Unable to attend

Attended

During the year, the Committee invited the Chairman of the Board, CEO,
CFO, Group Director of Financial Control, Head of IA&A, the PwC lead audit
partner, other representatives from PwC, and other senior management to
attend their meetings.

At least twice a year, immediately following a Committee meeting, the
Committee meet separately with the PwC lead audit partner and the Head
of IA&A, to give them the opportunity to discuss matters without executive
management being present.

Effectiveness
During the year, an externally facilitated performance review was undertaken
in relation to the Board and its committees, by Armstrong Bonham Carter
LLP. The Committee discussed the findings of the review in the February
2016 meeting, and considered the findings alongside their priorities for 2016.
The Committee received positive feedback from Board members, and was
considered to be effective in fulfilling its role throughout 2015.

Independence, objectivity and effectiveness
of the external auditor
Appointment recommendation to the Board
Policy on the provision of non-audit services
Approval of non-audit fees
External audit scope and fees
External auditors’ full year report
External auditors’ half year report
Audit tender

Internal audit

Effectiveness review of internal audit
Internal audit report
Annual internal audit plan

Governance, risk and assurance

Risk management report
Risk management framework
Internal controls
IT controls, including cyber security
LCM
Compliance, whistleblowing and fraud

Other

Updates on accounting and corporate
governance developments
Terms of Reference
Effectiveness of the Committee

Allocation of time (%)

Financial statements and reports
26%

External audit
31%

Internal audit
12%

Governance, risk
and assurance
16%

Other
15%

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEAudit Committee Report continued

Financial reporting and significant financial judgements
The Committee reviews whether suitable accounting policies have been adopted, whether management has made appropriate estimates and judgements
and also seeks support from the external auditors to assess them. The Committee identified the issues below as significant in the context of the 2015 financial
statements, on account of the level of materiality and the degree of judgement exercised by management.

Area of focus

Area of issue

Role of the Committee

Conclusion

Revenue/contract
accounting

Revenue and profit recognition on
contracts (refer to note 1 of the
Group Financial Statements)

The Committee debated accounting policies,
judgements on material contracts and external
audit reviews.

The Committee was satisfied that
accounting and judgements were
reasonable and appropriate.

A key focus for the Committee has been the
revenue and profit recognition on the Group’s
air-to-air refuelling programmes, with regular
updates being provided to the Committee by
Sector management.

Revenue and profit cut-off
error impacting the 2015 results,
identified within one business unit
(refer to the Principal Risks section
on page 32)

The Committee reviewed the work undertaken
by the internal and external audit teams and by
management, to ensure that the issue was fully
investigated and appropriate adjustments made
to the financial statements.

The Committee was satisfied that
the work undertaken was sufficient
and that potential misstatements
had been identified and corrected
in the financial statements.

Goodwill

Goodwill impairment assessment
(refer to note 10)

Acquired intangibles

Recoverability of acquired
intangibles (refer to note 27)

The Committee challenged internal papers
covering the basis and quantum of valuation,
including explanations for any significant
changes from those used in previous years.

The Committee was satisfied
that these were reasonable and
appropriate, and that the
disclosures made were appropriate.

The Committee reviewed a report from
management, which explained the
methodology used and the rationale for
the assumptions made.

The Committee was satisfied
that these were reasonable
and appropriate, and that the
disclosures made were appropriate.

Inventory

Tax

Accounting for inventory provisions
(refer to note 13)

The Committee challenged internal papers
covering the basis and quantum of valuation.

The Committee considered that
accounting and provisions were
appropriate.

Accounting for uncertain
tax positions (refer to
notes 6 and 20)

The Committee reviewed explanatory papers
from management, which included a review
of the appropriateness of the tax provisions.

The Committee was satisfied that
the judgements and estimates
were reasonable and appropriate.

The Group Tax Director also attended a
Committee meeting to discuss how the
Group manages its tax risks.

Non-underlying costs

Identification and measurement of
non-underlying costs
(refer to note 2)

The Committee reviewed a report from
management, which explained the
methodology used and the rationale for the
assumptions made.

The Committee was satisfied that
accounting and judgements were
reasonable and appropriate.

Acquisitions/disposals

Acquisition and disposal accounting
(refer to notes 27 and 28)

The Committee discussed accounting policies,
management reports, detailed contract
appraisals, legal advice, and reviews by internal
and external audit.

A key focus for the Committee has been the
adjustments to the Aeroflex opening balance.

The Committee considered that
accounting and provisions were
appropriate.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com
Policy on the provision of non-audit services
In July 2015, the Committee approved a revised policy on the provision
of non-audit services for recommendation to the Board. The policy was
amended in anticipation of the implementation of EU legislation. The
revised policy states, as a default position, that the external auditors will
not be engaged to provide any element of non-audit services. However,
the Committee recognises that there may be some non-audit services
for which the Group might wish to use the external auditors. In these
circumstances, the deciding factor is that there is a clear differentiation for
the work concerned, between the audit firm and other potential providers
of the work. Furthermore, the work must be permitted under the relevant
regulations and must not impinge on the independence of the audit firm.
A decision to use the audit firm for non-audit work must also be approved
in advance of the use of the services, by: the CFO for fees up to £50,000;
the CFO in conjunction with the Chair of the Audit Committee for fees
between £50,000 and £150,000; and the Audit Committee, as a whole,
for fees over £150,000. As a result of the new policy and the outcome of
the external audit tender, the existing provision of non-audit services will
progressively transition away from the external auditors, PwC, during 2016.

Fair, balanced and understandable report and accounts
At the request of the Board, the Committee considered whether, in our opinion,
the 2015 Annual Report and Accounts was fair, balanced and understandable,
to enable shareholders to assess the Group’s performance, business model and
strategy. To assist our assessment, the Committee, supported by management,
has adopted a detailed process for the preparation and adoption of the Annual
Report and Accounts (outlined below).

Planning
(Oct/Nov/Dec)

Initial content
production (Jan)

Review and
sign off (Feb)

Start completing and
collating performance
related content.

Consider/prepare content
not dependent on year-
end results, e.g.: business
model and strategy.

Design concept and key
messages considered.

Identify material events/
performance issues to be
reported.

Consider new regulations
and consistency with key
messages and KPIs.

Confirmation
from contributors
as to completeness
of input.

Appropriate review
of full content,
for consistency,
completeness
and messaging.

Sign off by section
owners, with
verification.

Consider level of
assurance obtained
over non-financial
information in the
Annual Report and
Accounts.

Audit Committee
to formally report
to the Board on
how it has satisfied
itself that the Annual
Report and Accounts
is fair, balanced and
understandable.

Following its review, the Committee was of the opinion that the 2015
Annual Report and Accounts was representative of the year and presents a fair,
balanced and understandable overview, providing the necessary information for
shareholders to assess the Group’s performance, business model and strategy.

External audit
The Committee is responsible for overseeing relations with the external auditors
PwC, including the approving of fees, and makes recommendations to the
Board on their appointment and re-appointment. The total fees paid to PwC in
the year ended 31 December 2015 equal £3.6m, with non-audit fees of £1.4m
representing 38.9% of the total. An analysis of the fees paid to the external
auditors in respect of audit and non-audit work during the year can be found
in note 4 to the Group Financial Statements.

Total fees paid to the external auditors (2015)

Audit fees £2.2m (61.1%)

Non-audit fees £1.4m (38.9%)

Total fees paid to the external auditors (2014)

Audit fees £2.2m (40.7%)

Non-audit fees £3.2m (59.3%)

PwC is expected to report to the Committee any material departures from Group
accounting policies and procedures that they identify during the course of their
audit work. None were found or reported in 2015. The Independent Auditors’
Report to the members of the Company can be found on pages 72 and 119.

External audit plan
PwC’s presentation of their audit plan to the Committee, set out the scope and
objectives of the audit, together with an overview of the planned approach, an
assessment of the Group’s risks and controls, and proposed areas of audit focus.
In July and December 2015, the Committee reviewed and approved the terms,
areas of responsibility and scope of the December 2015 year-end audit.

External auditor independence and objectivity
The Committee is responsible for the development, implementation and
monitoring of the Company’s policies on external audit, which are designed
to maintain the objectivity and independence of the external auditors. These
policies set out the approach to be taken when using the external auditors
for non-audit work and regulate the appointment by the Group of former
employees of PwC.

In addition to the independence review as part of the external audit tender
process, PwC has provided specific assurance and the Committee has
considered the arrangements and safeguards that PwC has in place to maintain
its independence and objectivity, including an internal process to pre-approve
provision of non-audit services and the use of separate teams where non-audit
services are being provided to the Group.

The external auditors follow regulatory requirements to maintain the objectivity
of the audit process; these stipulate a five-year rotation policy in relation to the
senior engagement auditor. Pauline Campbell replaced Stuart Watson as lead
audit partner in 2014.

The Committee continues to be satisfied that PwC, the external auditors, remain
independent and objective.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEAudit Committee Report continued

External audit tender process
The Committee confirmed in the Group’s 2014 Annual Report and
Accounts that it was intending to conduct an audit tender during 2015 with a
view to appointing a new firm, or reappointing PwC, for the 2016 year end, in
response to the adoption of the Audit Directive (2014/56/EU) by the European
Parliament on 3 April 2014, which introduced a requirement for ‘public interest
entities’ to retender their audits at least every ten years, and to change the
auditor at least every 20 years, In April 2015, a request for proposal was issued
to the four major auditing firms, including the incumbent PwC, to provide the
following external audit and audit-related services:
− The audit of Cobham’s parent company financial statements;
− The audit of the Group financial statements and those of

certain subsidiaries;

− To report, in the Annual Report and Accounts, whether certain
remuneration and governance disclosures were in accordance
with applicable legislation and rules/regulations; and

− To review the interim financial statements, and controls reporting

in various locations.

The four firms participating in the tender process were required to submit
their proposals against the following criteria:
− Organisation and capability, including the firm’s global coverage,

industry experience and technical expertise, particularly of operating
in an SSA environment in the US, scope coverage and insight into future
developments likely to affect the Group’s business;

− Audit approach and delivery, including knowledge of the business,

audit planning process, quality of accounting judgements, liaison with
and reliance upon Internal Audit, reliance upon the Group’s systems of
accounting and internal controls, and transition experience;

− Audit quality, including quality assurance, audit effectiveness, audit
reporting, independence, objectivity, process improvement and
added value;

− Resourcing and engagement team, including quality and experience of
proposed audit team, skills and personal qualities of lead audit partners,
team structure and responsiveness; and

− Fees and terms.

The tender process involved setting up a data room to provide the financial
and other data to the firms on which to base their written proposals, site
visits to a representative location within each of the Group’s four sectors
and meetings with the Sector finance leads and the functional heads within
finance, treasury and tax, legal, internal audit, programme management and
business integration. Feedback from all of these meetings was provided to
the Committee. The firms also had meetings with certain members of the
Committee and the Executive Directors.

Following the above activity, the four firms delivered their comprehensive
written proposals to the Committee, who undertook a detailed and formal
review, and concluded that PwC and Ernst & Young potentially offered
the best fit with the Company’s requirements for their external auditors.
Accordingly, both firms were invited to present to the Committee, to allow
the Committee to identify the preferred candidate.

Following the presentations, the Committee unanimously agreed to recommend
that the Board propose to shareholders that PwC be re-appointed as the
Group’s auditors for the 2016 audit. In reaching this decision, the Committee
was mindful that they should set a higher hurdle for the re-appointment of
the incumbent firm than for a new firm, and believe that this was achieved.
Factors which the Committee took into account in reaching our decision
included that the Chair was new to the Cobham Board and to the position
of Audit Committee Chair, that the lead audit partner was also relatively new
and supported by a strong team, including two new partners for the 2015
year-end audit. The Committee also took account of a number of business
issues where the retention of PwC’s knowledge and experience would be
helpful, including the air-to-air refuelling programmes and the roll-out of the
Group’s updated business operating system, CBOS.

While the regulations surrounding auditor rotation would allow PwC to
remain in post until the conclusion of the 2020 audit, the Committee’s current
intention is to re-tender in 2018, for the 2019 audit, to coincide with the next
rotation of the PwC lead audit partner, Pauline Campbell. The Committee will
not be inviting PwC to tender in 2018.

External auditor effectiveness and re-appointment
The Committee conducts an annual review of the performance of the external
auditors, including feedback from the finance teams at many of the operating
companies. The 2015 review was conducted in February 2016 and overall,
the feedback was positive. Having undertaken its review, in the opinion of
the Committee, the relationship with the external auditors works well, and
the Committee remains satisfied with their effectiveness.

FRC Audit Quality Review
The FRC selected Cobham’s 2014 audit files for review by their Audit Quality
Review (AQR) Team. The review covered the Group audit (including central
planning), and selected aspects of the work performed by PwC at a UK entity
level. The Committee discussed the findings of the review with PwC, who
considered all of the matters raised in the AQR report in the planning and
execution of the 2015 year-end audit.

Internal Audit and Assurance
In February 2015, the Committee conducted a review of the effectiveness of
the Group’s Internal Audit and Assurance function, taking into account the
views of Directors and senior management on matters such as independence,
proficiency, resourcing, and audit strategy, planning and methodology.

The Committee approved the appointment of a new Head of IA&A, effective
April 2015. The Head of IA&A attended every scheduled Committee meeting.
With effect from November 2015 the direct reporting line of the Head of IA&A
became the Committee Chair. Following an Internal Audit Effectiveness Review

by the new Head of IA&A, which identified that the function was under
resourced, the Committee provided support to the further development of
the Internal Audit team, with an increase to the size of the team, including
the addition of a new IT Internal Audit Manager, to be recruited in early 2016.

The findings of each Internal Audit review are summarised and the Committee
focuses its discussions on unsatisfactory findings and on the action plans in
place to address them. Particular areas of focus during 2015 included the
implementation of Internal Audit recommendations by the businesses and
results of the Internal Audit reviews of the former Aeroflex sites. The Committee
also received regular updates against the 2015 Internal Audit Programme
throughout the year.

The Committee approved the Internal Audit Plan for 2016, including the
proposed audit approach, coverage and allocation of resources. The 2016 Plan
was prepared considering a number of factors, including the principal risks of the
Group. The key points of focus in the 2016 Plan are:
− A refresh of Internal Financial Controls Assurance;
− Increased monitoring of controls and actions;
− Stronger alignment with the GRA project;
− To drive continued improvement in the Group’s assurance mapping process

across the three lines of assurance;

− Increasing focus on working capital management, in particular inventory

management;

− The development and implementation of an IT Assurance programme; and
− The development and implementation of a revised audit approach to LCM.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comRisk management and internal controls
The Board has ultimate accountability for the execution of the Group’s risk
management and internal control systems. The Executive Risk Committee is
responsible for overseeing the execution of risk management throughout the
Group. The Board has delegated responsibility for monitoring and reviewing
the effectiveness of the Group’s risk management and internal control systems
to the Committee, who provide reports on a regular basis to the Board.

Cobham Code of Business Conduct violations and fraud
Details of the Cobham Code of Business Conduct and the mechanisms,
including those maintained by independent third parties, by which suspected
violations of the Code are raised and independently investigated, are provided
in the CR&S section of this report, on pages 38 and 39. The Committee regularly
received reports providing details of these cases, their outcome, and the
corrective actions taken.

Alan Semple
Audit Committee Chair
2 March 2016

The Committee’s review covers all material controls, including financial,
operational and compliance controls and risk management systems, and is
designed to give assurance that the day to day risk management and internal
control policies and procedures, which are embedded in the business, have
operated effectively in the review period. The principal elements, the three
lines of assurance, are outlined on page 32.

Risk management is an integral part of the system of internal control. Sector
Presidents are required to ensure that appropriate processes, including the
maintenance of business unit and Sector risk registers, exist to identify and
manage risks and to regularly carry out formal risk assessments. The Executive
Risk Committee undertakes a top level review of significant risks and the CEO
reports regularly to the Board on their mitigation.

In 2014, a significant project was commenced to further enhance the Group’s
governance, risk and assurance framework. The Committee continued to provide
oversight throughout 2015, and has been encouraged by progress to date. The
Committee will continue to monitor the initiative throughout 2016, where the
focus will move to review the key governance policies and assurance given.

Further information on the Group’s principal risks and the risk management
process may be found on pages 32 to 37.

The Group operates under a system of internal controls which have been
developed and refined over time to meet its needs and the risks and
opportunities to which it is exposed. This includes:
− The preparation of the Strategic Plan;
− A comprehensive budgeting system with an annual budget which is

approved by the Board;

− The monthly review and revision of financial forecasts for the year;
− The monitoring of financial performance;
− The monitoring of project and programme management, through LCM; and
− The appropriate delegation of authorities to operational management.

Delegations and other controls are contained in the Corporate Framework and
the Group Finance Manual. Specifically with regard to the financial reporting
process and the preparation of the Group Financial Statements, the system
includes a semi-annual representation letter from all business units. Included
in those letters are written acknowledgements that financial reporting is based
upon reliable data and that the results are properly stated in accordance with
Group policies.

The Committee believes that the current arrangements consisting of the
half yearly risk assessment process, a programme of internal financial and
other control reviews by the Internal Audit function, other experienced
internal teams, external experts and business reviews carried out by the CEO
and CFO and a process of self-assessment of internal financial controls by all
business units, provides appropriate coverage of the Group’s activities. Where
weaknesses have been identified, plans for remedying them are developed
and progress monitored.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEDirectors’ Remuneration Report

FOCUSING REMUNERATION
FRAMEWORK TO SUPPORT
DELIVERY OF OPERATIONAL
PERFORMANCE

“Setting appropriate
remuneration targets in
current market conditions
remains a key priority.”

Dear Shareholder
I am pleased to deliver my report as Chair of the Remuneration Committee.

There are no proposed changes to the Remuneration Policy so no binding
vote will be put forward at the 2016 AGM. The current policy, as approved by
shareholders at the 2014 AGM, can be accessed on Cobham’s website and is
re-produced in summary on page 60. A full review of the policy will be undertaken
during 2016 for shareholders to vote on at the 2017 AGM. This review will take
into account the ongoing implementation of Cobham’s strategy and address the
evolving remuneration requirements across Cobham’s diverse portfolio of short
and long cycle businesses.

Whilst the Group delivered a robust financial performance in 2015, we did not
meet some of the financial targets set at the start of the year and this is reflected
in the limited payouts under the 2015 remuneration arrangements.

In determining the level of remuneration for this year, the Committee has
reviewed both the financial and operational performance of the Group and the
Sectors. We have focused on rewarding specific improvements in operational
delivery and programme execution that have directly contributed to the growth
in EPS in 2015.

In setting remuneration targets for 2016, the Committee has taken into
account the challenges in our commercial short cycle markets whilst focusing
on establishing targets that will continue to incentivise the continuing drive
for improvements in operational execution, growth in EPS and free cash
flow generation.

Remuneration philosophy underpinning decisions
− The overall remuneration philosophy continues to be linked to the long term
success of the Company. This is achieved by aiming to be market competitive
to attract and retain executives of the quality required to deliver the Group’s
strategy, whilst taking into account an individual’s experience and personal
contribution to the Group’s Strategic Plan.

− Paying for performance is the guiding principle of Cobham’s Total Compensation

Philosophy. Employees have their performance and development needs
reviewed by their line manager under our PDR system. Salary and any bonus
payments are linked to performance as assessed under this system.

− Cobham’s intent is to set pay within a market competitive range reflecting
performance achieved, by both the individual and the Group. For strong
performance, actual total compensation delivered is targeted at the
market median.

The key challenges and issues that the Committee addressed during
the year
− Changes made to the remuneration arrangements of the Executive Directors
were realigned, as described in last year’s report, to reflect, in part, the larger
Group following the Aeroflex acquisition and their significant contribution
to≈the Group during the previous year. As a result the base salary increases
for the CEO and CFO were set at 5.0% and 6.8% respectively.

− The 2015 AIP was re-designed, in line with policy, to simplify the short term
bonus arrangements, weighting 75% of any payout towards financial targets
and the remaining 25% based on personal objectives aligned to the delivery
of strategic objectives.

− The maximum annual bonus opportunity for the CEO was increased from
120% of salary to 150% of salary, and for the CFO, from 100% of salary to
120% of salary.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comHow company performance during the year is reflected in the
remuneration outcome
− The Company delivered robust performance in 2015. Cobham has a diverse
portfolio of businesses and while some of the businesses performed well,
our≈short cycle businesses faced challenging market conditions.

Role and focus
The Remuneration Committee’s main duties are to:
− Make recommendations to the Board on the Group’s policies on

Executive Directors’ remuneration and ensure alignment to the Group’s
Strategic Plan; and

− The Company has made excellent progress in integrating the Aeroflex

− Determine, on the Board’s behalf, the specific remuneration packages of

businesses with total cost and benefits in line with original expectations.
− We have also proactively streamlined the portfolio with three divestments

the Chairman, Executive Directors, Group Executive and Company Secretary.

in 2015 and the divestment of the surveillance business completed in
January 2016, helping the Group reduce complexity and focus on areas of
core capability.

Membership and attendance
Four Remuneration Committee meetings were held during the year,
attended as follows:

Alison Wood (Chair)

Birgit Nørgaard

Mark Ronald

Unable to attend

Attended

There were no changes to the membership of the Committee during the reporting
period. Membership of the Committee will change in 2016 as Mark Ronald stands
down from the Board, Mike Wareing will move from the Audit Committee to bring
his experience to the Remuneration Committee.

Other attendees
Executive Vice President HR, Senior Vice President Compensation and Benefits,
Deloitte LLP, and Company Secretary. The CEO and the Chairman of the Board
attend by invitation.

No individual is present in meetings relating to decisions around their own
remuneration. The Committee’s terms of reference are available on the
Company’s website or on application to the Company Secretary.

Key issues and activities
Matters considered by the Committee during 2015 were:

Feb

Jul

Dec

Committee only sessions with advisers
Compensation awards – previous year
Compensation awards – current year
LTI performance dashboards
Chairman remuneration
Group Executive objectives
Remuneration strategy
AIP review
LTI review
Other
Updates on corporate
governance developments
Terms of reference
Effectiveness of the advisers
Remuneration Report review
Approval of Executive Share Option Scheme,
Conditional Share Plan and Sharesave – new rules
Committee work planning

− Significant operational progress was achieved, as set out on pages 6 and 7,

with major improvements in programme execution and delivery, particularly
in Mission Systems.

− Performance on cash conversion was disappointing but reflects continuing

investment including increases in PV and capital expenditure, and an outflow
of working capital. Improving cash conversion and free cash flow generation
will be a key focus in the 2016 remuneration framework.

− While acceptable progress was made in 2015, the financial targets for the
revenue growth and cash flow targets under the AIP have not been met,
with operating profit performance being between threshold and target.
− Revenue growth, operating profit and cash flow targets accounted for 75%
of the maximum AIP bonus opportunity and the level of achievement has
resulted in a payout of 11.2% of maximum (12.6% and 10.1% of salary) for
the CEO and CFO respectively.

− 25% of the maximum AIP opportunity was based on personal objectives
aligned with the implementation of strategy. In reviewing individual
performance of the CEO and CFO, the Committee has determined that
a payout of 40% of maximum (15.0% of salary) for the CEO and 25% of
maximum (7.5% of salary) for the CFO was fair in the context of the Group’s
performance in 2015.

− For the CEO, 25% of the bonus earned will be deferred into shares, as the

CFO has given notice he will not receive the deferred portion of his bonus.
− In addition, there was no payout under the 2013 Performance Share Plan

as the threshold level of EPS was not met and TSR performance was below
median over the three years performance period resulting in awards lapsing.

The intended remuneration arrangements for the current year
and the key future issues to be addressed by the Committee
− Remuneration arrangements for 2016 have been developed in line with

the≈Remuneration Policy.

− Base salary increase for the CEO, effective 1 March 2016, has been set at

2.5%. No salary increase will be awarded to the CFO as he has given his notice.

− The AIP arrangements for 2016 have also been reviewed and the metrics
and weightings revised to 40% underlying operating profit, 40% free cash
flow generation and 20% personal strategic measures.

− LTI arrangements for awards to be made in 2016 remain unchanged.
− In line with the Board’s recommendation to re-appoint the Chairman for

a further term of three years, the Committee has reviewed his fee as there
has been no increase since his appointment in 2010. Taking into account the
performance of the Group over the last six years and the appropriate external
benchmarks, the Committee has determined that a fee of £280,000 per
annum, representing an increase of 3.7%, is appropriate.

− There has been no increase in Non-executive Director fees in 2015 and none

are proposed in 2016.

A summary of any discretion applied by the Committee during
the year
There has been no discretion applied during the year.

Comment on stakeholder engagement conducted during the year
During March 2015, I wrote to the top 20 shareholders to provide details of
changes made to the remuneration arrangements of the Executive Directors.
The changes made were all within the Remuneration Policy and were fully
disclosed in last year’s report.

Conclusion
Taking into account the Group’s overall performance in 2015, the Committee
believe the remuneration awarded to the Executive Directors is fair in the
context≈of shareholder value creation and that the remuneration targets
for 2016 have been set appropriately to incentivise further improvements
in financial performance and sustainable growth.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEDirectors’ Remuneration Report continued

Introduction

Our remuneration structure
The Directors’ Remuneration Policy (the Policy) set out in our 2013 Annual Report and Accounts was approved by over 98% of our shareholders at our AGM held
on 24 April 2014; the Policy remains unchanged. The full Policy is available on the Company’s website. As context for the rest of this report, the main elements of
the Policy, as well as how the policy was implemented during the year, are summarised below:

The Annual Incentive
Plan (AIP) is designed to
drive and reward annual
performance against
financial and operational
KPIs as well as individual
objectives, which are
directly linked to the
Group’s strategic plan.

LTI – the Performance
Share Plans (PSP) and
the Bonus Co-Investment
Plan (BCP) are designed
to drive sustainable
profitable growth and align
Executive Directors with
shareholders’ interests.

Key elements

Key features

How it was implemented in 2015

Base salary

Reviewed annually with changes typically effective from 1 March.

Increases awarded on 1 March 2015:

Maximum salary increases typically in line with the outcomes of the
annual review and typically in line with the average increase for the
wider workforce.

CEO – 5%

CFO – 6.8%

Cash bonus

Maximum opportunity under the Policy is 150% of salary.

2015 awards:

For target performance, 50% of maximum bonus opportunity will
be received.

Measured over a one year performance period based on a
combination of financial and individual metrics.

Malus and clawback provisions are in place.

CEO – 150% of base pay opportunity

CFO – 120% of base pay opportunity

Payments of £209,173 and £77,299
have been earned by the CEO and
CFO respectively.

Deferred bonus

75% paid in cash and up to 25% mandatorily deferred into company
shares for a period of three years.

Malus and clawback provisions are in place.

LTI – PSP

PSP allows for conditional share awards or nil-cost options up to
150% of base salary may be granted annually.

Threshold level of vesting is 16.7% of maximum award.

Performance assessed over more than one year, usually three years
against key financial metrics.

Malus and clawback provisions are in place.

Matching shares – BCP

An additional 25% of the annual bonus can be voluntarily deferred
into BCP.

Matching awards on up to 50% of bonus:

Maximum 1:1

Threshold 0.5:1

Performance assessed over more than one year, usually three years
against key financial metrics.

Malus and clawback provisions are in.

25% of the CEO’s AIP has been put into
deferred share awards with a three year
vesting period. The CFO will not receive
the deferred portion of his AIP as he has
given notice.

Awards of 150% of salary were made in
2015 with performance conditions as set
out on page 63.

BCP awards were last awarded in 2014 and
there is no intention for further awards to
be made in future.

Share Ownership
Guidelines

There is a requirement to retain a percentage of salary in shares, which
must be built up from shares vesting from executive incentive plans.

The CEO is required to retain 200% of
annual salary, and the CFO, 100%.

Aligning remuneration to deliver operational performance
We continue to take a disciplined approach to ensure that our remuneration
strategy supports the delivery of Cobham’s strategy and delivery of both the
long and the short term operational and financial priorities. Our incentive
framework is designed to underpin the delivery of sustainable growth in
earnings and shareholder value together with the generation of free cash flow.

The 2015 AIP framework supports our priorities of driving continuous
improvement in operational excellence and programme execution with
inclusion of operational KPIs and by directly targeting growth in trading profit
and free cash flow. In addition, individual objectives were set as part of the 2015
AIP to specifically address the strategic development of the Group’s portfolio,
particularly seeking to rationalise our portfolio by making selected divestments.

In 2016, the AIP will continue to focus on delivering operational performance
to meet the strategic actions. As described on page 59, we have recalibrated
the measures and weightings with further emphasis being given to achieving
key delivery measures whilst retaining a strong focus on the key financial
objectives of the Group, particularly improved cash flow generation.

The LTI plans are designed to encourage the necessary actions and leadership
behaviours to promote investment in innovation, development of required
technical skills and leadership capabilities, and accelerating the adoption of
our technologies to underpin the delivery of long term sustainable growth
in shareholder value.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comThe annual report on remuneration

Single total figure table

Salary
and fees

Taxable
benefits

AIP

LTI

Pensions

Total

£k

Bob Murphy

2015

2014

Simon Nicholls

756

669

210

174

209

–

2015

435

581

2014
410
1Account taken for the deferred portion not paid.

–

228

108

198 1,373

125 1,196

674

621

Single total figure of remuneration for each Executive Director
(audited information)

£1,373

£1,196

Salary and fees
Taxable benefits
AIP
LTI
Pensions

£674

£621

£k

2000

1500

1000

500

2015

2014

Bob Murphy

2015

2014

Simon Nicholls

Additional disclosures in respect of the single total figure of
remuneration (audited information)
The Company has obtained written confirmation from each Director that they
have disclosed all other items in the nature of remuneration.

Salary and fees

Policy: Reviewed annually with changes typically effective from 1 March.
Maximum salary increases typically in line with the outcomes of the annual
review and typically in line with the average increase for the wider workforce.

Bob Murphy’s employment terms and conditions are based on US law and his
salary payments are made in US dollars and have been converted to sterling for
tax purposes. These are the figures used in the above table. Bob’s 2015 salary,
effective from 1 March 2015, was US$1,158,600.

Simon Nicholls’ 2015 salary, effective from 1 March 2015, was £440,000
per annum.

These salary increases were above the average increase provided to the wider
workforce of c.3.0% but were considered to be appropriate in the context of:
the successful acquisition of Aeroflex, which resulted in an increase to the size
and complexity of the Group, and subsequently the scope of the two executive’s
roles; the strategic progress during the course of 2014; and the performance and
contribution of the two Executive Directors in driving the business forward.

Taxable benefits

The taxable benefit figures are as follows:

Benefit
Car and private petrol allowance
Private medical insurance, disability
cover and life insurance
Expatriation allowance
Allowance to cover financial/tax advice
Total

Bob Murphy
£k
16

Simon Nicholls
£k
18

42
132
20
210

2
–
1
21

Note:
Bob Murphy’s employment terms and conditions allow for an annual expatriation
allowance.

Annual Incentive Plan

Policy:

Cash bonus

Maximum opportunity under the Policy is 150% of salary.

For target performance, 50% of maximum bonus
opportunity will be received.

Measured over a one year performance period based on
a combination of financial and individual metrics.

Malus and clawback provisions are in place.

Deferred
bonus

75% paid in cash and up to 25% mandatorily deferred
into company shares for a period of three years.

Malus and clawback provisions are in place.

The 2015 AIP supports the overall strategy of the Company through a balance
of financial and other key strategic measures, at Group, Sector and business unit
level. It is a simplified plan that incentivises year-on-year (organic) growth. In
addition, it provides greater line of sight through the business to, and alignment
with, three key financial metrics (Revenue Growth, Operating Profit
and Cash) and key operational objectives.

In setting the performance levels for the 2015 AIP, the Committee considered
the budget/forecast approved by the Board for the relevant year, and set
threshold and maximum targets at appropriately stretching levels either side
of the budget.

Details of the AIP measures, weightings and targets as well as performance
against each of the targets is provided in the table below:

Measure

Revenue
Growth (£m)

Underlying
Operating Profit (£m)

Cash
Conversion (£m)

Key strategic
measures

Weighting

Threshold

Target

Maximum

25%

2,162.3
(3% growth)

2,196.7
(4% growth)

2,235.0
(5% growth)

325.4

352.2

379.0

301.1

319.6

342.8

25% 1,1 PDR rating 2,2 PDR rating 3,3 PDR rating

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCE

Directors’ Remuneration Report continued

Group Revenue Growth: Revenue growth stated at constant translation
exchange rates excluding the incremental effect of acquisitions and
divestments. The quoted targets for total revenue represent growth of 3%,
4% and 5% in the legacy Cobham businesses and specific absolute targets
for the Aeroflex businesses.

Group Underlying Operating Profit: Underlying Operating Profit before
interest and tax at the Group level.

Group Cash Conversion is defined as operating cash flow as a percentage
of underlying operating profit excluding profit from joint ventures.

For 2015, the AIP adopted an additive formula whereby performance against
the metrics outlined above were assessed against the specific financial targets
and, for the key strategic measures, an assessment of an individual’s achievement
against personal objectives. Each of the metrics has a 25% weighting.

The financial element of AIP paid out at 11.2% of the maximum as the Group
did not meet its Revenue Growth or Cash Conversion targets in 2015 and only
achieved a limited payout versus the Underlying Operating Profit target based
on delivery of £334.7m (which was adjusted to reflect the impact of divestments
in 2015, to ensure measurement on a like-for-like basis).

The personal performance element paid out at 40.0% of maximum
(15.0% of salary) for the CEO and 25% of maximum (7.5% of salary) for the
CFO, reflecting their individual contributions to delivering the progress on
the Aeroflex acquisition, executing on divestments in a timely manner and
providing leadership to support the improvements in operational delivery.

This resulted in a total bonus payment of 27.6% of salary for the CEO and
17.7% of salary for the CFO. However, the 25% of bonus that would normally
be deferred into shares will not be received by the CFO as he has given notice.

Long term incentives

Policy: PSP allows for conditional share awards or nil-cost options up to 150%
of base salary may be granted annually.

Threshold level of vesting is 16.7% of maximum award.

Performance assessed over more than one year, usually three years, against
key financial metrics.

Malus and clawback provisions are in place.

The PSP is designed to drive sustainable profitable growth in shareholder value
and align Executive Directors with shareholders’ interests.

PSP awards vesting in 2015
The performance targets for the PSP awarded in 2013 are set out below:

Metric
TSR

EPS

Weighting
33%

Performance
Threshold
(Index)

Maximum
(Index +10%)
33% Threshold (3%
per annum)

Cash
Conversion

33%

Maximum
(10% per
annum)
Threshold
(90% per
annum)

Maximum
(Over or above
100% per
annum)

Award vesting at
that level %

Result
16.7% Performance
targets for the
TSR have not
been met

100%

16.7% Performance
targets for the
EPS have not
been met

100%

16.7% Performance
targets for cash
conversion
have not
been met

100%

EPS and cash conversion are defined in the KPI definitions on page 132.

The performance targets for the PSP were not met for the three performance
years ended on 31 December 2015 therefore none of the awards made in 2013
will result in any payout and will lapse.

TSR Peer Group
The companies in the TSR comparator group for awards granted in 2013 were:

BAE Systems
Esterline
Finnmeccanica
FLIR Systems
Harris
ITT Industries

L-3 Communications
Meggitt
Northrop Grumman
QinetiQ
Raytheon
Rockwell Collins

Smiths Group
Teledyne Technologies
Thales
Ultra Electronics

There has been no change in the composition of the TSR Peer Group.

TSR performance Cobham vs FTSE350

£
200

180

160

140

120

100

31 Dec
2008

31 Dec
2009

31 Dec
2010

31 Dec
2011

31 Dec
2012

31 Dec
2013

31 Dec
2014

31 Dec
2015

Source: Kepler Associates

Cobham

FTSE350

The graph above illustrates the TSR performance (share price growth plus
dividends) of Cobham against the FTSE350 Index over the past seven years.
The graph shows the value of £100 invested over the seven-year period ending
31 December 2015. The FTSE350 Index was chosen as it is a recognised broad
equity market index of which Cobham was a member during 2015 and is
currently, as at 1 March 2016, ranked at 124th.

The LTI plans are an important element of our remuneration strategy with
their focus on driving the longer term strategic priorities and underpinning
the sustainable growth of the Group’s portfolio.

Buy-out awards vesting in 2015
Simon Nicholls’ long term incentives figure covers the vesting of one award made
to him as a buy-out award to compensate for forfeited equity from his previous
employer as a result of leaving to join Cobham. This award, which was disclosed
in full in the 2013 Annual Report and Accounts, is set out below:

Awards
vesting
22,882

Date of
vest
9 March 2015

Valuation (pence per
share)
317.0

Amount
vested (£k)
73

All buy-out shares included above have been valued at market price achieved on
the date of vesting.

The resulting shares, after settlement of statutory deductions, have been retained
against Mr Nicholls’ share ownership requirements.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Long term incentives awarded during the financial year (audited information)
The following table sets out the awards made under the LTI plans to Executive Directors during the year.

Bob Murphy

Type of award
PSP

Basis of which
award is made
150% of base salary

Date of award
12 March 2015

Simon Nicholls

PSP, nil-cost options

150% of base salary

12 March 2015

Face value of award
(No. of shares awarded)
£1,158,665
(365,775)
£660,000
(208,353)

Performance period
1 January 2015 to
31 December 2017
1 January 2015 to
31 December 2017

Notes:
1. All awards have been made in accordance with the relevant scheme rules.
2. The face value has been calculated by multiplying the number of shares awarded by the mid-market price of those shares for the three trading days

immediately preceding the date of the award.

Performance conditions for the PSP awarded in 2015 are set out in
the table below:

Pensions

Weighting
33.3%

Performance
Threshold (Index)

Award vesting at
that level %
16.7%

Policy: The Company may make a payment into a pension scheme
(e.g. a defined contribution plan) and/or make a cash allowance payment
set as a percentage of salary.

Metric
TSR

EPS

33.3%

Maximum (Index +10%)
Threshold (3% per annum)

100%
16.7%

Cash Conversion 33.3%

Maximum (10% per annum)
100%
Threshold (over 90% per annum) 16.7%

Maximum (100% per annum)

100%

Notes:
1. EPS and Cash Conversion are defined in the KPI definitions on page 132.
2. The TSR Peer Group remains unchanged for the 2015 awards, see page 62.

The Company contributes to Bob Murphy’s retirement plan at the rate of 20%
of his base salary. This comprises participation in two plans noted below and the
contributions to each are shown in the table:
− A qualified 401k plan which has limits on the level of contribution which can

be made to it; and

− An executive retirement plan, non-qualifying.

£k
Contributions to 401k plan
Contributions to executive retirement plan

Total

2015
16
182

198

2014
15
110

125

Simon Nicholls’ pension figure is a combined amount of £40,000 to an
executive defined contribution plan and £46,600 paid as a cash allowance in
lieu of additional defined contribution arrangements. Together these payments
represent a rate of 20% of his base salary.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEDirectors’ Remuneration Report continued

Non-executive Directors (audited information)
The 2015 remuneration and current fees of the Non-executive Directors,
including the Chairman, are stated below:

Executive Directors’ share interests
The interests of the Executive Directors in share awards or share options are shown
below (note: there are no options which have vested but not yet been exercised):

Full year additional fees

Total payable

Senior
Independent
Director
–

Base
fee
270.0

Committee
fee
–

2015
270

2.5
2.5
5.0
2.5
2.5
10.0

55.0
55.0
55.0
55.0
55.0
55.0

£k
John Devaney
(Chairman)
Mike Wareing
Jonathan Flint
Mike Hagee
Birgit Nørgaard
Mark Ronald
Alison Wood
Alan Semple (from
February 2015)
John Patterson
(to April 2014)
Total
Notes:
1. Non-executive Directors only receive fees under their service agreement

10.0
–
–
–
–
–

69
58
65
58
62
65

–
705

55.0

10.0

–

2014
270

75
58
65
39
62
63

–

22
654

Bob Murphy

Award
PSP 2013
BCP 2013
PSP 2014
BCP 2014
PSP 2015
Total
Simon Nicholls Buy-out award
2013
PSP 2013
PSP 2014
Deferred AIP
2014
PSP 2015
Total

Share awards
subject to
performance
conditions
453,924
7,564
319,912
14,546
365,775
1,161,721
–

Share awards
subject to
continued
employment
–
–
–
–
–
–
29,535

Unvested
options subject
to performance
awards
–
–
–
–
–
–
–

–
–
–

–
–

–
–
3,822

204,151
201,875
–

–
33,357

208,353
614,379

and do not have any other taxable benefits, annual or long term incentives
or pension arrangements provided by the Company. Messrs Ronald and
Hagee received a taxable benefit in kind for financial services (tax) advice
for the amounts of £1,450 and £1,800 respectively.

2. Non-executive Directors do not have a permanent place of work specified in
their service contract, all reasonable and properly incurred expenses incurred
in performance of duties as Board members are reimbursed by the Company.

3. The difference between full year fee and actual is explained by an individual
commencing or retiring during the year or prior year or by the payment of a
fee of £5k per annum in respect of travelling time for the Directors based in
the US, being Messrs Hagee, Ronald and Semple.

4. All of the above Directors are members of the Nomination Committee but

do not receive any additional fees for this role.

5. Mike Wareing retired as Audit Committee Chair in April 2015, but remained

on the Committee, the role was taken up by Alan Semple.

No increase in Non-executive Director fees was awarded in 2015.

Total aggregate Directors’ fees for the year, including the Executive
Director fees as per the single figure table on page 61, amount to
£2,752,000 (2014: £2,471,000).

Statement of Directors’ shareholding and share interests
(audited information)
The interests of the Non-executive Directors and their families in ordinary
shares were:

John Devaney
Mike Wareing
Jonathan Flint
Mike Hagee
Birgit Nørgaard
Mark Ronald
Alison Wood
Alan Semple

31.12.15
30,000
20,000
5,000
5,000
5,000
5,000
5,000
5,000

1.1.15
30,000
20,000
5,000
5,000
5,000
5,000
5,000
-

Non-executive Directors are required, within six months of election to the Board,
to acquire and hold a shareholding of 5,000 ordinary shares.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comShare ownership requirements

Policy: There is a requirement to retain a percentage of salary in shares, which
must be built up from shares vesting from executive incentive plans.

Historic CEO total remuneration
The table below shows historic CEO total remuneration, calculated on the same
basis as that used in the single figure table on page 61.

Ownership guidelines require the Executive Directors to maintain ordinary shares.
These guidelines state that the CEO retain the value of at least two years’ salary,
and the CFO retain the value of at least one year’s salary. In addition, the CEO and
CFO are to retain a minimum of 50% of net vested PSP and BCP matching shares
until the relevant shareholding level is met. There is no time frame over which
the guidelines are required to be met and there is no requirement for Directors
to hold these shares after leaving the Company. Both Directors have retained the
required shares resulting from LTI vests and have complied with the guidelines in
this respect, but have yet to meet their targets due to the length of their tenure.

Shares held by Executive Directors as at 31 December 2015 against
share ownership

54%

68%

Bob Murphy

2015

2014

Simon Nicholls

2015

2014

22%

17%

Shares held outright
Beneficially held shares
Target share ownership

100

125

150

175

200

Shares owned as percentage of Base Salary

Bob Murphy’s holding for 2015 has reduced as a percentage of salary due to his
salary increase, share price movement and no awards vesting during the year,
rather than his holding reducing.

Interests at 2 March 2016, being a date no more than one month prior to the
date of the Notice convening the AGM, were the same as at 31 December 2015.

The market price of the ordinary shares as at 31 December 2015 was 283.2
pence per share and the closing price range during the year was 251.1 pence
to 345.1 pence.

Dilution
The Company’s share schemes are currently funded through shares purchased
in the market and have been since November 2010, prior to which they were
funded through new issue shares. Funding of awards through new issue shares
is subject to an overall dilution limit of 10% of issued share capital in any ten-year
period. Of this, 5% may be used in connection with the Company’s discretionary
share schemes. As of 31 December 2015, 4.0m (0.35%) and 3.0m (0.26%) shares
have been issued pursuant to awards made in the previous ten years in connection
with all share schemes and discretionary schemes respectively. Awards that are
made, but then lapse or are forfeit, are excluded from the calculations.

Payments to past Directors and payment for loss of office
(audited information)
There were no payments made to past Directors or for loss of office
during the year.

CEO single
figure of total
remuneration (£k)
1,373

Annual
bonus pay-out
against maximum
opportunity % (£k)
18.4% (209)

Long term
incentive vesting
rates against
maximum
opportunity %
(£k)
N/A

1,196

0.0% (Nil)

2,058

34.3% (280)

753

48.5% (182)

N/A

1,283

45.0% (267)

58.0% (202)

1,916

92.5% (555)

85.0% (546)

1,478

33.5% (201)

87.0% (471)

1,496

93.0% (567) 100.0% (238)

Year
2015

2014

2013

2012

2011

2010

2009

CEO
CEO3
Bob Murphy

CEO3
Bob Murphy

CEO3
Bob Murphy
CEO2
Andy Stevens

CEO2
Andy Stevens

CEO1
Allan Cook

Percentage change in remuneration of CEO
The following table shows the year-on-year change in respect of the three
remuneration elements shown in table for the CEO as compared to that of UK
employees generally:

Remuneration element
Salary
Benefits
AIP

CEO
2.5%
21.0%
18.4%

Average employee per capita figure
2.5%
12.8%
53.5%

The UK payroll has been chosen for comparison as this is the location of the
head office.

Relative importance of spend on pay
The chart below displays the relative expenditure of the Company on various
matters, as required (in the case of Group employees’ pay and shareholder
distributions) by the relevant remuneration regulations:

£m

800

700

600

500

400

300

200

100

682.2

608.8

220.1

204.8

122.1

108.3

138.0

96.9

2015

2014

2015

2014

2015

2014

2015

2014

Aggregate
employment
costs of Group
employees

Underlying
profit after tax

Dividends

The aggregate employment cost of Group employees is detailed at note 4
to the Group Financial Statements and includes employers’ social security and
similar costs. Group underlying profit after tax is shown above as this is profit
attributable to the owners of the Group, refer to note 2. Dividends are shown
at note 7. PV relates to the amount of profit the Group spends on research
and development, refer to note 4.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEDirectors’ Remuneration Report continued

Statement of implementation of remuneration policy in the
current financial year
Set out below is an explanation of the way the approved policy will be
implemented in the current year.

Element
of Directors'
Remuneration
Policy

Base Pay

Change

Rationale for any change

Current salary for the CEO,
effective from 1 March 2016,
is £777,241 (US$1,187,534).

No salary increase awarded to
the CFO as he has given notice.

These represent a 2.5%
increase for the CEO, in line
with average increases across
the workforce.

Chairman’s fee Fee for the Chairman of the

Company, effective from
1 April 2016, is £280,000.

This represents a 3.7%
increase in recognition of
this being his first increase
since appointment in
2010, and recognising the
performance of the Group
over the last six years.

Advisers to the Remuneration Committee

Adviser

Deloitte LLP

Appointed by

Remuneration
Committee in
November 2009

Services provided
to the Committee

Remuneration
strategy

Incentive design

Market data

Other services
provided to
the Company

Tax and
consultancy on
the governance,
risk and assurance
initiative

The Committee received advice during the year from Deloitte LLP, who
comply with the Code of Conduct of the Remuneration Consultants Group.
The Committee is satisfied that the advice they have received has been
objective and independent. Deloitte’s performance is considered by the
Committee as part of their performance evaluation. Total fees for advice
provided to the Committee during the year amounted to £98,800 and
were provided on a time/cost basis. Additional advice was received from
the Executive Vice President Human Resources, Senior Vice President
Compensation and Benefits, and the Company Secretary.

No change.

Not applicable.

Other benefits/
retirement
benefits

Whilst proposals from the Committee take account of the advice received,
the ultimate decision is made by the Committee and ratified by the Board in
the absence of any advisers.

Designed to continue to
incentivise the continuing
drive for improvements in
operational execution and
free cash flow generation.

2015 voting at the Annual General Meeting
At the AGM held on 23 April 2015, shareholders voted on the Directors’
Remuneration Report for the year ended 31 December 2014. Below are the
results in respect of that resolution, which required a simple majority (i.e. 50%)
of the votes cast to be in favour in order for the resolution to be passed. The
votes ‘for’ include discretionary votes given to the Chairman of the Board.

Directors’ Remuneration Report

Votes for

22,568,989

96.25

Votes withheld 126,272

Votes against

878,486

3.75

AIP

No change to maximum
opportunity.

The structure of the plan will
continue to be operated on
an additive basis. Awards will
be assessed against the
following metrics:
− 40% Underlying
Operating Profit
− 40% Free Cash Flow

Conversion

− 20% Key strategic measures
linked to personal objectives

As in previous years, 25% of any
bonus earned will be required
to be deferred into shares for
a period of three years.

Alison Wood
Remuneration Committee Chair
2 March 2016

PSP

Not applicable.

No change. Awards to the
value of 150% of salary will
be made in March 2016.
Performance will be equally
weighted between EPS
growth, relative TSR against
a comparator group and
cash conversion, see page 62
for details of the performance
targets, which remain unchanged
from 2015.

No award will be made to the
CFO as he has given his notice.

Non-executive Director fees are reviewed annually and are unchanged from the
previous year.

www.cobham.com

Cobham plcAnnual Report and Accounts 2015Other Statutory Information

CORPORATE GOVERNANCE

Voting rights and restrictions on transfer of shares
The rights and obligations attaching to the ordinary shares and 6% second
cumulative preference shares of £1 each in the capital of the Company are
set out in the Articles.

On a show of hands at a general meeting of the Company, every holder of
shares present in person or by proxy and entitled to vote has one vote, and
on a poll every member present in person or by proxy and entitled to vote has
one vote for every £1 in nominal value of the shares of which he is the holder.
None of the ordinary shares carry any special rights with regard to control of
the Company.

There are no restrictions on transfers of shares other than:
− Certain restrictions which may from time to time be imposed by laws

or regulations;

− Pursuant to the Company’s Code for Securities Transactions including the

requirement on the Directors and designated employees to obtain approval
to deal in the Company’s shares; and

− Where a person with an interest in the Company’s shares has been

served with a disclosure notice and has failed to provide the Company
with information concerning interests in those shares.

The Company is not aware of any arrangements between shareholders that
may result in restrictions on the transfer of securities or voting rights.

Significant arrangements – change of control
Individual operating companies in the Group have contractual arrangements
with third parties in support of the Group’s business activities which may take
effect, alter or terminate upon a change of control of the Company following
a takeover bid. Such contractual arrangements include supply of equipment,
goods and services to third parties, including research, design and production.
Such contracts and arrangements may be deemed to be essential to one or
more of the operating companies but there are no contracts or arrangements
considered to be essential to the operation of the business of the Group as a
whole, apart from the following:
− The Company has entered into a number of credit agreements with banks,
and has issued senior notes under private placements. The total amount
owing under such agreements at the year end date is shown in note 17 to
the Group Financial Statements. All agreements contain clauses such that,
in the event of a change of control, the Company can offer to or must
repay all such borrowings together with accrued interest, fees and other
sums owing as required by the individual agreements.

− Under the Sentinel contract, entered into in March 2006, the Company must
seek approval for any material change in the shareholding of the Company.
There is an ancillary aircraft lease agreement under which a change of control
may result in the termination of the lease if such event is likely to have a
material adverse effect on the Company’s ability to perform its obligations
under the lease.

− Under the FSTA shareholders agreement entered into in June 2008, a change
of control of the Company may result in a required sale of the Company’s
shares in FSTA to the other shareholders.

Dividends
The Group’s current policy is to pay a progressive dividend increasing payments
broadly in line with increases in earnings, with a view to rebuilding dividend cover
over time. An interim dividend of 3.05 pence per ordinary share of 2.50 pence
each in the capital of the Company (ordinary shares) (2014: 2.904 pence) was
paid in November 2015. The Directors are recommending a final dividend of
8.13 pence per ordinary share (2014: 7.746 pence) payable on 27 May 2016 to
ordinary shareholders on the register as at 29 April 2016, making a total ordinary
dividend for the year of 11.18 pence (2014: 10.65 pence). Details of the total
dividend paid out is covered in note 7.

Directors’ indemnity arrangements
The Directors have the benefit of a Directors’ and Officers’ liability insurance
policy and the Company has entered into qualifying third party indemnity
arrangements with them, as permitted by the Companies Act 2006. The policy
was in force at the year end and continues in force at the date of this report.
The Directors are permitted to take independent legal advice at the Company’s
expense within set limits in furtherance of their duties.

Directors’ interests
None of the Directors are or were materially interested in any significant contract
during or at the end of the financial year, particulars of which are required to
be disclosed by the Listing Rules of the UK Listing Authority. Details of Directors’
share interests and of their rights to subscribe for shares are shown in the
Directors’ Remuneration Report on page 64.

Share capital
The Company has one class of ordinary shares which carry no right to fixed
income, representing 99.9% of the total issued share capital.

In addition, 19,700 non-redeemable 6% second cumulative preference shares
have been issued, which represent 0.1% of total issued share capital.

At the AGM held on 23 April 2015, the Company was authorised to purchase
up to 113,857,590 ordinary shares. This authority will expire at the conclusion
of the 2016 AGM. A special resolution will be put to shareholders at the AGM
to renew the authority to make market purchases of the Company’s shares up
to a maximum of 10% of the share capital of the Company.

The Directors have been authorised to allot and issue ordinary shares. These
powers are exercised under authority of resolutions passed at the Company’s
AGM. No ordinary shares were issued during the current year. In the prior year,
60,000,000 ordinary shares were created as the result of a private placing.

Subject to applicable statutes, and to the rights conferred on the holders of
any other shares, shares may be issued with such rights and restrictions as the
Company may by ordinary resolution decide or (if there is no such resolution
or so far as the resolution does not make specific provision) as the Board may
decide. Holders of ordinary shares are entitled to attend and speak at general
meetings of the Company, to appoint one or more proxies and, if they are
corporations, corporate representatives, and to exercise voting rights. Holders
of ordinary shares may receive a dividend and, on a liquidation, may share in
the assets of the Company. Holders of ordinary shares are entitled to receive the
Company’s Annual Report and Accounts. Subject to meeting certain thresholds,
holders of ordinary shares may requisition a general meeting of the Company
or the proposal of a resolution at an AGM.

The shareholders of the 6% second cumulative preference shares are entitled
to receive a fixed cumulative preference dividend at the rate of 6% per annum
in priority to the payment of dividends on the ordinary shares. In addition, on
a return of assets on the liquidation or otherwise of the Company, the assets
available for distribution are to be applied first in repaying to the holders of the
6% second cumulative preference shares the amounts paid up on their shares.

www.cobham.com

Cobham plc
Annual Report and Accounts 2015

Other Statutory Information continued

Employee share schemes – rights of control
If required to do so by the Company, the trustee of the Cobham Share Incentive
Plan (SIP) will, on receipt of notice from the Company of any offer, compromise
arrangement or scheme which affects shares held in the SIP, invite participants
to direct the trustee on the exercise of any voting rights attaching to the shares
held by the trustee on their behalf and/or direct how the trustee shall act in
relation to those shares.

The trustee will not vote in respect of any shares held in the SIP in respect of
which it has received no directions nor will the trustee vote in respect of any
shares which are unallocated under the SIP.

The trustees of the Employee Benefit Trust which holds ordinary shares to be
used for settlement of long term incentives and share option schemes, waive
all rights to vote in respect of any shares they hold within the Trust.

Research and development
The Group continues to invest in the important area of research and
development, further details can be found on page 90. During the year, the
Group expended £138.0m (2014 £96.9m) on non-customer funded research
and development.

Events after the balance sheet date
Since the balance sheet date, the Company has announced the departure of
the current CFO, at some time towards the end of 2016, and the completion
of the sale of the Surveillance businesses, refer to note 33 on page 118.

Political donations and expenditure
No contributions were made to political organisations during the current or
prior year.

Further information relating to change of control under the LTI arrangements
appears within the remuneration policy table available on the Company’s website.

Annual General Meeting
The Company’s AGM will be held at 10:00 a.m. on Thursday, 28 April 2016 at
the offices of Allen & Overy LLP, One Bishops Square, London E1 6AD, UK.

Major interests in shares
As at 31 December 2015, the Company had been notified of the following
interests in the ordinary shares:

Number of shares
at the date of
notification

Percentage at date
of notification

Aberdeen Asset Managers Limited

Artemis Investment Management LLP

Prudential Group of Companies

Royal London Asset Management Limited

The Capital Group Companies, Inc.

Blackrock, Inc

Newton Investment Management Ltd

84,290,927

57,876,282

57,676,199

34,308,326

35,006,700

58,105,999

57,947,756

7.400

5.080

Below 5.000

3.013

3.075

5.100

5.090

Since the year end and up to 2 March 2016, being a date not more than a month
prior to the date of the AGM Notice, the Company had been notified of the
following interests in the Ordinary Shares in accordance with DTR 5:

The Company arranges for the Notice of AGM and related papers to be sent
to shareholders at least 20 working days before the meeting.

Greenhouse gas emissions
The majority of Cobham’s total greenhouse gas (GHG) emissions (84%) come
from its aviation activity (figure 1). Scope 1 emissions from aviation decreased
in 2015 due to reduced activity of company owned aircraft. Scope 3 emissions
increased, however, with growth in customer operations including the addition
of three aircraft, new routes and extra flying activity.

Total emissions from non-aviation activities increased from 2014 due to the
full year contribution of the former Aeroflex business, acquired in September
2014. The former Aeroflex business is more energy intensive than the legacy
Cobham business with increases in GHG emissions from electricity and natural
gas consumption.

Figure 1 – 2015 GHG emissions (tCO2e %)
Scope 1 15.1%
Aviation 77%
Non-aviation 23%

Scope 3 76.3%
Non-aviation 6%
Aviation 94%

Ameriprise Financial, Inc.

Number of shares
at the date of
notification

56,802,511

Percentage at date
of notification

4.989

Scope 2 8.6%
Aviation 0%
Non-aviation 100%

Financial instruments
Notes 14, 21 and 23 to the Group Financial Statements and note 9 to the Parent
Company Financial Statements contain disclosures relating to the use of financial
instruments. The Group uses derivative financial instruments in its management
of financial risks and does not trade in financial instruments or use complex
financial instruments.

People
Cobham is committed to providing its employees with equal opportunities in
a workplace free from discrimination.

Working within a rigorous competency framework, the Company evaluates
candidates according to their skills and abilities, irrespective of age, race, gender,
sexual preference, religion or disability. A PDR process standardised across the
Group, coupled with development centres, where appropriate, ensure career
development and progression is based solely on competency.

With regard to employees who become disabled, the Company takes all
reasonable steps to retain them, including retraining, to enable them to
continue their employment and career development within Cobham.

Year

Aviation

Scope

tCO2e

Scope 1

2015*

76,963

Scope 2

2014

2015*

2014

81,165

–

Scope 3

2015

476,813

2014

443,689

Total

2015

553,776

2014

524,854

–

Non-aviation

tCO2e

Total

tCO2e

23,259

23 100,223

12,167

93,332

56,681 100

56,681

51,532

100

51,532

28,251

6 505,064

22,161

465,850

108,192

16 661,968

85,860

610,714

* Data extracted from Cobham’s Performance Summary Report, which was included
within KPMG LLP’s independent limited assurance scope – see page 70.

Despite additional aviation activity in customer activity and increased emissions
from the former Aeroflex business in 2015, Cobham’s GHG emission intensity
(figure 2) decreased overall in all scopes. This is due to increased revenues in
2015 being proportionally higher than associated emissions.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comScope 1 emission intensity from non-aviation activities (figure 2) increased
with the significant rise in natural gas use from the former Aeroflex business.

Figure 4 – GHG emissions: Former Aeroflex vs Legacy Cobham
Figure 4 – GHG emissions: Former Aeroflex vs Legacy Cobham
(excl. aviation) (tCO2e)
(excl. aviation) (tCO2e)

Figure 2 – Emissions intensity (tCO2e/£m)
Scope 1

2015

2014

Scope 2

2015

2014

Scope 3

2015

2014

Scope
Scope 1

Scope 2

Scope 3

Aviation

Non-aviation

Aviation

Non-aviation

Aviation

Non-aviation

100

150

200

250

300

Year
2015
2014
2015
2014
2015
2014

Aviation
tCO2e/£m
37
44
–
–
230
240

Non-aviation
tCO2e/£m
11
7
27
28
14
12

Total
tCO2e/£m
48
51
27
28
244
252

% total
change
-6

-4

-3

Cobham’s overall scope 1 emissions increased by 7% when compared to 2014.
The former Aeroflex sites accounted for 7% of the overall scope 1 emissions
including 50% of all GHG emissions from natural gas consumption. Cobham’s
overall scope 2 emissions rose 10% from 2014 with the former Aeroflex sites
accounting for 35% of all these emissions (figure 3).

Figure 3 – GHG emissions: Former Aeroflex vs Legacy Cobham
(tCO2e)

Scope 1

Scope 2

Scope 3

Scope

Scope 1

Scope 2

Scope 3

Total

Former Aeroflex

Legacy Cobham

Former Aeroflex

Legacy Cobham

Former Aeroflex

Legacy Cobham

100

Former Aeroflex
tCO2e
6,772

19,593

11,503

37,868

Legacy Cobham (incl. Aviation)

tCO2e
93,451

37,088

493,561

624,100

When the former Aeroflex sites are excluded, Cobham’s scope 2 emissions
decreased by 15% compared with 2014. This decrease is attributed to the
implementation of energy efficiency measures (such as installing energy
efficient lighting) as well as divestment, closure and consolidation of various
sites during the year (divestment of the energy intensive Composites business
in November 2015, and consolidation of UK operations in the Antennas
business). The carbon footprint of the former Aeroflex business compared
with Legacy Cobham (excluding aviation) is shown in figure 4. In 2015, district
heating usage by the SATCOM business in Denmark was also included in scope
2 emissions for the first time having been reported under scope 1 in prior years,
and LPG use was included in scope 1 emissions for the first time.

Scope 1

Scope 2

Scope 3

Former Aeroflex

Legacy Cobham

Former Aeroflex

Legacy Cobham

Former Aeroflex

Legacy Cobham

100

Scope

Scope 1

Scope 2

Scope 3

Total

Former Aeroflex
tCO2e
6,772

29%

35%

41%

19,593

11,503

37,868

Legacy Cobham (excl. Aviation)

tCO2e
16,487

37,088

16,747

70,322

71%

65%

59%

Due to the nature and scale of changes to the Group, 2015 represents a new
GHG emissions baseline against which targets will be set. Cobham’s target is to
reduce facility energy intensity (energy consumption per £m revenue) by 10%
year-on-year. Excluding former Aeroflex, Cobham’s energy intensity decreased
by 11% meeting the 2014 energy intensity reduction target.

Definitions
Scope 1 comprises direct emissions from Cobham owned and controlled plant
and equipment, including: aviation fuel, natural gas, heating oil, non-automotive
diesel, fugitive emissions, solvent emissions and automotive fuel.

Scope 2 comprises indirect emissions from purchased renewable and
non-renewable electricity using a location based calculation method and
indirect emissions from purchased district heating.

Cobham does not yet report market based emissions for its electricity
generation. Following the new Scope 2 guidance published in January 2015 by
the World Business Council for Sustainable Development and World Resources
Institute, we conducted a gap analysis of our data collection process and plan
to publish market based calculations in our 2016 report.

Scope 3 comprises indirect emissions from non-Cobham owned and controlled
plant and equipment, including aviation fuel and business travel (train, air and car).

Methodology and data verification
Cobham collects data annually, as per our financial year, on GHG emissions
from its wholly owned operational subsidiaries. Cobham uses the World Business
Council for Sustainable Development, World Resources Institute Greenhouse
Gas Protocol method as of 31 December 2014, GHG Protocol Scope 2 Guidance,
the International Aerospace Environmental Group GHG Reporting Guidance
for the Aerospace Industry, a supplement of the GHG Protocol and the Carbon
Disclosure Standards Board to report its greenhouse gas emissions and defines
its emissions boundary as those under its direct operational control.

Reported data excludes joint ventures not under Cobham’s operational control,
sites with fewer than five people, sites leased to tenants, vacant properties being
disposed of, and any business units that have been closed or divested during the
course of the year for which there is less than six months of reported data.

Further information is provided at http://www.cobhamsustainability.com/.

100% of Cobham’s wholly owned operations have been reviewed internally to
identify omissions and significant variations from the prior year.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEOther Statutory Information continued

Data assurance
We engaged KPMG LLP to undertake an independent limited assurance
engagement, reporting to Cobham plc, using the assurance standards
ISAE 3000 and ISAE 3410 over Selected Information included in Cobham’s
Performance Summary Report for the year ended 31 December 2015, available
at www.cobhamsustainability.com/at-a-glance/downloads.aspx.
Some of that Selected Information has been included here and is highlighted
with a * symbol. KPMG LLP’s full statement is available on our website at
www.cobhamsustainability.com/at-a-glance/downloads.aspx
and they have provided an unqualified opinion.

The level of assurance provided for a limited assurance engagement is
substantially lower than a reasonable assurance engagement. In order to reach
their opinion, they performed a range of procedures which included interviews
with management, examination of reporting systems, sites visits to four operating
companies, as well as specific data testing at Head Office. A summary of the work
they performed is included within their assurance opinion.

Non-financial performance information, greenhouse gas quantification in
particular, is subject to more inherent limitations than financial information.
It is important to read the Selected Information in the context of KPMG’s
full limited assurance statement and the reporting criteria as set out in the
Cobham’s reporting guidelines available at www.cobhamsustainability.com/
at-a-glance/downloads.aspx.

Further detail on Cobham’s CR&S approach, objectives and performance is also
available on pages 38 to 41.

Compliance with Listing Rule 9.8.4 R
The table below gives the location of information required to be included in
the Annual Report and Accounts.

Listing Rule

Information

Response

LR 9.8.4 (1)

Amount of interest capitalised and
amount and treatment of tax relief.

Not applicable: no
interest capitalised.

LR 9.8.4 (2)

Information required by Listing Rule
9.2.18 regarding the prior publication
of unaudited financial information.

Not applicable.

LR 9.8.4 (3)

Rule deleted.

Not applicable.

LR 9.8.4 (4)

LR 9.8.4 (5)

Long-term incentive schemes
where only participant is a Director or
prospective director of the company
and the arrangement is established
specifically to facilitate the recruitment
or retention of the director.

Arrangements under which a Director
has waived or agreed to waive
emoluments from the company
or any subsidiary undertaking.

Not applicable: no
such arrangement was
entered into during the
reporting period.

Not applicable: no such
arrangement exists.

LR 9.8.4 (6)

Agreements with a Director to waive
future emoluments.

Not applicable: no such
agreement exists.

LR 9.8.4 (7)

LR 9.8.4 (8)

LR 9.8.4 (9)

LR 9.8.4 (10)

LR 9.8.4 (11)

LR 9.8.4 (12)

Details of shares allotted during
the period under review which have
been allotted to existing shareholders
in proportion to their shareholdings
and which have not been specifically
authorised by the Company’s
shareholders.

Shares allotted in major subsidiary
undertakings during the period under
review which have not been allotted
to existing shareholders in proportion
to their shareholdings.

Details of any parent undertaking’s
participation in any placing during
the period under review.

Details of any contract of significance
(as defined by the Listing Rules) existing
between Cobham, or any of its subsidiaries,
in which either a director is materially
interested or one of the parties is a
controlling shareholder of Cobham.

Not applicable, no
shares allotted during
the period.

Not applicable: no
individual subsidiary
is a major subsidiary
undertaking as defined
by the Listing Rules.

Not applicable:
Cobham does not have
a parent undertaking.

Not applicable: no
such contract of
significance exists.

Details of any contract for the provision
of services to Cobham, or any of its
subsidiaries, by a controlling shareholder.

Not applicable:
Cobham does not have
a controlling shareholder.

Details of any arrangement under which
a shareholder has waived or agreed to
waive any dividends.

The trustees of the
employee benefit trust
have elected to waive
dividends, except in
circumstances where
they may be holding
shares beneficially
owned by participants.

As noted above.

Not applicable:
Cobham does not have
a controlling shareholder.

LR 9.8.4 (13)

LR 9.8.4 (14)

Details of any arrangement under
which a shareholder has agreed to
waive future dividends.

Agreements with any controlling
shareholder.

By order of the Board

Lyn Colloff
Company Secretary
2 March 2016

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comStatement of Directors’ Responsibility

The Directors are responsible for preparing the Annual Report and Accounts,
the Directors’ Remuneration Report and the Group Financial Statements in
accordance with applicable laws and regulations.

Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the Group Financial
Statements in accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU, and the Parent Company Financial Statements in
accordance with Financial Reporting Standard 101 (FRS 101), Reduced Disclosure
Framework. The Company transitioned from previous United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards) to
FRS 101 for all periods presented. Under company law, the Directors must not
approve the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company, and of the
profit or loss of the Group and the Company for that period.

In preparing those financial statements, the Directors are required to:
− Select suitable accounting policies and then apply them consistently;
− Make judgements and accounting estimates that are reasonable

and prudent;

− State whether IFRS, as adopted by the EU, and applicable UK Accounting

Standards have been followed, subject to any material departures disclosed
and explained in the Group and Parent Company Financial Statements
respectively; and

− Prepare the Group and Parent Company Financial Statements on the going
concern basis unless it is inappropriate to presume that the Group and the
Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and the
Group and to enable them to ensure that the Group Financial Statements and
the Directors’ Remuneration Report comply with the Companies Act 2006 and,
as regards the Group Financial Statements, Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets of the Company and the Group
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.

The Directors are responsible for the maintenance and integrity of the Group’s
website. Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s performance, business model and strategy.

Directors’ Responsibility Statement
Each of the Directors, whose names and functions are listed on pages
42 and 43, confirm that, to the best of their knowledge:
− The Group Financial Statements, which have been prepared in accordance
with the IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and

− The Strategic Report includes a fair review of the development and

performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that it faces.

Directors’ declaration in relation to relevant audit information
In the case of each Director in office at the date the Directors’ Report is
approved, that:
− So far as the Director is aware, there is no relevant audit information of

which the Group’s auditors were unaware; and

− He or she has taken all the steps that he or she ought to have taken as a
Director in order to make himself or herself aware of any relevant audit
information and to establish that the Group’s auditors are aware of that
information.

The Responsibility Statement was approved by the Board of Directors on
2 March 2016 and signed on its behalf by:

Bob Murphy
Chief Executive Officer
2 March 2016

Simon Nicholls
Chief Financial Officer
2 March 2016

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comCORPORATE GOVERNANCEIndependent Auditors’ Report to the members of Cobham plc

The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) (ISAs (UK & Ireland)).

We designed our audit by determining materiality and assessing the risks of
material misstatement in the financial statements. In particular, we looked
at where the Directors made subjective judgements, for example in respect
of significant accounting estimates that involved making assumptions and
considering future events that are inherently uncertain. As in all of our audits,
we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the Directors that represented
a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit,
including the allocation of our resources and effort, are identified as areas of
focus in the following table. We have also set out how we tailored our audit
to address these specific areas in order to provide an opinion on the financial
statements as a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete list of all risks
identified by our audit.

Report on the Group Financial Statements

Our opinion
In our opinion, Cobham plc’s Group Financial Statements (the financial
statements):
− Give a true and fair view of the state of the Group’s affairs as at 31 December

2015 and of its loss and cash flows for the year then ended;

− Have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union; and

− Have been prepared in accordance with the requirements of the Companies

Act 2006 and Article 4 of the IAS Regulation.

What we have audited
The financial statements, included within the Annual Report and Accounts
(the Annual Report), comprise:
− The Consolidated Income Statement and Consolidated Statement
of Comprehensive Income for the year ended 31 December 2015;

− The Consolidated Balance Sheet as at 31 December 2015;
− The Consolidated Statement of Changes in Equity for the year then ended;
− The Consolidated Cash Flow Statement for the year then ended; and
− The Notes to the Financial Statements, which include a summary of
significant accounting policies and other explanatory information.

Certain required disclosures have been presented elsewhere in the Annual Report,
rather than in the notes to the financial statements. These are cross-referenced
from the financial statements and are identified as audited. The financial
reporting framework that has been applied in the preparation of the financial
statements is applicable law and IFRSs as adopted by the European Union.

Our audit approach
Overview

Materiality:
− Overall Group materiality: £14m which represents 5% of underlying profit

before tax.

Audit scope:
− We conducted audit work in five countries covering 31 reporting units;
− We performed full scope audits of 17 reporting units in the UK, Australia,

France and Denmark;

− Our work conducted in the US was executed at 12 reporting units where
we completed audit procedures on specific line items such as revenue
or inventory, and 2 further reporting units where we performed other
limited procedures.

Areas of focus:
− Revenue and profit recognition on contracts;
− Goodwill and acquired intangible asset impairment assessments;
− Inventory provisioning;
− Identification and measurement of non-underlying costs;
− Accounting for uncertain tax provisions; and
− Accounting for acquisitions and disposals.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comArea of focus

How our audit addressed the area of focus

Revenue and profit recognition on contracts
Refer to page 54 (Audit Committee Report) and page 83 (note 1, Accounting
policies, management judgement and estimation uncertainty – contract risk
and programme execution).

For revenue from the sale of goods, we focused on cut-off around the year end
because material revenue transactions can occur close to that date.

The Group also has a number of significant contracts which span more than
one accounting period. In particular, we focused on complex development
and production contracts on aerial refuelling aircraft (including KC-46, KC-390,
A400M and 330MRTT). The nature of much of the contracting work done by
the Group means that there are reasonably frequent contractual issues, variations
and renegotiations that arise in the ordinary course of business, whose resolution
is uncertain.

Costs incurred can significantly exceed amounts estimated at inception as a
result of material enhancements to the specifications originally assumed under
the contracts. For the contracts detailed above, we focused on:

− The recognition of significant revenue milestones which often involve

judgement surrounding the achievement of those milestones;

− The amount of revenue assumed as recoverable from customer claims

which are subject to commercial negotiation;

− Whether contracts with the same customer should be accounted for as

separate or linked;

− Whether the profit recognised on revenue in the year is appropriate; and
− Whether associated assets held on the balance sheet (work in progress

and accrued income) are recoverable or whether a contract loss provision
should be recorded.

Goodwill and acquired intangible asset impairment assessments
Refer to page 54 (Audit Committee Report), page 83 (note 1, Accounting
policies, management judgement and estimation uncertainty – impairment
of goodwill), pages 94 and 95 (note 10, Intangible assets) and page 112
(note 27, Business combinations (prior year restatement)).

The Group has goodwill of £1,147m and intangibles of £582m on its Balance
Sheet. There is the risk that these balances cannot be supported by the future cash
flows of the CGUs. Management conducts an annual impairment test of goodwill
balances and intangibles are reviewed whenever there is an indicator that an asset
may be impaired.

During 2015, the goodwill relating to two out of the total of 18 CGUs was fully
impaired as follows:

− The goodwill arising on the acquisition of Telerob was impaired by £27m

following a year of poor trading performance;

− Following the decision by management to sell the business the goodwill
relating to the Surveillance business was also fully written down, resulting
in an impairment charge of £45m.

We tested the recognition of revenue transactions close to the period end
to establish whether they were recorded in the correct period. This included
agreement to external shipping evidence or authorised milestone documentation,
with customer acceptance where appropriate. Misstatements identified were
discussed with management and corrected within the financial statements.
Additional cut-off testing was performed in the businesses where misstatements
were identified to check that the correction adjustments were correct. We are
satisfied that the adjustments made were materially correct.

We assessed, through reviews of significant contracts, the basis of profit recognition
on the Group’s significant contracts, together with whether it is appropriate to
account for them as separate or linked contracts. We evaluated the accounting in
the context of the Group accounting policies and contract terms. We found the
accounting, in all material respects, to be in accordance with the policies and
contract terms.

We challenged the reasonableness of the assumptions behind estimated costs
to complete by considering management’s track record of achieving estimates,
meeting with engineering staff regarding project estimates, confirming the basis
of overhead rates used and obtaining purchase orders for materials. We found
the assumptions to be supported by the evidence we examined.

We agreed total contracted revenue to either original signed customer contracts,
approved change orders or to evidence of customer discussions and agreements.
We evaluated the reasonableness of estimated revenue through a review of, and
discussion on, customer claims submitted to recover additional costs incurred,
including considering correspondence with the customer and legal advice received
where appropriate. Customer claims reflect changes in project scope for which we
rely on the achievement of historic management estimates.

We assessed the contract loss provisions recorded through a combination of the
procedures above in respect of the overall margin anticipated on the contract
and validating that fixed overheads had been appropriately excluded.

We assessed management’s impairment testing relating to all of the 18 CGUs
by obtaining the supporting model and assessing the methodology and key
assumptions made:

− Future cash flow forecasts: we evaluated the Directors’ future cash flow
forecasts and tested the underlying values used in the calculations by
comparing the Directors’ forecast to the latest Board approved five year
strategic plan;

− Discount rates: we have an internally developed range of acceptable discount

rates for valuing CGUs, which is based on our view of various economic
indicators. We are satisfied that the discount rates used by the Directors
fall within this range for all territories with the exception of Europe, where
the Directors have adopted a more conservative rate. This did not result in
a material misstatement;

− Long term growth rates: we compared the rates applied by management to
our own internally developed published rates. No inconsistencies were noted.

We performed sensitivity analysis around the key assumptions for all 18 CGUs in
order to ascertain the extent of change in those assumptions required individually
or collectively to result in a further impairment of goodwill or intangible assets.
For those business units which were most sensitive, we discussed the basis for
these cash flows with senior management and the Audit Committee. In particular
we have focused on the recoverability of the goodwill and intangible assets
acquired as part of the acquisition of the Aeroflex business in the prior year, which
generated goodwill and intangible assets of £947m and the SATCOM business unit
which has experienced trading headwinds in the year, which had a goodwill balance
at the year end of £222m.

We challenged management over the sensitivity disclosures presented in the
financial statements to ensure all reasonably possible changes to assumptions that
could lead to a material impairment had been appropriately considered and where
necessary disclosed. We are satisfied that the disclosures made and the overall
impairment testing performed by management are appropriate.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Independent Auditors’ Report to the members of Cobham plc continued

Area of focus

How our audit addressed the area of focus

Inventory provisioning
Refer to page 54 (Audit Committee Report), page 83 (note 1, Accounting
policies, management judgement and estimation uncertainty – inventory
provisions) and page 97 (note 13, Inventories).

The nature of much of the Group’s business means that the products developed
can become technically obsolete. It is also necessary to hold additional spare parts
in order to support key customers and programmes should the products require
replacement or servicing. The Group had gross inventory of £459m and provisions
for obsolescence of £49m on its Balance Sheet.

We focused on this area because inventory provisions include subjective estimates
and are influenced by assumptions concerning future realisable value and usage.

In addition, the methods used for this estimate vary between reporting units
depending on the nature of the business and inventory.

Identification and measurement of non-underlying costs
Refer to page 54 (Audit Committee Report), page 83 (note 1, Accounting
policies, management judgement and estimation uncertainty – definitions)
and page 88 (note 2, Underlying measures).

The financial statements include business restructuring costs of £68m which
are disclosed as non-underlying and are excluded from underlying operating
profit. We focused on this area because IFRSs do not define which items may
be excluded from underlying operating profit and it therefore requires judgement
around the justification for such exclusion. Consistency in identifying and disclosing
items to be excluded from underlying operating profit is important to maintain
comparability of the results year on year. In 2015 these business restructuring
costs relate primarily to the integration of the Aeroflex business acquired in 2014.

Accounting for uncertain tax provisions
Refer to page 54 (Audit Committee Report), page 83 (note 1, Accounting
policies, management judgement and estimation uncertainty – taxation).

The Group has a wide geographic footprint and is subject to tax laws in a number
of jurisdictions. The Group has a number of open tax enquiries and has recognised
a number of centrally held provisions against uncertain tax positions, the valuation
of which is a highly judgemental area. Where tax positions are not settled with the
tax authorities, the Directors take into account precedent and the advice of
external experts.

Accounting for acquisitions and disposals
Refer to page 54 (Audit Committee Report), page 100, 112 and 113 (notes
16 – Non-current assets and disposal groups held for sale, 27– Business
combinations (prior year restatement), and 28 – Business divestments).

The acquisition accounting of the Aeroflex business in the prior year required
a number of judgements surrounding the fair value adjustments to net assets
acquired. This year, the final adjustments have been recorded by management
resulting in a reduction in net assets acquired of £46m with an equal increase in
goodwill. In accordance with IAS 8, the Balance Sheet as at 31 December 2014
as previously reported has been restated.

The Group has undertaken a number of divestments during the year which has
resulted in a £31m net profit after tax. As some disposals formed part of the
recently acquired Aeroflex business the key focus of our work has been assessing
management’s judgement in the carve-out of goodwill and intangibles from within
the CGU.

As a consequence of the decision made in the year to divest the Surveillance
businesses, the assets and liabilities relating to these business units have been
classified as held for sale at the balance sheet date.

We assessed the process, methods and assumptions used to develop the
provision for slow moving, excess or obsolete items. This included comparing
management’s calculations for consistency against those used in the prior year
and considering whether there was any indication of management bias such
as manual overrides to the established methodology. Manual overrides are
typically in respect of spares held for the servicing of products on aircraft
which have a long service life. Where overrides were material, we considered
the appropriateness of management’s judgement based on historical usage
and future usage expectations.

For reporting units included within full scope we tested the reliability of the
underlying data used by management to calculate the inventory obsolescence
provisions, typically an aged inventory analysis showing last movements, by
re-performing the ageing calculation driven by the system. We also tested the
accuracy of the resultant calculation by assessing the calculation criteria and
recalculating the provision for a sample of products.

No material misstatements were identified.

We tested the presentation of the business restructuring costs as non-underlying
by assessing whether the classification was in line with the Group’s accounting
policy on such items on page 88 of the financial statements. This included testing
a sample of the costs incurred to supporting evidence such as external purchase
invoices, redundancy agreements and personnel costs for staff dedicated to these
restructuring projects. We also assessed the appropriateness of this policy and no
material issues were identified.

We discussed with management the known uncertain tax positions and read
correspondence from tax authorities and external legal counsel on open tax
enquiries.

We assessed the adequacy of the Directors’ taxation provisions by considering
factors such as the risk profile of each matter and whether the provision addresses
possible penalties and interest. We met with senior management and challenged
the judgements made in relation to the likelihood of litigation from tax authorities
by comparing management’s assessment against our own independent views
which are based on our independent perception of risk. We found that the
judgements made by management were within our expected ranges.

We have assessed the final fair value adjustments made to the opening
Aeroflex balance sheet and have understood the rationale for management’s
calculations of the adjustments to provisions. We have obtained the supporting
documentation for the additional provisions recognised and have not identified
any material misstatements. We reviewed the presentation of the prior year
restatement with no material misstatements identified.

We have reviewed the sale and purchase agreements relating to the divestments,
and have agreed the cash consideration received to bank statements. We
challenged management on their decision to carve out the goodwill and
intangibles based on underlying profits and not total assets and concur with this
assumption on the basis that the initial valuation of the business was based on
expected future cash flows.

Specifically relating to the divestment of the Surveillance businesses in 2016,
we have confirmed that assets have been correctly written down to their fair
value and have been correctly classified as held for sale in the financial statements.
We have reviewed the sale and purchase agreement relating to this divestment
and have not identified any usual terms.

We are satisfied that the accounting for divestments, both completed and
in progress at the year end date have been appropriately accounted for and
disclosed in the financial statements.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work
to be able to give an opinion on the financial statements as a whole, taking into
account the geographic structure of the Group, the accounting processes and
controls, and the industry in which the Group operates.

Rationale for benchmark
applied

The Group is structured along four reported Sectors, being Advanced Electronic
Solutions, Aviation Services, Communications and Connectivity, and Mission
Systems. The Group Financial Statements are a consolidation of 67 reporting
units within these Sectors, comprising the Group’s operating businesses and
centralised functions. Accordingly, of the Group’s 67 reporting units, we identified
17 which, in our view, required an audit of their complete financial information,
due to their size, their risk characteristics or because some are covered on a
rotational basis over a two or three year cycle. Specific audit procedures on
certain balances and transactions (typically including at least revenue and
inventory) were performed at a further 12 reporting units. Audit procedures were
performed at all principal manufacturing locations, all significant Aviation Services
reporting units and at the four largest components of the Aeroflex acquisition in
the year.

79% of the Group’s revenue is accounted for by reporting units where we
performed full scope audit work or performed specific audit procedures over
revenue. 43% of the Group’s underlying profit before taxation is accounted
for by the 17 reporting units where we performed full scope audit work on the
complete financial information. In the US, as a result of our assessment of their
size and risk characteristics, we determined that 12 US entities did not require an
audit of their complete financial information, but rather, audit procedures were
required only on significant financial statement line items within the income
statement and balance sheet. At a further 28 reporting units, we performed
analytical procedures on each to understand key balances and transactions
in the year and performed additional procedures on any unusual balances
identified. In addition we have performed a review of significant journals posted
within the sector consolidations. All of these audit procedures, together with
additional procedures performed at Group level, including a review of significant
adjustments made to the financial statements, gave us the evidence we needed
for our opinion on the financial statements as a whole.

In establishing the overall approach to the Group audit, we determined the
type of work that needed to be performed at the reporting units by us, as the
Group engagement team, or subsidiary audit teams from other PwC network
firms operating under our instruction. Where the work was performed by
subsidiary audit teams, we determined the level of involvement we needed to
have in the audit work at those reporting units to be able to conclude whether
sufficient appropriate evidence had been obtained as a basis for our opinion
on the financial statements as a whole. This included attending the audit close
meetings at which the outcome of each subsidiary audit was discussed and
visiting a number of larger subsidiary audit teams during their fieldwork
including the two key reporting units with the aerial refuelling development
and production contracts.

Where subsidiary audit teams performed work at the reporting unit level on
behalf of the Group team, this work was performed to lower materiality levels
appropriate to the individual units. These materiality levels ranged from £0.7m
to £5m.

Materiality
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with qualitative
considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement
line items and disclosures and in evaluating the effect of misstatements, both
individually and on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:

Overall Group materiality

£14m (2014: £13m).

How we determined it

5% of underlying profit before tax.

Underlying profit before taxation is defined in
the Annual Report on page 84. We believe that
underlying profit before taxation represents an
appropriate metric for assessing the performance
of the Group and provides us with a consistent
year on year basis for determining materiality. It
is the amount reported by management both
internally and externally to the market. We also
considered our overall Group materiality in the
context of the Group’s revenue, noting that it
represents less than 0.7%.

We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £0.5m (2014: £0.5m) as well as misstatements
below that amount which, in our view, warranted reporting for qualitative reasons.

Going concern
Under the Listing Rules we are required to review the Directors’ statement, set
out on page 31, in relation to going concern. We have nothing to report having
performed our review.

Under ISAs (UK & Ireland) we are required to report to you if we have anything
material to add or to draw attention to in relation to the Directors’ statement
about whether they considered it appropriate to adopt the going concern basis
in preparing the financial statements. We have nothing material to add or to draw
attention to.

As noted in the Directors’ statement, the Directors have concluded that it
is appropriate to adopt the going concern basis in preparing the financial
statements. The going concern basis presumes that the Group has adequate
resources to remain in operation, and that the Directors intend it to do so, for
at least one year from the date the financial statements were signed. As part
of our audit we have concluded that the Directors’ use of the going concern
basis is appropriate. However, because not all future events or conditions can
be predicted, these statements are not a guarantee as to the Group’s ability to
continue as a going concern.

Other required reporting
Consistency of other information
Companies Act 2006 opinions
In our opinion, the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.

ISAs (UK and Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:

− Information in the Annual Report is:

− materially inconsistent with the information

in the audited financial statements; or

− apparently materially incorrect based on, or

materially inconsistent with, our knowledge of
the Group acquired in the course of performing
our audit; or

− otherwise misleading.

− The statement given by the Directors on page 45, in
accordance with provision C.1.1 of the UK Corporate
Governance Code (the Code), that they consider the
Annual Report taken as a whole to be fair, balanced
and understandable and provides the information
necessary for members to assess the Group’s position
and performance, business model and strategy is
materially inconsistent with our knowledge of the
Group acquired in the course of performing our audit.

− The section of the Annual Report on page 52, as

required by provision C.3.8 of the Code, describing
the work of the Audit Committee does not
appropriately address matters communicated
by us to the Audit Committee.

We have no
exceptions
to report.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Independent Auditors’ Report to the members of Cobham plc continued

The Directors’ assessment of the prospects of the Group and of
the principal risks that would threaten the solvency or liquidity
of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything
material to add or to draw attention to in relation to:

We have nothing
material to add or to
draw attention to.

− The Directors’ confirmation on page 34 of the Annual
Report, in accordance with provision C.2.1 of the Code,
that they have carried out a robust assessment of the
principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency or liquidity.

− The disclosures in the Annual Report that describe

those risks and explain how they are being managed
or mitigated.

− The Directors’ explanation on page 34 of the Annual

Report, in accordance with provision C.2.2 of the Code,
as to how they have assessed the prospects of the
Group, over what period they have done so and why
they consider that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over
the period of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.

Under the Listing Rules we are required to review the Directors’ statement
that they have carried out a robust assessment of the principal risks facing the
Group and the Directors’ statement in relation to the longer term viability of
the Group. Our review was substantially less in scope than an audit and only
consisted of making inquiries and considering the Directors’ process supporting
their statements; checking that the statements are in alignment with the relevant
provisions of the Code; and considering whether the statements are consistent
with the knowledge acquired by us in the course of performing our audit. We
have nothing to report having performed our review.

Adequacy of information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our
opinion, we have not received all the information and explanations we require
for our audit.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Under the Companies Act 2006 we are required to report to you if, in our
opinion, certain disclosures of Directors’ remuneration specified by law are
not made.

We have no exceptions to report arising from this responsibility.

Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate
Governance Statement relating to ten further provisions of the Code.

We have nothing to report having performed our review.

Responsibilities for the financial statements
and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibility, the
Directors are responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view.

Our responsibility is to audit and express an opinion on the financial statements in
accordance with applicable law and ISAs (UK & Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Parent
Company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of:
− Whether the accounting policies are appropriate to the Group’s

circumstances and have been consistently applied and adequately disclosed;

− The reasonableness of significant accounting estimates made by the

Directors; and

− The overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements
against available evidence, forming our own judgements, and evaluating the
disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques,
to the extent we consider necessary to provide a reasonable basis for us to draw
conclusions. We obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies, we consider the implications for our report.

Other matter
We have reported separately on the Parent Company Financial Statements of
Cobham plc for the year ended 31 December 2015 and on the information in
the Directors’ Remuneration Report that is described as having been audited.

Pauline Campbell
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2016

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGroup Financial Statements Index

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Notes to the Group Financial Statements
1. Accounting policies
2. Underlying measures
3. Revenue and segmental information
4. Operating costs
5. Finance income and costs
6. Taxation
7. Dividends
8. Earnings per ordinary share
9. Cash and cash equivalents and net debt
10. Intangible assets
11. Property, plant and equipment
12. Investment properties
13. Inventories
14. Financial instruments
15. Trade and other receivables
16. Non-current assets and disposal groups held for sale
17. Borrowings
18. Trade and other payables
19. Provisions
20. Deferred tax
21. Derivative financial instruments
22. Retirement benefit schemes
23. Financial risk management
24. Share capital
25. Other reserves
26. Share based payments
27. Business combinations (prior year restatement)
28. Business divestments
29. Operating lease arrangements
30. Contingent liabilities
31. Related party transactions
32. Subsidiaries and other related undertakings
33. Events after the balance sheet date

83
88
89
90
91
92
93
93
93
94
96
96
97
97
99
100
100
101
102
102
104
104
107
110
111
111
112
113
114
114
114
115
118

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Note
3

5
5

Note

2015
2,072.0
(1,408.2)
663.8
(130.1)
(521.7)
12.0
5.2
(57.0)
(39.8)
2.1
(37.7)

(37.8)
0.1
(37.7)

(3.35)p
(3.35)p

2015
12.0

67.5
18.8
176.8
26.6
–
30.5
332.2

2014
1,851.7
(1,290.1)
561.6
(100.3)
(403.7)
57.6
6.4
(39.7)
24.3
4.7
29.0

28.8
0.2
29.0

2.60p
2.58p

2014
57.6

52.2
21.8
113.6
–
0.8
40.7
286.7

19.48p

18.48p

Consolidated Income Statement
For the year ended 31 December 2015

£m
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating profit
Finance income
Finance costs
(Loss)/profit before taxation
Taxation
(Loss)/profit after taxation for the year

Attributable to:
Owners of the parent
Non-controlling interests

Earnings per ordinary share
Basic
Diluted

Trading profit is calculated as follows:

Underlying EPS

The definitions of trading profit and underlying EPS are shown in note 1.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comConsolidated Statement of Comprehensive Income
For the year ended 31 December 2015

£m
(Loss)/profit after taxation for the year

Items that will not be reclassified subsequently to profit or loss
Remeasurements of defined benefit retirement benefit obligations
Actuarial loss on other retirement benefit obligations
Tax effects

Items that may subsequently be reclassified to profit or loss
Net translation differences on investments in overseas subsidiaries
Reclassification of cash flow hedge fair values
Hedge accounted derivative financial instruments
Tax effects

Other comprehensive expense for the year

Total comprehensive expense for the year

Attributable to:
Owners of the parent
Non-controlling interests

Note

22
22
6

25
25
25
6

2015
(37.7)

29.6
–
(5.9)
23.7

(38.2)
1.1
–
(0.2)
(37.3)

(13.6)

(51.3)

(51.4)
0.1
(51.3)

2014
29.0

(27.7)
(0.7)
5.0
(23.4)

(18.7)
1.3
1.6
(0.9)
(16.7)

(40.1)

(11.1)

(11.3)
0.2
(11.1)

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Consolidated Balance Sheet
As at 31 December 2015

£m

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment properties
Investments in joint ventures and associates
Trade and other receivables
Other financial assets
Deferred tax
Derivative financial instruments

Current assets
Inventories
Trade and other receivables
Current tax receivables
Derivative financial instruments
Cash and cash equivalents
Assets classified as held for sale

Liabilities
Current liabilities
Borrowings
Trade and other payables
Provisions
Current tax liabilities
Derivative financial instruments
Liabilities associated with assets classified as held for sale

Non-current liabilities
Borrowings
Trade and other payables
Provisions
Deferred tax
Derivative financial instruments
Retirement benefit obligations

Net assets

Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity attributable to the owners of the parent
Non-controlling interests in equity
Total equity

Note

2015

2014
Restated

10
11
12

15
14
20
21

13
15

21
9
16

17
18
19

21
16

17
18
19
20
21
22

1,729.5
379.9
4.3
3.0
71.3
6.1
11.4
6.5
2,212.0

410.4
366.0
8.6
9.1
294.7
16.8
1,105.6

(156.4)
(398.1)
(74.3)
(125.1)
(30.6)
(12.7)
(797.2)

(1,345.1)
(24.8)
(68.2)
(102.0)
(13.9)
(56.7)
(1,610.7)

2,040.8
390.0
10.4
3.1
51.1
6.1
10.5
7.6
2,519.6

429.5
435.3
0.4
8.7
225.6
2.1
1,101.6

(1.5)
(505.5)
(60.5)
(119.2)
(20.7)
–
(707.4)

(1,446.8)
(36.2)
(66.5)
(134.5)
(15.5)
(102.0)
(1,801.5)

909.7

1,112.3

30.4
301.9
(0.3)
576.8
908.8
0.9
909.7

30.4
301.9
42.7
736.4
1,111.4
0.9
1,112.3

Details of the restatement of the 2014 Balance Sheet can be found in note 27. The financial statements on pages 78 to 118 were approved by a duly appointed and
authorised committee of the Board on 2 March 2016 and signed on its behalf by:

Bob Murphy
Directors

Simon Nicholls

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Consolidated Statement of Changes in Equity
For the year ended 31 December 2015

GROUP FINANCIAL STATEMENTS

£m
Total equity at 1 January 2014

Profit for the year
Items that will not be reclassified subsequently to profit or loss
Items that may subsequently be reclassified to profit or loss
Total comprehensive expense for the year

Issue of shares
Net proceeds from treasury shares
Dividends (note 7)
Share based payments (note 26)
Transfer of other reserves to retained earnings
Tax effects (note 6)
Foreign exchange adjustments
Total equity at 31 December 2014

Loss for the year
Items that will not be reclassified subsequently to profit or loss
Items that may subsequently be reclassified to profit or loss
Total comprehensive expense for the year

Net purchase of treasury shares
Dividends (note 7)
Share based payments (note 26)
Transfer of other reserves to retained earnings
Tax effects (note 6)
Foreign exchange adjustments
Total equity at 31 December 2015

Share
capital
28.9

Share
premium
126.6

Other
reserves
(note 25)
55.2

Retained
earnings
832.7

Total
attributable
to owners
of the
parent
1,043.4

Non-
controlling
interests
0.8

–
–
–
–

1.5
–
–
–
–
–
–
30.4

–
–
–
–

–
–
–
–
–
–
30.4

–
–
–
–

175.3
–
–
–
–
–
–
301.9

–
–
–
–

–
–
–
–
–
–
301.9

–
–
(16.7)
(16.7)

–
–
–
6.1
(3.3)
1.5
(0.1)
42.7

–
–
(37.3)
(37.3)

–
–
(3.0)
(1.5)
(1.1)
(0.1)
(0.3)

28.8
(23.4)
–
5.4

–
3.3
(108.3)
–
3.3
–
–
736.4

(37.8)
23.7
–
(14.1)

(24.9)
(122.1)
–
1.5
–
–
576.8

28.8
(23.4)
(16.7)
(11.3)

176.8
3.3
(108.3)
6.1
–
1.5
(0.1)
1,111.4

(37.8)
23.7
(37.3)
(51.4)

(24.9)
(122.1)
(3.0)
–
(1.1)
(0.1)
908.8

0.2
–
–
0.2

–
–
–
–
–
–
(0.1)
0.9

0.1
–
–
0.1

–
–
–
–
–
(0.1)
0.9

Total
equity
1,044.2

29.0
(23.4)
(16.7)
(11.1)

176.8
3.3
(108.3)
6.1
–
1.5
(0.2)
1,112.3

(37.7)
23.7
(37.3)
(51.3)

(24.9)
(122.1)
(3.0)
–
(1.1)
(0.2)
909.7

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Note

21
22
26

9
9

2015
12.0

(0.2)
254.4
26.6
(1.4)
27.3
18.8
(17.8)
(3.0)

(34.6)
19.1
(38.6)
7.4
(31.5)
(53.0)
3.6
189.1

(97.8)
(18.6)
17.7
–
(52.6)
–
205.2
53.9

–
(122.1)
(29.3)
4.4
257.9
(271.0)
(160.1)

82.9
(13.2)
224.3
294.0

2014
57.6

(0.2)
190.8
–
(0.3)
23.8
21.8
(16.9)
6.1

(11.9)
(68.3)
17.3
12.9
(37.0)
(31.5)
3.7
167.9

(63.7)
(12.4)
2.3
(9.0)
(846.1)
(28.5)
6.6
(950.8)

176.8
(108.3)
(5.5)
8.8
1,467.5
(699.9)
839.4

56.5
(31.2)
199.0
224.3

Consolidated Cash Flow Statement
For the year ended 31 December 2015

£m
Operating profit
Non-cash items:

Share of post-tax profits of joint ventures and associates
Depreciation and amortisation
Impairment of goodwill
Profit on sale of property, plant and equipment
Business acquisition and divestment related items
Derivative financial instruments
Pension contributions in excess of pension charges
Share based payments
Operating cash movements:
Increase in inventories
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Increase in provisions
Tax paid
Interest paid
Interest received

Net cash from operating activities

Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
Investment in loan notes
Acquisition of subsidiaries net of cash or debt acquired
Contingent consideration paid
Proceeds of business divestments
Net cash from/(used in) investing activities

Cash flows from financing activities
Issue of share capital
Dividends paid
Purchase of treasury shares
Proceeds on allocation of treasury shares
New borrowings
Repayment of borrowings
Net cash (used in)/from financing activities

Net increase in cash and cash equivalents
Exchange movements
Cash and cash equivalents at start of year
Cash and cash equivalents at end of year

A reconciliation of cash and cash equivalents to the Balance Sheet and movement in net debt is detailed in note 9.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Notes to the Group Financial Statements

1. Accounting policies

General information
These financial statements are the consolidated financial statements of
Cobham plc (the Company), a public company limited by shares, registered
and domiciled in the United Kingdom and its subsidiaries (the Group).

Basis of preparation
These consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted by the EU,
interpretations of the IFRS Interpretations Committee and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.

These financial statements have been prepared on a going concern basis under
the historical cost convention, unless otherwise stated.

Principal accounting policies
The principal accounting policies, which have been consistently applied unless
otherwise stated, are as set out below.

Accounting developments
Amendments to standards which have been adopted with effect from
1 January 2015 are:

− Amendment to IAS 19, Defined Benefit Plans;
− Annual Improvements 2012;
− Annual Improvements 2013.

The Group has also elected to adopt the Disclosure Initiative – amendments
to IAS 1, from 1 January 2015, earlier than the required effective date.

No changes to previously published accounting policies or other adjustments
were required on the adoption of these amendments.

Management judgement and estimation uncertainty
The preparation of financial statements in conformity with IFRS requires the
use of estimates and judgements that affect the application of accounting
policies and reported amounts of assets, liabilities, revenue and expenses.

These estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. The
current economic conditions have been considered when evaluating
accounting estimates and judgements, including the application of the going
concern basis of preparation. Although estimates are based on management’s
best knowledge of the amount, event or actions, actual results ultimately may
differ from those estimates.

The Board considers that the key assumptions concerning the future and other
key sources of estimation uncertainty at the balance sheet date, which have
a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities in the next financial year, are as follows:

Contract risk and programme execution
The nature of much of the contracting work done by the Group means that
there are reasonably frequent contractual issues, variations and renegotiations
that arise in the ordinary course of business, whose resolution is uncertain and
could materially impact the Group’s future reported earnings.

Failure by Cobham to execute or deliver a project or programme gives rise to
the risk of increased programme costs, contract penalties, litigation and other
financial liabilities, reduced future profitability and reputational risk.

Judgement is therefore required as regards the final costs of technical solutions,
the outcome of negotiations with customers, the amounts recoverable under
these contracts and any provisions required. Where appropriate, the consolidated
financial statements include provisions for the estimated outcome of commercial
disputes and other claims, including those with long term contract partners.

The Directors take account of the advice of experts in quantifying the expected
costs of future adverse outcomes. Due to the inherent uncertainty associated
with such matters, the timing and determination of the total costs or amount
of any payments under any claims could differ from the amounts provided.

Impairment of goodwill and other intangible assets (note 10)
A review of the carrying value of goodwill is completed at least once a year to
ensure that it is not impaired. This requires estimation of the value in use of the
cash generating units (CGUs) to which the goodwill is allocated.

Impairment tests on other intangible assets are undertaken if events occur which
may indicate that these assets may be impaired. The carrying value of intangible
assets is considered annually as part of the goodwill impairment exercise with
reference to the value in use calculation of each CGU.

Estimating value in use requires the Group to make an estimate of the expected
future cash flows from the CGUs and also to choose a suitable discount rate in
order to calculate the present value of those cash flows.

Inventory provisions (note 13)
The nature of much of the Group’s business means that inventory held can become
technically obsolete. It is also necessary to hold additional spare parts in order
to support key customers and programmes. Judgement is required in assessing
the level of provision required for obsolete, slow moving and defective items of
inventory, reflecting assumptions concerning future orders and revenue streams.

Taxation (notes 6 and 20)
The Group is subject to taxes in numerous jurisdictions. Significant judgement
is required in determining the worldwide provision for tax. There are many
transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. The Group recognises liabilities
based on estimates of whether additional taxes will be due. Where the final
tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current and deferred tax provisions
and the Income Statement in the period in which such determination is made.

Business combinations (note 27)
On completion of a business combination, the cost is allocated by recognising
the identifiable assets, liabilities and contingent liabilities acquired at fair value.

Intangible assets are recognised where they are separable or arise from contractual
or legal rights, and have a fair value that can be measured reliably. For the Group,
these intangible assets usually comprise contractual arrangements, customer
relationships and technology based assets, but can also include acquired patents,
software rights and licences and development costs.

In establishing fair value for intangible assets recognised on acquisition and their
estimated useful lives, the Group takes account of the individual circumstances
of the entity acquired. Useful economic lives of intangible assets are reviewed
at least annually to ensure that they continue to be appropriate.

Judgement is also exercised in assessing the fair value of assets and liabilities.
During the measurement period, which cannot be more than one year after the
acquisition date, new information obtained about facts and circumstances that
existed at the acquisition date is considered in assessing these fair values.

Retirement benefits (note 22)
The Group Financial Statements include costs and liabilities in relation to retirement
benefit obligations. A number of assumptions are made in assessing the costs and
present value of the pension assets and liabilities, which include the long term rate
of increase of salary costs, discount rate, inflation and mortality rates. Comparatively
small changes in the assumptions used may have a significant effect on the
Group’s financial statements. The Group uses published indices and independent
actuarial advice to select the values of critical assumptions. These assumptions,
with sensitivity analysis, can be found in note 22.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Notes to the Group Financial Statements continued

Definitions
Underlying measures (note 2)
To assist with the understanding of earnings trends, the Group has included
within its published financial statements non-GAAP measures including trading
profit and underlying earnings results. These are considered by the Board to
be the most meaningful measures under which to assess the true operating
performance of the Group.

All underlying measures include the operational results of all businesses including
those held for sale until the point of sale.

Trading profit (note 2)
This has been defined as operating profit from continuing operations excluding
the impacts of business acquisition and divestment related activity and business
restructuring costs as detailed below. Also excluded are changes in the marking to
market of non-hedge accounted derivative financial instruments, gains and losses
arising on dividend related foreign exchange contracts, impairments of intangible
assets, and items deemed by the Directors to be of an exceptional nature.

Business acquisition and divestment related items excluded from trading
profit and underlying earnings include the amortisation of intangible assets
recognised on acquisition, revaluation gains and losses arising on the
original equity interests on stepped acquisitions, gains or losses arising on
business divestments, adjustments to businesses held for sale, the writing off
of the pre-acquisition profit element of inventory written up on acquisition,
other direct costs associated with business combinations and terminated
divestments, and adjustments to contingent consideration related to
previously acquired businesses.

Business restructuring costs relate to the restructuring of the Group’s portfolio
which are incremental to normal operations. In 2015, these relate primarily to
the integration of the Aeroflex businesses acquired in 2014.

Underlying earnings (note 2)
Underlying earnings are defined as trading profit less net underlying finance
costs, which excludes acquisition related items, and after deducting associated
taxation and non-controlling interests.

Net debt (note 9)
Net debt is defined as the net of borrowings less cash and cash equivalents at
the balance sheet date.

Free cash flow and operating cash flow (note 2)
Free cash flow is defined as net cash from operating activities plus dividends
received from joint ventures, less cash flows related to the purchase or disposal
of property, plant, equipment and intangible assets but excluding payments
relating to M&A related activities.

Operating cash flow is free cash flow before payment of tax, interest and
restructuring costs.

Operating segments (note 3)
The chief operating decision making body for the Group has been identified
as the Board. It reviews the Group’s internal reporting in order to assess
performance and allocate resources. Details of the composition and purpose
of the Board can be found on pages 42 and 43.

The Group reports four operating segments whose revenue and results are
reported to the Board. These are Communications and Connectivity, Mission
Systems, Advanced Electronic Solutions and Aviation Services. All operating
segments meet the definition of reportable segments as defined in IFRS 8.
The principal activities of these segments are described on pages 20 to 25.

The Board assesses the trading performance of operating segments based
on revenue and trading profit as defined above. Finance income, finance
costs and taxation are not segmented and are reviewed by the Board on a
consolidated basis. Segment net assets are disclosed voluntarily in note 3 and
include intangible assets, property, plant and equipment, investment properties,
inventory, trade and other receivables, trade and other payables and provisions.
They do not include tax, net debt, derivative financial instruments, contingent
consideration payable or retirement benefit obligations.

Basis of consolidation
The Group Financial Statements include the financial statements of the Parent
Company, Cobham plc, and of all its subsidiaries.

Subsidiaries are all entities over which the Group has control, which is defined
as the power to govern the financial and operating policies of an enterprise
so as to obtain benefits from its activities. Subsidiaries are fully consolidated
from the date on which control is transferred to the Group until the date that
control ceases. On derecognition, any amounts previously recognised in Other
Comprehensive Income (OCI) in respect of that entity are accounted for as
if the Group had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognised in OCI are reclassified to profit or loss.

Joint ventures are entities where the parties that have joint control have rights
to the net assets of the arrangement. Associates are entities where the Group
has significant influence. Joint ventures and associates are not consolidated
but are accounted for using the equity method. The Group Financial Statements
include the Group’s share of the post-acquisition change in net assets and the
post-tax profit or loss of jointly controlled entities and associates from the date
that joint control or significant influence commences until the date this ceases.
All intra-group transactions, balances, income and expenses are eliminated
on consolidation.

Foreign currencies
The presentation currency of the Group is sterling. Most Group companies,
including the Parent Company, use their local currency as their functional
currency. Transactions in currencies other than the functional currency are
translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in non-functional currencies are retranslated
at the exchange rate ruling at the balance sheet date and any exchange
differences arising are taken to the Income Statement.

For consolidation purposes, the assets and liabilities of foreign operations are
translated at the closing exchange rates. Income statements of such undertakings
are consolidated at the average rates of exchange as an approximation for actual
rates during the year. Exchange differences arising on these translations are
accounted for in OCI and the translation reserve. On divestment, these exchange
differences are reclassified from the translation reserve to the Income Statement.

Business combinations (note 27)
Businesses acquired are accounted for using the acquisition method of
accounting with effect from the date control passes. The excess of the fair
value of consideration transferred over the fair value of the Group’s share of
the identifiable net assets acquired is recorded as goodwill. Where a business
combination is completed in stages, any previously held interests are remeasured
to fair value at the date at which control is achieved. Any resulting gain or loss
is recognised in the Income Statement. Acquisition related costs are expensed
as incurred.

Revenue recognition
Revenue is measured at the fair value of the right to consideration, net of returns
and other allowances, and excludes intercompany sales, value added tax and
other sales taxes.

Revenue from the sale of goods not under a long term contract is recognised
when the significant risks and rewards of ownership and effective control of
the goods have been passed to the customer, recovery of the consideration is
probable, and the amount of revenue and costs can be measured reliably. In
the case of contracts with a long duration, including contracts with a funded
development phase, revenue is recognised based upon the fair value of work
performed to date assessed with reference to completed contract milestones
which have been accepted by the customer.

Long term contract accounting as described in IAS 11, Construction Contracts is
not generally applicable to the longer term contracts for sales of goods entered
into by Group companies. Where long term contract accounting is applicable,
revenue is recognised on a percentage of completion basis whereby a portion
of the contract revenue is recognised based on contract costs incurred to date
compared with total estimated costs at completion.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comRevenue for services is recognised as the services are rendered with reference to
the proportion of the service delivered to date. For ‘cost-plus’ contracts (typically
with government departments and agencies), revenue is recognised to the extent
of reimbursable costs incurred, plus a proportionate amount of the estimated
fee earned. For contracts where revenue is determined on a unit activity basis,
revenue is recognised on the basis of activity undertaken in the period.

Taxation including deferred taxation (notes 6 and 20)
The tax expense is the sum of current tax and deferred tax.

Current tax is provided at the amounts expected to be paid, using rates that have
been enacted or substantively enacted at the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect
of temporary differences arising between the tax bases of assets and liabilities
and their carrying values in the consolidated financial statements. Deferred tax
is calculated using the tax rates and laws that have been enacted or substantively
enacted by the balance sheet date and that are expected to apply to the period
when the asset is realised or the liability is settled.

Tax is charged or credited to the Income Statement except when it relates to
items recognised in OCI or directly in equity, in which case the deferred tax is
also dealt with in OCI or in equity respectively.

Deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be
utilised. The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax is provided on temporary differences arising on investments in
subsidiaries, except where the timing of the reversal of the temporary difference
is controlled by the Group and it is probable that the temporary difference will
not reverse in the foreseeable future.

Tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred
taxes relate to the same fiscal authority.

Dividends (note 7)
Dividends are recognised as a liability in the period in which they are
fully authorised.

Research and development
Development costs are capitalised when it can be demonstrated that the
conditions for capitalisation as described in IAS 38, Intangible Assets are met,
paying particular attention to the requirements for the product to be technically
feasible and capable of generating a financial return. At that point, further costs
are capitalised as an intangible asset until the intangible asset is readily available
for use and is then amortised as described above. All development costs not
capitalised are written off as incurred together with all research costs.

Property, plant and equipment (note 11)
Freehold and leasehold land and buildings, plant and machinery, and fixtures,
fittings, tools and equipment are held at historic cost less accumulated
depreciation and any recognised impairment losses. Cost comprises the purchase
price and any costs directly attributable to the asset.

All property, plant and equipment other than land and assets under construction
is depreciated on a straight-line basis to the estimated residual values over the
estimated useful lives. These lives are as follows:

Freehold buildings
Leasehold properties
Plant and machinery
Fixtures, fittings, tools and equipment

50 years
Period to next break clause
3 to 15 years
3 to 15 years

Estimated residual values and the estimated useful lives are reviewed annually
and adjusted where necessary. Freehold land is not depreciated, and is reviewed
for impairment at least annually.

Assets under construction are held at cost and transferred to the appropriate
category of property, plant and equipment once construction is complete and
they enter into service. They are depreciated from this point in accordance with
the policies described above.

Assets held under finance leases are depreciated over the term of the
relevant lease.

Aircraft overhaul expenditure
Major overhaul expenditure on owned aircraft is capitalised when incurred
and the resultant property, plant and equipment is depreciated over its useful
economic life. Major overhaul costs that are contractually required on aircraft
held under operating leases are provided for over the period between the
scheduled maintenance events.

Intangible assets (note 10)
Goodwill
Goodwill is allocated at acquisition to the CGUs that are expected to benefit from
that business combination. CGUs represent the lowest level within the Group at
which the goodwill is monitored for internal management purposes.

Investment properties (note 12)
Investment properties, which are properties held to earn rentals or for capital
appreciation, are stated at cost in the Balance Sheet. They are depreciated on
a straight-line basis to their estimated residual value over their estimated useful
lives of up to 50 years.

On divestment of a business the attributable amount of goodwill is included
in the determination of the profit or loss on divestment.

Rental income is recognised as revenue on a straight-line basis.

Other intangible assets
Intangible assets other than goodwill which are acquired by the Group are
stated at cost less accumulated amortisation and impairment losses. These
include customer relationships, technology and software, trademarks, licences
and patents. The only internally generated intangible assets are development
costs which are capitalised as described below and internally developed software
where asset recognition criteria are met.

These intangible assets are amortised over the asset’s estimated useful life on
a straight-line basis as follows:

Customer relationships
Technology based assets
Development costs
Order book and trade names
Software and other

5 to 15 years
5 to 15 years
2 to 10 years
6 months to 10 years
2 to 10 years

Useful lives are assessed for each asset on an individual basis, taking into account
the specific characteristics of the asset.

Impairments
The carrying amounts of the Group’s non-financial assets are reviewed at
least annually to determine whether there is any indication of impairment.
Where there is an indication of impairment, the asset’s recoverable amount
is estimated. The recoverable amount is the higher of fair value less costs of
disposal and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not
been adjusted.

An impairment loss is recognised where the recoverable amount of an asset
is lower than its carrying amount. All impairment losses are recognised in the
Income Statement.

An impairment loss, other than arising on goodwill, is reversed only after a
change in the estimates used to assess recoverable amount is identified and
only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised. Any reversal is recognised in the
Income Statement.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

Leasing (notes 11 and 29)
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.

Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments, each
determined at the inception of the lease. The corresponding liability to the lessor
is included in the Balance Sheet as a finance lease obligation. Lease payments are
apportioned between finance charges and reduction of the lease obligation so
as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly to the Income Statement.

Rentals payable under operating leases are charged to the Income Statement on
a straight-line basis over the term of the relevant lease. Benefits receivable as an
incentive to enter into an operating lease are also spread on a straight-line basis
over the lease term.

Inventories (note 13)
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the first-in, first-out method.
Net realisable value represents the estimated selling price less all estimated
costs of completion and costs to be incurred in marketing, selling and
distribution. Provision is made where necessary for obsolete, slow moving
and defective items.

Non-current assets and disposal groups held for sale (note 16)
Non-current assets and disposal groups classified as held for sale are stated at
the lower of carrying amount and fair value less costs of disposal. No depreciation
is charged in respect of non-current assets classified as held for sale.

Non-current assets and disposal groups are classified as held for sale if their
carrying amount will be recovered through a sale transaction rather than through
continuing use. This condition is regarded as met only when the sale is highly
probable and expected to be completed within a year of the balance sheet date.
The asset or disposal group should be available for immediate sale in its present
condition and actively marketed at a price that is reasonable in relation to its
current fair value.

Fair values
The fair value of an asset or liability is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the balance sheet date. Fair value measurements are
used on a recurring basis except where used in the measurement of net
assets classified as held for sale and in the valuation of assets and liabilities
in a business combination.

The fair values of derivative financial instruments have been determined by
the use of valuation techniques, primarily discounted cash flows, based on
assumptions that are supported by observable market prices or rates.

The fair values of non-financial assets and liabilities, which includes net assets
classified as held for sale, are based on observable market prices or rates.
These measurements fall within Level 2 of the IAS 39 fair value hierarchy.
For non-financial assets, the fair value takes into account the highest and
best use of the asset.

For financial assets and liabilities which are not held at fair value in the Balance
Sheet, the carrying values of these items are assumed to approximate to fair
value due to their short term nature.

There have been no changes to the valuation techniques used during the year.
The Group’s policy is to recognise transfers in and transfers out of fair value
hierarchy levels as at the date of the event or change in circumstances that
caused the transfer, although there have been no such transfers during the
current or comparative periods.

Financial instruments (note 14)
Financial assets and financial liabilities are recognised on the Group’s Balance
Sheet when the Group becomes a party to the contractual provisions of the
instrument and are initially recognised at fair value at trade date. Subsequent

measurement is dependent upon the classification of the instrument which is
determined at initial recognition with reference to the purpose for which the
instruments were acquired and re-evaluated at each reporting date.

All financial assets and liabilities are classified as current or non-current
dependent upon the maturity date of the instruments. Financial assets and
liabilities are presented on an offset basis when there is a legally enforceable
right to offset the recognised amounts and there is an intention to settle on a
net basis.

Financial assets
Assets held at fair value through profit or loss are those categorised as held for
trading under IAS 39 and are subsequently carried at fair value.

Loans and receivables are non-derivative financial assets with fixed or
determinable payments which are not quoted in an active market. These include
trade and other receivables and cash and cash equivalents. Subsequent to initial
recognition, assets categorised as loans and receivables are carried at amortised
cost using the effective interest method.

Available for sale financial assets are those non-derivative financial assets either
designated by management as available for sale or not falling into any other
category. Financial assets so categorised include equity instruments which do
not have a quoted price in an active market and hence are measured at cost.

None of the Group’s material financial assets fall into the held to maturity
category of IAS 39, which are non-derivative financial assets with fixed maturity
dates that the Group intends to hold to maturity.

Financial liabilities
Financial liabilities are categorised as held for trading under IAS 39 and are
subsequently held at fair value through profit or loss, or other liabilities, which
are held at amortised cost using the effective interest method. Derivative
financial instruments are categorised as held for trading unless they are
designated as hedges.

Trade and other receivables
Trade and other receivables are stated at their amortised cost, reduced when
there is evidence that the Group may not be able to collect the amount due.
All trade receivables which are more than six months overdue are provided for
by reference to past default experience. The balance may be written off in full,
generally where receivables are in excess of 12 months old. Impairments are
charged to administrative expenses in the Income Statement.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and bank deposits with an
original maturity of three months or less. Bank overdrafts that are repayable on
demand and form an integral part of the Group’s cash management are included
as a component of cash and cash equivalents for the purpose of the Cash Flow
Statement.

Bank borrowings
Interest bearing bank loans and overdrafts are recorded at the amount of
proceeds received, net of direct issue costs. Borrowing costs, net of amounts
capitalised, are accounted for on an accruals basis and charged to the Income
Statement as incurred. Premiums payable on settlement or redemption and
direct issue costs are capitalised and amortised over the period of the facility.
Borrowing costs that are directly attributable to relevant property, plant and
equipment are capitalised as part of the cost of that asset.

Trade payables
Trade payables do not carry any interest and are stated at their nominal value.

Derivative financial instruments and hedge accounting
Derivative financial instruments are initially recognised at fair value on the date
the contract is entered into and are subsequently remeasured at their fair value.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and, if so, the nature of the item
being hedged.

The Group currently utilises cash flow hedge accounting principles in relation
to interest rate swaps and a limited number of specific foreign exchange
contracts used to mitigate the Group’s exposure to changes in interest rates

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comarising on floating rate debt and certain foreign exchange impacts of trading in
non-functional currencies. Where hedge accounting is applied, the relationship
between hedging instruments and hedged items is documented at the
inception of the transaction. The Group also documents its assessment, both
at hedge inception and on an ongoing basis, of whether the derivatives used in
hedging transactions are highly effective in offsetting changes in cash flows of
hedged items.

Retirement benefit schemes (note 22)
For defined benefit schemes, current service costs and costs related to the
administration of the schemes are charged to operating profit. Gains and losses
on settlements and curtailments arising on a business divestment are included in
profit on divestment. Past service costs are recognised in the Income Statement.
The interest on net assets or liabilities is shown within finance income and costs.
Actuarial remeasurements are recognised in OCI.

Where interest rate swaps and foreign exchange contracts are designated and
qualify as cash flow hedges, the effective portion of changes in fair value is
recognised in OCI through the hedge reserve. The gain or loss relating to the
ineffective portion is recognised immediately in the Income Statement. Amounts
accumulated in equity are reclassified to finance income or finance costs in the
Income Statement in the periods when the hedged item affects profit or loss.

The majority of foreign exchange contracts entered into to mitigate foreign
exchange impacts of trading in non-functional currencies and inflation
swaps entered into to mitigate inflation risks are not accounted for using
hedge accounting.

Foreign currency borrowings are also used to hedge the effects of changes in the
Group’s net investment in foreign operations. These borrowings either provide a
natural economic hedge through the use of intercompany debt or are designated
as net investment hedges. Where net investment hedging applies, the borrowings
are designated as fair value hedges of the foreign currency risk attributable to the
foreign equity investment and the exchange differences arising are recognised in
OCI and through profit and loss on disposal of the foreign operation.

The fair value of a hedging derivative is classified as a current asset or liability
except when the remaining maturity of the hedged item is more than 12 months.

Where hedge accounting is not applied, the movements in fair value of the
derivative instruments are included in the Income Statement as part of operating
profit. The fair value of such derivatives is classified as a current or non-current
asset or liability dependent upon the maturity date of the financial instrument.

Defined benefit schemes are funded, with the assets of the scheme held
separately from those of the Group, in separate trustee administered funds.
Pension scheme assets are measured at fair value and liabilities are measured
on an actuarial basis using the projected unit method and discounted at a rate
equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term to the scheme liabilities. The actuarial valuations
are obtained at least triennially and are updated at each balance sheet date. The
resulting net defined benefit asset or liability is presented separately on the face
of the Balance Sheet.

For defined contribution schemes, contributions are charged to the Income
Statement as they fall due.

Share capital (note 24)
Ordinary share capital is classified as equity. Preference share capital is classified
as a liability if it is redeemable on a specific date or at the option of the
preference shareholders or if dividend payments are not discretionary. Dividends
on preference share capital classified as liabilities are recognised in the Income
Statement as finance costs.

Treasury shares (note 24)
When ordinary share capital recognised as equity is acquired by the Company,
the shares are held as treasury shares. The consideration paid, including
commissions and taxes, is deducted from retained earnings and total equity.
The proceeds of any treasury shares subsequently sold or re-issued, net of
commission and taxes, are recognised as an increase in retained earnings and
total equity.

Provisions (note 19)
A provision is required when the Group has a present legal or constructive
obligation as a result of a past event and it is probable that settlement will
be required and where the amount can be reliably measured. No provision is
recognised where the existence of an obligation is possible but will only be
confirmed by uncertain future events. Provisions are discounted at an appropriate
risk free rate when the impact is material.

Share based payments (note 26)
For grants made under the Group’s equity settled share based payment schemes,
amounts which reflect the fair value of awards as at the time of grant are charged
to the Income Statement over the relevant vesting periods, taking into account
the Directors’ best estimate of the number of awards expected to vest. The
Group reviews and updates the vesting estimate, which includes progress against
non-market related performance conditions, at each balance sheet date.

Provisions for warranty costs are recognised at the date of sale of the relevant
products, at management’s best estimate of the expenditure required to settle
the Group’s liabilities, based on past experience and industry averages for
defective products.

Contract loss provisions are recognised for onerous contracts when the
expected benefits to be derived by the Group from a contract are lower than the
unavoidable cost of meeting its obligations under the contract.

Aircraft maintenance provisions are established in respect of significant periodic
maintenance costs, where maintenance activity is required on leased operational
aircraft or engines on a cycle greater than 12 months. Costs are charged to the
Income Statement on the basis of utilisation of the aircraft and are credited to
the provision. The provision is then utilised by absorbing the actual costs incurred
in carrying out the maintenance activity. Maintenance carried out on a cycle of
12 months or less is charged to the Income Statement as incurred.

Provisions also arise in connection with leased aircraft, where contracts contain
specific conditions regarding the configuration of the aircraft on its return to
the lessor at the end of the lease. The estimated cost associated with fulfilling
these requirements is charged to the Income Statement on an aircraft utilisation
basis. The provision is utilised on actual return of the aircraft or on incurring the
expenditure required to return the aircraft to the state of maintenance required
by the lease before return of the aircraft to the lessor.

Provisions for claims made against the Group and commitments made under
performance guarantees are recognised at management’s best estimate of the
expenditure required to settle the Group’s liabilities.

The valuation methodology for all schemes is based on the Black-Scholes model,
modified where required to allow for the impact of market related performance
criteria and taking into account all non-vesting conditions.

Future accounting developments
A number of new standards, amendments to existing standards and
interpretations have been published that are mandatory for future accounting
periods. Annual Improvements 2014 has been endorsed by the EU for use from
1 January 2016 and is not expected to have an impact on the Group’s financial
reporting. None of the amendments to other standards effective from 1 January
2016 are expected to have an impact on the Group’s financial reporting.

There are also a number of new standards and amendments to existing
standards including Annual Improvements which, once endorsed by the EU,
will be effective from 1 January 2017 or later years. These include:

− IFRS 9, Financial Instruments;
− IFRS 15, Revenue from Contracts with Customers;
− IFRS 16, Leases.

Based on an initial review, IFRS 9 is not expected to have a material impact on
the results of the Group. IFRS 15, effective from 1 January 2018, is currently
under review to determine the potential impact to the Group; it is not practicable
to quantify the effect at this time. The impacts of the recently issued IFRS 16,
effective from 1 January 2019, and other amendments are under review.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS Notes to the Group Financial Statements continued

2. Underlying measures
Underlying measures, defined in note 1 on page 84, are derived from operating profit as set out below:

£m
Operating profit
Business restructuring
Derivative financial instruments
Amortisation of intangible assets arising on business combinations
Impairment of goodwill
Exceptional legal costs
Other business acquisition and divestment related items

Profit on divestments
Amounts provided related to businesses held for sale
Pre-acquisition profit element of inventory written off
Other M&A related costs

Trading profit
Underlying net finance costs
Underlying profit before taxation
Taxation charge on underlying profit (effective rate 21.5%, 2014: 20.25%)
Non-controlling interests
Underlying profit after tax attributable to owners of the parent

Underlying basic EPS
Underlying diluted EPS

Note

2015
12.0
67.5
18.8
176.8
26.6
–

(53.8)
69.0
9.3
6.0
332.2
(51.8)
280.4
(60.2)
(0.1)
220.1

2014
57.6
52.2
21.8
113.6
–
0.8

(0.3)
–
19.6
21.4
286.7
(29.7)
257.0
(52.0)
(0.2)
204.8

19.48p
19.40p

18.48p
18.38p

Underlying administrative expenses, after adjusting for the reconciling items in the table above, amounted to £201.5m (2014: £174.8m), representing 9.7%
(2014: 9.4%) of revenue.

Business restructuring costs relate to the restructuring of the Group’s portfolio which are incremental to normal operations. In 2015, these relate primarily to
the integration of the Aeroflex businesses acquired in 2014.

Amortisation of intangible assets arising on business combinations includes £98.4m (2014: £13.6m) related to the Aeroflex businesses acquired in 2014.

During 2015 an impairment provision of £26.6m was made in respect of the goodwill arising on the acquisition of Telerob in 2011.

Amounts provided related to the businesses held for sale in respect of the Surveillance businesses include an impairment of goodwill of £44.8m and £2.4m
impairment of other intangible assets. These are included within administrative expenses in the Income Statement.

Net cash from operating activities is reconciled to free cash flow and operating cash flow as follows:

2015
189.1
(97.8)
(18.6)
17.7
15.1
105.5
48.2
31.5
49.4
234.6

2014
167.9
(63.7)
(12.4)
2.3
20.3
114.4
31.3
37.0
25.2
207.9

£m
Net cash from operating activities per Cash Flow Statement
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
Business acquisition and divestment related costs paid
Free cash flow
Business restructuring
Tax paid
Underlying net finance costs paid
Operating cash flow

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

3. Revenue and segmental information

Revenue
Revenue comprises income from the sale of goods and services during the year and can be analysed as follows:

£m
Revenue from sale of goods
Revenue from services

2015
1,585.4
486.6

2,072.0

2014
1,368.2
483.5

1,851.7

Revenue from services includes service contracts in the Aviation Services Sector together with logistics support, maintenance and repairs in other Sectors.

Operating segments

£m
Communications and Connectivity
Mission Systems
Advanced Electronic Solutions
Aviation Services
Head office, other activities and elimination
of inter-segment items
Total Group
Interests in joint ventures and associates
Unallocated liabilities
Total net assets

Trading profit is reconciled to the result before taxation as follows:

£m
Trading profit
Business restructuring
Derivative financial instruments
Amortisation of intangible assets arising on business combinations
Impairment of goodwill
Exceptional legal costs
Other business acquisition and divestment related items
Net finance costs
(Loss)/profit before taxation

Revenue

Trading profit

2015
771.8
382.4
538.0
390.1

2014
697.1
333.5
410.1
412.2

(10.3)
2,072.0

(1.2)
1,851.7

2015
108.4
68.0
80.5
57.3

18.0
332.2

2014
118.3
35.9
64.0
54.5

14.0
286.7

Note

2
21

Segment net assets
2014
Restated
1,066.3
303.0
1,067.8
284.0

2015
844.0
289.2
996.0
257.1

19.9
2,406.2
3.0
(1,499.5)
909.7

2015
332.2
(67.5)
(18.8)
(176.8)
(26.6)
–
(30.5)
(51.8)
(39.8)

(24.5)
2,696.6
3.1
(1,587.4)
1,112.3

2014
286.7
(52.2)
(21.8)
(113.6)
–
(0.8)
(40.7)
(33.3)
24.3

Depreciation of property, plant and equipment, investment properties and amortisation of internally generated intangibles are included in the calculation of trading
profit and can be analysed by segment as follows:

£m
Communications and Connectivity
Mission Systems
Advanced Electronic Solutions
Aviation Services
Head office, other activities and elimination of inter-segment items
Total Group

Details of employees analysed by operating segment can be found in note 4.

2015
16.7
5.3
16.4
36.1
2.7
77.2

2014
18.9
5.0
12.5
38.8
2.0
77.2

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

Geographical information
Revenue from external customers analysed by their geographic location, irrespective of the origin of the goods and services, is shown below. Non-current assets are
analysed by the physical location of the assets and exclude financial instruments and deferred tax assets.

£m
USA
UK
Other EU
Australia
Rest of the world

Revenue

2014
814.4
228.3
286.5
247.2
275.3
1,851.7

2015
985.1
223.0
305.2
226.6
332.1
2,072.0

Non-current assets
2014
Restated
1,457.2
515.7
317.0
87.6
66.8
2,444.3

2015
1,156.8
551.3
275.4
106.2
27.0
2,116.7

Revenue from customers located in the rest of the world includes £230.4m (2014: £169.9m) from customers in Asia. Revenue from customers in individual countries
within the EU (except the UK) and the rest of the world is not considered to be individually material. Included in non-current assets located in EU countries other than
the UK are assets of £232.0m (2014: £229.9m) located in Denmark.

4. Operating costs
Operating costs include materials costs of £664.0m (2014: £628.8m) within cost of sales in the Income Statement.

Company funded research and development

£m
Company funded research and development

Employment costs and employee numbers
The aggregate employment costs are as follows:

£m
Wages and salaries
Social security costs
Pension costs
Share based payments

The average number of employees during the year, analysed by segment, is as follows:

Communications and Connectivity
Mission Systems
Advanced Electronic Solutions
Aviation Services
Head office and other activities
Total Group

Note

22
26

2015
138.0

2014
96.9

2015
604.9
49.5
30.8
(3.0)
682.2

2015
4,487
1,556
3,590
2,468
426
12,527

2014
519.9
43.8
31.0
6.1
600.8

2014
3,841
1,465
2,802
2,405
428
10,941

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Compensation of key management personnel
The remuneration of Directors and other members of key management during the year was as follows:

£m
Salaries and other employee benefits
Post-employment benefits
Share based payments

2015
7.3
0.2
(1.4)
6.1

Audit fees
During the year the Group obtained the following services from the Company’s auditors, PricewaterhouseCoopers LLP and its associates, as follows:

£m
Annual audit of the Parent Company and Group Financial Statements
Audit of the Company's subsidiaries
Fees payable for audit services

Tax compliance services
Other tax advisory services
Other audit related assurance services
Services relating to corporate finance transactions
Fees payable for other services

Total fees payable to the auditors

2015
1.0
1.2
2.2

0.3
1.0
0.1
–
1.4

3.6

2014
5.8
0.4
1.6
7.8

2014
1.0
1.2
2.2

0.3
1.3
0.1
1.5
3.2

5.4

A description of the work of the Audit Committee is set out in the Corporate Governance Report on pages 52 to 57 and includes an explanation of how auditor
objectivity and independence are safeguarded when non-audit services are provided by the auditors.

5. Finance income and costs

£m
Bank interest
Other finance income
Total finance income

Interest on bank overdrafts and loans
Interest on net pension scheme liabilities
Other finance expense
Total finance costs

Net finance costs

Note

2015
3.1
2.1
5.2

(52.8)
(3.1)
(1.1)
(57.0)

(51.8)

2014
4.5
1.9
6.4

(30.9)
(3.6)
(5.2)
(39.7)

(33.3)

Other finance expense for 2014 includes £2.6m of arrangement fees for the Aeroflex acquisition finance facility and unwinding of acquisition related discounting
of £1.0m. These costs are excluded from underlying profit in note 2.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

6. Taxation

£m
Charge for the year
Adjustments to tax charge in respect of prior years
Current tax

Credit for the year
Adjustments to tax charge in respect of prior years
Impact of change in tax rates
Deferred tax

Total tax credit for the year

Note

2015
39.8
(10.8)
29.0

(38.2)
7.1
–
(31.1)

(2.1)

2014
46.6
(14.3)
32.3

(41.9)
5.6
(0.7)
(37.0)

(4.7)

Income tax is calculated on the estimated assessable profit for the year at the rates prevailing in the relevant tax jurisdiction. The total tax credit for the year includes
a charge of £9.2m (2014: £5.5m credit) for the UK.

The total charge for the year can be reconciled to the accounting result as follows:

£m
(Loss)/profit before tax

Tax thereon at the UK income tax rate of 20.25% (2014: 21.5%)
Effect of differences in overseas taxation rates
Expenditure qualifying for additional R&D tax relief
Adjustments to tax charge in respect of prior years
Impact of tax treatment of divestments
Impact of other items
Total tax credit for the year

In addition the following charges/(credits) have been included in OCI and equity:

Included in OCI

£m
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on retirement benefit obligations
Actuarial loss on other retirement benefit obligations

Items that may subsequently be reclassified to profit or loss
Hedge accounted derivative financial instruments

Included in equity

£m

Share based payments

The rate of UK corporation tax reduced from 23% to 21% on 1 April 2014 and 20% on 1 April 2015.

2015
(39.8)

(8.1)
(12.3)
(1.6)
(3.7)
24.4
(0.8)
(2.1)

2014
24.3

5.2
(2.9)
(2.1)
(8.7)
–
3.8
(4.7)

2015

2014

5.9
–
5.9

0.2

(4.7)
(0.3)
(5.0)

0.9

2015
1.1

2014
(1.5)

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com
7. Dividends

£m
Final dividend of 7.746p per share for 2014 (2013: 7.04p)
Interim dividend of 3.05p per share for 2015 (2014: 2.904p)
Total dividend authorised and paid during the year

2015
87.7
34.4
122.1

2014
75.5
32.8
108.3

In addition to the above, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2015 of 8.13p per share at an estimated
total cost of £91.5m. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial
statements. If authorised, it will be paid on 27 May 2016 to shareholders who are on the register of members as at 29 April 2016. The total dividend in respect of
the financial year ended 31 December 2015 will therefore be 11.18p per share (2014: 10.65p). The total amount payable in respect of 2015 will be £125.9m.

8. Earnings per ordinary share

Basic earnings per share (EPS)
Earnings attributable to owners of the parent
Effect of potentially dilutive securities
Diluted EPS

Weighted
average
number
of shares
million

Earnings
£m

(37.8)

1,129.9
–
1,129.9

2015

Per share
amount
pence

(3.35)

Weighted
average
number
of shares
million

1,108.0
6.4
1,114.4

Earnings
£m

28.8

2014

Per share
amount
pence

2.60

2.58

Potentially dilutive securities are unvested awards under the Group’s share based payment schemes described in note 26.

9. Cash and cash equivalents and net debt

Reconciliation of cash and cash equivalents and net debt

£m
Cash and cash equivalents per Cash Flow Statement
Bank overdrafts
Cash and cash equivalents per Balance Sheet
Borrowings – current liabilities
Borrowings – non-current liabilities
Net debt at 31 December

Note

17
17

Details of the offsetting of overdrafts with cash and cash equivalents and other financial instruments can be found in note 14.

Reconciliation of movements in net debt

£m
Net debt at 1 January
Increase in cash and cash equivalents in the year per Cash Flow Statement
New borrowings
Repayment of borrowings
Exchange movements
Net debt at 31 December

2015
294.0
0.7
294.7
(156.4)
(1,345.1)
(1,206.8)

2015
(1,222.7)
82.9
(257.9)
271.0
(80.1)
(1,206.8)

2014
224.3
1.3
225.6
(1.5)
(1,446.8)
(1,222.7)

2014
(453.4)
56.5
(1,467.5)
699.9
(58.2)
(1,222.7)

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

Arising on business combinations
Order book
and trade
names

Technology
based assets

Customer
relationships

Development
costs

Software
and other

Total

302.9
–
307.7
(20.4)
12.6
–
602.8
–
(49.1)
(11.0)
(13.7)
16.2
–
545.2

108.2
50.3
(20.4)
3.5
–
141.6
82.2
(10.9)
–
(11.0)
(13.7)
5.1
193.3

351.9

461.2
194.7

166.6
–
189.8
–
2.2
–
358.6
–
(12.0)
(7.5)
(65.7)
5.1
–
278.5

77.7
47.5
–
(1.2)
–
124.0
63.2
(5.5)
1.2
(7.5)
(65.7)
(1.4)
108.3

170.2

234.6
88.9

45.8
–
16.4
–
0.8
–
63.0
–
–
–
(15.3)
0.5
–
48.2

8.5
15.8
–
–
–
24.3
31.4
–
–
–
(15.3)
0.1
40.5

7.7

38.7
37.3

2.1
–
–
–
(0.1)
–
2.0
–
–
–
(1.7)
–
–
0.3

1.1
0.6
–
–
–
1.7
0.2
–
–
–
(1.7)
(0.1)
0.1

0.2

0.3
1.0

51.5
12.9
1.1
(1.8)
0.8
3.4
67.9
16.9
(0.6)
(3.3)
(2.1)
0.3
0.4
79.5

22.7
4.2
(1.7)
0.6
1.8
27.6
3.8
(0.4)
1.2
(3.3)
(2.1)
0.4
27.2

52.3

40.3
28.8

1,443.4
12.9
944.7
(22.2)
40.8
3.4
2,423.0
16.9
(127.6)
(103.1)
(98.5)
41.2
0.4
2,152.3

281.2
118.4
(22.1)
2.9
1.8
382.2
180.8
(16.8)
73.8
(103.1)
(98.5)
4.4
422.8

1,729.5

2,040.8
1,162.2

10. Intangible assets

£m

Cost
At 1 January 2014
Additions
Recognised on business combinations (as restated)
Disposals and derecognitions
Foreign exchange adjustments (as restated)
Reclassifications
At 1 January 2015 (as restated)
Additions
Business divestments
Reclassified as held for sale
Derecognitions
Foreign exchange adjustments
Reclassifications
At 31 December 2015

Accumulated amortisation and impairment
At 1 January 2014
Amortisation charge for the year
Disposals and derecognitions
Foreign exchange adjustments
Reclassifications
At 1 January 2015
Amortisation charge for the year
Eliminated on business divestments
Impairment provision
Reclassified as held for sale
Derecognitions
Foreign exchange adjustments
At 31 December 2015

Carrying amount
At 31 December 2015

At 31 December 2014 (as restated)
At 1 January 2014

Goodwill

874.5
–
429.7
–
24.5
–
1,328.7
–
(65.9)
(81.3)
–
19.1
–
1,200.6

63.0
–
–
–
–
63.0
–
–
71.4
(81.3)
–
0.3
53.4

1,147.2

1,265.7
811.5

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comAmortisation charged during the year relating to intangible assets recognised on business combinations was £176.8m (2014: £113.6m). This has been excluded from
underlying profit in note 2. All amortisation charges are included within administrative expenses in the Income Statement.

During the year £44.8m of goodwill related to the Surveillance businesses was impaired and these businesses were then transferred to held for sale. An impairment
provision of £26.6m was also created during the year representing the goodwill held for the Telerob business within the Mission Systems Sector, based on the results
of the annual impairment review.

Customer relationships represents customer lists, customer contracts and the associated benefits of customer relationships recognised on acquisition. Technology
based assets represent trade secrets and processes, patented and unpatented technology, and know-how recognised on acquisition. Other intangible assets represent
purchased patents, licences and trademarks. Intangible assets recognised on business combinations are derecognised when they have been fully amortised.

Goodwill and annual impairment review
Goodwill represents the premium paid in anticipation of future economic benefits from assets that are not capable of being separately identified and separately
recognised, such as the value of the workforce, and is the only indefinite life intangible asset held by the Group.

The Group reviews goodwill for potential impairment of each cash generating unit (CGU) annually, or more frequently if there are indications that goodwill might
be impaired. CGUs are typically considered to be Business Units.

The recoverable amounts of the CGUs are determined from value in use calculations unless specific conditions at a CGU dictate otherwise. Businesses held for sale
are assessed for impairment using expected net proceeds of divestment.

The calculation of recoverable value for CGUs based on value in use includes the following key assumptions:

− Cash flow forecasts for the following five years prepared as part of the annual strategic planning process and approved by management, updated where
appropriate for more recent forecasts. These forecasts take into account the current and expected economic environment including factors such as the
continued uncertainty within certain markets in which we operate. The growth rates assume that demand for the Group’s products in the US and in the
UK remains broadly in line with the underlying economic environment and a recovery from the current weakness in the Marine SATCOM market. They also
assume the realisation of planned synergy benefits from the committed integration plans for the Aeroflex businesses. Taking into account the expectation
of future market conditions, management believe that the evolution of selling prices and direct costs will reflect past practices;

− Growth rates assumed after this five year period are based on long term GDP projections of the primary market for the CGU. The long term projections used

are in the range 1.2% to 2.5% (2014: 1.5% to 2.0%);

− Cash flows are discounted using the Group’s WACC, adjusted for country and currency risks in the principal territories in which the Group operates. These

pre-tax discount rates are within the range 9.2% to 11.0% (2014: 8.3% to 10.5%);
− Cash flows include the impact of working capital and fixed asset requirements; and
− Cash flows include management charges which allocate central overheads to the CGUs.

The Directors consider CGUs to be individually significant where the goodwill allocated to a CGU represents more than 10% of the Group’s total carrying value of
goodwill. These CGUs, representing 71% of total goodwill, are as follows:

CGU
Integrated Electronic Solutions
Semiconductor Solutions
SATCOM
Wireless

Operating segment
Advanced Electronic Solutions
Advanced Electronic Solutions
Communications and Connectivity
Communications and Connectivity

Goodwill
carrying value
£m
220
215
222
153

Headroom
£m
131
5
288
198

Pre-tax
discount rate
9.6%
9.6%
9.4%
9.3%

Projected 5
year growth
rate
11.0%
14.0%
13.0%
7.0%

Projected GDP
growth rate
1.9%
1.9%
1.4%
2.0%

Sensitivity analysis has been performed on these CGUs. Semiconductor Solutions forms part of the Aeroflex business acquired in 2014 and therefore is initially
expected to have low headroom. For this CGU impairment losses would be £99m if the discount rate was increased to 11.5%, £68m if the growth rate was zero and
£93m if cash flows reduced by 20%. No impairment losses would arise on any of the other significant CGUs under these flexed assumptions. If the integration of the
other Aeroflex businesses is not successfully implemented resulting in lower than assumed synergy benefits then the headroom in these CGUs would be significantly
reduced. Sensitivity analysis included considering the current market weakness in Marine SATCOM and, assuming that the market returns to expected levels within
the next five years, no impairment provision would be required. The Directors have not identified any other likely changes in other significant assumptions that would
cause the carrying value of recognised goodwill to exceed its recoverable amount.

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

Land and buildings

Freehold

Long leases

Short leases

Plant and
machinery
(including
aircraft and
vehicles)

Fixtures,
fittings,
tools and
equipment

Payments on
account and
assets under
construction

11. Property, plant and equipment

£m
Cost
At 1 January 2014
Additions
Acquired with business combinations
Disposals
Foreign exchange adjustments
Reclassifications
At 1 January 2015
Additions
Business divestments
Disposals
Reclassified as held for sale
Foreign exchange adjustments
Reclassifications
At 31 December 2015

Accumulated depreciation
At 1 January 2014
Depreciation charge for the year
Eliminated on disposals
Foreign exchange adjustments
Reclassifications
At 1 January 2015
Depreciation charge for the year
Eliminated on business divestments
Eliminated on disposals
Reclassified as held for sale
Foreign exchange adjustments
Reclassifications
At 31 December 2015

Carrying amount

At 31 December 2015
At 31 December 2014
At 1 January 2014

88.4
0.7
11.3
(0.8)
1.9
3.6
105.1
2.7
(7.0)
(9.9)
(0.4)
1.9
1.3
93.7

28.0
3.4
(0.4)
0.5
–
31.5
4.1
(2.9)
(2.7)
(0.2)
0.5
0.3
30.6

63.1
73.6
60.4

32.1
0.7
3.0
(2.1)
0.9
0.8
35.4
1.2
(1.0)
(2.3)
(2.1)
0.9
–
32.1

14.5
4.5
(1.9)
0.5
0.3
17.9
2.7
–
(2.1)
(0.8)
0.5
(0.1)
18.1

14.0
17.5
17.6

6.6
1.6
0.5
(0.4)
0.4
(0.2)
8.5
0.3
(5.1)
–
(0.1)
0.3
–
3.9

5.3
1.0
(0.4)
0.4
(0.1)
6.2
0.7
(4.3)
–
–
–
–
2.6

1.3
2.3
1.3

605.8
37.1
29.7
(16.0)
(0.2)
5.5
661.9
77.2
(24.4)
(24.4)
(9.7)
(5.8)
5.4
680.2

377.5
52.0
(14.9)
–
(0.1)
414.5
61.0
(12.8)
(21.6)
(7.2)
(2.5)
(0.6)
430.8

249.4
247.4
228.3

87.7
8.4
2.9
(6.0)
0.7
0.1
93.8
4.0
(5.5)
(4.0)
(5.9)
0.4
1.4
84.2

63.9
11.2
(5.8)
0.3
(1.9)
67.7
4.5
(3.4)
(3.9)
(5.8)
(0.1)
0.8
59.8

24.4
26.1
23.8

At 31 December 2015, the Group had commitments for the acquisition of property, plant and equipment of £29.3m (2014: £48.5m).

12. Investment properties

£m

Carrying amount at 1 January

Acquired with business combinations

Disposals

Depreciation

Foreign exchange adjustments

Carrying amount at 31 December

The fair value of the Group’s remaining investment properties has been assessed to be £6.6m (2014: £13.9m). For 2015 and 2014, these values are based on Directors’
estimates using observable market data, taking into account current lease terms.

Property rental income earned by the Group from its investment properties amounted to £1.2m (2014: £1.4m), which is net of all direct costs associated with the
leasing of the properties except depreciation. The buildings are leased to commercial users on operating leases with terms of 10, 11 and 25 years which commenced
between 1998 and 2013.

Total

840.0
63.6
48.6
(25.3)
4.3
(3.4)
927.8
99.0
(43.2)
(40.6)
(18.2)
(1.6)
(1.4)
921.8

489.2
72.1
(23.4)
1.7
(1.8)
537.8
73.0
(23.4)
(30.3)
(14.0)
(1.6)
0.4
541.9

379.9
390.0
350.8

2014

9.9

0.8

(0.3)

0.3

10.4

19.4
15.1
1.2
–
0.6
(13.2)
23.1
13.6
(0.2)
–
–
0.7
(9.5)
27.7

–
–
–
–
–
–
–
–
–
–
–
–
–

27.7
23.1
19.4

2015

10.4

–

(6.0)

(0.2)

0.1

4.3

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

13. Inventories

£m

Raw materials and consumables

Work in progress

Finished goods and goods for resale

Allowance for obsolescence

2015

187.2

220.1

51.9

(48.8)

410.4

2014
Restated

191.8

221.4

66.4

(50.1)

429.5

Work in progress includes £58.5m (2014: £59.9m) which relates to customer funded engineering development contracts.

During the year £18.5m (2014: £17.4m) was provided, £4.6m (2014: £9.3m) was utilised and £10.5m (2014: £8.1m) of the allowance for obsolescence was reversed.
This allowance is reviewed by management on a regular basis and further amounts are provided or released as considered necessary. The amounts are generally
determined based on factors which include ageing and known demand. Subsequent events may give rise to these estimates being revised and, consequently,
to the reversal of amounts previously provided.

Inventory will be realised within the normal operating cycle of the businesses. Within the Mission Systems segment, inventory relating to long term contracts
expected to be realised after more than 12 months amounts to £17.1m (2014: £18.1m).

14. Financial instruments
The Group’s financial assets and liabilities are categorised as follows:

Note

Loans and
receivables

Fair value
through profit
or loss

Amortised cost

Derivatives
used for
hedging

Total
carrying
amount

Fair value

£m
Financial assets

Trade receivables
Other receivables
Cash and cash equivalents
Derivative contracts (not hedge accounted)
Other financial assets

Financial liabilities
Borrowings
Trade payables
Accruals
Other financial liabilities
Derivative contracts (not hedge accounted)

Hedging instruments

Assets
Liabilities

Net financial liabilities at 31 December 2015

Financial assets

Trade receivables
Other receivables (as restated)
Cash and cash equivalents
Derivative contracts (not hedge accounted)
Other financial assets

Financial liabilities
Borrowings
Trade payables
Accruals (as restated)
Other financial liabilities
Derivative contracts (not hedge accounted)

Hedging instruments

Assets
Liabilities

Net financial liabilities at 31 December 2014 (as restated)

15
15
9
21

17
18
18
18
21

21
21

15
15
9
21

17
18
18
18
21

21
21

286.3
114.7
294.7
–
–

–
–
–
–
–

–
–

331.4
117.4
225.6
–
–

–
–
–
–
–

–
–

–
–
–
11.2
–

–
–
–
–
(40.2)

–
–

–
–
–
13.6
–

–
–
–
–
(32.9)

–
–

–
–
–
–
6.1

(1,501.5)
(145.9)
(121.7)
(42.6)
–

–
–

–
–
–
–
6.1

(1,448.3)
(145.0)
(135.2)
(103.8)
–

–
–
–
–
–

4.4
(4.3)

–
–
–
–
–

–
–

2.7
(3.3)

286.3
114.7
294.7
11.2
6.1

(1,501.5)
(145.9)
(121.7)
(42.6)
(40.2)

4.4
(4.3)
(1,138.8)

331.4
117.4
225.6
13.6
6.1

(1,448.3)
(145.0)
(135.2)
(103.8)
(32.9)

2.7
(3.3)
(1,171.7)

286.3
114.7
294.7
11.2
6.1

(1,604.1)
(145.9)
(121.7)
(42.6)
(40.2)

4.4
(4.3)
(1,241.4)

331.4
117.4
225.6
13.6
6.1

(1,549.1)
(145.0)
(135.2)
(103.8)
(32.9)

2.7
(3.3)
(1,272.5)

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

Borrowings are held at amortised cost which equates to fair value except for the Group’s fixed rate borrowings. At 31 December 2015 the fair value of those
borrowings was £976.1m (2014: £926.5m) compared to their book value of £873.5m (2014: £825.7m). The fair value of the fixed rate borrowings and derivative
financial instruments have been determined by reference to observable market prices and rates.

Other financial assets relate to Cobham plc’s investments in connection with the Voyager (FSTA) project which are held at cost, totalling £6.1m (2014: £6.1m).

Gains and losses on financial assets and liabilities held at fair value through profit or loss are shown in note 21. The total interest income and expense for financial
assets and liabilities not held at fair value through profit or loss is as shown in note 5.

Offsetting financial assets and liabilities
Cash and cash equivalents as shown in the Balance Sheet include overdraft balances on currency cash pooling accounts which have been offset as the accounts
will be settled on a net basis as described in note 23. Master netting agreements also cover all bank balances and derivative balances with the same counterparty.
These do not meet the criteria for offsetting because the right to offset is only enforceable on the occurrence of future events such as a default and amounts
presented in the Balance Sheet are therefore presented on a gross basis.

If full offsetting by counterparty were to be applied, the resulting net amounts would be as follows:

£m
Financial assets

Cash and cash equivalents
Derivative financial assets

Financial liabilities

Bank overdrafts
Derivative financial liabilities

At 31 December 2015

Financial assets

Cash and cash equivalents
Derivative financial assets

Financial liabilities

Bank overdrafts
Derivative financial liabilities

At 31 December 2014

Gross amounts
before set off

Amounts set
off in the
Balance Sheet

Amounts as
presented in
the Balance
Sheet

Amounts not
set off in the
Balance Sheet

Net amount

778.8
15.6

(484.8)
(44.5)
265.1

250.6
16.3

(26.3)
(36.2)
204.4

(484.1)
–

484.1
–
–

(25.0)
–

25.0
–
–

294.7
15.6

(0.7)
(44.5)
265.1

225.6
16.3

(1.3)
(36.2)
204.4

(6.1)
(12.8)

0.7
18.2
–

(3.3)
(14.6)

1.3
16.6
–

288.6
2.8

–
(26.3)
265.1

222.3
1.7

–
(19.6)
204.4

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

15. Trade and other receivables

Current

£m

Trade receivables (net of provision for impairment)

Accrued income

Loans and other receivables

Prepayments

Non-current

£m

Accrued income

Loans and other receivables

Impairment of trade receivables

£m
Trade receivables

Provision for impairment of trade receivables
Net trade receivables

2015

286.3

28.1

15.3

36.3
366.0

2015

37.8

33.5
71.3

2015
289.6

(3.3)
286.3

2014
Restated

331.4

47.7

18.6

37.6
435.3

2014
Restated

20.4

30.7
51.1

2014
334.1

(2.7)
331.4

A significant proportion of the Group’s business is directly with government agencies or in respect of large government funded military programmes, where credit risk
is considered to remain low. Information concerning management of credit risk is shown in note 23. Movements in the provision for impairment of trade receivables
during the current and prior year were not individually significant.

The credit quality of trade receivables can be analysed as follows:

£m
Amounts not yet due and not impaired
Amounts past due but not impaired
Amounts for which full or partial impairment provision has been made

Trade receivables which are past due but not considered by management to be impaired are aged as follows:

£m
Less than 1 month overdue
1 month overdue
2 months overdue
3 or more months overdue

Other classes of financial assets within trade and other receivables do not include any overdue or impaired assets.

2015
219.0
64.8
5.8
289.6

2015
41.2
11.8
5.0
6.8
64.8

2014
258.8
71.3
4.0
334.1

2014
44.1
12.1
5.6
9.5
71.3

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

16. Non-current assets and disposal groups held for sale
During the second half of 2015, a decision was made to divest the Group’s Surveillance businesses, part of the Communications and Connectivity Sector, and this was
completed on 15 January 2016. Accordingly, the following assets and liabilities have been classified as held for sale in the Balance Sheet as at 31 December 2015 and
are measured on a non-recurring basis at fair value, based on the agreed selling price of US$10m less costs to sell:

£m
Property, plant and equipment
Inventories
Trade and other receivables
Total assets classified as held for sale

Trade payables and other liabilities
Provisions
Total liabilities associated with assets classified as held for sale

Total non-current assets and disposal groups held for sale

17. Borrowings

£m
Bank overdrafts
Bank loans
Senior notes
Finance leases
Total current borrowings

Bank loans
Senior notes
Finance leases
Total non-current borrowings

Total borrowings

2015
–
3.9
12.9
16.8

(11.5)
(1.2)
(12.7)

4.1

2015
0.7
100.7
54.9
0.1
156.4

471.8
872.9
0.4
1,345.1

2014
2.1
–
–
2.1

–
–
–

2.1

2014
1.3
–
–
0.2
1.5

569.8
877.0
–
1,446.8

1,501.5

1,448.3

The Group’s principal borrowings include bank overdrafts, bank loans and senior notes. Bank overdrafts are repayable on demand and accrue interest at floating rates.
Bank loans comprise the following:

£m
Fixed rates

Agreement date Maturity date

US$75m credit agreement

December 2008

December 2016

Floating rates

US$360m multi-currency revolving credit
agreement comprising:

October 2011

US$90m
US$270m

EUR70m multi-currency revolving facility
DKK525m multi-currency revolving facility
AUS$90m multi-currency revolving facility
Acquisition finance facility
US$185m facility agreement
EUR131m and US$40m loan agreements
EUR4m loan agreement

June 2012
June 2012
February 2014
May 2014
May 2015
May 2015
May 2015

October 2016
October 2018
October 2018
October 2018
October 2018
May 2016
October 2018
May 2020
May 2022

Amount drawn
2014

Undrawn facilities
2014

2015

48.1

–

45.8
137.5
52.2
18.1
30.8
237.3
–
–
–
569.8

11.4
34.1
10.0
51.8
15.4
–
–
–
–
122.7

11.9
35.7
2.1
36.6
16.4
–
–
–
–
102.7

2015

50.9

49.8
149.1
41.6
–
29.0
–
125.5
123.7
2.9
572.5

Floating rate bank loans accrue interest at LIBOR or other appropriate benchmark plus margin.

The acquisition finance facility originally drawn in September 2014 was partially repaid in October 2014 and fully repaid in May 2015, funded by new floating rate Euro
and US dollar loans.

Under the US$75m agreement, which expires in 2031, the lender has a series of put options exercisable every three years from December 2016.

100

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Senior notes with a total principal value of US$1,367.5m (2014: US$1,367.5m) are outstanding as set out below:

£m
US$81m fixed rate
US$50m floating rate
US$105m floating rate
US$157.5m fixed rate
US$44m fixed rate
US$930m fixed rate comprising:

US$75m
US$180m
US$250m
US$425m

Issue date
March 2009
May 2010
January 2010
March 2009
October 2012
October 2014

Maturity date
March 2016
May 2017
February/March 2018
March 2019
October 2020

October 2017
October 2019
October 2021
October 2024

2015
54.9
33.9
71.2
106.9
29.9

50.9
122.1
169.7
288.3
927.8

2014
51.9
32.1
67.3
101.0
28.3

48.1
115.4
160.3
272.6
877.0

The loan and note subscription agreements include both financial and non-financial covenants but do not contain any provisions for charges over Group assets. The
terms of the financial covenants are based on adjusted IFRS results and are shown on page 29. There have been no breaches of the terms of agreements or defaults
during the current or comparative periods.

18. Trade and other payables

Current liabilities

£m
Payments received on account
Trade payables
Other taxes and social security
Deferred income
Accruals
Amounts outstanding on purchase of shares of Aeroflex Holding Corp.
Other liabilities

Non-current liabilities

£m
Payments received on account
Deferred income
Accruals
Other liabilities

2015
59.4
145.9
23.5
12.8
117.8
–
38.7
398.1

2015
5.2
11.8
3.9
3.9
24.8

2014
Restated
82.2
145.0
31.7
21.1
130.4
51.3
43.8
505.5

2014
8.6
13.9
4.8
8.9
36.2

101

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

19. Provisions

£m
Current liabilities
Non-current liabilities

2015
74.3
68.2
142.5

2014
Restated
60.5
66.5
127.0

Movements in provisions during the year are as follows:

£m
At 1 January 2015 (as restated)
Additional provisions in the year
Reclassified as held for sale
Utilisation of provisions
Unused amounts reversed in the year
Disposed with undertakings
Reclassifications
Foreign exchange adjustments
At 31 December 2015

Provisions
related to
businesses
divested
10.8
4.7
–
–
–
–
–
–
15.5

Restructuring
provisions
46.4
17.2
–
(5.3)
(0.3)
–
–
2.9
60.9

Warranty
claims
12.1
5.3
(0.1)
(5.6)
(1.0)
(0.4)
–
(0.1)
10.2

Contract loss
provisions
30.2
11.7
–
(16.9)
(0.4)
–
2.1
0.1
26.8

Aircraft
maintenance
provisions
3.2
2.9
–
(0.8)
(1.6)
–
0.2
(0.2)
3.7

Other
24.3
7.9
(1.1)
(5.7)
(0.3)
(0.6)
(0.3)
1.2
25.4

Total
127.0
49.7
(1.2)
(34.3)
(3.6)
(1.0)
2.0
3.9
142.5

Provisions related to businesses divested include amounts related to divestments completed in 2015 and longer term warranties given on divestments completed in
2005. Due to uncertainties surrounding the timing of settlement of these items, they have been disclosed as current liabilities.

Restructuring provisions mainly relate to announced business restructuring in connection with the integration of Aeroflex into the Cobham Group. These are generally
expected to be utilised within one year although the balance includes IT provisions expected to be utilised in the next three years and onerous lease provisions which
are not expected to be fully settled until 2025.

Provisions for warranty claims and contract losses are generally expected to be utilised within one year.

Aircraft maintenance provisions relate to significant periodic maintenance costs as well as return conditions for leased aircraft and are anticipated to crystallise in
the next six years. Other provisions include amounts provided in respect of legal claims and environmental obligations and are mostly expected to be settled within
one year.

20. Deferred tax

£m
Deferred tax assets
Deferred tax liabilities

The following are the major deferred tax assets and liabilities recognised by the Group, and the movements thereon:

£m
At 1 January 2014
(Credit)/charge to income statement
(Credit)/charge to OCI
Credit to reserves
Business combinations (as restated)
Business divestments
Foreign exchange adjustments (as restated)
At 1 January 2015 (as restated)
(Credit)/charge to income statement
Charge to OCI
Charge to reserves
Business divestments
Foreign exchange adjustments
Reclassifications
At 31 December 2015

102

Intangible
assets
73.5
(19.1)
–
–
157.1
(0.7)
5.4
216.2
(37.0)
–
–
(11.0)
6.9
–
175.1

Property, plant
and equipment
18.3
4.3
–
–
0.1
–
0.9
23.6
(18.0)
–
–
(0.6)
–
–
5.0

Retirement
benefit
obligations
(18.4)
2.6
(4.7)
–
–
–
–
(20.5)
3.3
5.9
–
–
–
–
(11.3)

2015
(11.4)
102.0
90.6

Other
(30.4)
(24.8)
0.6
(0.9)
(35.8)
–
(4.0)
(95.3)
20.6
0.4
1.5
(0.8)
(3.9)
(0.7)
(78.2)

2014
Restated
(10.5)
134.5
124.0

Total
43.0
(37.0)
(4.1)
(0.9)
121.4
(0.7)
2.3
124.0
(31.1)
6.3
1.5
(12.4)
3.0
(0.7)
90.6

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Other deferred tax assets and liabilities shown above include balances arising from temporary differences in relation to provisions, accruals, deferred compensation,
share based payments and derivative financial instruments.

Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. Deferred tax balances (after offset) for balance sheet
purposes are analysed as follows:

£m
Deferred tax liabilities fall due:

Within one year
After one year

Deferred tax assets are recoverable:

Within one year
After one year

Without taking into consideration the offsetting of balances, deferred tax balances are as follows:

£m
Deferred tax assets
Deferred tax liabilities
At 31 December 2015

Deferred tax assets
Deferred tax liabilities
At 31 December 2014 (as restated)

Intangible
assets
–
175.1
175.1

–
216.2
216.2

Property,
plant and
equipment
(5.1)
10.1
5.0

Retirement
benefit
obligations
(11.3)
–
(11.3)

(1.5)
25.1
23.6

(20.5)
–
(20.5)

2015

25.8
76.2
102.0

(8.5)
(2.9)
(11.4)

Other
(101.6)
23.4
(78.2)

(105.3)
10.0
(95.3)

2014
Restated

6.6
127.9
134.5

(7.1)
(3.4)
(10.5)

Total
(118.0)
208.6
90.6

(127.3)
251.3
124.0

At the balance sheet date, the Group has unused capital losses of £63.0m (2014: £66.0m) potentially available for offset against future capital profits in certain
circumstances. No deferred tax asset has been recognised in respect of this amount because of the unpredictability of future qualifying profit streams. These losses
can be carried forward indefinitely.

The unprovided tax on unremitted earnings as at 31 December 2015 is considered to be immaterial.

The rate of UK corporation tax will reduce from 20% to 19% from 1 April 2017. As this had been substantively enacted prior to 31 December 2015, 19% has been used
to calculate UK deferred taxes where the liability is expected to crystallise after 1 April 2017.

103

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

21. Derivative financial instruments
The fair values of derivative financial instruments are as follows:

£m
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Fair value at 31 December 2015

Non-current assets
Current assets
Current liabilities
Non-current liabilities
Fair value at 31 December 2014

The movements in the fair values of derivative financial instruments during the year are as follows:

£m
At 1 January 2014
(Loss)/gain through income statement – not hedged
Gain reclassified to income statement
(Loss)/gain through OCI – hedged items
Foreign exchange adjustments
At 1 January 2015
(Loss)/gain through income statement – not hedged
Gain reclassified to income statement
Loss through OCI – hedged items
Foreign exchange adjustments
At 31 December 2015

Interest
rate swaps
–
–
(0.5)
(1.8)
(2.3)

Foreign
exchange
derivatives
6.5
9.1
(28.9)
(10.9)
(24.2)

–
–
(0.7)
(2.6)
(3.3)

Interest
rate swaps
(3.2)
–
1.3
(1.4)
–
(3.3)
–
1.1
(0.3)
0.2
(2.3)

7.6
8.7
(19.2)
(10.7)
(13.6)

Foreign
exchange
derivatives
6.3
(22.6)
–
2.9
(0.2)
(13.6)
(10.9)
–
(0.3)
0.6
(24.2)

Inflation
swap
–
–
(1.2)
(1.2)
(2.4)

–
–
(0.8)
(2.2)
(3.0)

Inflation
swap
(3.4)
0.3
–
–
0.1
(3.0)
0.4
–
–
0.2
(2.4)

Total
6.5
9.1
(30.6)
(13.9)
(28.9)

7.6
8.7
(20.7)
(15.5)
(19.9)

Total
(0.3)
(22.3)
1.3
1.5
(0.1)
(19.9)
(10.5)
1.1
(0.6)
1.0
(28.9)

Interest rate swaps are designated as cash flow hedging instruments and hedge accounting is applied. In addition, a small number of specific foreign exchange
derivatives with a fair value at 31 December 2015 of £2.4m (2014: £2.7m) are designated as cash flow hedging instruments or as hedging instruments for net
investment hedging purposes, and hedge accounting is applied. There is no material ineffectiveness in cash flow hedges to be reported through the Income
Statement.

The majority of foreign exchange and inflation derivatives are not accounted for using hedge accounting. Movements in fair values are recorded in the Income
Statement within administrative expenses and are excluded from underlying profit in note 2. Also excluded from underlying profit are losses of £8.3m (2014: gain
£0.5m) arising from the movement in fair values of currency swaps which offset movements in currency balances held, and gains and losses arising on foreign
exchange derivatives related to dividend flows within the Group.

Full details of the Group’s financial instrument accounting policies and risk management strategies, objectives and policies are set out in the accounting policies in
note 1 and in note 23, financial risk management.

22. Retirement benefit schemes
Retirement benefit obligations per the Balance Sheet consist of:

£m
Defined benefit scheme assets
Defined benefit obligations

Pension expense included in employment costs in note 4 are as follows:

£m
Defined benefit schemes
Defined contribution schemes

104

2015
663.9
(720.6)
(56.7)

2015
2.7
28.1
30.8

2014
670.6
(772.6)
(102.0)

2014
5.5
25.5
31.0

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

The Group operates a number of funded defined benefit schemes (where benefits are based on employees’ length of service and average final salary), the most
significant being the Cobham Pension Plan (CPP). The assets of all of these schemes are held separately from those of the Group in funds under the control of
trustees. All defined benefit schemes have been closed to new members since 2003 and the UK schemes will be closed to future accrual from 1 April 2016. The
Group also manages a number of defined contribution pension arrangements, where the Group’s contribution is fixed at a set percentage of employees’ pay.

The defined benefit schemes expose the Group to a number of risks, as described below:

− Volatility of investment returns. If the investment return is lower than the discount rate set with reference to corporate bond yields then the scheme deficit

will increase;

− Inflation risk. Pensionable salaries, deferred pensions and pensions in payment are subject to inflationary increases. A higher inflation rate will lead to higher

defined benefit obligations;

− Changes in bond yields. Volatility in the financial markets can have a significant impact on corporate bond yields which are used to generate a discount rate

assumption. Lower corporate bond yields will lead to higher defined benefit obligations;

− Life expectancy risk. The schemes’ obligations are to provide benefits for the life of the member and therefore increases in life expectancy will lead to higher

defined benefit obligations.

The trustees seek to mitigate these risks and have invested in liability driven investments that mitigate bond yield, inflation and investment risks. The remaining assets
include significant investment in diversified growth funds which seek to manage investment risks. In addition there have been a number of buy-in arrangements
where assets are transferred to an insurance company in return for a qualifying insurance policy which provides an income stream equivalent to the obligations to
pensioners covered by the arrangement. The most significant buy-in arrangement relates to pensioners of the CPP as at 1 July 2013. The insurance contract assets
are measured at a value equal to the related liabilities, mitigating the risks associated with those liabilities.

Actuarial valuations of the present value of the defined benefit obligations for the CPP are carried out on a triennial basis by qualified independent actuaries; the
most recent valuation was as at 1 April 2015. This involves a detailed review of membership movements and generated experience gains of £12.2m recognised in
the year. Actuarial valuations of other schemes have been carried out at regular intervals as required by the applicable country regulations. The actuarial valuations
were updated by qualified independent actuaries for accounting purposes to 31 December 2015. In the UK, within 15 months of each triennial valuation, the
employer and the trustees are required to agree a schedule of contributions to ensure that the Plan is fully funded over time on a suitably prudent basis. The Group
expects to contribute £19.1m to its defined benefit pension schemes in 2016 and £18.4m in 2017. This includes £17.6m (2017: £17.6m) related to deficit funding.

In November 2015, following member consultation, it was agreed that the CPP will be closed to future accrual from 1 April 2016. This has resulted in the recognition
of curtailment gains amounting to £9.8m in the Income Statement. This is partly offset by increased commutation factors, of £7.1m, recognised as a past service cost.
£1.5m of curtailment gains arose from the Group’s restructuring activity and has been treated as non-underlying.

There were no significant contributions outstanding at the end of 2015 or 2014 for the defined benefit schemes. £0.7m (2014: £1.3m) was outstanding in respect of
defined contribution schemes but not due for payment at 31 December 2015.

The principal financial assumptions used for the purpose of the actuarial valuations were as follows:

Rate of increase in salary costs
Rate of increase in pensions in payment unless overridden by specific scheme rules
Rate of increase in deferred pensions
Discount rate
Inflation assumption

UK
schemes
3.45%
3.20%
2.20%
3.80%
3.20%

2015
USA
scheme
3.45%
3.20%
3.20%
4.13%
3.20%

UK
schemes
3.45%
3.20%
2.20%
3.50%
3.20%

2014
USA
scheme
3.45%
3.20%
3.20%
3.50%
3.20%

The mortality assumptions used for the CPP are based upon actuarial tables which reflect actual recent mortality experience and also allow for future mortality
improvements. The mortality tables used to estimate life expectancy are known as ‘SAPS CMI 14’ (2014: SAPS CMI 13). In practical terms, this is demonstrated in the
table below:

Male
Female
Male
Female

Year of birth
1950
1950
1980
1980

Year age 65
2015
2015
2045
2045

Further life
expectancy
22.8 years
24.8 years
25.6 years
27.7 years

At 31 December 2015 it has been assumed that members will commute on average 25% (2014: 20%) of their pension for cash at retirement.

The sensitivity of scheme liabilities to changes in certain key assumptions, after adjusting for liabilities covered by insurance contracts, is provided below:

Discount rate
Inflation rate
Life expectancy

Change in assumption
Increase by 0.5%
Increase by 0.5%
Increase by 1 year

Change in liabilities
-4%
+3%
+2%

If the change in assumptions were in the opposite direction to that shown above, the impact would be approximately symmetrical.

105

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

A summary of the movements in the net liability and the amounts recognised in the Income Statement and OCI are as follows:

£m
Current service cost included in administrative expenses
Past service cost included in administrative expenses
Gain on curtailment included in administrative expenses
Gain on curtailment included in business restructuring
Scheme administration expenses
Amounts recognised in operating profit

Net interest
Amounts credited/(charged) to other finance expense

Actual return less interest income on pension scheme assets
Experience gains arising on scheme liabilities
Actuarial gains and losses arising from changes
in financial assumptions
Actuarial gains and losses arising from changes
in demographic assumptions
Amounts recognised in OCI

Employer contributions
Member contributions
Benefits paid
Amounts included in Cash Flow Statement

Scheme
assets
–
–
–
–
(0.7)
(0.7)

Defined
benefit
obligations
(6.9)
(7.1)
9.8
1.5
–
(2.7)

23.5
23.5

(26.3)
–

–

–
(26.3)

22.7
1.8
(28.7)
(4.2)

(26.6)
(26.6)

–
12.2

38.1

5.6
55.9

–
(1.8)
28.7
26.9

2015

Total
(6.9)
(7.1)
9.8
1.5
(0.7)
(3.4)

(3.1)
(3.1)

(26.3)
12.2

38.1

5.6
29.6

22.7
–
–
22.7

Exchange differences

1.0

(1.5)

(0.5)

Net movement in the year
Net liability at start of year
Net liability at end of year

UK schemes
US scheme
Net liability at end of year

(6.7)
670.6
663.9

649.2
14.7
663.9

52.0
(772.6)
(720.6)

(692.8)
(27.8)
(720.6)

45.3
(102.0)
(56.7)

(43.6)
(13.1)
(56.7)

Scheme
assets
–
–
–
–
(0.6)
(0.6)

Defined
benefit
obligations
(5.5)
–
–
–
–
(5.5)

26.0
26.0

65.2
–

–

–
65.2

23.0
2.6
(24.2)
1.4

1.0

93.0
577.6
670.6

653.3
17.3
670.6

(29.6)
(29.6)

–
0.1

(96.3)

3.3
(92.9)

–
(2.6)
24.2
21.6

(1.3)

(107.7)
(664.9)
(772.6)

(745.2)
(27.4)
(772.6)

2014

Total
(5.5)
–
–
–
(0.6)
(6.1)

(3.6)
(3.6)

65.2
0.1

(96.3)

3.3
(27.7)

23.0
–
–
23.0

(0.3)

(14.7)
(87.3)
(102.0)

(91.9)
(10.1)
(102.0)

The cumulative amount of actuarial losses recognised in OCI since transition to IFRS is £206.2m (2014: £235.8m). Of the actuarial losses recognised in the year, the
changes in financial assumptions are primarily driven by the movements in the discount rate.

The actual return on scheme assets was a loss of £2.8m (2014: £91.1m gain). The weighted average duration of the scheme liabilities is estimated to be 18 years.
The fair value of major categories of scheme assets, and as a percentage of total scheme assets, is as follows:

UK equity instruments
Overseas equities
Emerging markets equities
Liability driven investments
Corporate bonds
Diversified growth funds
Insurance contracts
Other assets including cash

£m
55.7
26.7
18.1
60.9
4.8
160.5
287.6
49.6
663.9

2015
%
8.4%
4.0%
2.7%
9.2%
0.7%
24.2%
43.3%
7.5%
100.0%

£m
56.7
27.6
18.4
108.4
4.8
153.1
299.5
2.1
670.6

2014
%
8.5%
4.1%
2.7%
16.2%
0.7%
22.8%
44.7%
0.3%
100.0%

Scheme assets do not include any of the Group’s own financial instruments, nor any property occupied by, or other assets used by, the Group.

106

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Other retirement benefit schemes
The assets and liabilities of other immaterial retirement benefit schemes are as follows:

£m

French indemnity schemes

German based schemes

US based schemes

Assets

2015
Liabilities

–

3.3

1.8

5.1

(4.0)

(3.4)

(2.2)

(9.6)

Assets

–

3.5

1.9

5.4

2014
Liabilities

(4.2)

(3.7)

(5.8)

(13.7)

The actuarial loss for these schemes in the year to 31 December 2015, recognised in OCI, was £nil (2014: £0.7m). The net liabilities are included in other liabilities in
note 18. The German based schemes are substantially covered by insurance policies.

23. Financial risk management
The Group’s multinational operations and debt financing expose it to a variety of financial risks which include the effects of changes in foreign currency exchange rates,
interest rates, liquidity risk and credit risk. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance
of the Group by using foreign currency financial instruments, debt and other instruments, including interest rate swaps. Other derivative financial instruments may be
used from time to time to manage exposures such as inflation risk. The financial risk management policies agreed by the Board have not changed during the year and
are summarised below. The Group does not trade in financial instruments.

Foreign currency risk
The Group is based in the UK, reports in sterling and has significant investment in overseas operations in the USA, Australia and other European countries. As a
result, the Group’s balance sheet can be affected by movements in these countries’ exchange rates. The Group’s policy is to reduce, or eliminate where practical,
both structural and transactional foreign exchange risk and, consequently, the net foreign exchange gains and losses included in the Income Statement amounted
to a gain of £12.1m (2014: £5.8m). All currency exposures are reviewed regularly and all significant foreign exchange transactions are approved by Cobham plc
management.

The Group has the following exposure to foreign currency denominated monetary assets and monetary liabilities in the Balance Sheet, translated into sterling at the
relevant year-end exchange rates:

£m
US dollars
Euros
Australian dollars
Danish kroner
Other currencies

Sterling denominated monetary assets and liabilities

Monetary
assets
340.9
100.2
30.6
4.1
30.4
506.2
225.8
732.0

2015
Monetary
liabilities
(1,569.7)
(143.5)
(42.0)
(53.9)
(8.4)
(1,817.5)
(108.6)
(1,926.1)

Monetary
assets
350.1
109.4
47.4
16.1
45.5
568.5
143.5
712.0

2014 Restated
Monetary
liabilities
(1,614.9)
(82.8)
(45.8)
(77.7)
(11.7)
(1,832.9)
(128.8)
(1,961.7)

Foreign currency borrowings are used to mitigate the impact of foreign currency exchange differences arising from the Group’s overseas net assets. The Group
typically borrows in the currency of the acquisition and uses intercompany debt to create a natural economic hedge. Monetary liabilities in the table above include
US dollar borrowings of £1,330.2m (2014: £1,305.4m) and Danish krone borrowings of £41.6m (2014: £71.0m) which match exposures arising from currency
denominated net assets. Foreign currency contracts are also used to manage exposure to currency risks.

On consolidation, the net assets of overseas subsidiaries (which include the monetary assets and liabilities shown in the table above) are translated at closing
exchange rates and exchange differences arising are accounted for in OCI and through the translation reserve (note 25).

The Group is exposed to foreign currency risk in the income statement where individual subsidiaries hold non-functional currency monetary assets and liabilities and
when an operating unit makes sales and purchases in currencies other than its own functional currency. The Group undertakes a formal process to actively manage
and mitigate this exposure through a combination of matching non-functional currency revenues and costs, matching non-functional currency monetary assets and
liabilities and through the use of forward contracts.

107

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comGROUP FINANCIAL STATEMENTS

Notes to the Group Financial Statements continued

The sterling/US dollar and Danish krone/US dollar exchange rates are the most important for the Group. The Group has the following forward foreign currency
contracts outstanding for net sales of US dollars for sterling and Danish kroner:

Expiring within one year
Expiring within one to two years
Expiring after two years
US$/sterling contracts outstanding at 31 December

Expiring within one year
Expiring within one to two years
Expiring after two years
US$/DKK contracts outstanding at 31 December

US$m
amount
2014
110.9
14.7
47.6
173.2

US$m
amount
2014
138.1
125.1
28.3
291.5

2015
108.9
62.4
37.0
208.3

2015
148.5
95.1
1.7
245.3

Average US$: £
exchange rate
2014
1.60
1.54
1.56
1.58

2015
1.53
1.52
1.57
1.53

Average US$: DKK
exchange rate
2014
5.53
5.47
5.34
5.49

2015
5.65
6.16
6.07
5.85

The latest expiry date of forward foreign currency contracts for sales of US dollars is July 2022 and it is the Group’s current belief that the net dollar receipts by its
subsidiaries will exceed the level of the outstanding commitments.

The following table details the Group’s sensitivity to a weakening in sterling against the respective foreign currencies, with a negative number indicating a reduction
in profit after taxation or total equity. The sensitivities below represent management’s assessment of the possible changes in foreign exchange rates, based on
experience over the previous five years.

£m
US dollars to sterling
US dollars to Danish kroner
Euros to sterling

2015
Sensitivity Profit or loss Total equity
(13.9)
(16.5)
(4.9)

(13.9)
(16.5)
(4.9)

8%
12%
8%

Sensitivity
9%
12%
8%

Profit or loss
(8.0)
(18.4)
(4.2)

2014
Total equity
(8.0)
(18.4)
(4.2)

This sensitivity analysis has been based on the assumption that the change is effective throughout the financial year and that all other variables, including interest
rates, remain constant. It includes the effect of derivative financial instruments.

In order to provide comparable information, sensitivity has also been assessed based on a 10% weakening in sterling against the respective foreign currency,
as follows:

£m
US dollars to sterling
US dollars to Danish kroner
Euros to sterling

2015
Sensitivity Profit or loss Total equity
(17.8)
(13.4)
(6.3)

(17.8)
(13.4)
(6.3)

10%
10%
10%

Sensitivity
10%
10%
10%

Profit or loss
(9.1)
(15.0)
(5.4)

2014
Total equity
(9.1)
(15.0)
(5.4)

Interest rate risk
The Group has long and short term borrowings at both fixed and floating rates of interest. In managing its borrowing costs, the Group monitors its exposure to
movements in interest rates, having regard to prevailing market conditions and, where necessary, uses interest rate swaps to manage the interest rate risk.

£m
Senior notes

Bank loans at fixed rate
Bank loans swapped to fixed rate
Fixed rate borrowings

Bank loans and overdrafts
Senior notes
Finance leases
Floating rate borrowings

Total borrowings

All floating rate borrowings have regular repricing dates.

108

2015
822.7

50.8
24.1
897.6

498.3
105.1
0.5
603.9

2014
777.6

48.1
30.8
856.5

492.2
99.4
0.2
591.8

1,501.5

1,448.3

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

Floating to fixed interest rate swaps, designated as cash flow hedges, have been used to mitigate the interest rate exposure arising on selected floating rate debt.
Interest rate swaps outstanding at the year end are as follows:

Hedged item
Australian dollar loans

Fixed rate
6.30%
6.40%

Period of swap contract

from
May 2006
January 2007

to
January 2020
January 2020

Currency
value
AUS$41.5m
AUS$7.2m

2015

£m
20.5
3.6
24.1

Currency
value
AUS$49.7m
AUS$9.0m

2014

£m
26.1
4.7
30.8

The Group does not currently hold any fair value hedging instruments such as fixed to floating interest rate swaps.

Surplus funds are placed on short term fixed rate deposit and as such also give rise to interest rate exposure. There was no material sensitivity to changes in interest
rates at the year end.

Liquidity risk
The Group’s policy on managing liquidity risk throughout the year has been to maintain a mix of short, medium and long term borrowings with lenders. Overdraft and
revolving credit facilities provide short term flexibility whilst the revolving credit facilities provide longer term committed funding.

As shown in note 17, at 31 December 2015 undrawn committed borrowing facilities of £122.7m (2014: £102.7m) were available to the Group in various currencies.

At an operating level, the Group has a positive cash flow from operating activities and where practical the funds generated by business units are managed on a
regional basis. In the UK and US, most business units utilise local bank facilities within a UK or USA group arrangement. This allows a balance to be maintained
between continuity of funding, security and flexibility.

The table below summarises the remaining contractual maturity for the Group’s borrowings and other financial liabilities, including derivative financial liabilities. The
amounts shown are the contractual undiscounted cash flows which include interest, analysed by contractual maturity. The difference between the contractual cash
flows and the carrying amount of these liabilities reflects the effects of interest not included in the carrying amount and discounting applied in assessing fair value.

£m
Non-derivative financial liabilities
Borrowings
Trade and other payables
At 31 December 2015

Derivative liabilities
Interest rate swaps
Foreign exchange derivatives
Gross cash outflows
Gross cash inflows

Inflation swap
At 31 December 2015

Non-derivative financial liabilities
Borrowings
Trade and other payables (as restated)
At 31 December 2014 (as restated)

Derivative liabilities
Interest rate swaps
Foreign exchange derivatives
Gross cash outflows
Gross cash inflows

Inflation swap
At 31 December 2014

Within
one year

206.6
292.8
499.4

1–2 years

2–5 years

163.2
2.4
165.6

837.0
2.9
839.9

Over
5 years

513.5
2.5
516.0

Total

1,720.3
300.6
2,020.9

0.9

0.7

0.8

–

2.4

459.4
(430.5)
1.2
31.0

48.5
361.7
410.2

1.1

464.2
(446.1)
0.8
20.0

140.6
(131.8)
0.9
10.4

418.7
3.4
422.1

0.9

100.1
(90.8)
1.1
11.3

25.3
(24.8)
0.3
1.6

688.2
5.5
693.7

1.3

22.7
(20.2)
1.1
4.9

10.4
(9.7)
–
0.7

529.3
4.6
533.9

–

–
–
–
–

635.7
(596.8)
2.4
43.7

1,684.7
375.2
2,059.9

3.3

587.0
(557.1)
3.0
36.2

109

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Notes to the Group Financial Statements continued

Credit risk
The Group’s principal financial assets are bank balances, cash and trade and other receivables and there are no significant concentrations of credit risk.

The Group has a conservative policy towards the credit risk related to liquid funds and derivative financial instruments with balances currently spread across a range
of reputable financial institutions. The levels of credit risk are monitored through the Group’s ongoing risk management processes, which include a regular review of
the banks’ credit ratings. Risk in this area is limited further by setting a maximum level for term deposits with any one counterparty.

Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and unrelated. Customers are typically large
global companies or government agencies with long term trading relationships. The Group also has in place procedures that require appropriate credit checks on
potential customers before sales are made. Existing customer accounts are monitored on an ongoing basis and appropriate action is taken where necessary to
minimise any credit risk. The Directors therefore believe there is no further credit risk provision required in excess of normal provision for impaired receivables shown
in note 15.

Group management monitor the ageing of receivables which are more than one month overdue and debtor days on a regular basis. At 31 December 2015,
9.6% (2014: 9.2%) of gross trade receivables were overdue by one month or more.

The maximum exposure to credit risk at 31 December 2015 is the fair value of each class of receivable as disclosed in note 15.

Bank term balances totalling £6.1m (2014: £6.2m) have been pledged against the residual value of leased assets under an agreement which expires in 2020.

In the UK and the USA, the Group has master netting arrangements in respect of bank balances. In the normal course of business, these bank accounts are settled
on a net basis within each currency and as such are presented net in the Balance Sheet as shown in note 14. In the event of an automatic enforcement event, the
bank balances are automatically set off against each other to achieve a net position.

Derivatives can also be offset by counterparties in the event of a default; net amounts that result on this basis are shown in note 14.

Inflation risk
The Group’s exposure to inflation is considered to be a general business risk which is mitigated through normal commercial activity. The Group has one swap contract
which was designed to manage the inherent inflation risk in a specific operational contract. The fair value of this swap contract is included in derivative financial
instruments shown in note 21.

Capital risk management
Group policy is to maintain a strong capital base so as to maintain stakeholder confidence and to sustain future development of the business. Capital is defined as
total equity excluding non-controlling interests and amounted to £908.8m at 31 December 2015 (2014: £1,111.4m). Within this overall policy, the Group seeks to
maintain an appropriate finance structure through a mixture of debt and retained earnings. Funding needs are reviewed periodically and also each time a significant
acquisition or business divestment is made. A number of factors are considered which include the net debt/EBITDA ratio, future funding needs (usually potential
acquisitions) and proposed dividend levels. Group banking arrangements are also considered; these include financial covenants which are based on adjusted IFRS
results as outlined on page 29. This policy has been reviewed by the Board on a regular basis during the year and, given the current economic climate, continues to
be considered appropriate.

24. Share capital

Authorised
Ordinary shares of par value 2.5p
6% second cumulative preference shares of £1

Issued and fully paid
Ordinary shares of par value 2.5p

Number
of shares

2015
£m

Number
of shares

1,479,200,000
20,000

37.0
–

1,479,200,000
20,000

1,214,527,625

30.4

1,214,527,625

2014
£m

37.0
–

30.4

As at 31 December 2015, 89,634,016 (2014: 82,231,281) ordinary shares were held in treasury including 13,682,292 (2014: 6,279,557) shares held in the Cobham
Employee Benefit Trust. At 31 December 2015, the market value of treasury shares was £253.8m (2014: £266.3m), including shares with a market value of £38.7m
(2014: £20.3m) held by the Cobham Employee Benefit Trust.

During the year ended 31 December 2015, treasury shares were used to satisfy awards and options under the Group’s share based payment schemes. The net cost
of treasury shares after receipts from option exercises is deducted from retained earnings and total equity.

Further details of the share capital of Cobham plc can be found on page 67.

110

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25. Other reserves

£m
At 1 January 2014
Foreign exchange differences on translation of overseas operations
Reclassification of foreign exchange on divestment of overseas operation
Movements on cash flow hedges – interest rate swaps
Movements on cash flow hedges – foreign exchange contracts
Reclassification of fair value of cash flow hedges to income statement
Transfer of share based payment reserve on exercise
Share based payments recognised in reserves
Tax effects
Foreign exchange adjustments
At 1 January 2015
Foreign exchange differences on translation of overseas operations
Reclassification of foreign exchange on divestment of overseas operations
Movements on cash flow hedges – interest rate swaps
Movements on cash flow hedges – foreign exchange contracts
Reclassification of fair value of cash flow hedges to income statement
Transfer of share based payment reserve on exercise
Share based payments recognised in reserves
Tax effects
Foreign exchange adjustments
At 31 December 2015

Note

28
21

Translation
reserve
32.2
(16.8)
(1.9)
0.1
–
–
–
–
–
–
13.6
(29.2)
(9.0)
0.2
–
–
–
–
–
–
(24.4)

Hedge
reserve
(2.5)
–
–
(1.4)
2.9
1.3
–
–
(0.9)
(0.1)
(0.7)
–
–
(0.3)
0.1
1.1
–
–
(0.2)
(0.1)
(0.1)

Share based
payment
reserve
25.5
–
–
–
–
–
(3.3)
6.1
1.5
–
29.8
–
–
–
–
–
(1.5)
(3.0)
(1.1)
–
24.2

Total other
reserves
55.2
(16.8)
(1.9)
(1.3)
2.9
1.3
(3.3)
6.1
0.6
(0.1)
42.7
(29.2)
(9.0)
(0.1)
0.1
1.1
(1.5)
(3.0)
(1.3)
(0.1)
(0.3)

The translation reserve comprises all foreign exchange differences arising on the results and financial position of subsidiaries whose functional currencies differ from
the Group’s reporting currency together with foreign exchange movements arising on interest rate swaps designated as cash flow hedges.

The hedge reserve reflects movements in fair values on cash flow hedging derivatives as detailed in notes 21 and 23.

The share based payment reserve includes the cost of awards as assessed under IFRS 2 and detailed in note 26, together with related deferred tax provided under
IAS 12. The appropriate proportion of this reserve is transferred to retained earnings following vesting or exercise.

26. Share based payments
The Group offers a number of long term incentive schemes which provide a mix of performance based incentive and retention based awards as described below and
in the Directors’ Remuneration Report on pages 60 to 63. All schemes are equity settled and the total amount included in the Income Statement arising from share
based payment schemes is as follows:

£m
PSP
RSP
Other schemes
Release of amounts charged in previous years

2015
2.1
1.3
0.7
(7.1)
(3.0)

2014
6.8
0.7
0.7
(2.1)
6.1

During the year ended 31 December 2015, £7.1m (2014: £2.1m) charged to the Income Statement in previous years has been released, reflecting actual vesting
experience and a reassessment of the expected future vesting of outstanding awards, based on non-market related performance conditions.

The PSP scheme is offered to senior executives across the Group and allows for annual grants of conditional shares and nil-cost options with vesting conditions based
on the Group’s financial performance, taking into account both market based conditions such as TSR growth and non-market based measures such as EPS growth
or cash conversion respectively. The scheme includes retention awards granted during 2014 and buy-out awards granted to key new starters, both vesting after a
maximum of three years conditional only upon continued employment within the Group.

RSP awards provide conditional shares based solely on continued employment within the Group. Awards vest either in full after three years, or over a four year period,
with 25% vesting on each anniversary.

In previous years, share options were awarded to senior executives under the ESOS and BCP schemes. No new awards have been made under the ESOS since 2013.
The BCP provided matching shares where bonus awards were invested in shares and was last awarded in 2014, only to the Group CEO. The Group’s ShareSave
scheme is open to all UK employees.

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Notes to the Group Financial Statements continued

The number of awards outstanding at 31 December are as follows:

Number of awards (thousands of shares)
PSP
RSP
ESOS
BCP
ShareSave
At 31 December

Details of movements in the awards under the PSP scheme are as follows:

Number of awards (thousands of shares)
At 1 January
Awards granted
Awards forfeited or cancelled
Exercised
Expired
At 31 December

2015
10,026
1,317
4,031
22
5,979
21,375

2015
10,380
3,591
(3,713)
(88)
(144)
10,026

2014
10,380
543
5,914
118
5,908
22,863

2014
8,544
5,171
(2,491)
(802)
(42)
10,380

Weighted average remaining contractual life of PSP awards outstanding
Number of PSP awards exercisable at 31 December (thousands)

1.24 years
87

1.46 years
40

Awards under the PSP schemes were granted in March and April 2015, with an average fair value of £2.835 (2014 awards: £2.833). Fair values are calculated using the
Black-Scholes option pricing model modified by a Monte Carlo simulation to determine the likely impact of market related performance conditions. The weighted
average inputs into the models were as follows:

Weighted average share price
Expected life
Expected employee cancellation rate
Risk free rate

2015
£3.058
2.98 years
4.4%
0.6%

2014
£3.065
2.82 years
4.1%
0.9%

The expected lives used in the models have been adjusted, based on management’s best estimate, for the effects of non-transferability and behavioural
considerations. The expected employee cancellation rates are based on assessments of historic rates of voluntary cancellations of contracts by employees. Most
participants of the PSP schemes receive the benefit of dividend payments and therefore dividend yields are not taken into consideration in the valuation models.

The fair values of ESOS and ShareSave awards are significantly lower than for PSP, RSP and BCP awards due to the effect of the exercise price which is set based upon
the market value of the Company’s ordinary shares around the date of grant.

27. Business combinations (prior year restatement)
In the Group Financial Statements for the year ended 31 December 2014, the fair values of assets and liabilities recognised on acquisition of the Aeroflex businesses
were marked as provisional. An ongoing detailed review of these amounts has resulted in adjustments which have reduced net assets acquired by £46.0m, with an
equal increase in goodwill.

In accordance with IAS 8, the Balance Sheet as at 31 December 2014 has been restated. The assets and liabilities impacted are summarised in the 2014 Balance
Sheet extract below. The other primary statements were unaffected by this restatement.

£m

Goodwill
Intangible assets
Trade and other receivables
Total non-current assets (including line items not affected)
Inventories
Trade and other receivables
Total current assets (including line items not affected)
Trade and other payables
Provisions
Total current liabilities (including line items not affected)
Provisions
Deferred tax
Total non-current liabilities (including line items not affected)
Net assets

112

Note
10
10
15

13
15

18
19

19
20

As previously
reported
1,219.7
777.5
53.3
2,478.2
431.4
436.6
1,104.8
(503.6)
(54.1)
(699.1)
(13.3)
(157.8)
(1,771.6)
1,112.3

Adjustments
46.0
(2.4)
(2.2)
41.4
(1.9)
(1.3)
(3.2)
(1.9)
(6.4)
(8.3)
(53.2)
23.3
(29.9)
–

As restated
1,265.7
775.1
51.1
2,519.6
429.5
435.3
1,101.6
(505.5)
(60.5)
(707.4)
(66.5)
(134.5)
(1,801.5)
1,112.3

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

28. Business divestments
A number of divestments have been completed during the year:

− Weinschel and Inmet, Advanced Electronic Solutions Sector (announced on 24 April 2015 and completed on 8 June 2015);
− Cobham Composites, primarily Communications and Connectivity Sector (announced on 10 August 2015 and completed on 25 November 2015);
− Wireless operations in Nanjing, China, Communications and Connectivity Sector (completed on 2 November 2015);
− Metelics, Advanced Electronic Solutions Sector (announced and completed on 15 December 2015).

The profit on these divestments, which has been excluded from trading profit, can be analysed as follows:

£m
Gross consideration
Net assets at date of divestment
Expenses of sale
Foreign exchange adjustments
Net profit/(loss) on divestments before tax
Tax charge on net profit/(loss) on divestments
Net profit/(loss) on divestments after tax

The net cash impact of the divestments is as follows:

£m
Cash consideration
Expenses of sale

The net assets divested during the year were as follows:

£m
At date of divestment
Attributable goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables including provisions
Deferred tax
Net assets

At 31 December 2014
Attributable goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents and overdrafts
Trade and other payables including provisions
Deferred tax
Net assets

Weinschel
and Inmet
52.4
(66.6)
(1.5)
2.9
(12.8)
(12.8)
(25.6)

Composites
133.6
(50.2)
(4.7)
1.9
80.6
(8.0)
72.6

Metelics
and other
27.1
(41.8)
(2.6)
3.3
(14.0)
(2.5)
(16.5)

Weinschel
and Inmet
52.4
(1.5)
50.9

Composites
133.6
(4.5)
129.1

Metelics
and other
27.1
(1.9)
25.2

Weinschel
and Inmet

Composites

Metelics
and other

34.4
30.3
3.5
7.4
3.5
(3.5)
(9.0)
66.6

33.7
31.9
3.6
7.6
4.3
(0.2)
(3.4)
(10.4)
67.1

12.3
1.0
11.9
20.8
10.7
(4.7)
(1.8)
50.2

12.1
2.4
9.9
10.9
9.3
4.0
(9.2)
(0.4)
39.0

19.2
13.6
4.4
5.8
4.0
(3.6)
(1.6)
41.8

16.8
16.1
4.6
4.8
4.7
1.4
(3.3)
(6.7)
38.4

Total
213.1
(158.6)
(8.8)
8.1
53.8
(23.3)
30.5

Total
213.1
(7.9)
205.2

Total

65.9
44.9
19.8
34.0
18.2
(11.8)
(12.4)
158.6

62.6
50.4
18.1
23.3
18.3
5.2
(15.9)
(17.5)
144.5

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Notes to the Group Financial Statements continued

29. Operating lease arrangements
At the balance sheet date the Group had outstanding commitments for minimum lease payments due under non-cancellable operating leases as follows:

£m
Within one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years

2015
27.7
24.9
23.0
20.9
14.8
61.1
172.4

2014
41.8
24.0
23.3
20.1
16.2
53.6
179.0

Operating lease payments during the year totalled £30.1m (2014: £27.3m) including rental costs of £7.5m (2014: £6.9m) relating to operational aircraft used in its
service businesses; the remainder primarily relates to the rental of office and operating facilities.

Operating lease commitments include £20.0m (2014: £12.0m) related to onerous leases which have been provided for at the balance sheet date.

30. Contingent liabilities
At 31 December 2015, the Company and the Group had contingent liabilities in respect of bank and contractual performance guarantees and other matters arising
in the ordinary course of business. Where it is expected that a material liability will arise in respect of these matters, appropriate provision is made within the Group
Financial Statements.

The Company and various of its subsidiaries are, from time to time, parties to various legal proceedings and claims and management do not anticipate that the
outcome of these, either individually or in aggregate, will have a material adverse effect upon the Group’s financial position.

As previously notified, the Group identified one, more significant, contractual breach dating back some years, in respect of goods provided into a geographic market
representing only a small amount of revenue for the Group. The circumstances surrounding the breach remain under review and neither the outcome nor timing of
resolution can be estimated. No further information is disclosed as it could be prejudicial.

The nature of much of the contracting work done by the Group means that there are reasonably frequent contractual issues, variations and renegotiations that arise in the
ordinary course of business, whose resolution is uncertain and could materially impact the Group’s future reported earnings. In particular, on fixed price development
contracts, costs incurred and anticipated can significantly exceed amounts estimated at inception as a result of material enhancements to the specifications originally
agreed under the contracts. Judgement is therefore required as regards the final costs of technical solutions, the outcome of negotiations with customers and the
amounts recoverable under these contracts. The Directors take account of the advice of experts in making these judgements and believe that the outcome of
negotiations will result in an appropriate recovery of costs incurred in excess of original baselines.

31. Related party transactions
There were no material transactions between Group entities and joint ventures and associates during the current or previous year other than £0.5m (2014: £1.0m) of
goods purchased from related parties. Group policy is for all sales of goods to related parties to be made on an arms length basis and no guarantees have been given
to, or received from, related parties. No expense has been recognised for bad or doubtful debts in respect of amounts owed by related parties.

Details of the compensation of key management personnel (the Group Executive Committee as referred to on page 48) can be found in note 4.

The Directors of Cobham plc had no material transactions with the Company during the year, other than as a result of service agreements. Details of Directors’
remuneration are disclosed in the Directors’ Remuneration Report on pages 58 to 66.

114

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32. Subsidiaries and other related undertakings
The Group operates through a number of subsidiary undertakings and a full listing of these as at 31 December 2015 is provided below. The Group owns 100% of the
share capital of all subsidiaries with the exception of TEAM SA (98.7% owned).

The Group also has interests in a small number of joint ventures and one associated undertaking which are included in the list below. The joint ventures and associates
all have share capital consisting solely of ordinary shares, which are indirectly held, and the country of incorporation or registration is also their principal place of
operation. No further disclosures are provided concerning the assets and results of the joint ventures or associated undertaking on the basis of materiality.

Business Unit and principal activities

Name of undertaking

Principal
operating
entity

Place of
incorporation
(or registration)
and operation

Cobham Communications and Connectivity

Aerospace Communications

Avionics, connectivity, slip rings and microwave systems for air and space
platforms at the leading edge of technological development for defence,
security and commercial aerospace customers.

Antenna Systems
Advanced, ultra-reliable integrated systems for avionics, radar, surveillance
and SATCOM applications.

SATCOM

Satellite and radio communication terminals for land, sea and air.

Surveillance 2
High performance surveillance, communications and broadcast systems.

Air Précision SAS
Chelton Avionics, Inc
Chelton Telecom and Microwave SAS
TEAM SA
Label SAS
Chelton Antennas SA
Northern Airborne Technology Limited
Credowan Limited
Hyper-Technologies SAS
Precision Aviation Industries SARL
Groupement Troyen d’Electronique
Satori Air Services Inc
Société de Marquage et Signalisation SAS
Micro-Mesh SARL
NAT Seattle Inc.
Cobham Slip Rings Naples Inc.

Chelton Limited
Chelton, Inc
Cobham CTS Limited
Cobham Defence Communications Limited
European Antennas Limited
Mastsystem International Oy
Cobham Defense Products, Inc.
Northrop Grumman Cobham Intercoms LLC
(50% joint venture)
Vector Fields Incorporated
Comant Industries Incorporated
Sivers Lab AB

Sea Tel, Inc
Thrane & Thrane A/S
Omnipless Manufacturing (Pty) Limited
Thrane & Thrane Aalborg A/S
Thrane & Thrane Norge A/S
Thrane & Thrane Inc.
Philtech Co., Ltd (associate owned 30%) 1

Cobham TCS Limited
DTC Communications, Inc
Cobham do Brasil Equipamentos e Servicos Ltda
Cobham Surveillance GmbH
Cobham TCS PTE Limited
RVision, Inc.
Custom Federal, Inc.
RVision, LLC
Cobham Surveillance DAR Limited
Cobham Tracking & Locating Limited
Corp Ten International
Spectronic Denmark A/S

AvComm

Avionics, communications and synthetic test, monitoring and control for
commercial, government and military applications.

Aeroflex Wichita, Inc.

France
USA
France
France
France
France
Canada
England
France
France
France
Canada
France
France
USA
USA

England
USA
England
England
England
Finland
USA
USA

USA
USA
Sweden

USA
Denmark
South Africa
Denmark
Norway
USA
South Korea

England
USA
Brazil
Germany
Singapore
USA
USA
USA
Canada
Canada
USA
Denmark

USA

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Notes to the Group Financial Statements continued

Business Unit and principal activities

Name of undertaking

Principal
operating
entity

Place of
incorporation
(or registration)
and operation

Wireless

Advanced wireless network coverage and mobile communications systems.

Aeroflex Limited
Axell Wireless Limited
Aeroflex Ireland Limited
Aeroflex Asia Ltd.
Aeroflex Japan KK
Aeroflex Technology Service (Beijing) Co. Ltd.
Aeroflex Innovations (Shanghai) Co. Ltd.
Aeroflex Systems Private Limited
Aeroflex France SAS
Aeroflex GmbH
Aeroflex Singapore Pte. Ltd.
Axell Wireless Israel Limited
Axell Wireless Asia Pte Limited
A-xell Wireless AB
Axell Wireless, Inc.

Cobham Mission Systems
Air-to-air refuelling, life support, weapons carriage and unmanned systems. Carleton Life Support Systems, Inc

Carleton Technologies, Inc
Flight Refuelling Limited 3
Telerob Gesellschaft für
Fernhantierungstechnik mbH
Cobham Mission Equipment Inc.
Sargent Fletcher Inc.

Cobham Advanced Electronic Solutions

Microelectronic Solutions
RF microelectronic technologies to support the delivery of mission critical
electronic warfare, missiles, communications, and radar applications.

Integrated Electronic Solutions
Mission critical RF technology solutions serving defence, commercial
aerospace, and space customers.

Cobham Advanced Electronic Solutions, Inc.4
Cobham Advanced Electronic Solutions Mexico,
S.A. de C.V.

Cobham Advanced Electronic Solutions, Inc.4
Continental Microwave and Tool Co, Inc.
Trivec-Avant Corporation

Semiconductor Solutions

Standard HiRel ICs including memory, microprocessor, interconnect
and power, and application specific integrated circuits (ASICs) for
space, commercial, medical and industrial markets along with electronic
manufacturing services.

Aeroflex Plainview, Inc.4
Aeroflex Colorado Springs, Inc.
Aeroflex RAD Europe Limited
Aeroflex RAD, Inc.
Cobham Gaisler AB

RFMW Solutions

Microwave and RF active and passive components, multi-function integrated
microwave assemblies, synthesizers and interconnect subsystems.

Aeroflex Control Components, Inc.
Aeroflex Plainview, Inc.4
Aeroflex Microelectronic Solutions, Inc.

Cobham Aviation Services

Special Mission

Customised airborne surveillance, operational readiness training and search
and rescue services.

FR Aviation Limited
Surveillance Australia Pty Limited
National Air Support Pty Limited
Cobham SAR Services Pty Limited
Cobham Flight Inspection Limited
AFI Flight Inspection GmbH
Cobham Leasing Limited
FR Aviation Services Limited
Aviation Défense Service SA (45% joint venture) 5

England
England
Ireland
Hong Kong
Japan
PRC
PRC
India
France
Germany
Singapore
Israel
Singapore
Sweden
USA

USA
USA
England
Germany

USA
USA

USA
Mexico

USA
USA
USA

USA
USA
England
USA
Sweden

USA
USA
USA

England
Australia
Australia
Australia
England
Germany
England
England
France

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Business Unit and principal activities

Name of undertaking

Principal
operating
entity

Place of
incorporation
(or registration)
and operation

Helicopter Services
Helicopter operations, training and support for defence, government and
commercial customers around the globe.

Commercial Services
Operation of the Australian Boeing 717 jet network for Qantas. Providers of
flight crew and management of high capacity airline services across
Australia as well as customised commercial aviation solutions with a focus
on specialist support for resource sector projects and high capacity freight
services.

Head office and other activities
Head office management, centralised functions and personnel.

Investment holding companies
Managing investments in and provision of finance to
group undertakings.

FB Heliservices Limited
FBH Cyprus Limited
FB Heliservices Kenya Limited
FB Leasing Limited
FBS Limited

National Jet Systems Pty Limited
National Jet Express Pty Limited
Jet Systems Pty Limited
Cobham Aviation Services Engineering Pty Limited
National Jet Systems Ground Handling Pty Limited
NAS Services Pty Limited
Glyndale Pty Limited
National Jet Operations Services Pty Limited
National Investments Asia Pacific Pty Limited
Fleet Support Pty Limited
Asia Pacific Airlines Pty Limited
Asia Pacific Airlines (Papua New Guinea) Pty
Limited

Aeroflex Incorporated
Cobham Holdings Inc.
Cobham India Private Limited
Cobham Management Services Inc.
Cobham Properties Inc.
Lockman Properties Limited

Aedion Investments Unit Trust
Aeroflex Holding Corp.
Aeroflex Test Solutions Limited
AFI Holdings GmbH
Avenue 64 Limited
Chelton Technologies Canada Limited
Cob Finance LLC
Cobham AES Holdings Inc.
Cobham Holdings (US) Inc.
FR Aviation Group Limited
FR Investments Inc.
IFR Finance Inc.
IFR Finance Limited Partnership 6
IFR Systems, Inc.
Lock Financing Limited
Lockman Denmark Financing S.a.r.l.
Lockman Denmark Holdings A/S
Lockman Electronic Holdings Limited
Lockman Finance Limited
Lockman Financing Limited
Lockman Financing S.a.r.l
Lockman Investments Limited
Lockwash Investments LLC
Lockwash US Limited
Manlock Investments Limited
MCE Asia, Inc.
Multiphase Pumping Systems Limited
Telerob Holding GmbH

England
Cyprus
Kenya
England
England

Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Papua New Guinea

USA
USA
India
USA
USA
England

Jersey
USA
England
Germany
England
Canada
USA
USA
USA
England
USA
USA
England
USA
Ireland
Luxembourg
Denmark
England
England
England
Luxembourg
England
USA
England
England
USA
England
Germany

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Notes to the Group Financial Statements continued

Business Unit and principal activities

Name of undertaking

Dormant entities

Non-trading entities.

Aerial Facilities Limited 7
Aeroflex Asia Pacific Limited
Aeroflex Bloomingdale, Inc.
Aeroflex Burnham Limited
Aeroflex Cambridge Limited
Aeroflex SRL
Aeroflex Tech., SA
Aeroflex Test Equipment Services Limited 7
Aeroflex UK Limited 7
Air Precision Limited 7
Chelton Aviation Corporation
Chelton Satcom, Inc.
Cobham Aviation SDN BHD
Cobham Aviation Services España, SL
Cobham Aviation Services International Limited
Cobham Communications and Connectivity Limited
Cobham Fluid Systems Limited
Cobham Group Limited
Cobham Helicopter Services Trinidad
Cobham Mission Systems Limited
COMAR Products, Inc.
CTS Patents Limited
Cobham Whiteley Limited (formerly domo Limited)
Falcon Special Air Services SDN BHD
FB Heliservices Curacao N.V.
Grenedere Limited
ML Aircraft Services Limited
ML Aviation Limited
National Jet Regional Services Pty Limited
Racal Antennas Limited
SeaTel Europe, Inc.
Shenick Network Nominees Limited
Smart Chemical Developments Limited
Strabor (Aircraft) Limited
Strabor Investments Limited
W.E.S. (Manufacturing) Limited
W.E.S. Investments Limited
Wallop Holdings Limited

Place of
incorporation
(or registration)
and operation

England
England
USA
England
England
Italy
Spain
England
England
England
USA
USA
Malaysia
Spain
England
England
England
England
Trinidad & Tobago
England
USA
England
England
Malaysia
Curacao
England
England
England
Australia
England
USA
Ireland
England
England
England
England
England
England

1 The address of the principal place of business of Philtech Co., Ltd is Sujeong-gu, Seongnam-si, Gyeonggi-do, South Korea.
2 All subsidiaries in the Surveillance SBU were divested 15 January 2016.
3 Issued shares in Flight Refuelling Limited are held by Cobham plc. Otherwise shares are held by, or by a nominee for, a subsidiary of Cobham plc.
4 Cobham Advanced Electronic Solutions, Inc. and Aeroflex Plainview, Inc. operate across a number of sites within more than one BU.
5 The 45% investment in Aviation Défense Service SA is treated as a joint venture because the governance structure means that the Group has joint control with its partner.
6 Advantage has been taken of the exemption conferred by regulation 7 of the Partnership Accounts Regulations 2008 from the requirements to prepare and publish audited
accounts for IFR Finance Limited Partnership.
7 Dissolved subsequent to 31 December 2015.

33. Events after the balance sheet date
On 15 January 2016 it was announced that the divestment of the Surveillance businesses had been completed for consideration of US$10m. These businesses were
treated as held for sale at 31 December 2015 as shown in note 16.

118

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Independent Auditors’ Report to the members of Cobham plc

PARENT COMPANY
FINANCIAL STATEMENTS

Report on the Parent Company Financial Statements
Our opinion
In our opinion, Cobham plc’s Parent Company Financial Statements (the parent
company financial statements):
− Give a true and fair view of the state of the Parent Company’s affairs as

Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view.

at 31 December 2015;

− Have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice; and

− Have been prepared in accordance with the requirements of the Companies

Act 2006.

What we have audited
The financial statements, included within the Annual Report, comprise:
− The Parent Company Balance Sheet as at 31 December 2015;
− The Statement of Changes in Equity for the year then ended; and
− The Notes to the Parent Company Financial Statements, which
include a summary of significant accounting policies and other
explanatory information.

The financial reporting framework that has been applied in the preparation of the
financial statements is applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Practice), including FRS 101
Reduced Disclosure Framework.

Other required reporting
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are prepared is
consistent with the financial statements.

ISAs (UK and Ireland) reporting
Under International Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland))
we are required to report to you if, in our opinion, information in the Annual
Report is:
− Materially inconsistent with the information in the audited financial

statements; or

− Apparently materially incorrect based on, or materially inconsistent with,

our knowledge of the parent company acquired in the course of performing
our audit; or

− Otherwise misleading.

We have no exceptions to report arising from this responsibility.

Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
− We have not received all the information and explanations we require for

our audit; or

− Adequate accounting records have not been kept by the Parent Company,

or returns adequate for our audit have not been received from branches not
visited by us; or

− The financial statements and the part of the Directors’ Remuneration Report
to be audited are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remuneration
Directors’ Remuneration Report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.

Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion, certain disclosures of Directors’ remuneration specified by law are
not made. We have no exceptions to report arising from this responsibility.

This report, including the opinions, has been prepared for and only for the
Parent Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.

What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland). An audit
involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or error. This
includes an assessment of:
− Whether the accounting policies are appropriate to the Parent Company’s

circumstances and have been consistently applied and adequately disclosed;

− The reasonableness of significant accounting estimates made by the

Directors; and

− The overall presentation of the financial statements.

We primarily focus our work in these areas by assessing the Directors’ judgements
against available evidence, forming our own judgements, and evaluating the
disclosures in the financial statements.

Other matter
We have reported separately on the Group Financial Statements of Cobham plc
for the year ended 31 December 2015.

Pauline Campbell
Senior Statutory Auditor
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 March 2016

119

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.comParent Company Balance Sheet
As at 31 December 2015

£m
Assets
Non-current assets
Investments in Group and other undertakings
Other investments
Derivative financial instruments
Other receivables

Current assets
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents

Current liabilities
Borrowings
Trade and other payables
Provisions
Derivative financial instruments

Non-current liabilities
Borrowings
Derivative financial instruments
Retirement benefit obligations

Net assets

Equity

Share capital
Share premium
Other reserves
Retained earnings
Total equity

Note

2015

2014
Restated

4
4
9
5

9
5

6
7
8
9

6
9
10

789.6
6.1
11.3
18.3
825.3

15.0
2,376.2
101.8
2,493.0

(215.3)
(510.2)
(6.6)
(31.6)
(763.7)

776.4
6.1
14.3
18.3
815.1

15.7
1,977.7
420.2
2,413.6

(26.3)
(496.5)
(6.6)
(23.3)
(552.7)

(1,344.7)
(12.8)
(22.4)
(1,379.9)

(1,446.8)
(18.0)
(35.8)
(1,500.6)

1,174.7

1,175.4

30.4
301.9
13.3
829.1
1,174.7

30.4
301.9
17.5
825.6
1,175.4

The financial statements on pages 120 to 127 were approved by a duly appointed and authorised committee of the Board on 2 March 2016 and signed
on its behalf by:

Bob Murphy
Directors

Simon Nicholls

120

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Statement of Changes in Equity
For the year ended 31 December 2015

£m
Total equity at 1 January 2014 (as previously reported)
Effect of transition to FRS 101 (note 14)
Total equity at 1 January 2014 (as restated)

Profit for the year
Items that will not be reclassified subsequently to profit or loss
Items that may subsequently be reclassified to profit or loss
Total comprehensive income for the year

Net proceeds from treasury shares
Issue of shares
Dividends (note 2)
Share based payments (note 3)
Transfer of share based payment reserve
Total equity at 31 December 2014

Profit for the year
Items that will not be reclassified subsequently to profit or loss
Items that may subsequently be reclassified to profit or loss
Total comprehensive income for the year

Net purchase of treasury shares
Dividends (note 2)
Share based payments (note 3)
Transfer of share based payment reserve
Total equity at 31 December 2015

PARENT COMPANY
FINANCIAL STATEMENTS

Share
capital
28.9
–
28.9

Share
premium
126.6
–
126.6

Hedge
reserve
(2.5)
–
(2.5)

Other
reserves
Share
based
payment
reserve
17.3
–
17.3

Retained
earnings
450.1
(24.8)
425.3

Total
equity
620.4
(24.8)
595.6

511.7
(9.7)
(0.1)
501.9

3.3
176.8
(108.3)
6.1
–
1,175.4

143.9
5.1
0.3
149.3

511.7
(9.7)
–
502.0

3.3
–
(108.3)
–
3.3
825.6

143.9
5.1
–
149.0

(24.9)
(122.1)
–
1.5
829.1

(24.9)
(122.1)
(3.0)
–
1,174.7

–
–
–
–

–
1.5
–
–
–
30.4

–
–
–
–

–
–
–
–
30.4

–
–
–
–

–
175.3
–
–
–
301.9

–
–
–
–

–
–
–
–
301.9

–
–
(0.1)
(0.1)

–
–
–
–
–
(2.6)

–
–
0.3
0.3

–
–
–
–
(2.3)

–
–
–
–

–
–
–
6.1
(3.3)
20.1

–
–
–
–

–
–
(3.0)
(1.5)
15.6

Retained earnings at 1 January 2014 as previously reported of £450.1m include £43.6m of other reserves reclassified as detailed in note 14.

The share based payment reserve relates to provisions made in accordance with IFRS 2 for awards made to the Company’s employees under the Group’s share based
payment schemes. Where awards which gave rise to charges under IFRS 2 have vested or been exercised, the appropriate proportion of the reserve is transferred to
retained earnings.

Profit for the financial year
In accordance with the concession granted under Section 408 of the Companies Act 2006, the profit and loss account of Cobham plc has not been separately
presented in these financial statements.

The audit fee in respect of the Parent Company Financial Statements was £49,000 (2014: £46,000).

121

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Notes to the Parent Company Financial Statements

1. Parent Company accounting policies

These financial statements are the financial statements for Cobham plc
which operates as a group holding company and is the parent company
of the Cobham plc Group.

Accounting convention
The financial statements have been prepared in accordance with Financial
Reporting Standard 101, Reduced Disclosure Framework (FRS 101). The
Company has early adopted the amendments to FRS 101 which were issued
in July 2015. The Company transitioned from previous UK GAAP to FRS 101
for all periods presented. Details of adjustments arising on transition can be
found in note 14.

The financial statements have been prepared on the going concern basis, under
the historical cost convention as modified to include the revaluation of derivative
financial assets and liabilities measured at fair value through profit or loss and in
accordance with the Companies Act 2006.

The Company has taken advantage of the following disclosure exemptions under
FRS101:

The principal accounting policies, which have been consistently applied, are as
set out below:

Dividends
Dividends payable are recognised as a liability in the period in which they are
fully authorised. Dividend income is recognised when the shareholders’ right
to receive payment has been established.

Retirement benefit obligations
The Company operates and participates in the Cobham Pension Plan (CPP) and
the Cobham Executive Pension Plan (CEPP). The plans are funded defined benefit
schemes and assets are held in separate trustee administered funds. The assets
and liabilities of the CPP have been allocated to the contributing companies
based on the proportional number of members. The Company also operates and
contributes to a defined contribution scheme.

For the defined benefit schemes, current service costs and costs related to the
administration of the schemes are charged to operating profit. Past service costs
are recognised immediately in the income statement. The interest on net assets
or liabilities is shown within finance income and costs. Actuarial remeasurements
are recognised immediately in other comprehensive income (OCI).

− A cash flow statement and related notes (IAS 7, Statement of Cash Flows

and paragraph 10(d) of IAS 1, Presentation of financial statements);

− Paragraph 38 of IAS 1, Presentation of Financial Statements comparative

period reconciliations in respect of paragraph 79(a)(iv) of IAS 1 (number of
shares outstanding);

− Capital management disclosures required by paragraphs 134–136 of IAS 1;
− The requirements of paragraph 10(f) of IAS 1 (prior period balance sheet

Pension scheme assets are measured at fair value and liabilities are measured
on an actuarial basis using the projected unit method and discounted at a rate
equivalent to the current rate of return on a high quality corporate bond of
equivalent currency and term to the scheme liabilities. The actuarial valuations
are obtained at least triennially and are updated at each balance sheet date. The
resulting net defined benefit asset or liability is presented separately on the face
of the balance sheet.

following a restatement);

− The requirements of paragraphs 30 and 31 of IAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors concerning the effects of new
but not yet effective IFRSs;

− Details of compensation of key management personnel required by

paragraph 17 of IAS 24, Related Party Disclosures; and

− The requirements in IAS 24 to disclose related party transactions entered

into between two or more members of a group.

In addition, as the consolidated financial statements of Cobham plc include
the equivalent disclosures, the following exemptions under FRS101 have also
been taken:

− Share based payment disclosures under paragraphs 45(b) and 46–52 of
IFRS 2, Share Based Payment in respect of group settled share based
payments; and

− Financial instrument information required by IFRS 7, Financial Instruments:
Disclosures and paragraphs 91 to 99 of IFRS13, Fair value measurement.

Management judgement and estimation uncertainty
The preparation of financial statements requires the use of estimates and
judgements that affect the application of accounting policies and reported
amounts of assets, liabilities, revenue and expenses. These estimates and
judgements are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. The current economic conditions
have been considered when evaluating accounting estimates and judgements,
including the application of the going concern basis of preparation. Although
estimates are based on management’s best knowledge of the amount, event
or actions, actual results ultimately may differ from those estimates.

The key assumptions concerning the future and other key sources of estimation
uncertainty at the balance sheet date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities in the next
financial year, relate to retirement benefit obligations. A number of assumptions
are made in assessing the costs and present value of the pension assets and
liabilities, which include the long term rate of increase of salary costs, discount
rate, inflation and mortality rates. The Company uses published indices and
independent actuarial advice to select the values of critical assumptions.

For the defined contribution scheme, the amount charged to the income
statement in respect of pension costs and other post-retirement benefits are
the contributions payable in the year. Differences between contributions payable
in the year and contributions actually paid are recorded as either accruals or
prepayments in the balance sheet.

Current and deferred taxation
Current tax is provided at the amounts expected to be paid using rates that have
been enacted or substantively enacted at the balance sheet date.

Deferred tax is calculated at the tax rates that are expected to apply in the
periods in which the asset is realised or liability is settled, based on tax rates and
laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is measured on an undiscounted basis and deferred tax assets are
only recognised to the extent that it is probable that future taxable profits will
be available against which deductible temporary differences can be utilised.

Tax is charged or credited to the income statement except when it relates
to items recognised in OCI or directly in equity, in which case the tax is also
recognised in OCI or directly in equity respectively. Tax assets and liabilities
are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred taxes relate to the same
fiscal authority.

Investments in Group and other undertakings
Investments in subsidiary undertakings are stated at cost less any provision
for impairment in value and include the fair value at the date of grant of share
based payment awards to employees of subsidiary undertakings, net of amounts
recovered as management charges.

Other investments are stated at cost less any provision for impairment in value.

122

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PARENT COMPANY
FINANCIAL STATEMENTS

2. Dividends

£m
Final dividend of 7.746p per share for 2014
(2013: 7.04p)
Interim dividend of 3.05p per share for 2015
(2014: 2.904p)
Total dividend authorised and paid during the year

2015

2014

87.7

75.5

34.4
122.1

32.8
108.3

Further details of the proposed final dividend of 11.18p per share in respect of
the financial year ended 31 December 2015 are shown in note 7 to the Group
Financial Statements.

3. Share based payments
Employees of Cobham plc participate in equity settled share based payment
schemes which are operated by the Group for senior executives and also in the
Group’s ShareSave scheme which is open to all UK employees.

At 31 December, the following awards were outstanding under each scheme:

Number of awards (thousands of shares)
PSP
RSP
ESOS
BCP
ShareSave

2015
3,050
123
474
22
364
4,033

2014
3,695
23
519
114
283
4,634

Options outstanding under the ESOS scheme had a weighted average remaining
contractual life of 2.3 years (2014: 3.3 years) and exercise prices which range
from £1.84 to £2.33 (2014: £1.84 to £2.38). Options outstanding under the
ShareSave scheme had a weighted average remaining contractual life of 3.1 years
(2014: 2.2 years) and exercise prices which range from £1.48 to £2.41 (2014:
£1.48 to £2.41).

Exercises of awards under the ESOS and ShareSave schemes were made at
various times throughout the year. The average share price in that period was
£2.964p (2014: £2.988p).

Further details of these schemes can be found in the Directors’ Remuneration
Report on pages 60 to 63 and in note 26 to the Group Financial Statements.

Provisions
A provision is recognised when the Company has a present legal or constructive
obligation as a result of a past event and it is probable that settlement will be
required of an amount that can be reliably estimated.

Share capital
Ordinary share capital is classified as equity.

Preference share capital is classified as a liability if it is redeemable on a specific
date or at the option of the preference shareholders or if dividend payments are
not discretionary. Dividends on preference share capital classified as liabilities are
recognised in the profit and loss account as interest expense.

Treasury shares
When ordinary share capital recognised as equity is acquired by the Company,
the shares are held as treasury shares. The consideration paid, including
commissions and taxes, is deducted from retained earnings and total equity.

Foreign currencies
The functional currency of the Company is sterling.

Transactions in currencies other than sterling are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities denominated
in non-functional currencies are retranslated at the exchange rate ruling at
the balance sheet date. Non-monetary items (such as investments) that are
measured in terms of historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions. Non-monetary items
measured at fair value in a foreign currency (such as some derivative financial
instruments) are translated using the exchange rates at the date when the fair
value was determined.

All exchange differences arising are taken to the income statement.

Financial instruments
The policies disclosed in note 1 to the Group Financial Statements on page 86
for the recognition, measurement and presentation of financial instruments are
applicable to the Parent Company Financial Statements.

Other financial instruments
Amounts receivable from and owed to subsidiaries are recognised at amortised
cost using the effective interest method and are reduced by appropriate
allowances for estimated irrecoverable amounts.

Interest bearing bank loans and overdrafts are recorded at the proceeds received,
net of direct issue costs and subsequently held at amortised cost. Interest is
accounted for on an accruals basis in the income statement. Premiums payable
on settlement or redemption and direct issue costs are capitalised and amortised
over the period to which the facility relates.

Share based payments
For grants made to employees of Cobham plc under the Group’s equity share
based payment schemes, amounts which reflect the fair value of awards as
at the time of grant are charged to the income statement over the vesting
period, taking into account management’s best estimate of the number of
awards expected to vest. The vesting estimate, which includes progress against
non-market related performance conditions, is reviewed and updated at each
balance sheet date. The fair value of awards made to employees of subsidiary
undertakings, net of amounts recovered as management charges, is recognised
as a capital contribution and recorded in investments.

The valuation methodology for all schemes is based on the Black–Scholes model,
modified where required to allow for the impact of market related performance
criteria and taking into account all non-vesting conditions.

123

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Notes to the Parent Company Financial Statements continued

4. Investments in Group and other undertakings

£m
Cost and net book amount
At 1 January 2015
Additions in the year
Share based payment awards granted
to employees of Group undertakings
net of recoveries
At 31 December 2015

Share
based
payments

11.7
–

0.6
12.3

764.7
12.6

–
777.3

Total

776.4
12.6

0.6
789.6

6. Borrowings
Current liabilities
£m
Bank overdrafts
Bank loans
Senior notes

2015
59.7
100.7
54.9
215.3

2014
26.3
–
–
26.3

Further details of the Company’s principal borrowing facilities are disclosed in
notes 14 and 17 to the Group Financial Statements.

During the year the Company purchased 2.8% of the ordinary share capital of
Lockman Investments Limited that was previously held by another subsidiary.
Lockman Investments Limited is now a 100% directly owned subsidiary of
Cobham plc.

Non-current liabilities
£m
Bank loans
Senior notes

2015
471.8
872.9
1,344.7

2014
569.8
877.0
1,446.8

In the opinion of the Directors the value of investments in subsidiary undertakings
is not less than the aggregate amount at which they are shown above.

A list of all subsidiaries is provided in note 32 to the Group Financial Statements.
The market capitalisation of the Group as a whole is given in the Group Financial
Record on page 128.

The Company has minority shareholdings in two companies in connection with
the FSTA programme. The total amount invested is £6.1m (2014: £6.1m) and this
is held as a trade investment.

5. Trade and other receivables
Current assets

£m
Amounts owed by Group undertakings
Deferred tax
Prepayments and accrued income

2015
2,360.4
6.9
8.9
2,376.2

2014
Restated
1,959.9
10.4
7.4
1,977.7

Amounts owed by Group undertakings are unsecured and repayable on demand.
All such balances, excluding trading balances, are interest bearing.

The loans falling due after more than one year are due for repayment as follows:

£m
Between one and two years
Between two and three years
Between three and four years
Between four and five years
After five years

2015
41.6
303.6
–
123.7
2.9
471.8

Senior notes falling due after more than one year mature as follows:

£m
Between one and two years
Between two and five years
After five years, maturing between 2021 and 2024

2015
84.8
330.1
458.0
872.9

2014
331.1
52.2
186.5
–
–
569.8

2014
51.9
363.9
461.2
877.0

The net deferred tax asset can be analysed as follows:

7. Trade and other payables

£m
Derivative financial instruments
Retirement benefit obligations
Share based payments
Accelerated capital allowances

Movements in the net deferred tax asset are as follows:

£m
At 1 January 2015
Charge to reserves
Charge to income statement
At 31 December 2015

Non-current assets

£m

Loan notes

2015
1.8
4.5
0.5
0.1
6.9

2014
Restated
2.0
7.1
1.2
0.1
10.4

£m
Trade payables
Amounts owed to Group undertakings
Corporation tax payable
Other tax and social security
Accruals and deferred income

2015
2.3
484.6
1.2
1.7
20.4
510.2

2014
Restated
3.7
465.9
6.8
2.2
17.9
496.5

Interest is charged on amounts owed to Group undertakings at rates varying
between 0.25% and 9.0%. These amounts are unsecured and are repayable
on demand.

10.4
(1.4)
(2.1)
6.9

8. Provisions
Provisions of £6.6m (2014: £6.6m) relate to longer term warranties given on
divestments completed in 2005. All amounts have been determined based on
the Directors’ current estimates of likely outcomes and the timing of any claims
remains uncertain.

2015

18.3

2014
Restated
18.3

Loan notes relate to the FSTA programme, are interest bearing and due for
repayment in 2035.

124

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PARENT COMPANY
FINANCIAL STATEMENTS

10. Retirement benefit obligations
Retirement benefit obligations in the Balance Sheet comprise:

£m
Defined benefit scheme assets
Defined benefit obligations

2015
349.0
(371.4)
(22.4)

2014
Restated
275.0
(310.8)
(35.8)

Defined benefit pension schemes
The Company operates and participates in the Cobham Pension Plan (CPP)
and the Cobham Executive Pension Plan (CEPP). The plans are funded defined
benefit schemes (where benefits are based on employees’ length of service and
average final salary) and assets are held in separate trustee administered funds.
The plans have been closed to new members since 2003 and will be closed to
future accrual from 1 April 2016.

Details of actuarial valuation processes and risks, assumptions and sensitivities
relating to the CPP and CEPP are not significantly different to those disclosed in
note 22 to the Group Financial Statements on page 105.

The Company expects to contribute £8.5m to its defined benefit pension
schemes in 2016 and £8.5m in 2017 related to deficit funding. There were
no significant contributions outstanding at the end of 2015 or 2014.

Changes in the present value of the defined benefit obligations are as follows:

£m
Opening defined benefit obligations
Current service cost
Past service cost
Interest cost
Actuarial losses arising from changes in
financial assumptions
Actuarial gains arising from changes in
demographic assumptions
Contributions by members

Gain on curtailment
Benefits paid
Closing defined benefit obligations

Changes in the fair value of scheme assets are as follows:

£m
Opening fair value of scheme assets
Interest
Actuarial gains
Scheme administration expenses
Contributions by members

Contributions by employers
Benefits paid
Closing fair value of scheme assets

2015
310.8
0.1
0.2
12.2

2014
Restated
267.1
0.1
–
11.9

64.9

43.5

(4.3)
0.1

(0.2)
(12.4)
371.4

2015
275.0
10.9
67.0
(0.2)
0.1

8.6
(12.4)
349.0

(1.4)
0.1

–
(10.5)
310.8

2014
Restated
235.7
10.6
30.1
(0.2)
0.1

9.2
(10.5)
275.0

The actual return on scheme assets was £77.9m (2014: £40.7m). The weighted
average duration of the scheme liabilities is estimated to be 18 years.

9. Derivative financial instruments
The Company’s activities expose it to the financial risks of changes in foreign
currency exchange rates and interest rates. The Company uses foreign exchange
contracts and interest rate swap contracts to reduce these exposures and does
not use derivative financial instruments for speculative purposes. Other derivative
financial instruments may be used from time to time to manage exposures such
as inflation risk.

The fair values of derivative financial instruments are as follows, these are
financial assets measured at fair value through profit or loss, or financial liabilities
categorised as held for trading:

£m
Non-current assets
Current assets
Current liabilities
Non-current liabilities
At 31 December 2015

Non-current assets
Current assets
Current liabilities
Non-current liabilities
At 31 December 2014

Interest
rate swaps
–
–
(0.5)
(1.8)
(2.3)

Foreign
exchange
derivatives
10.1
13.8
(29.9)
(9.8)
(15.8)

Inflation
swap
1.2
1.2
(1.2)
(1.2)
–

–
–
(0.7)
(2.6)
(3.3)

12.1
14.9
(21.8)
(13.2)
(8.0)

2.2
0.8
(0.8)
(2.2)
–

Total
11.3
15.0
(31.6)
(12.8)
(18.1)

14.3
15.7
(23.3)
(18.0)
(11.3)

The movements in the fair values of derivative financial instruments during the
year are as follows:

£m
At 1 January 2014
Loss through income
statement – not hedged
Loss through OCI – hedged
items
Gain reclassified to income
statement
At 1 January 2015
Loss through income
statement – not hedged
Gain reclassified to income
statement
Loss through OCI – hedged
items
Foreign exchange
adjustments
At 31 December 2015

Interest
rate swaps
(3.2)

Foreign
exchange
derivatives
10.0

Inflation
swap
–

–

(18.0)

(1.4)

1.3
(3.3)

–

1.1

(0.3)

0.2
(2.3)

–

–
(8.0)

(7.6)

–

(0.2)

–
(15.8)

–

–
–

–

–
–

Total
6.8

(18.0)

(1.4)

1.3
(11.3)

(7.6)

1.1

(0.5)

0.2
(18.1)

Hedge accounting is applied for interest rate swaps and a small number of
specific foreign exchange derivatives with a fair value at 31 December 2015
of £1.5m (2014: £2.7m) which are designated as cash flow hedging instruments.
There is no material ineffectiveness in cash flow hedges to be reported through
the income statement.

The majority of foreign exchange and inflation derivatives are not accounted
for using hedge accounting and movements in fair values are recorded in the
income statement.

The most significant assumptions in valuing the derivatives are the exchange
rates for GBP: USD, GBP: DKK and GBP: EUR.

125

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Notes to the Parent Company Financial Statements continued

14. Transition to FRS 101 from previous UK GAAP
As stated in note 1, these are the Company’s first financial statements prepared
in accordance with FRS 101. The Company has early adopted the amendments
to FRS 101 (issued in July 2015).

The accounting policies set out in note 1 have been applied in preparing the
financial statements for the year ended 31 December 2015, the comparative
information presented in these financial statements for the year ended
31 December 2014 and in the preparation of an opening FRS 101 Balance
Sheet at 1 January 2014 (the Company’s date of transition).

In preparing its FRS 101 Balance Sheet, the Company has adjusted amounts
reported previously in financial statements prepared in accordance with its
old basis of accounting (UK GAAP). The Company has also reformatted the
presentation of its Balance Sheet. An explanation of how the transition from
UK GAAP to FRS 101 has affected the Company’s financial position and
performance, prior to the reformatting of the Balance Sheet, is set out below:

Reconciliation of equity
As at 31 December 2014

£m
Fixed assets
Investments in Group and other
undertakings
Other investments
Derivative financial instruments

Current assets
Derivative financial instruments
Trade and other receivables
Other receivables
Cash and cash equivalents

UK
GAAP

Effect of
transition
to FRS 101 FRS 101

Note

776.4
6.1
14.3
796.8

–
–
–
–

776.4
6.1
14.3
796.8

15.7
a, b 1,988.4
–
420.2
2,424.3

–

15.7
(10.7) 1,977.7
18.3
18.3
420.2
–
7.6 2,431.9

Trade and other payables: amounts
falling due within one year
Net current assets

(155.5)
2,268.8

(546.1)
(390.6)
(383.0) 1,885.8

Total assets less current liabilities

3,065.6

(383.0) 2,682.6

Trade and other payables: amounts
falling due after more than one year
Provisions for liabilities
Retirement benefit obligations
Net assets

c (1,855.4)
(6.6)
–
1,203.6

390.6 (1,464.8)
(6.6)
–
(35.8)
(35.8)
(28.2) 1,175.4

Capital and reserves
Called up share capital
Share premium account
Other reserves
Retained earnings
Total equity

30.4
301.9
61.1
810.2
1,203.6

e
e, f

30.4
–
301.9
–
17.5
(43.6)
15.4
825.6
(28.2) 1,175.4

The fair value of major categories of scheme assets, and as a percentage of total
scheme assets, is as follows:

UK equity instruments
Overseas equities
Emerging markets equities
Liability driven investments
Insurance contracts

Diversified growth funds
Other assets

2015
%
6.8%
3.9%
2.7%
9.0%
46.7%

£m
23.6
13.7
9.3
31.3
163.0

23.6%
82.6
25.5
7.3%
349.0 100.0%

2014
%
6.4%
3.9%
2.6%
15.3%
50.1%

21.6%
0.1%
100.0%

£m
17.5
10.7
7.1
42.1
137.7

59.5
0.4
275.0

Scheme assets do not include any of the Company’s own financial instruments,
nor any property occupied by, or other assets used by, the Company.

Defined contribution pension schemes
The Company also operates and participates in the Cobham Personal Pension
Plan, a defined contribution scheme. The assets of the scheme are held
separately from those of the Company in independently administered funds.
The pension cost charged represents contributions payable by the Company
to the funds and amounted to £0.9m (2014: £0.9m). No contributions were
outstanding at the end of 2015 or 2014.

11. Share Capital

£m
Allotted, issued and fully paid
Equity
1,214,527,625 (2014: 1,214,527,625) 2.5p
ordinary shares
Non-equity
19,700 (2014: 19,700) 6% second cumulative
preference shares of £1

2015

2014

30.4

–

Preference shares with a value of £19,700 are classified as borrowings.

Further details of the share capital of Cobham plc, including changes resulting
from treasury shares, can be found on page 67 and in note 24 to the Group
Financial Statements.

12. Contingent liabilities and commitments
The Company has contingent liabilities in respect of bank and contractual
performance guarantees and other matters arising in the ordinary course of
business entered into for, or on behalf of, certain Group undertakings.

As the conditions of the above guarantees are currently being met, no obligating
event is foreseeable and therefore no provision has been made at the year end.

The Company had no capital commitments at 31 December 2015 (2014: £nil).

13. Related party transactions
During the year the Company entered into transactions, in the ordinary course
of business, with related parties that are part of the Cobham plc Group or
investees of the Group. The Company has taken advantage of the exemption
under paragraph 8(k) of FRS 101 from disclosing related party transactions with
its wholly owned subsidiary undertakings. The only transactions with non-wholly
owned subsidiaries relate to the receipt of management and brand charges
totalling £1.0m (2014: £1.2m) from TEAM SA which is 98.7% owned. No amounts
were outstanding at the current or prior year end.

There were no material transactions with the Company’s Directors, their close
family members or other connected parties to be reported during the year
other than arising from Directors’ service agreements. Details of Directors’
remuneration are disclosed in the Directors’ Remuneration Report on pages
58 to 67.

126

Cobham plcAnnual Report and Accounts 2015www.cobham.comwww.cobham.com

PARENT COMPANY
FINANCIAL STATEMENTS

As at 31 December 2013

£m
Fixed assets
Intangible assets
Investments in Group and other
undertakings
Other investments
Derivative financial instruments

Current assets
Derivative financial instruments
Trade and other receivables
Other receivables
Cash and cash equivalents

Trade and other payables: amounts
falling due within one year
Net current assets

Total assets less current liabilities

Trade and other payables: amounts
falling due after more than one year
Provisions for liabilities
Retirement benefit obligations
Net assets

Capital and reserves
Called up share capital
Share premium account
Other reserves
Retained earnings
Total equity

Note UK GAAP

Effect of
transition
to FRS 101

FRS 101

0.1

776.8
6.1
18.1
801.1

8.3
1,118.9
–
74.1
1,201.3

–

–
–
–
–

–
(11.7)
18.3
–
6.6

0.1

776.8
6.1
18.1
801.1

8.3
1,107.2
18.3
74.1
1,207.9

(355.3)
846.0

(403.5)
(396.9)

(758.8)
449.1

1,647.1

(396.9)

1,250.2

(1,020.1)
(6.6)
–
620.4

28.9
126.6
58.4
406.5
620.4

403.5
–
(31.4)
(24.8)

–
–
(43.6)
18.8
(24.8)

(616.6)
(6.6)
(31.4)
595.6

28.9
126.6
14.8
425.3
595.6

a, b
b

e
e, f

Reconciliation of profit for the year ended 31 December 2014

£m
Profit for the financial year per previous UK GAAP
Retirement benefit obligations
Deferred tax related to retirement benefit obligations
Deferred tax related to share based payments
Profit for the financial year per FRS 101

Note

d
a
a

505.4
7.6
(1.5)
0.2
511.7

Notes to the reconciliation of equity and profit
a. Tax
Changes in deferred tax represent the impact of deferred taxes on the
adjustments necessary for the transition to FRS 101 and total £6.3m as at
1 January 2014 and £7.1m as at 31 December 2014. Amounts affecting the
income statement for the year ended 31 December 2014 are £1.5m relating
to retirement benefit obligations and £0.2m relating to a change in the basis
of calculation of deferred tax for share based payments.

b. Other receivables
Other receivables which are due after one year are now presented separately on
the Balance Sheet.

c. Trade and other payables
Amounts owed to Group undertakings have been reclassified from amounts
falling due after more than one year to amounts falling due within one year upon
transition to FRS 101.

d. Pension
Under UK GAAP, the Company accounted for the defined benefit pension
schemes as if they were defined contribution schemes and the charge to the
income statement therefore reflected payments for the year. Under FRS 101,
the multi-employer exemption is no longer available and the Balance Sheets
have been amended by £31.4m at 1 January 2014 and £35.8m at 31 December
2014. The income statement impact of adopting FRS 101 for the year ended
31 December 2014 was an increase in profit before tax of £7.6m, with a loss
after tax of £9.7m impacting OCI.

e. Other reserves
The special reserve which arose under historic UK GAAP has been merged into
retained earnings.

f. Retained earnings
All the adjustments above were recognised against opening retained earnings
and other reserves as at 1 January 2014.

127

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Group Financial Record

£m
Revenue

2011
1,854.4

2012
1,749.4

2013
1,789.7

2014
Restated
1,851.7

2015
2,072.0

Underlying profit before taxation

327.9

300.2

288.0

257.0

280.4

234.3
(46.3)
188.0

204.0
(32.2)
171.8

126.6
(12.1)
114.5

24.3
4.7
29.0

(39.8)
2.1
(37.7)

917.6
329.8
16.1
36.3
983.7
2,283.5
(749.0)
(444.2)
1,090.3
(71.2)
1,019.1

28.9
989.7
1,018.6
0.5
1,019.1

1,102.1
315.5
15.8
60.3
877.9
2,371.6
(576.4)
(667.4)
1,127.8
(73.4)
1,054.4

28.9
1,024.9
1,053.8
0.6
1,054.4

1,162.2
360.7
3.1
43.3
849.9
2,419.2
(574.8)
(712.9)
1,131.5
(87.3)
1,044.2

28.9
1,014.5
1,043.4
0.8
1,044.2

2,040.8
400.4
3.1
75.3
1,101.6
3,621.2
(707.4)
(1,699.5)
1,214.3
(102.0)
1,112.3

30.4
1,081.0
1,111.4
0.9
1,112.3

1,729.5
384.2
3.0
95.3
1,105.6
3,317.6
(797.2)
(1,554.0)
966.4
(56.7)
909.7

30.4
878.4
908.8
0.9
909.7

(232.5)

(359.9)

(453.4)

(1,222.7)

(1,206.8)

337.1
95%

6.17
22.05
16.80
16.76
88.3

339.3
104%

8.60
22.48
15.98
15.93
91.3

268.5
85%

9.04
21.60
10.70
10.65
90.4

207.9
73%

234.6
71%

9.94
18.48
2.60
2.58
91.6

10.80
19.48
(3.35)
(3.35)
74.9

2,117

2,549

3,169

3,934

3,440

Profit/(loss) before taxation for the year
Taxation
Profit/(loss) after taxation

Net assets employed
Intangible assets
Property, plant and equipment (including investment properties)
Investments
Other non-current assets
Current assets

Current liabilities
Non-current liabilities excluding retirement benefit obligations
Net assets excluding retirement benefit obligations
Retirement benefit obligations
Net assets including retirement benefit obligations

Financed by
Ordinary share capital
Reserves
Total equity attributable to the owners of the parent
Non-controlling interests in equity
Total equity

Net debt

Operating cash flow
Operating cash conversion

pence
Dividend paid per ordinary share
Earnings per ordinary share – underlying
Earnings per ordinary share – basic
Earnings per ordinary share – diluted
Net assets per ordinary share

£m
Market capitalisation as at 31 December

128

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Shareholder Information

OTHER INFORMATION

Analysis of shareholders
Analysis of ordinary shareholders on the register at 31 December 2015:

Number of
registered
holders
1,523
2,526
627
217
129
120
5,142

Percentage of
registered
holders
29.62
49.13
12.19
4.22
2.51
2.33

Number of
ordinary shares
held
756,683
9,187,661
13,222,652
24,070,694
70,923,092
1,096,366,843
100.00 1,214,527,625

Percentage of
ordinary shares
0.07
0.75
1.09
1.98
5.84
90.27
100.00

Shareholder security
Shareholders are advised to be wary of any unsolicited advice, offers to buy
shares, or offers of free reports about the Company. Details of any share dealing
facilities that the Company endorses will be included in Company mailings or on
our website. If you receive any unsolicited advice, make sure you get the correct
name of the person and organisation and check that they are appropriately
authorised by the FCA by visiting www.fca.org.uk. You can also call the FCA
Consumer Helpline on 0800 111 6768 (or +44 (0)20 7066 1000 if calling from
outside the UK).

Financial calendar
AGM
Final dividend – x-div date
Final dividend – record date
Final dividend
Interim results
Interim dividend – x-div date
Interim dividend – record date
Interim dividend

28 April 2016
28 April 2016
29 April 2016
27 May 2016
4 August 2016
6 October 2016
7 October 2016
4 November 2016

Registered Office
Brook Road, Wimborne, Dorset, England BH21 2BJ
Tel: +44 (0)1202 882020
Fax: +44 (0)1202 840523
Internet: www.cobham.com
Registered Number in England: 30470

* Lines are open Monday to Friday 8:30am to 5:30pm; excluding Public
Holidays in England and Wales.

Size of holding
Up to 1,000
1,001–10,000
10,001–50,000
50,001–250,000
250,001–1,000,000
1,000,001 and above
Total

Includes Treasury shareholding of 75,951,724 shares.
At 31 December 2014, there were 5,242 ordinary shareholders on the register.
Source: Equiniti Group plc

Registrars
Enquiries concerning shareholdings or dividends should, in the first instance,
be addressed to the Company’s registrars, Equiniti Limited, Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA (telephone: 0371 384 2163*
or +44 (0)121 415 7047 if calling from outside the UK). Shareholders should
promptly notify the registrars of any change of address or other particulars.

The registrars provide a range of shareholders’ services online. The portfolio service
provides access to information on investments including balance movements,
indicative share prices and information on recent dividends and also enables
address and mandate details to be amended online. For further information
and practical help on transferring shares or updating your details, please visit
www.shareview.co.uk. The share dealing service enables shares to be sold
by UK shareholders by telephone, post or over the internet. For telephone sales
please call 0345 603 7037 between 8:00am and 4:30pm, Monday to Friday.
For postal sales, please send your completed documentation to the address
above. For internet sales, please visit www.shareview.co.uk/dealing.

Individual Savings Accounts (ISAs)
The registrars also offer an ISA for Cobham shareholders. Further information
may be obtained by visiting www.shareview.co.uk, or telephone 0371 384
2244 (or +44 (0)121 415 7171 if calling from outside the UK).

You should bear in mind that investments, both their value and the income
they provide, can go down as well as up and you might not get back what you
originally invested.

Capital gains tax
For the information of shareholders who held Cobham plc ordinary shares on
31 March 1982, the market value, adjusted for capitalisation and rights issues,
of the Company’s ordinary shares on that date for capital gains tax purposes,
unadjusted for the share sub-division of July 2005, was 86.02 pence.

ShareGift
Do you have a small shareholding which is uneconomical to sell? You may
want to consider donating it to ShareGift (registered charity no. 1052686),
a charity that specialises in the donation of small, unwanted shareholdings to
good causes. You can find out more by visiting www.sharegift.org or calling
+44 (0)207 930 3737.

129

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Glossary

Term

737NG

A400M

AMSA

Full name

Description

Boeing 737 Next Generation

Airbus A400M

Australian Maritime Safety Authority

Part of the Boeing 737 family of twin engine narrow-body commercial
airliners. Boeing 737 Next Generation models include the -600, -700,
-800 and -900ER.

A versatile large military aircraft that performs three differing duties:
short-medium range flights; long range flights; and the ability to provide
aerial refuelling capabilities.

A statutory authority whose principal functions are promoting
maritime safety and protection of the marine environment; preventing
and combating ship-sourced pollution in the marine environment;
providing infrastructure to support safety of navigation in Australian
waters; providing a national search and rescue service to the maritime
and aviation sectors.

The AVIATOR S series provides SATCOM solutions for airline fleets for
the purpose of air traffic control and aircraft operation control. The
AVIATOR S enables secure data communication, Internet Protocol (IP)
connectivity and multiple voice capabilities.

A medium-to-high altitude, long endurance remotely piloted aircraft
system. The primary mission is to act as an intelligence, surveillance
and reconnaissance asset.

Aviator 200S

B/MQ-9 Reaper®

General Atomics B/MQ-9 Reaper®

B717

B787

C-130

Boeing 717

A narrow-body passenger aircraft designed for short-haul,
high frequency commercial use.

Boeing 787 Dreamliner

A family of long-range wide-body twin engine passenger aircraft.

Lockheed Martin C-130

A tactical airlifter. C-130 variants are also used for special operations,
aerial refuelling, close air support, search and rescue and personnel
recovery.

Continuous improvement

Continuous improvement is the ongoing improvement of products,
services or processes through incremental and breakthrough activities.

CL-604

Bombardier Challenger CL-604 aircraft

A business jet being modified by Cobham.

COMAC C919

A narrow-body passenger aircraft currently being developed
by the Commercial Aircraft Corporation of China (COMAC).

COSO ERM

Committee of Sponsoring Organizations
of the Treadway Commission, Enterprise
Risk Management

An integrated framework which helps businesses assess and enhance
their internal control systems. The framework is used to control activities
and to better achieve established objectives.

ERP

Enterprise Resource Planning

An IT system which integrates all business processes, including
manufacturing, finance and accounting, human resources, sales and
marketing, purchasing, distribution, and inventory into one central
cohesive repository. It allows businesses to run more efficiently, with
real time access to data across many business functions.

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Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

131

www.cobham.comwww.cobham.com
OTHER INFORMATION

Full name

Description

US Air Force designated fighter aircraft

Designation for aircraft used for air-to-air combat or for multiple roles,
including ground support missions.

Future Strategic Tanker Aircraft

Future Years Defense Program

Inmarsat Global Xpress

Intelligent Digital Distributed
Antenna Systems

A UK Private Finance Initiative funded project which has replaced the
UK’s air-to-air refuelling fleets, and elements of the air transport work
previously undertaken by the RAF VC10 and TriStar fleets. FSTA uses
the A330 MRTT aircraft.

A US Department of Defense centralised report providing data on
current and planned resource allocations, providing visibility over
projected defence spending.

A global satellite service which is the world’s first to offer mobile
broadband coverage. Global Xpress provides increased data speeds
and bandwidth to customers in the government, maritime and
aeronautical sectors.

An in-building wireless coverage solution allowing mobile operators to
dynamically allocate capacity around a facility to locations only where
and when it is needed.

Used in satellite communications, Ka-band offers higher bandwidth
than alternative frequencies allowing greater data transfer rates.

Term

F-#

FSTA

FYDP

idDAS

Ka-band

KC-46

Boeing KC-46

An aerial refuelling tanker, currently being developed for the
US Air Force to replace its ageing fleet of KC-135 Stratotankers.

Mitsubishi Regional Jet

A next generation regional jet that is currently in development.

NASA

The National Aeronautics
and Space Administration

A US government agency responsible for a civilian space programme
as well as aeronautics and aerospace research.

Predator®

General Atomics Predator®

A long-endurance, medium-altitude unmanned aircraft system for
surveillance and reconnaissance missions.

SAILOR 100 GX

SAILOR 100 Global Xpress

An advanced 3-axis stabilized Ka-band antenna system designed for
the Inmarsat GX satellite network.

SATCOM

Satellite Communication

Enables fixed and mobile communications such as telephone calls,
television or internet connections, using an orbiting satellite to transfer
data around the earth.

SEWIP

TeraVM

Surface Electronic Warfare
Improvement Program

An evolutionary series of enhancements to the US Navy’s AN/SLQ-32
electronic warfare system for surface ships.

TeraVM

A fully virtualised IP test and measurement solution that can emulate
and measure millions of unique application flows as a means to test
wireless networks.

130

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Annual Report and Accounts 2015

Cobham plc
Annual Report and Accounts 2015

131

www.cobham.comwww.cobham.comDefinitions

KPI definitions
Group organic revenue growth
Revenue growth stated at constant translation exchange rates, excluding
the incremental effect of acquisitions and divestments.

Underlying EPS growth at constant translation exchange rates
The year-on-year increase in underlying profit after taxation, stated at
constant translation exchange rates, divided by the weighted average
number of ordinary shares.

Operating cash conversion
Operating cash conversion is defined as operating cash flow as a percentage
of trading profit.

Return on invested capital
Trading profit as a percentage of the average invested capital during the year.
Invested capital comprises net assets adjusted to exclude net debt, retirement
benefit obligations, derivative financial instruments, current and deferred tax,
provisions and other financial assets. Intangible assets recognised on business
combinations are grossed up to their original cost before amortisation and an
adjustment is also made to reinstate the historic goodwill previously written
off directly to reserves.

Further financial definitions
The following notes apply throughout the Annual Report and Accounts:

To assist with the understanding of earnings trends, the Group has included
within its published statements non-GAAP measures including trading profit
and underlying earnings results. Trading profit has been defined as operating
profit from continuing operations excluding the impacts of business acquisition
and divestment related activity and business restructuring costs as detailed
below. Also excluded are changes in the marking to market of non-hedge
accounted derivative financial instruments, gains and losses arising on dividend
related foreign exchange contracts, impairments of intangible assets and items
deemed by the Directors to be of an exceptional nature.

All underlying measures include the operational results of all businesses including
those held for sale until the point of sale.

Business acquisition and divestment related items excluded from trading profit
and underlying earnings include the amortisation of intangible assets recognised
on acquisition, gains or losses arising on business divestments, adjustments to
businesses held for sale, the writing off of the pre-acquisition profit element
of inventory written up on acquisition and other direct costs associated with
business combinations and terminated divestments.

PV investment
Private Venture (PV) or company funded Research and Development (R&D)
measures exclude Aviation Services, where there is no R&D activity.

Staff safety – major accident incident rate
The number of incidents resulting in more than three days absence per
100,000 employees.

Underlying earnings are defined as trading profit less net underlying finance costs,
which exclude acquisition related items, and after deducting associated taxation
and non-controlling interests.

Voluntary staff turnover
The number of voluntary leavers divided by the average number of employees in
the year, excluding employees who became redundant, were dismissed or retired.

Free cash flow is defined as net cash from operating activities less cash flows
related to the purchase or disposal of property, plant, equipment and intangible
assets but excluding payments relating to M&A activities. Operating cash
flow is free cash flow before payment of tax, interest and restructuring costs.
Operating cash conversion is defined as operating cash flow as a percentage
of trading profit.

Net debt is defined as the net of borrowings less cash and cash equivalents at the
balance sheet date.

When providing sectoral analysis by geography, US revenue includes revenue to
US based customers on programmes which could be designated as export and is
therefore non-US defence/security from a market analysis perspective.

132

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Annual Report and Accounts 2015

Annual Report and Accounts 2015

Cobham plc

www.cobham.comwww.cobham.comFind more online
Our website provides further information including
shareholder services and governance, details of our
products and services, corporate responsibility and
sustainability, and more at:

www.cobham.com

Investor information and share price performance
www.cobhaminvestors.com

Corporate responsibility and sustainability
www.cobhamsustainability.com

Products and service offerings
www.cobham.com

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The most important thing we build is trust

Cobham plc

Brook Road, Wimborne, Dorset, BH21 2BJ, UK
T: +44 (0)1202 882020
F: +44 (0)1202 840523