cobham plc€¦ · annual report and accounts 2010 the most important thing we build is trust fifth...

Cobham plc

Annual Report and Accounts 2010

The most important thing we build is trust

Fifth generation refuelling

www.cobham.comCobham plc

We are technically diverse, innovative and agile by design

Brook Road, Wimborne, Dorset, BH21 2BJ England

T: +44 (0)1202 882 020

F: +44 (0)1202 840 523

Cobham

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Cobham’s products and services have been at the heart of sophisticated military and civil systems for more than 75 years, keeping people safe, improving communications, and enhancing the capability of land, marine, air and space platforms. The Group has three divisions employing more than 11,000 people on five continents, with customers and partners in more than 100 countries and annual revenue of some £1.9bn/$3bn.

Front cover image Cobham’s latest ‘fifth generation’ 905E Air-to-Air Refuelling (AAR) pod has been certified as part of the Airbus A330 Multi Role Tanker Transport (MRTT) for the Royal Australian Air Force. The A330 MRTT with Cobham 905E pods has also been selected for the UK MoD Future Strategic Tanker Aircraft (FSTA) programme, the Saudi Arabia Air Force and the United Arab Emirates Air Force, with a current requirement for more than 50 pods.

You can view this Annual Report, other results material, including a webcast of the results presentation, and other information for shareholders online at www.cobhaminvestors.com

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6.00

2009

2010

2008

5.450

4.955

19.68

2009

2010

2008

18.80

15.42

1,903

432 1,448

438 1,465

425 1,042

2009

2010

2008

1,880

1,467

Commercial Defence/security

Highlights 2010

Good underlying* EPS growth of 5%

Order intake in Technology Divisions* up 7% at constant translation exchange rates and important awards on long term programmes

Efficiencies of over £10m, including early savings from the on track Excellence in Delivery programme

Three homeland security acquisitions totalling US$175m in 2010 and early 2011

£219m of free cash flow* and year end net debt/EBITDA down to 0.8 times

Recommended 10% increase in dividend for the year and share buy-back programme of up to £150m

Total revenue

1.2%£1,902.6m (2009: £1,880.4m)

R&D investment*

(0.8pts)4.5% (2009: 5.3%)

Trading profit*

3.4%£348.4m (2009: £337.0m)

Underlying profit before taxation*

3.7%£306.1m (2009: £295.3m)

Earnings per Ordinary Share – underlying*

4.7%19.68p (2009: 18.80p)

Earnings per Ordinary Share – basic

(18.4%)13.27p (2009: 16.26p)

* For definitions of underlying and other terms please refer to page 116.

The Annual Report 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 should be construed as a profit forecast.

Analysis of total revenue

£m

Dividend

pence

Earnings per Ordinary Share – underlying*

pence

Contents

Business overviewCobham at a glance 2

Chairman’s statement 4

Chief Executive’s review 5

Our markets 7

Our strategy 8

Key performance indicators 9

Technology in action 10

Avionics and Surveillance 12

Defence Systems 14

Mission Systems 16

Aviation Services 18

Financial review 20

Principal risks 26

Corporate responsibility and sustainability 28

Corporate governanceBoard of Directors 32

Directors’ report 34

Corporate governance 37

Directors’ remuneration report 41

Statement of Directors’ responsibilities 49

Group financial statementsIndependent auditors’ report 50

Accounting policies 51

Consolidated income statement 58

Consolidated statement of comprehensive income 59

Consolidated balance sheet 60

Consolidated statement of changes in equity 61

Consolidated cash flow statement 62

Notes to the Group financial statements 63

Group financial record 99

Parent company financial statementsIndependent auditors’ report 100

Parent company accounting policies 101

Parent company balance sheet 103

Reconciliation of movements in shareholders’ funds 104

Notes to the parent company financial statements 105

Other informationShareholder information 113

Glossary 114

Definitions 116

1Cobham plc | Annual Report and Accounts 2010

Business overview

Corporate governance

Group financial statements

Other information

23%of Group revenue

(2009: 26%)

45%of Group revenue

(2009: 46%)

21%of Group

trading profit(2009: 25%)

49%of Group


Cobham at a glance

Technology Divisions

Our year

Defence SystemsAvionics and Surveillance

Supporting people and platforms to see and be seen Providing a 360 degree mission perspective to decision makers

Capabilities• Avionics – integrated systems and communication solutions• Surveillance solutions – audio, visual, tracking, locating, cellular,

sensor, covert surveillance and search and rescue solutions for government and civil agencies

• SATCOM – land, marine and airborne communication systems

Capabilities• Sensor systems – radar, communication and electronic warfare• Antenna systems – microwave antennas, composites and masts• Defence communications – tactical communication, command

and control systems• Analytic solutions – high end scientific, engineering and technical

assistance for defence and national security

Operating locationsUSA, UK, Canada, Denmark, France, South Africa

Operating locationsUSA, UK, Mexico, Finland, Sweden

Revenue2

£447.4m(2009: £487.3m)

Revenue2

£859.2m(2009: £873.0m)

Trading profit

£72.2m(2009: £84.6m)

Trading profit

£169.0m(2009: £164.4m)

Employees1

2,651 (2009: 2,947)

Employees1

5,134 (2009: 5,325)

See page 12 for more information


FebruaryCobham was awarded a contract from Sikorsky Aircraft Corporation to manufacture advanced composite components and assemblies for the main rotor blades of the United States Marine Corps’ CH-53K Heavy Lift Replacement Helicopter.3

JanuaryCobham’s HeliSAS® Stability Augmentation System and Autopilot received Technical Standard Order certification from the US Federal Aviation Administration.

MarchCobham launched the inaugural Sir Alan Cobham Awards programme, with over 500 employees recognised across five categories.

AprilTwo Cobham businesses were honoured in the 2010 Queen’s Awards for Enterprise; one each in the categories of International Trade and Innovation.

MayCobham was awarded a contract for US$46m from Naval Air Systems Command to manufacture the AN/ALQ-99 Low Band Transmitter, designed to protect strike aircraft, ships, and ground troops by disrupting enemy radar and communications.3

JuneCobham was awarded a $17m contract from Raytheon Missile Systems to manufacture microwave modules used in a ground- to-ground or air-to-ground missile applications.

Image courtesy of Raytheon.

Business overview2 Cobham plc | Annual Report and Accounts 2010

18%of Group revenue

(2009: 17%)

14%of Group revenue

(2009: 12%)

20%of Group


10%of Group


Service Division

Mission Systems Aviation Services

Mission systems for extreme environments Outsourced aviation services

Capabilities• Air-to-air refuelling systems• Weapons carriage and release systems• Safety and survival systems• Weapons systems• Space systems

Capabilities• Warfare training• Special mission operations• Flight inspection services• Support services• Airline – outsourced commercial aviation• Freight services• Aerospace engineering

Operating locationsUSA, UK

Operating locationsUK, Australia, Germany

Revenue2

£344.1m(2009: £317.0m)

Revenue2

£273.5m(2009: £230.9m)

Trading profit

£69.2m(2009: £56.8m)

Trading profit

£36.4m(2009: £31.3m)

Employees1

1,474(2009: 1,533)

Employees1

1,644(2009: 1,733)



1 At year end.2 Includes interdivisional trading.3 Use of this Department of Defense

image does not imply Department of Defense endorsement.

JulySelected as a major subcontractor to demonstrate autonomous aerial refuelling between two unmanned NASA Global Hawk aircraft.3

AugustCobham delivered its 100th Low Band Transmitter to the US Navy ahead of schedule. A system heavily used in current operations in Iraq and Afghanistan.

Image courtesy of Russell Hill.

SeptemberSelected as a partner for the Cabin Core System on China’s indigenous narrow body airliner, the COMAC C919.

OctoberAwarded an Indefinite Delivery/Indefinite Quantity contract worth up to $1.6bn to provide advisory and assistance services to the US Missile Defense Agency.3

NovemberMichael Wareing appointed as a Non-executive director with effect from 1 December 2010.

DecemberAnnounced acquisition of RVision Inc., an advanced electro-optical and infrared imaging systems specialist for up to US$48m.

3www.cobham.com Cobham plc | Annual Report and Accounts 2010

Business overview



Other information

Chairman’s statement

I am pleased to report that despite 2010 being a year of further economic and market uncertainty, the Company delivered good revenue growth in certain Strategic Business Units, although this was masked by order slippages on significant US defence and security programmes in others. Cobham was able to generate underlying earnings growth from flat Group revenue helped by early progress on its operational improvement programme that will enhance customer service.

Corporate developmentIn my first year, I have visited many of the Group’s businesses and have been impressed by the deep market insight and dedication of Cobham’s employees. It is clear to me that the financial results that the Group has been delivering over many years is due to the strategy of long term, focused investment in technology and a culture of innovation, enabling the Company to develop differentiated products and services in its chosen markets.

The next stage of the Group’s strategy roll out was announced with the interim results, including the launch of the Excellence in Delivery programme to improve efficiency and operational performance for our customers. The programme will help ensure that the business is not just known for technology and agility, but also has a sector-leading reputation for performance. The early results are encouraging.

During 2010 Cobham’s technology and its contribution to exports was acknowledged with one of our businesses being granted a Queen’s Awards for Enterprise in the Innovation category and another, a Queen’s Awards for International Trade. In the Innovation category, Cobham’s wireless digital audio and video link technology was recognised as a key contributor to numerous critical applications, including disaster relief and counter terrorism.

In addition to generating distinctive technology internally, Cobham also strengthens its positions through acquisition, where this permits the Company to build scale in its markets. In 2010 and early 2011, three transactions were completed for a total of US$175m that strengthen the Group’s presence in the growing homeland security market.

DividendThe Board is recommending a final dividend of 4.372p, which will be paid on 3 June, representing an increase of just over 10% on the prior year. The full year dividend of 6.00p is covered 3.3 times. The Board has also decided to return capital to shareholders through a share buy-back of up to £150m.

The Board I succeeded David Turner as Chairman at the 6 May 2010 Annual General Meeting (AGM), having been appointed to the Board on 1 February 2010 as Chairman designate. David left the Board at the conclusion of the AGM to take up the position of Chairman at the Commonwealth Bank of Australia, and we wish him well.

On 1 December 2010, Michael Wareing joined the Board as a Non-executive director. Michael was formerly Chief Executive of KPMG International and prior to that Chief Executive of KPMG’s Europe, Middle East and Africa region. Michael’s deep business experience and financial insight will be a valuable addition to the Board. He will become chairman of Cobham’s Audit Committee, when its current chairman, Peter Hooley, retires from the Board of directors in May 2011.

OutlookThere continue to be challenges and uncertainties in some of our markets. As a consequence the rate of growth in our Technology Divisions remains at the level experienced during 2010. The business has been configured with a prudent view of top line growth for the current year and we have already accelerated integration plans to deliver £21m of cost savings in 2011.

Cobham continues to have strong long-term positions in attractive markets with superior growth and is focusing its technology investment and acquisition strategy in areas of customer priority. This approach, together with customer and cost benefits from the operational improvement plan, gives the Board confidence that Cobham will continue to make progress over the medium term.

John Devaney Chairman, 2 March 2011

Full year dividend

6.00p +10%(2009: 5.45p)

John Devaney Chairman

Highlights

• Underlying EPS growth of 5%

• £219m of free cash flow and year end net debt/EBITDA down to 0.8 times

• Recommended 10% increase in dividend for the year and share buy-back programme of up to £150m

This is my first year as Chairman of Cobham and I am pleased to report that despite 2010 being a challenging year in our markets, the business delivered 5% underlying earnings growth.


Chief Executive’s review

Overview of the yearWe have delivered earnings growth in challenging markets. Good revenue growth in certain Strategic Business Units was masked by order slippages on significant defence and security programmes and some continuing softness in certain commercial markets. We have made encouraging progress on our operational improvement programme, Excellence in Delivery, and achieved cost savings which have contributed to 5% earnings growth from flat Group revenue.

The Group order book had increased at the year end to £2.5bn (2009: £2.4bn) with the increase attributable to the Technology Divisions. In all three Technology Divisions there has been improved order intake, with an aggregate 7% increase in orders received at constant translation exchange rates.

The Group has been selected on a number of important new multi-year programmes and platforms and has also won further work on existing platforms, which will result in incremental orders being placed over many years. These include the CH-53K helicopter, the Aegis surveillance and fire control radar system, the F-35 fighter aircraft and the US Missile Defence Agency Support Services (MiDAESS) umbrella contract. In addition, Cobham has continued to win positions in faster growing geographies, with the Chinese C919 commercial aircraft, the Indian Air Force Hawk advanced jet trainer, the indigenous Korean Utility Helicopter and significant programmes in the Middle East.

Despite good underlying progress in many of their markets, the overall growth in both Defence Systems and Avionics and Surveillance was impacted by delays in certain significant US defence and security awards, with continued softness in some of Avionics and Surveillance’s commercial markets. Group revenue was up 1% in the year with the Mission Systems Division delivering strong organic growth, driven by revenue from next generation air refuelling pods. The Aviation Services Division delivered strong organic growth largely from its Australian operations.

The Group’s trading margin increased 0.4% points to 18.3% driven by the Technology Divisions, where the margin increased 0.5% points to 19.0%. The improved margin was driven by cost efficiencies from Excellence in Delivery, efficiencies from facilities previously integrated during 2009 and 2010 and ongoing procurement savings, but was partially offset by weaker trading volumes in some businesses. A few PV (private venture or company funded research and development – R&D) programmes were temporarily slowed where customer launches and demand from products were down in some subdued markets.

Strategy updateThe Group’s strategy is to build and maintain leading market positions in selected high growth, high technology markets. Cobham’s chosen markets overlap significantly with the priorities set out in the US Government’s Quadrennial Defence Review and with the UK Government’s Strategic Defence and Security Review, both of which were published in 2010. These documents attribute particular importance to C4ISR capabilities, where Cobham has built good positions as part of its strategy.

The Group’s strategy will be underpinned by delivery of three strategic objectives; technology investment, operational excellence and portfolio optimisation.

Technology investmentInvestment in technology is pivotal to developing and bringing to market products that are in high demand and at the leading edge of technology. During 2010 important and long term opportunities have been in development or have been brought to market which will generate revenue for the Group over a sustained period:

• Fifth generation air refuelling pods have now been certified, along with the Airbus Military A330 Multi Role Transport Tanker, for the Royal Australian Air Force. These pods are likely to be in service for the next 40 to 50 years and will generate recurring revenue for the Group. In early 2011, Cobham’s air refuelling systems were also selected on the important new KC-46A tanker for the US Air Force;

• Selection by Northrop Grumman to provide an aerial refuelling system, integration and expertise to support the autonomous air refuelling of the KQ-X Global Hawk programme to 2012;

• Successful demonstration to the US Army of a 100 user radio system for the Wireless Network after Next (WNaN) programme;

Order book

£2.5bn(2009: £2.4bn)

Andy Stevens Chief Executive Officer

Highlights

• Order intake in Technology Divisions up 7% at constant translation exchange and important awards on long term programmes

• Over £10m of efficiencies, including savings from the on track Excellence in Delivery programme

• Three acquisitions totalling US$175m completed in homeland security markets in 2010 and early 2011

We have long term positions in attractive markets with superior growth and we are focusing our technology investment and acquisition strategy in areas of customer priority.


Business overview



Other information

Chief Executive’s review continued

• Launch of the Wireless Sensor Network Node (or Nugget), a fully portable and networked unattended ground sensor for covert surveillance and asset protection applications; and

• Launch of Cobham’s lightest, smallest and lowest cost SwiftBroadband solution, the unique SB200, for a new market of smaller aircraft. This enables satellite connectivity for data networks, internet, email and telephony.

Operational excellenceCobham’s operational improvement and efficiency programme, Excellence in Delivery, involves rolling out a standard operating framework across 14 principal sites, integrating smaller production facilities, establishing standard processes in a standard Enterprise Planning Resource system and setting up shared service centres. Excellence in Delivery will bring a number of benefits including improved productivity, shortened manufacturing lead times, improved quality and reduced working capital. It will also simplify the business, improve focus on the customer and enhance internal communication and collaboration.

The locations of the principal sites, which are expected to cover 80% of manufacturing profit by the end of the programme, have been communicated and work is already underway to implement the Group’s standard operating framework in six of the sites. The Group has accelerated its integration plans for 2011, including the closure of three facilities, which will be integrated into existing sites, and the integration of a further six facilities into two new sites. The first of the integrations has been completed.

By the end of 2013, the Group expects benefits from Excellence in Delivery at a run-rate of £65m per annum, at a total cost of £131m. Progress on the programme together with other cost measures has delivered efficiency savings of over £10m in 2010. The Excellence in Delivery efficiency savings were primarily achieved through headcount reductions and facility overhead savings. In line with previous guidance, the Group expects to deliver further cost savings from Excellence in Delivery of £21m in 2011.

Portfolio optimisationThe Group’s strategy is to acquire businesses that deliver technologies or capabilities that will help it build scale in its chosen markets, accelerate organic growth and reinforce the value added content of its products. In addition, the Group plans to exit certain businesses and product lines representing up to 15% of its technology revenue that have sub-scale positions or which do not otherwise fit the Group’s strategy. The Group has strict financial criteria and a disciplined approach to investments and disposals. Progress in 2010 was as follows:

• Completion of the previously announced acquisition of RVision Inc. on 30 December 2010 for up to US$48m in cash; and

• The divestment in September 2010 of Satori SAS, trading as Cobham Maintenance Repair and Overhaul, for €7.9m.

This progress has continued since the year end:

• In January 2011, the acquisition of Telerob GmbH, a manufacturer of advanced bomb disposal robots based in Germany for homeland security applications, for €78m in cash and loan notes was completed;

• The acquisition of Corp Ten International was completed in February 2011 for up to US$24m in cash. The company develops software which allows multiple tracking devices to be managed within a single system; and

• In February 2011, the divestment of the Engineering Consultancy Group for £13.5m. To date the Group has realised proceeds of £29m from the sale of Satori, the Engineering Consultancy business and the sale of part of the Wimborne, UK site.

The Group’s strategy is to finance bolt-in acquisitions from free cash flow generated after dividend payments and larger transactions from existing debt capacity.

Andy Stevens Chief Executive Officer, 2 March 2011

DID YOU KNOW?

Haiti reliefCobham donated use of its rugged portable satellite communications systems to connect emergency services in the aftermath of the Haiti earthquake in 2010. Cobham’s antenna technology is also part of the UK-DMC disaster monitoring satellite, part of a constellation that images natural disasters such as the 2008 California wildfires.


1

2

3

4

1

2

3

4

5 5

8%

12%

10%

61%

9%

15%

14%

53%9%

9%

3

2

4

5

13

2

4

5

1

2010 2009

European Union (excluding UK) 12% 12%

Australia 10% 8%

UK 9% 9%

RoW 8% 9%

USA 61% 62%

2010 2009

US defence/security 53% 55%

Non US defence/security 15% 14%

Commercial Aerospace/GA 9% 9%

Other communications 9% 10%

Aviation Services 14% 12%

Our markets

Cobham’s chosen technologies and markets include specialist defence and security communications and intelligence gathering, C4ISR, surveillance for homeland security and defence applications and satellite communication (SATCOM) for both commercial and defence and security applications.

The Group continues to focus its portfolio on the defence, security and commercial markets with some three quarters of revenue from defence and security. The term ‘Commercial’, covers civil and general aviation, plus maritime markets such as SATCOM for oil rigs and shipping. Cobham understands these three primary markets, can manage risk across them and knows how to ‘add value’ in line with customer needs.

Cobham makes sales on five continents and derives almost 40% of its business from markets outside the USA, where it has already made significant investments in countries such as India. The lead-time for making sales in faster growing international markets is difficult to predict but the potential is considerable.

Across these markets, the environment remains uncertain, particularly as governments contemplate their longer-term strategy in what is a difficult macro economic environment. This has visibly resulted in a cycle of re-examination of spending priorities, so Cobham has built up a view of the global

defence, security and commercial markets and estimated that at a macro level, growth over the next five years will be between 2–7%. The overall market is very large, and the Group has a relatively small share of it, so there is room for growth in market share as the business continues to differentiate itself technically.

The Group has estimated overall market growth through analysis of the outlook for each of the major market segments the Company considers that it operates in. The analysis has included a review of market positions, past performance, expected growth in each segment and the drivers of growth, using input from a number of internal and third party sources. Cobham’s chosen markets overlap significantly with the priorities set out in the US Government’s Quadrennial Defence Review and with the UK Government’s Strategic Defence and Security Review, both of which were published in 2010.

There is less visibility in the current market environment than usual but the analysis undertaken has led the Group to conclude that it can grow faster than the overall market over the medium term. This is because, overall, the Group believes that it remains well positioned in faster growing markets, making PV investments and acquisitions to establish and improve positions on existing and new programmes, with improved routes to market.

The Group’s strategy is to build and maintain leading market positions in selected higher growth, high technology markets.

Size of Global Defence, Security and Commercial Markets

Well positioned in faster growing market segments

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c. $390bn

Defence

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43

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43

88

c. $130bn

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Originalequipment

US

EuropeRoW

US

UKRoW

Aftermarket

Growth outlook: c. 2% CAGRVariation by programme (e.g., JSF)

Sources: i. US DoD budget data: comprised of Department of Defense five year budget plans.ii. International spending figures: Stockholm International Peace Research Institute (SIPRI), World Monetary Fund.

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43

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Commercial

43

88

c. $130bn

Mar

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bn

Originalequipment

US

EuropeRoW

US

UKRoW

Aftermarket

Growth outlook: c. 7% CAGRVariation by country and sub-segment

Sources: i. US Government: 2011 US Office of Management and Budget Report – Analytical Perspectives, Budget of the US Government. ii. Third Party Research; Homeland Security Research Corporation, Society General via Cross Asset Research, Morgan Keagan, Frost and Sullivan, International Biometric Group. iii. Publicly available information from company annual reports: L-1 identity solutions, Smiths Detection.

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Defence

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43

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c. $170bn

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bn

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43

88

c. $130bn

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Originalequipment

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EuropeRoW

US

UKRoW

Aftermarket

Growth outlook: c. 4% CAGRVariation by platform (e.g., 787)

Sources: i. OEM platform sales revenue: (Boeing, Airbus, Embraer). ii. Third party research: Ascend, Aerostrategy, Forecast International. iii. Multiple News Agencies: (used to track up to date delivery orders in CSP database).

Within Aviation Services, 67% (2009: 67%) of revenue is non US defence/security and 33% (2009: 33%) is Commercial Aerospace/GA.

By destination By market driver

Group revenue analysis


Business overview



Other information

The Group’s strategy is to build and maintain leading market positions in selected higher growth, high technology markets.

Strategic objective Description Progress

1 Focus on defence, security and commercial markets

• Maintain an appropriately focused portfolio on the defence, security and commercial markets, such that Cobham can add value and manage risk across the portfolio

• Revenue by destination and market sector remain stable – 61% USA, 77% defence and security

• Getting positions on contracts for US government agencies, e.g. US$1.6bn MiDAESS contract and large homeland security agency contracts

• Coordinating cross business programme pursuits through offices in Washington DC and India

• Driving aftermarket business which now accounts for 15% of technology division revenue

2 Sell technically differentiated products and services

• Sell technically differentiated products and services that meet customers’ needs in markets that have attractive characteristics, and in which the Group can maintain a sustainable competitive advantage

• Continue to provide core Tier 3 capabilities and selectively offer Tier 2 capabilities to meet customer needs

• Successful trials of fifth generation AAR refuelling pods. Awards on US$35bn US tanker programme and Global Hawk development contract

• Launch of fully portable and networked unattended ground sensor for covert surveillance

• Demonstration of 100 user radio system for the Wireless Network after Next

• Cobham’s lightest, smallest and lowest cost SwiftBroadband solution already sold to 23 airlines – positioned on all new major air transport aircraft with upgrade opportunities

• Developing US Army Multi-spectral Sea and Land Target Simulator worth up to US$56m

3 Build sustainable scale positions

• Develop and maintain top three positions in the Group’s markets

• Build or maintain scale positions in these markets to ensure there is the necessary scale to support investment, maintain market leadership and deliver long term business growth

• Defence Communications business integrated with Surveillance in CAS division to focus on growing Integrated Force Protection market

• Antenna Systems integrated with SATCOM in CAS division to leverage cross selling

• Personal locator beacon and emergency locator transmitter product lines combined

• Mission Systems and Aviation Services management combined, bringing together major projects and systems engineering

4 Deliver operational excellence

• Achieve Excellence in Delivery for customers, capturing cost synergies through simplifying and standardising processes, integrating operations and building operational capabilities

• Attract, develop and retain superior talent and manage it across the business

• Delivered efficiency savings of £10m in 2010 with lower than forecast one off costs of £22m

• 14 principal locations announced which will account for 80% of manufacturing profit

• Announced closure or integration of nine facilities supporting 2011 savings of £21m

5 Actively manage the portfolio

• Actively manage the portfolio, exiting businesses that do not fit with our strategy

• Acquire businesses that build scale, allow us to exploit our existing capabilities in adjacent segments or deliver distinctive technologies or capabilities to accelerate organic growth

• Intend to divest businesses and product lines representing up to 15% technology division revenue: up to £240m

• Divested two businesses and part of Wimborne, UK site for some £29m

• Completed three acquisitions in homeland security markets for US$175m

Our strategy


The following key performance indicators are used to monitor progress in implementing the Group’s strategic objectives.

Key performance indicators 2010 actual

2009 actual

Strategic objectives For more information

Technology Divisions’ organic revenue growth (1.6)% 0.6% Faster than our markets

1 2 3 4 5 See pages 20 and 21

Underlying EPS growth at constant translation exchange rates

3.8% 12.5% High single digit

1 2 3 4 5 See page 21

Operating cash conversion 79% 89% >80% 4 See page 23

PV investment 4.5% 5.3% 6% 1 2 3 See page 20

Staff safety – major accident incident rate 565 670 zero 2 3 4 See page 29

Voluntary staff turnover 8.0% 5.8% <10% 2 3 4 See page 29

All financial measures used on this page are underlying. For a definition of underlying and other terms please refer to page 116.

Key performance indicators

Technology Divisions’ organic revenue growthOrganic defence and security revenue in the Technology Divisions declined modestly by 1.6% (2009: +7%) after four years of strong growth, as a good underlying performance in 2010 was masked by order slippage on specific US defence and security programmes, such as MiDAESS and the L-band relocation programme. Organic revenue from commercial businesses was broadly flat at -1% (2009: -16%) with revenue following end customer production, as markets progressively stabilised during the year after declining through 2009.

Underlying EPS growthUnderlying EPS grew 5% to 19.7p (2009: 18.8p) primarily due to the improvement in the Group’s underlying trading margin, favourable currency translation exchange rates and the anticipated lower underlying tax charge. Underlying EPS at constant currency translation rates grew by 4%.

Operating cash conversionOperating cash flow in the year, which is stated after capital expenditure but before tax and interest payments, was £271m (2009: £293m). Cash flow was affected by a temporary build

up in working capital at the year end, which is expected to reverse in 2011, relating to the timing of shipments. This was partly offset by lower net capital expenditure of £57m (2009: £77m). Operating cash conversion was 79% (2009: 89%) of trading profit, before the Group’s share of post-tax results of joint ventures.

PV investmentA few new PV programmes were temporarily slowed where customer launches and demand for new products were down in some subdued markets, so total PV investment in the year was lower at £74m (2009: £88m), being 4.5% (2009: 5.3%) of the Technology Divisions’ revenue. However, with the addition of increased customer funded R&D, total technology investment remained broadly consistent with the prior year at 8%.

Staff safetyThe number of accidents and lost work days resulting in more than three days’ absence reduced by over 15%, with all business units working towards achieving at least Foundation level of the Cobham S|H|E Management Standards by the end of 2011. The importance of safety has been further emphasised with the

CEO covering safety as a standard agenda item during weekly calls with his Group Executive (GE), monthly circulation of safety reports to the GE and inclusion of safety matters in the Group wide Team Brief issued on a monthly basis.

Voluntary staff turnoverThere has been an increase in voluntary staff turnover from 5.5% to 8.0%, however, the overall level of turnover remains within the <10% target. Cobham employs many talented people with very portable skills in competitive markets, so movements of this nature are to be expected. The rate of staff turnover within the Analytic Solutions Strategic Business Unit (SBU) increased, but remained within expected levels. The SBU employs some 1,000 people providing consultancy services to the US intelligence community and the US Missile Defense Agency.


Business overview



Other information

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Technology in action

Everyday, around the world the men and women who serve our society and protect our way of life rely on Cobham products, often without even knowing it. Some of these connections are visible.

1. An airliner at a commercial airport can be carrying 20 Cobham antennas, along with oxygen systems, radios, navigation aids and computer servers to record and process data. If a suspicious package is found in one of these parked aircraft, Cobham equipment will be pivotal. Cabin crew will alert emergency services, tapping into the communication systems Cobham designed for the airport terminal.

2. Emergency services will swing into action and airport security might deploy Cobham wireless security systems, with the control room security team watching and listening for anything amiss using covert cameras and sensors.

3. Cobham’s Explosive Ordnance Disposal or EOD command post from Telerob will be scrambled into action, driving to within a safe distance of the aircraft. It will be fitted with an impressive array of antennas, lights and cameras, with the camera perhaps supplied from a recent acquisition, RVision.

4. From a special platform on the vehicle, a small UAV will deploy to provide an aerial surveillance picture, monitored from inside the vehicle. The UAV can be fitted with Cobham video and control links plus sensors, as can the unmanned ground vehicle or robot, which will leave the back of the vehicle, track toward the aircraft and climb the aircraft stairs. It will send live pictures back to the command post, which can rebroadcast them to a control room in the airport, as well as individuals who are carrying handheld terminals originally developed by Cobham for soldier systems.

5. With a highly dexterous manipulator arm, the UGV will change tools to first remove bags blocking its way, and then carefully open overhead compartments.

6. If a suspect package is found, the robot will again change its tools to gently swab the package, before retracing its steps to the command vehicle and placing the sample into a special compartment in the side of the vehicle for analysis to check if chemical weapons are involved. Based on the analysis, the robot will return to the package to deal with it accordingly. No human will be put in harm’s way throughout this process.


Airport scenario

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But in many cases, Cobham’s technology is unseen, providing a critical enabling capability that helps our customers meet their most demanding missions, civil or military.

More than ever before, the modern military unit depends on information. And so often, without knowing it, they depend on Cobham.

Every day, personnel of more than 18 armed forces rely on Cobham technologies to gather, receive, interpret and transmit vital operational data between sensors, platforms and people.

1. Before a convoy leaves the safety of its compound, Cobham technology is at work. Global Hawk, Predator and Scan Eagle unmanned systems gather intelligence and communicate through Cobham-built command and control uplinks, antennas and microwave assemblies, surveying the convoy’s intended route to detect enemy forces or other dangers.

2. At brigade and battalion headquarters, this intelligence is received, reviewed and shared across the network via another variety of Cobham antennas that allow continuous line of sight communication with ground units operating in forward areas.

Should an Improvised Explosive Device be spotted, airborne US Navy Prowler and Growler aircraft will jam the signals used to detonate it, partly through the Cobham transmitters at the heart of their electronic warfare suites.

3. Meanwhile bomb disposal units can move in to defuse or harmlessly explode the device. They will use Cobham’s digital radio video data links to send robots into harm’s way rather than humans. And once the routes are clear, the supply convoys roll forward, communicating with each other and their base through Cobham’s secure, flexible intercom systems and radios.

4. But the mobile convoys take no chances – there may be other Improvised Explosive Devices out there – and they employ electronic countermeasures using Cobham antennas and components to transmit their jamming waveforms.

5. And to keep them capable of working amid high heat and humid conditions, many soldiers use Microclimate cooling vests to survive the oven-like heat of their armored vehicles on typically hot and sunny days. These vests are also worn by the helicopter crews that provide additional support to the men and women on the ground.

6. Should soldiers need to dismount from their vehicles, they can maintain total connection with what is happening around them through Cobham’s handheld Integrated Digital Soldier System, providing communications, navigation and even video from remote sources.


Business overview



Other information

Military scenario

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Five year organic revenue CAGR 5.0%£m

Excludes translation FX, Acquisitions and Disposals. Prior year numbers are pro forma for illustration purposes.

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40% Defence/security revenue 37% US revenue

23%of Group revenue

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Avionics and Surveillance

Total revenue was down principally due to organic revenue which declined 7% due to continued softness in some of the Division’s commercial markets, particularly those relating to general aviation and business jets. The Division also experienced delays in the award of certain US surveillance programmes, such as the ‘L’ Band relocation programme.

Organic revenue growth 2005–2010

Financial highlights

Revenue by market driver

Revenue1

Trading profit

2009Acquisition mix/

Translation FXOrganicgrowth 2010

Revenue1 £m 487.3 (4.0) (35.9) 447.4

Trading Profit £m 84.6 72.2

Margin 17.4% – (1.3)pts 16.1%

For more information view the results webcast www.cobhaminvestors.com

Performance highlights

• Strong demand for wireless video link products and hand-held ‘Minehound’ mine detector

• Increased deliveries to Airbus of long range SATCOM antennas and successful flight test on the Boeing 787 and the Airbus A400M aircraft

• Selection to provide the complete avionics suite for the new SK105 Skylander commuter aircraft and first orders for new helicopter autopilot and stability augmentation system (HeliSAS)

• Selected to partner with Rockwell Collins to provide the passenger address system on the new C919 Chinese single aisle aircraft


1 Includes inter divisional trading.

Main pictureFollowing the successful certification in 2009 of the HGA-7001 SATCOM antenna on the Airbus single aisle range, certification was extended to its long range A330 and A340 aircraft. The antenna was successfully flight tested on the Boeing 787 and Airbus A400M aircraft.

Image courtesy of Steve Brimley.


DID YOU KNOW?

Red Bull Air RaceCobham’s video transmission technology delivers spectacular cockpit video from Red Bull Air Race competitors, despite punishing 12G turns at 280mph. It is also extending the effective range of bomb disposal robots, enhancing safety for their operators.

Image courtesy of Riedel.

1. First Orders were received for the Group’s new helicopter autopilot and stability augmentation system (HeliSAS).

2. Cobham had strong sales of the hand-held ‘Minehound’ mine detector with both military and humanitarian applications. Cobham provided the development funding and it incorporates Cobham’s leading edge ultra wideband ground penetrating radar.

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Business overview



Other information

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10%

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3% 1%

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Defence Systems

Total revenue was down due to an organic decline of 2%. Revenue was impacted by delays in and timing of some US defence and security awards during the year, principally relating to the one year delay in the MiDAESS umbrella contract, foreign military sales of tactical communications products and the Wideband Global Satellite programme.






Revenue1

Trading profit



Revenue1 £m 873.0 5.3 (19.1) 859.2


Margin 18.8% 0.1pts 0.8pts 19.7%


• Further orders and deliveries of electronic warfare equipment to disrupt enemy radar and communications and protect ground forces

• Selection by the US Missile Defense Agency on two significant prime contracts and a number of smaller subcontracts under the delayed MiDAESS IDIQ award, with task orders being competed from the end of 2010

• A multi-million pound, long-term agreement to provide a suite of antennas for the indigenous Korean Utility Helicopter

• A US$40m deal to provide major radio frequency and microwave components for Aegis surveillance and fire control radar systems

• Receipt of a delayed US$21m contract to provide vehicle intercom systems and Eagle close combat radios to a Middle East customer

1 Includes inter divisional trading.2 Use of this Department of Defense image does not imply Department

of Defense endorsement.

Main pictureCobham delivered its 100th Low Band Transmitter to the US Navy ahead of schedule. A system heavily used in current operations in Iraq and Afghanistan to protect strike aircraft, ships, and ground troops by disrupting enemy radar and communications.

Image courtesy of Russell Hill.


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DID YOU KNOW?

Navy Fast Jet Pilot Safety and SurvivalEvery US Navy tactical strike aircraft carries a Cobham antenna and all US military pilots rely on Cobham safety and survival equipment to protect them in flight and after ejection.2

1. The value to Cobham of each F-35 Lightning II Joint Strike Fighter has increased from US$1.0m, to US$1.2m, with the aircraft carrying more than 100 Cobham components and subsystems.

Image courtesy of Lockheed Martin.

2. Cobham was awarded an Indefinite Delivery/Indefinite Quantity contract worth up to $1.6bn to provide advisory and assistance services to the Missile Defense Agency (MDA), among other awards.2


Business overview



Other information

Total revenue increased by 9% including strong organic growth of 8%, driven by revenue from the next generation air-to-air refuelling pods and weapons carriage and release products. Although the Life Support business experienced delays in orders for some products, it achieved modest growth as the St. Petersburg (Conax) facility returned to growth.


1. An £18m order was received for the supply of Ejector Release Units (ERU) and Carrier Bomb Light Stores (CBLS) in support of the sale of 57 Hawk trainer aircraft to India.

Image courtesy of BAE Systems.

2. There were orders and shipments of improved restraints on the High Mobility Multipurpose Wheeled Vehicle (HMMWV), bringing the fielded total to 14,500, and an initial Vehicle Active Gunner’s Restraint System order for the Stryker armoured fighting vehicle – the first application of the helicopter-based MA-16 inertia reels to ground vehicles.2

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Revenue1

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Revenue1 £m 317.0 2.2 24.9 344.1


Margin 17.9% – 2.2pts 20.1%


• Shipments of fifth generation refuelling equipment for the Australian, UK, Saudi Arabian and UAE air forces

• An initial order for the new Vehicle Active Gunner’s Restraint System for the Stryker armoured fighting vehicle

• An £18m order for the supply of Ejector Release Units and Carrier Bomb Light Stores for 57 Hawk trainer aircraft to India

• Award by the US Air Force of the base year of a five year agreement, with a total estimated value of US$50m, for crew-breathing oxygen regulator overhaul kits

• Transfer to the new Wimborne, UK facility completed at the end of 2010

1 Includes inter divisional trading.2 Use of this Department of Defense image does not imply Department

of Defense endorsement.

DID YOU KNOW?

Keeping coolCobham’s thermal control vests circulate warm or cool liquid as needed beneath the uniforms of US armoured vehicle crews and helicopter pilots. In the heat of desert flying they have been shown to triple the effective endurance of helicopter pilots.

Main pictureCobham successfully shipped fifth generation under wing air refuelling pods for the Australian, UK, Saudi Arabian and UAE air forces, together with the first shipment of a Fuselage Refuelling Unit for the UK Future Strategic Tanker Aircraft (FSTA) programme.

Image courtesy of Airbus Military.


Business overview



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Revenue increased 18% driven by strong organic growth of 7%, mainly from operations in Australia, and favourable currency translation exchange.


Service Division




Revenue1

Trading profit



Revenue1 £m 230.9 26.0 16.6 273.5


Margin 13.6% (0.5)pts 0.2pts 13.3%


• Flying hours on the Australian Sentinel programme remained at close to 100% of maximum availability with the Surveillance Information Management System successfully brought into service

• Two new aircraft brought into service in Australia for resource industry and air freight contracts

• Modification and systems integration of four King Air B350 aircraft under the Military Flying Training Services’ Royal Navy rear crew training contract

• Provision of a 30 strong team of engineers to Airbus Military, in Madrid, working on aircraft modifications for the first two A330s for the UK FSTA programme

• Contracts worth some £12m to upgrade and support key air traffic control systems and operations for the UK MoD

1 Includes inter divisional trading.

DID YOU KNOW?

Helicopter trainingEvery British military helicopter pilot (including HRH Prince William) is trained by Cobham’s joint venture – some 200 crew a year.

Aviation Services


Main pictureFlying hours on the Australian Sentinel (Coastwatch) programme remained at close to 100% maximum availability, with the Surveillance Information Management System successfully brought into service.

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1. A third dedicated 100 seat regional jet was introduced for Chevron to support the Western Australia Gorgon liquefied petroleum gas project, with further opportunities identified to provide fixed wing aviation services to support new resource industry projects.

2. Modification and systems integration took place on four Beechcraft King Air B350 aircraft that will enter service under the UK Military Flying Training Services’ (MFTS) Royal Navy rear crew training contract in 2011.


Business overview



Other information

Financial review

Warren Tucker Chief Financial Officer

Highlights

• Order intake in the Technology Divisions up 7% at constant translation exchange rates and important awards on long term programmes

• Underlying EPS growth of 5% with efficiencies of over £10m, including savings from the on track Excellence in Delivery programme

• £219m of free cash flow and year end net debt/EBITDA down to 0.8 times

• Recommended 10% increase in dividend for the year and share buy-back programme of up to £150m

• Acquisitions strengthen presence in homeland security market, with completion of three bolt-in acquisitions totalling US$175m in 2010 and early 2011

• Aerial refuelling systems selected on important new US Air Force KC-46A tanker aircraft in early 2011

Results OrdersOrders received by the Technology Divisions increased by 7% at constant translation exchange rates to £1,642.5m (2009: £1,526.8m), with each of the Technology Divisions increasing its order intake in the period. The technology book to bill ratio was 1.01 times (2009: 0.92 times). Group order intake at £1,798.9m (2009: £1,749.7m) was up on the prior year, despite a decrease in orders received in Aviation Services, where order intake is characterised by multi-year contracts.

At the year end, the Group’s order book was £2.5bn (2009: £2.4bn), comprising the Technology Divisions with £1.4bn (2009: £1.3bn) and Aviation Services £1.1bn (2009: £1.1bn).

RevenueGroup revenue increased to £1,902.6m (2009: £1,880.4m) primarily due to the impact of organic growth in the Aviation Services Division and favourable Australian dollar/£ translation exchange rates, with the average Australian dollar/£ exchange rate being AUD$1.68/£ (2009: AUD$1.99/£).

Organic revenue in the Technology Divisions declined 1.6% (2009: +0.6%), partly offset by a modest favourable impact from currency translation, with the average US dollar/£ exchange rate in the year at US$1.55/£ (2009: US$1.56/£). Organic growth in Aviation Services was 7.2% (2009: down 3.2%).

Organic defence and security revenue in the Technology Divisions declined modestly by 1.6% (2009: +7%) after four years of strong growth, as a good underlying performance in 2010 was masked by order slippage on specific US defence and security programmes, such as MiDAESS and the L-band relocation programme. Organic revenue from commercial businesses was broadly flat at -1% (2009: -16%) with revenue following end customer production, as markets progressively stabilised during the year after declining through 2009.

The Technology Divisions have delivered an organic revenue compound average growth rate (CAGR) of 5.5% over the last five years as shown on page 21.

Technology investmentInvestment in technology is pivotal to developing and bringing to market products that are in high demand and at the leading edge of technology. A few new PV

programmes were temporarily slowed where customer launches and demand for new products were down in some subdued markets, so total PV investment in the year was lower at £73.8m (2009: £88.3m), being 4.5% (2009: 5.3%) of the Technology Divisions’ revenue. However, with the addition of increased customer funded R&D, total technology investment remained broadly consistent with the prior year at 8%.

Trading profitGroup trading profit increased to £348.4m (2009: £337.0m), as the Group’s trading margin increased to 18.3% (2009: 17.9%), principally due to the Technology Divisions, where the margin increased to 19.0% (2009: 18.5%).

The improved trading margin was the result of a number of initiatives which all played an important role in the evolution of the margin. These included Excellence in Delivery, overhead savings from facilities that were integrated during 2009 and 2010 and procurement savings from an ongoing exercise to consolidate the Group supplier base. Lower volumes in some businesses, partly offset the favourable margin impacts and also reduced demand for a few new products, resulting in lower PV investment.

Net finance expenseNet finance expense was £42.3m (2009: £41.7m). Net interest expense on cash and debt holdings was higher at £40.6m (2009: £36.9m) due to an increase in the average cost of debt as longer term debt replaced a bridging facility in 2009. As anticipated, the net finance charge from pension schemes was £1.7m (2009: £4.8m). This non-cash item is expected to be a credit of £0.7m in 2011.

Profit before taxUnderlying profit before tax in the year increased 3.7% to £306.1m (2009: £295.3m).

Economic profitEconomic profit is considered to be an important measure for the Group as a whole and for each of its Divisions, as it demonstrates that returns exceed the full cost of investing in assets. Cobham achieved economic profit of £185.1m in the year (2009: £185.9m).

Economic profit is defined as trading profit less an asset charge which reflects the Group’s pre-tax weighted average cost of capital and which is applied to the capital invested in the business. This investment includes acquired goodwill, other tangible and intangible fixed assets and working capital.


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Underlying Earnings per Share 2005–2010Technology Divisions’ organic revenue growth 2005–2010

TaxationOn an underlying basis, the effective tax rate decreased to 26.5% (2009: 27.8%, H1 2010: 26.5%). The underlying tax rate is calculated by dividing the Group’s underlying tax charge of £79.5m (2009: £80.4m) by its underlying profit before tax, excluding the share of post-tax results of joint ventures, of £300.1m (2009: £289.2m). As previously set out, the tax rate benefits from consortium relief relating to Cobham’s investment in AirTanker Limited and R&D tax credits.

Earnings per share (EPS)Underlying EPS grew 4.7% to 19.68p (2009: 18.80p) primarily due to the improvement in the Group’s underlying trading margin, favourable currency translation exchange rates and the anticipated lower underlying tax charge. EPS at constant currency translation rates grew by 3.8%.

Basic EPS decreased to 13.27p (2009: 16.26p). This was in part due to a number of factors including the absence of the large 2009 non-cash gains on the unrealised mark-to-market of currency instruments, being a post-tax loss of £2.0m (2009: gain £30.9m). In addition, there was a previously announced £18.7m post-tax one-off settlement of a commercial dispute and higher post-tax restructuring charges of £9.4m (2009: £5.0m), which are stated net of the profit on sale of part of the Wimborne, UK site. These items were partly offset by lower post-tax and non-cash amortisation of intangible assets arising on acquisition of £40.5m (2009: £50.4m).

DividendsThe Board is recommending a final dividend of 4.372p (2009: 3.97p). Together with an interim dividend of 1.628p (2009: 1.48p), which was paid on 12 November 2010, this will result in a total

dividend of 6.00p per share, an increase of 10% on the comparable period. The full year dividend is 3.3 times covered by underlying EPS, with dividend payments in the year covered 3.4 times by free cash flow generated.

The shares will be traded ex-dividend on 4 May 2011. The dividend is payable on 3 June 2011 to all shareholders on the register at 6 May 2011, subject to shareholder approval.

The fixed cumulative preferential dividend payment on the 6% second cumulative preference shares of £1 each has been approved by the Board at the rate of 6p per share (2009: 6p). The dividend in respect of the year ended 31 December 2010 will be paid on 3 June 2011 to all shareholders on the register at 6 May 2011.

5.5% CAGR over last five years 11.1% CAGR at constant currency translation over last five years

Revenue analysisAn analysis of Group revenue by geography and by end markets is set out on page 7. The table below categorises revenue into the various end-market segments for the Group’s Technology Divisions:

2010 2009

£m % £m %

US defence/security 1,007.1 61.8 1,038.7 62.8

Non US defence/security 281.6 17.3 262.9 15.9

Commercial Aerospace/General Aviation 170.1 10.4 172.1 10.4

Other communications 171.3 10.5 180.0 10.9

Cobham Aviation Services’ revenue represents 14.4% of total Group revenue.


Business overview



Other information

Financial review continued

Reconciliation of Underlying ProfitTrading profit is calculated as follows:

£m 2010 2009

Result before joint ventures 224.1 280.5

Share of post-tax results of joint ventures 6.0 6.1

Operating profit 230.1 286.6

Adjusted to exclude:

Portfolio restructuring 17.5 7.7

Unrealised losses/(gains) on revaluation of currency instruments 2.8 (42.9)

Amortisation of intangible assets arising on acquisition 63.3 78.7

Settlement of commercial dispute 28.8 –M&A deferred and contingent payments and expenses 5.9 6.9

Trading profit 348.4 337.0

Underlying profit before tax is calculated as follows:

£m 2010 2009

Profit on continuing operations before taxation 189.3 244.9

Adjusted to exclude:




Settlement of commercial dispute 28.8 –

M&A deferred and contingent payments and expenses 5.9 6.9

Additional profit recognised on prior period asset disposal (1.5) –

Underlying profit before taxation 306.1 295.3

Profit after tax used in the calculation of underlying EPS is calculated as follows:

£m 2010 2009

Profit after taxation attributable to equity shareholders 152.7 185.8

Adjusted to exclude (after tax):




Settlement of commercial dispute 18.7 –

M&A deferred and contingent payments and expenses 4.2 4.5

Additional profit recognised on prior period asset disposal (1.0) –

Underlying profit after taxation 226.5 214.8

Underlying earnings per ordinary share (pence) 19.68 18.80


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2.323

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4.955

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Net debt at 31 December 2010

Cash flow and net debtOperating cash flow in the year, which is stated after capital expenditure but before tax and interest payments, was £271.4m (2009: £293.2m). Cash flow was affected by a temporary build up in working capital at the year end, which is expected to reverse in 2011, relating to the timing of shipments. This was partly offset by lower net capital expenditure of £57.1m (2009: £77.3m). Operating cash conversion was 79% (2009: 89%) of trading profit, before the Group’s share of post-tax results of joint ventures.

After lower tax and net interest payments and the receipt of dividends from joint ventures, the Group generated free cash flow of £218.6m (2009: £221.4m). From free cash flow, the Group:

• Invested a net £5.9m (2009: £32.2m) on acquisitions and disposals and other costs, related to business combinations, relating to:

– £15.2m for the acquisition of RVision; and – £22.2m for deferred and contingent consideration on acquisitions and disposals completed in prior years and other business combination costs

These payments were partly offset by: – the September disposal of Satori SAS which realised proceeds of £6.4m; – the first instalment of contingent consideration received in December from the 2009 sale of M/A-COM Technology Solutions of £5.7m; and

– senior loan note repayments of £19.4m from the same transaction;

• Made payments of £29m (2009: nil), net of insurance recoveries received, relating to the product damages award which was previously announced in September;

• Made payments of £13.4m (2009: nil) relating to Excellence in Delivery; and

• Made £64.6m (2009: £58.3m) of dividend payments.

TreasuryThe 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 only for risk management purposes.

Debt and financingAt the year end, the balance of free cash flow was used to reduce net debt, comprising short term cash balances and fixed term borrowings, after funding and exchange movements, to £326.1m (2009: £412.6m). The net cash inflow in the year was partly offset by movements in exchange rates included above of £26.5m, as it is the Group’s policy to hold a significant proportion of its borrowings in foreign currency, principally US dollars, as a natural hedge against assets and earnings denominated in those currencies.

The Group’s year end gearing position had fallen to approximately 0.8 times net debt/EBITDA with net interest well covered at nine times (2009: 9 times).

Included within net debt are sterling cash deposits, as well as US dollar denominated borrowings, which are held for the reasons described in the section on foreign exchange on page 24. At 31 December 2010 the Group held total cash and short term bank deposits, all with an original maturity of three months or less of £473.0m (31 December 2009: £366.4m).

The Group’s principal borrowings include:

• A £300m multi-currency credit agreement that expires in July 2012. Interest is payable at the applicable LIBOR rate of the drawn currencies plus margin, of which £275.4m (2009: £266.0m) had been drawn down under this agreement at the year end;

• US$170m of senior notes maturing in October 2012 with a 5.58% coupon;

• US$350m of senior notes maturing in tranches in 2014, 2016 and 2019 with an average coupon of 6.67%; and

• US$105m of senior notes maturing in 2018, with an interest rate at the applicable LIBOR rate plus margin.

Further details on the Group’s borrowings are given in note 24 to the Group financial statements.

Maturity profile of the Group’s outstanding debt facilitiesDividend per Ordinary Share 2000–2010

Double digit CAGR over last 10 years The Group has significant debt facility headroom


Business overview



Other information

Financial review continued

Cash flow

£m 2010 2009

Trading profit (excluding joint ventures) 342.4 330.9

Depreciation and other movements 57.9 47.8

Increase in working capital and provisions (71.8) (8.2)

Net capital expenditure (57.1) (77.3)

Operating cash flow 271.4 293.2

Operating cash/trading profit (excluding joint ventures) 79.3% 88.6%

Net interest paid (37.2) (45.8)

Taxation paid (21.6) (31.2)

Dividend received from joint ventures 6.0 5.2

Free cash flow 218.6 221.4

Restructuring costs (13.4) (7.8)

Dividends paid (64.6) (58.3)

Acquisition payments less disposal proceeds (5.9) (32.2)

Settlement of commercial dispute (28.8) –

Movements in funding and exchange movements (19.4) 105.6

Decrease in net debt 86.5 228.7

Foreign exchangeThe Group has identified volatility in foreign exchange rates as one of its principal risks (see contract risk – page 27) with the Group’s aim being to reduce, or eliminate wherever practical, transaction foreign exchange risk, of which the pound sterling/US dollar exchange rate is the most important. Primarily this is because many global aerospace and defence contracts are denominated in US dollars. Additionally, translation exposure arises on the earnings of operating companies largely based in the USA, partly offset by dollar denominated interest costs.

The average and closing US$/£ exchange rates in the year are as follows:

US$/£ 2010 2009

Average rate 1.55 1.56

Year end rate 1.57 1.61

All significant foreign exchange hedging transactions are approved by the Chief Financial Officer under delegated authority from the Board. In addition to the Group’s currency denominated borrowings, 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 exposure between 12 and 36 months and firm exposures on longer term contracts. Details of the most significant of these instruments are described in notes 26 and 28 of the Notes to the Group financial statements. Some 90% of the anticipated exposure to the US dollar in the Group’s UK subsidiaries is hedged for 2011 at an average rate of US$1.56.

Interest ratesThe Group has various long and short term borrowings at both fixed and floating rates of interest. The Group continually monitors its exposure to movements in interest rates to bring greater stability and certainty to borrowing costs, with the policy being to assess the proportion of borrowings that are fixed or floating in the context of prevailing market conditions. Throughout 2010, the Group’s exposure to floating rates of interest on its borrowings was predominantly converted to fixed rate interest exposure through the use of interest rate swaps.

Note 28 of the Group financial statements on page 91 gives more details on the financial risks facing the Group.

Retirement obligationsThe Group operates a number of defined benefit pension schemes, the most significant being the Cobham Pension Plan. At 31 December 2010, the Group’s net balance sheet deficit before deferred tax relating to its defined benefit schemes had decreased since the previous year end to £82.0m (31 December 2009: £115.2m). The biggest elements of this decrease were:

• The net actuarial gain due to an increase in the value of assets of £24.1m, partly offset by changes to liabilities. The largest movement in liabilities was a change in the discount rate used, which is driven by AA-rated investment grade corporate bond yields; and

• Employer contributions made in excess of the service cost (net employer funding).


0 50 100 150 2000 50 100 150 200

Historic averageeffective rate

2007 $1.83: £12008 $1.93: £12009 $1.70: £12010 $1.58: £1

92% hedged for 2011

Average hedge rate $1.60: £1



2011 total

Hedging in place

Hedging in place

2012

2013 to 2014

Dollar/Euro exposure predominantly hedged for 2011 with $36m @ 1.37 and 2012 $26m @ 1.33.

$199m

$183m

$52m

$83m

A table setting out the principal movements in the deficit during the year is as follows:

£m

Pension deficit at 1 January 2010 (115.2)

Interest cost (1.7)

Actuarial gain 15.6

Net employer funding 19.3

Pension deficit at 31 December 2010 (82.0)

The Group’s defined benefit pension schemes have been closed to new entrants since 2003, with alternative defined contribution schemes offered in all cases. Cobham remains committed to the support of the pension schemes within the Group and continues to work with the trustees of those schemes to ensure that net liability issues are managed appropriately.

Further details on the Group’s retirement benefit schemes, including the principal assumptions used for the actuarial valuation of defined benefit schemes, the amounts recognised in operating profit and the changes in the value of defined benefit schemes during the year, is given in note 9 to the Group financial statements.

Going concernThe Group’s business activities, together with factors likely to affect its future development, performance and position are set out in the Business Review on pages 12 to 19 and the Principal Risks on page 26. In addition, notes 24 to 28 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 together with long term contracts with a number of customers across different geographic areas. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully, despite the current economic outlook.

Accordingly, after making enquiries, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Company and the Group as a whole have adequate 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.

Foreign exchange transaction exposure


Business overview



Other information

Board review

Reporting/Monitoring




Risk committee review

Assurance reviews

Self assessmentCorporate/Division/Strategic Business Unit risk identification, analysis,

evaluation and mitigation planning as part of strategy process

Functional head reviewof mitigation plans, risks and emerging themes

Operational framework– Organisation– Culture, values and appraisal system– Mandated policies and processes

– Delegated authorities– Training and development– Performance measurement

Group executive reviewof mitigation plans, performance, risks, impact (financial and non financial), emerging themes

Principal risks

The Group’s management of risk is set out on page 39. The Group’s approach to risk management is to identify key risks early and remove or minimise the likelihood and effect of them before they occur.

The management of risk is linked into the Group’s strategy, the environment in which it operates, the Group’s appetite for risk and the delivery of the Group’s business objectives. The underlying principles are continuously

monitored, associated action plans reviewed, appropriate contingencies are provisioned and this information is reported through established management control procedures.

The process for monitoring and controlling risk is illustrated in the diagram below and the most significant risks and uncertainties which could impact the long term performance of Cobham are shown in the table opposite. They are not listed in any order of priority.

Effective management of risk and opportunity is essential to the delivery of the Group’s financial and non financial objectives.

How we monitor and control risk

Cobham has progressively enhanced the compliance organisation across all disciplines.


Principal risks

Risk Description Impact/Sensitivity Mitigation/Comment

Shortage of appropriate skills

The success of the Group’s investment in technology strategic objective and the ability to build and maintain scale positions in our chosen markets are dependent on our ability to attract, retain and recruit the best talent.

Without the appropriate quality and quantity of skills throughout the organisation it would be increasingly difficult to execute the strategy and grow.

• Rigorous talent management plans and reviews with an effective appraisal system

• Provide competitive compensation packages that incentivise desired behaviours

• Ensure that work for employees is challenging and rewarding

• Increase participants on Group wide, coordinated development and training programmes

Contract risk The Group has fixed price design and development contracts which inherently carry higher risk than fixed price production contracts, including exchange and inflation risk.

A failure to anticipate and resolve technical problems, estimate and control costs and offset inflationary pressures can result in schedule and cost overruns. Failure to mitigate risk by accepting more contract risk than is warranted.

• Thorough review of contract terms and conditions before signing to ensure contract provisions are fully understood and fairly allocate risks between parties

• Rigorous application of the Group’s Life Cycle Management process to all bids, contracts and development projects throughout the business

• Consistently apply meaningful metrics to support the review of contracts across the Group, with effective training

• Maintain efficient and effective customer communications

• Review and manage (including hedging) inflation and exchange rate risks

Change in the priorities or procurement practices in the US or other defence markets

Some three quarters of the Group’s revenue is derived from global defence and security contracts with the USA, accounting for some 53% of the total. The level and type of spending is dependent on a complex mix of strategic defence and security imperatives, economic and security factors.

The termination of one or more of the contracts for the Group’s programmes by governments, the failure of the relevant agencies to obtain expected funding appropriations for the Group’s programmes or a fundamental shift in how the customer procures products and services could have a material adverse effect on the Group’s future results.

• Continue to ensure that the Group is capable of supplying the technologies, products and services that are core to the US defence market needs

• Ensure that the Group is always delivering value for money with focus on on-time delivery, quality and customer service

• Balance the Group’s portfolio by increasing the level of business in higher growth, emerging markets such as India, the Middle East and Asia

Failure to comply with laws, regulations and restrictions

The Group must comply with numerous domestic and international laws, regulations and restrictions. The Group operates in a highly regulated environment and is subject to the laws, regulations and restrictions of many jurisdictions, including those of the US, the UK and other countries. Amongst other things, these include import-export controls, government contracting rules and anti-bribery provisions.

Sanctions for failure by the Group, or its sales agents, or others acting on its behalf to comply with these laws, regulations and restrictions could include fines, penalties, suspension or debarment of the Group from future government contracts for a period of time. Such sanctions could have an impact on the Group financial position and future operations.

• Cobham has progressively enhanced the compliance organisation across all disciplines including contracting regulations

• Enhancement includes numerous policies and procedures which are regularly reviewed, including procedures related to procurement and the use of sales and marketing representatives, whistle blowing and investigation

• Training occurs on a variety of compliance related subjects across the Group

• Cobham has reviewed the adequacy of procedures in the light of the Bribery Act 2010 in the UK


Business overview



Other information

Corporate responsibility and sustainability

In order to execute Cobham’s strategy effectively, an understanding of the Group’s strategic position is needed in relation to its operating environment and the expectations of its key stakeholders. A stakeholder identification and initial material mapping exercise was completed in the second half of 2010 indicating, as expected, a number of priority issues for improvement. The issues fall broadly within Cobham’s existing key focus areas:

• Stakeholder Engagement – linking key stakeholder issues with shareholder value through corporate strategy and operational performance;

• Staff and Talent – attracting, retaining and developing the leadership and functional skills necessary for the workplace in an increasingly competitive talent environment;

• Safety, Health and Environment (S|H|E) – pursuing a ‘zero harm’ strategy to provide safer, healthier and environmentally friendlier operations, activities, products and services that will serve to attract and retain talent, raise productivity, improve efficiency and maintain community licence to operate; and

• Business Ethics and Compliance – embedding a strong business ethics culture to minimise liability, manage risk and protect reputation in a highly regulated and global marketplace.

Business EthicsThe Group pursues and will reward the highest standards of ethical behaviour in all aspects of its business, considering ethical behaviour to be an asset to be valued, optimised and realised.

Cobham’s Business Ethics programme is managed by a Business Ethics and Compliance Committee (BE&CC) staffed by senior Cobham executives. The Group’s approach focuses on use of global ethics helpline and a Code of Business Conduct (Code). The Code sets out the required behaviour in matters of personal integrity, stakeholder relationships and procedures for dealing with possible breaches. The Code has been translated into French, German, Danish, Finnish, Swedish and Latin American Spanish. It is published, in English, on the Cobham website.

Each year Cobham requires all new employees to take ethical awareness training. All employees who received that training in prior years are required to complete an annual re-certification course.

As noted previously Cobham has been successful in training its workforce. To put that in context, those employees who took the training in 2008 and 2009 represented 99.8% and 99.5% respectively of the target workforce (3,100 and 7,500 people approximately).

In 2009, 99.3% of the target workforce completed the re-certification. As at the date of this report, the 2010 training courses and recertifications are being completed, with the outstanding actions being followed-up to provide a similarly high level of completion.

In that re-certification, employees acknowledge and confirm that they have read the Code, understand its provisions and follow it in their business activities. These certificates require an additional acknowledgement that employees have a responsibility to bring violations of the Code to the attention of their supervisors or report them via the helpline. They also require a confirmation that the employee has not violated the Code and that they have no knowledge of any unreported ethics violations.

The ethical training programme will continue to be developed such that business ethics issues are communicated and training provided at every level in Cobham.

The Group has appointed Business Unit Ethics and Compliance Officers (BECOs) for each Cobham business unit whose principal responsibilities include implementing the ethics awareness training programme and providing a sounding board for employees’ concerns. The BECOs are further supported by Divisional Ethics Officers and the BE&CC that oversee the ethics programme and any issues raised through the helpline. Status with helpline cases is reported monthly to the Group Executive and a semi-annual report on the process is presented to the audit committee.

The number of accidents and lost work days has reduced and voluntary staff turnover remains below the Group’s target level. Both measures are Key Performance Indicators for Cobham.

Highlights

• Key stakeholders and issues mapped at Group level

• More than 30% of senior appointments derived from the internal talent management programme

• Self-assessment performance baseline completed by all units against S|H|E Management Standards

• Number of accidents and lost work days reduced

• 90% of ethical awareness training completed


1 2 3 4 5Focus on defence, security and commercial markets

Sell technically differentiated products and services

Build sustainable scale positions

Deliver operational excellence

Actively manage the portfolio

Key focus areas and performance indictors (KPIs)

Objectives for 2010

2010actual

2009actual

Target Objectives for 2011

Strategic objectives

Stakeholder engagement 2 4

Improve stakeholder engagement processes

Map key stakeholders and issues at Group level

Completed – Group level

Develop repeatable stakeholder engagement process

Staff and talent 2 3 4

Increase the number of senior appointments sourced internally

>30% – 30% >30%

Voluntary turnover <10% 8.0% 5.8% <10% <10%

Safety, health and environment 2 3 4

Fatalities Maintain zero fatalities

0 0 Zero Zero fatalities

Major Accident Incidence Rate (Number of accidents resulting in more than 3 days’ absence per 100,000 employees)

Reduction on previous year

565 670 Zero Further reduction through all units achieving Foundation level of Cobham S|H|E Management Standards

Recordable Incidence Rate (Number of accidents resulting in more than first aid per 100 employees)


1.69 1.7 Zero Per Major Accident Incidence Rate above

Scope 1 GHG (tCO2e)1 Reduction on

previous year92,394 139,640 <100,000 Undertake GHG

assurance readiness

Scope 2 GHG (tCO2e)2 Per Scope 1

GHG above61,171 61,395 <60,000 Per Scope 1

GHG above

Scope 3 GHG (tCO2e)3 Increase scope

and improve reporting

309,908(66% full business travel disclosure by turnover)

271,879 (93% full business travel disclosure by turnover)

Increase scope and improve reporting

Per Scope 1 GHG above

Energy efficiency (MWh/£M turnover)4


907 953 900 Include energy efficiency in management scorecard

Business ethics and compliance 1 4

Appointment of Ethics Officers in business units

Coverage across all units

Completed Substantially completed for all units

Maintain coverage across all units

Coverage across all units

Ethical awareness training for all employees

All employees 90% 99% 100% employees

100% employees

1 Scope 1 GHG KPI comprises natural gas, heating oil and aviation fuel purchased by Cobham for use in Cobham owned aircraft or other Cobham owned equipment, Company (petrol, diesel and hybrid) car use.

2 Scope 2 GHG KPI comprises purchased electricity (renewable and non-renewable tariffs).3 Scope 3 GHG KPI comprises business travel (non-company owned car use, train travel and flights) and aviation fuel (purchased by Cobham for use in leased aircraft

or other leased equipment or provided by customers for use on customer operations).4 Energy Efficiency KPI includes electricity, natural gas, heating oil and aviation fuel purchased by Cobham or provided by customers.

Strategic objectives


Business overview



Other information

Corporate responsibility and sustainability continued

Cobham has adopted and implemented two industry standards on ethical conduct. The first is the Aerospace and Defence Industries Association of Europe’s (ASD) Common Industry Standards for European Aerospace and Defence. The second is ASD’s and The Aerospace Industries Association of America’s (AIA) Global Principles of Business Ethics for the Aerospace and Defence Industry.

The Global helpline system facilitates a Group wide confidential case tracking system enabling us to track cases in a variety of ways and to report on a regular basis, the results of investigations and any disciplinary action taken, to the Group Executive and Board. The helpline is well publicised with posters advertising it at every site in local languages where relevant. A modest number of contacts to the helpline were made in 2009 and 2010 a number of which were human resources matters. Disciplinary action has been taken where required and in some cases proactive training delivered to individuals and leadership teams has been delivered as a result of the contact. The Group seeks to capitalise on lessons learned and monitors for emerging trends or issues at particular units.

2011 objectives During 2011, we plan to undertake the following:

• Develop a repeatable stakeholder engagement process as part of our standard operating framework;

• Continued focus on ethical awareness training and review of contacts with the global ethics helpline;

• Increase the number of units at Foundation Level of the Cobham S|H|E Management Standards to 100%;

• Introduce leading S|H|E indicators to further reduce accident rates and improve resource efficiency;

• Undertake a greenhouse gas (GHG) assurance readiness programme; and

• Conduct additional work in the areas of diversity, equality, community engagement and supply chain management.

Data verificationCobham collects data annually on all key Corporate Responsibility and Sustainability (CR&S) KPIs from its wholly-owned operational subsidiaries. This excludes Cobham’s joint ventures, for which we do not have operational control, and any business units that have been closed or divested during the course of the year.

100% of Cobham’s operations by turnover have been reviewed internally to identify omissions and significant variations (i.e. 10%) from the preceding year. Cobham has commissioned an external assurance provider to undertake an assessment of its data verification of carbon/GHG data with a view towards obtaining an assurance statement on its 2011 data.

Cobham has adopted and implemented two industry standards on ethical conduct.


DID YOU KNOW?

Sir Alan Cobham AwardThe Sir Alan Cobham Award programme is a Group wide recognition programme, highlighting those who go above and beyond their day job, through a peer nomination process. Each nomination is assessed by merit, to the highest level, against a list of criteria which establishes the contribution each nominee makes to the continued success of Cobham. The first winners of the Sir Alan Cobham Award scheme were recognised in the year, with 500 receiving Gold, Silver and Bronze. Four of the Gold nominations were subsequently deemed to merit top level Platinum awards and received their prizes from Cobham CEO Andy Stevens. Awards were presented to 139 nominations across five categories – Technical Innovation, Employee Engagement, Customer Satisfaction, Corporate Responsibility and Sustainability and Team Work. All winners received certificates, with Silver, Gold and Platinum winners also being given Award plaques and prizes ranging from paid leave to £10,000 cash.

Deepwater Horizon oil spillCobham technology played a key part in the effort to track the Deepwater Horizon oil spill in the Gulf of Mexico by enabling real-time transmission of live full motion video from surveillance aircraft to observers on the ground. Aircraft deployed by Sierra Nevada Corporation and equipped with Cobham’s FM and COFDM (Coded Orthogonal Frequency Division Multiplexing) video products flew over the Gulf to monitor the marine oil spill – the largest in the history of the petroleum industry. Typically used for border security and defence applications, the aircraft’s role was to use a range of imagery and mapping capabilities to explore the spill and its overall size.


Business overview



Other information

Board of Directors

J F Devaney, BEng, CEng, FIMechE, FIEENon-executive Director and ChairmanAppointed to the Board as a Non-executive Director in February 2010 and appointed as Chairman in May 2010, John Devaney, age 63, is currently Non-executive Chairman of National Express plc, the passenger transport group, and Non-executive Chairman of NATS, the National Air Traffic Services. He has previously served as Non-executive Director of Northern Rock and Chairman of Marconi plc, later renamed Telent. His executive career was built in engineering companies within the Varity Group. 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 Executive Chairman. He is Chairman of the nomination committee and a member of the remuneration committee.

W G Tucker BSc, ACA, MBA Chief Financial OfficerAppointed to the Board in 2003, Warren Tucker, age 48, joined the Group as Chief Financial Officer and is a chartered accountant. Prior to joining, he worked at Arthur Andersen, Lazard, held senior finance positions at British Airways plc, Euro Disney and was Deputy Group Financial Director of Cable and Wireless plc. He is a Non-executive Director of Reckitt Benckiser Group plc, appointed on 24 February 2010.

M Beresford CBE, MAMechSc, FIET Independent Non-executive Director Appointed to the Board as a Non-executive Director in 2004, Marcus Beresford, age 68, was Chairman of Ricardo plc until November 2009 and was a Non-executive Director of Spirent PLC until late 2006. He was an Executive Director of GKN plc from 1992 to 2002 and Chief Executive from 2001 to 2002. He is the Senior Independent Director and is a member of the nomination, audit and remuneration committees.

A J Stevens BSc, CEng, FIET, FRAeS Chief Executive OfficerAppointed to the Board in 2003, Andy Stevens, age 54, joined the Group as Managing Director of the Aerospace Systems Group. He was appointed Chief Operating Officer of the Technology Divisions in September 2005 and in March 2007 assumed responsibility for operational management, performance and profit and loss accountability for the Group. He became Chief Executive Officer on 1 January 2010. Prior to joining he qualified as a chartered engineer at Dowty Group and subsequently became Chief Operating Officer of Messier Dowty International before joining Rolls-Royce as Managing Director, Defence Aerospace.

P Hooley FCA, MSc Independent Non-executive Director Appointed to the Board as a Non-executive Director in 2002, Peter Hooley, age 64, is a chartered accountant, and was Group Finance Director of Smith & Nephew plc until mid-2006. In July 2006, he was appointed Non-executive Chairman of BSN Medical Luxembourg Holdings Sarl, a group engaged in medical textile products. In May 2009, he was appointed as an independent Non-executive Director of Xstrata plc. Previously he was a Non-executive Director of Powell Duffryn plc from 1997 to 2000. He is Chairman of the audit committee and a member of the nomination and remuneration committees.

J S Patterson CBE, MBChB, FRCP, Fmed Sci Independent Non-executive Director Appointed to the Board as a Non-executive Director in 2005, John Patterson, age 63, qualified in medicine in 1971 and obtained a Membership (now Fellowship) of the Royal College of Physicians in 1974. He was appointed as a Non-executive Director of Ferring Holding SA in April 2009. He joined ICI (now AstraZeneca) in 1975 and in December 2004 was appointed to the main Board as Executive Director responsible for development. He retired as a Director of that firm in March 2009. He is a former President of the Association of the British Pharmaceutical Industry, a former Non-executive Director of Amersham PLC and a former member of the supervisory board of the UK Medicines Control Agency. He is Chairman of the remuneration committee and a member of the nomination and audit committees.


M W HageeIndependent Non-executive DirectorAppointed to the Board as a Non-executive Director in December 2008, Mike Hagee, age 66, was, until his retirement in January 2007, a member of the Joint Chiefs of Staff as the 33rd Commandant of the United States Marine Corps. Prior to that, he was the Commanding General of the 1st Marine Expeditionary Force. In total, he served in the US military for more than 44 years and holds numerous military, civilian and foreign decorations, including the Bronze Star with Valor, National Intelligence Distinguished Service Medal and Defense Distinguished Service Medal. He is currently a Non-executive Director of Rackable Systems, IAP Worldwide Services Inc, Dyncorp International Inc. and Freedom Group, Inc. He is a member of the audit, nomination and remuneration committees.

M H Ronald CBE, BA, BScEE, MScEE Independent Non-executive DirectorAppointed to the Board as a Non-executive Director in 2007, Mark Ronald, age 69, 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. He is currently a Non-executive Director of ATK Inc and Aerofex Inc and was, until 7 July 2010, a Non-executive Director of DynCorp International Inc. He is a senior adviser of Veritas Capital LLC and a management consultant. He is a member of the nomination and remuneration committees.

M Wareing CMGIndependent Non-executive DirectorAppointed to the Board as a Non-executive Director in December 2010, Michael Wareing, age 56, was formerly Chief Executive of KPMG International and is a non-executive member of the Board of Wolseley plc, where he is Chairman of that company’s audit committee and will be appointed as a non-executive member of the Board of Intertek Group plc on 15 April 2011. He is also a member of the Board of Business in the Community and Co-chairman, Business in the Community International (formerly the Global Partner Network) which promotes best practice in Corporate Social Responsibility. Michael worked for KPMG from 1973 until 2009 when he retired. Between 2005 and 2009, he was Chief Executive Officer, KPMG International, Chairman, KPMG International Executive Team and Chairman, KPMG Iberoamerica Board. He is a member of the nomination committee and a member of and Chairman designate of the audit committee.

D J TurnerFormer Independent Non-executive ChairmanAppointed to the Board as Non-executive Deputy Chairman in December 2007 and Chairman on 7 May 2008, David Turner, age 66, is a chartered accountant. He was appointed Chairman of the Commonwealth Bank of Australia in February 2010. He stood down as Chairman of Cobham at the conclusion of the Annual General Meeting on 6 May 2010.

Business overview



Other information


Corporate governance34 Cobham plc | AnnualReportandAccounts2010

Directors’ report

TheDirectorspresenttheirreportandtheauditedGroupandparentcompanyfinancialstatementsofCobhamplcfortheyearended31 December2010.TheCompanyisregisteredinEnglandandWalesundercompanynumber30470.

Business reviewTheChairman’sstatementonpage4oftheAnnualReporttogetherwiththeChiefExecutiveOfficer’sreviewonpages5to6,theBusinessreviewonpages12to19,theFinancialreviewonpages20to25,thePrincipalriskssectiononpages26to27,theCorporateresponsibilityandsustainabilitysectiononpages28to30andtheCorporategovernancesectiononpages37to40containinformationthatfulfilstherequirementsofthestatutorybusinessreviewandareincorporatedinthisDirectors’reportbyreference.ThestatutorybusinessreviewisaddressedonlytoshareholdersanditspurposeistoprovideareviewofthebusinessandtoexplaintheprincipalrisksanduncertaintiesfacingtheGroup.

Principal activities•Providingasuiteofend-to-endavionicsproducts,lawenforcement

andnationalsecuritysolutions,andsatellitecommunicationequipmentforland,seaandairapplications.

•Criticaltechnologyfornetworkcentricoperations,movinginformationaroundthedigitalbattlefield,withcustomisedandoff-the-shelfsolutionsforpeopleandsystemstocommunicateonland,seaandair.

•Providingsafetyandsurvivalsystemsforextremeenvironments,nose-to-tailrefuellingsystemsandwing-tiptowing-tipmissionsystemsforfastjets,transportaircraftandrotorcraft.

•Deliveringoutsourcedaviationservicesformilitaryandcivilcustomersworldwidethroughmilitarytraining,specialmissionflightoperations,outsourcedcommercialaviationandaircraftengineering.

DividendsAninterimdividendof1.628pperordinaryshareof2.5peachinthecapitaloftheCompany(OrdinaryShares)(2009:1.48p)waspaidinNovember2010.TheDirectorsarerecommendingafinaldividendof4.372pperOrdinaryShare(2009:3.97p)payableon3June2011toordinaryshareholdersontheregisterasat6May2011,makingatotalordinarydividendfortheyearof6.00p(2009:5.45p).

Board of DirectorsThecurrentDirectorsarelisted,togetherwithshortbiographicalnotes,onpages32to33.TheyallheldofficethroughouttheyearexceptJohnDevaney,whojoinedtheBoardon1February2010andbecameChairmanoftheCompanyon6May2010andMichaelWareing,whojoinedtheBoardon1December2010.PeterHooleywillretirefromtheBoardandstanddownasChairmanoftheauditcommitteeattheconclusionoftheAnnualGeneralMeeting(AGM)on6May2011afternineyearsandMichaelWareingwillassumetheChairoftheauditcommitteeatthattime.

TherulesfortheappointmentandreplacementofDirectorsaresetoutintheCompany’sArticlesofAssociation(theArticles)copiesofwhichcanbeobtainedfromCompaniesHouseintheUKorbycontactingtheCompanySecretary.ChangestotheArticlesmustbeapprovedbyshareholderspassingaspecialresolution.TheDirectorsandtheCompany(inthelattercasebyordinaryresolution)mayappointapersonwhoiswillingtoactasaDirector,eithertofillavacancyorasanadditionalDirector.

TheArticlesrequirethatadirectorshallretirefromofficeifhehasbeenappointedbytheBoardsincethepreviousAGMorifitisthethirdAGMfollowingthatatwhichhewaselectedorlastre-elected.However,inaccordancewiththeUKCorporateGovernanceCode,whichrecommendsthatalldirectorsofFTSE350companiesseekre-electionbyshareholdersonanannualbasis,alldirectorscurrentlyinofficewillretireandseekre-electionattheAGM.MichaelWareing,whowasappointedbytheBoardon1December2010,isseekingelectionbyshareholdersatthe2011AGMforthefirsttime.

SubjecttotheCompany’sArticles,UKlegislationandanydirectionsgivenbyresolutionsoftheCompany,thebusinessoftheCompanyismanagedbytheBoard.TheDirectorshavebeenauthorisedtoallotandissueOrdinarySharesandtomakemarketpurchasesofOrdinaryShares.ThesepowersareexercisedunderauthorityofresolutionspassedattheCompany’sAGM.

Directors’ indemnity arrangementsTheCompanyhasenteredintoqualifyingthirdpartyindemnityarrangementsforthebenefitofallitsDirectorsinaformandscopewhichcomplywiththerequirementsoftheCompaniesAct2006.

Directors’ interestsNoneoftheDirectorsisorwasmateriallyinterestedinanysignificantcontractduringorattheendofthefinancialyear,particularsofwhicharerequiredtobedisclosedbytheListingRulesoftheUKListingAuthority.

DetailsofDirectors’shareinterestsandoftheirrightstosubscribeforsharesareshownintheDirectors’remunerationreportonpages41to48.

Corporate governanceTheCompany’sstatementoncorporategovernanceissetoutonpages37to40.

Share capitalDetailsofmovementsinthesharecapitaloftheCompanyduringtheyeararegiveninnote29totheGroupfinancialstatementsandnote13totheparentcompanyfinancialstatementsrespectively.

AttheAGMheldon6May2010,theCompanywasauthorisedtopurchaseupto114,899,393OrdinaryShares.Thisauthoritywillexpireattheconclusionofthe2011AGM.AlthoughnoOrdinaryShareshavebeenpurchasedbytheCompanyduringtheperiodfrom6May2010tothedateofthisreport,aspecialresolutionwillbeputtoshareholdersattheAGMtorenewtheauthoritytomakemarketpurchasesoftheCompany’ssharesuptoamaximumof10%ofthesharecapitalofthe Company.

TherightsandobligationsattachingtotheOrdinarySharesand6%secondcumulativepreferencesharesof£1eachinthecapitaloftheCompanyaresetoutintheArticles.

Subjecttoapplicablestatutes,andtotherightsconferredontheholdersofanyothershares,sharesmaybeissuedwithsuchrightsandrestrictionsastheCompanymaybyordinaryresolutiondecideor(ifthereisnosuchresolutionorsofarastheresolutiondoesnotmakespecificprovision)astheBoardmaydecide.HoldersofOrdinarySharesareentitledtoattendandspeakatgeneralmeetingsoftheCompany,

35www.cobham.com Cobham plc | AnnualReportandAccounts2010

Businessoverview


Groupfinancialstatements

Otherinformation

toappointoneormoreproxiesand,iftheyarecorporations,corporaterepresentativesandtoexercisevotingrights.HoldersofOrdinarySharesmayreceiveadividendand,onaliquidation,mayshareintheassetsoftheCompany.HoldersofOrdinarySharesareentitledtoreceivetheCompany’sAnnualReports.Subjecttomeetingcertainthresholds,holdersofOrdinarySharesmayrequisitionageneralmeetingoftheCompanyortheproposalofaresolutionatanAGM.

Voting rights and restrictions on transfer of sharesOnashowofhandsatageneralmeetingoftheCompany,everyholderofsharespresentinpersonorbyproxyandentitledtovotehasonevoteandonapolleverymemberpresentinpersonorbyproxyandentitledtovotehasonevoteforevery£1innominalvalueofthesharesofwhichheistheholder.NoneoftheOrdinarySharescarryanyspecialrightswithregardtocontroloftheCompany.

Therearenorestrictionsontransfersofsharesotherthan:

•Certainrestrictionswhichmayfromtimetotimebeimposedbylawsorregulations;

•PursuanttotheCompany’scodeforsecuritiestransactionsincludingtherequirementontheDirectorsanddesignatedemployeestoobtainapprovaltodealintheCompany’sshares;and

•WhereapersonwithaninterestintheCompany’sshareshasbeenservedwithadisclosurenoticeandhasfailedtoprovidetheCompanywithinformationconcerninginterestsinthoseshares.

TheCompanyisnotawareofanyarrangementsbetweenshareholdersthatmayresultinrestrictionsonthetransferofsecuritiesorvoting rights.

Significant arrangements – change of controlTheCompanyispartytothefollowingsignificantagreementswhichcontainprovisionswhichtakeeffect,alterorterminateuponachangeofcontroloftheCompany:

•TheCompanyhasenteredintoanumberofcreditagreementswithbanks,andhasissuedseniornotesunderprivateplacements.Thetotalamountowingundersuchagreementsattheyearenddateisshowninnote24totheGroupfinancialstatements.Allagreementscontainclausessuchthat,intheeventofachangeofcontrol,theCompanymustrepayallsuchborrowingstogetherwithaccruedinterest,feesandothersumsowingasrequiredbytheindividualagreements;

•UndertheFBHeliservices(FBH)shareholdersagreemententeredintoinNovember2004,changeofcontrolofeithertheCompanyoritssubsidiaryholdingsharesinFBH,withoutthepriorwrittenconsentofthatotherFBHshareholder,entitlestheotherFBHshareholdertopurchasealloftheCobhamGroup’sshareholdinginFBH;

•UndertheSentinelcontract,enteredintoinMarch2006,theCompanymustseekapprovalforanymaterialchangeintheshareholdingoftheCompany.ThereisanancillaryLeaseAgreementunderwhichachangeofcontrolmayresultintheterminationoftheleaseifsucheventislikelytohaveamaterialadverseeffectontheCompany’sabilitytoperformitsobligationsunderthelease;and

•UndertheFSTAshareholdersagreemententeredintoinJune2008,achangeofcontroloftheCompanymayresultinarequiredsaleoftheCompany’ssharesinFSTAtotheothershareholders.

FurtherinformationrelatingtochangeofcontrolappearsintheDirectors’remunerationreportonpages43and44undertheheadings

BonusCo-investmentPlan,PerformanceSharePlanandExecutiveShareOptionScheme.

Employee share schemes – rights of controlIfrequiredtodosobytheCompany,thetrusteeoftheCobhamShareIncentivePlan(thePlan)will,onreceiptofnoticefromtheCompanyofanyoffer,compromise,arrangementorschemewhichaffectssharesheldinthePlan,inviteparticipantstodirectthetrusteeontheexerciseofanyvotingrightsattachingtothesharesheldbythetrusteeontheirbehalfand/ordirecthowthetrusteeshallactinrelationtothoseshares.

ThetrusteewillnotvoteinrespectofanysharesheldinthePlaninrespectofwhichithasreceivednodirectionsnorwillthetrusteevoteinrespectofanyshareswhichareunallocatedunderthePlan.

Research and developmentTheGroupcontinuestoinvestintheimportantareaofresearchanddevelopment.DuringtheyeartheGroupexpended£73.8m(2009:£88.3m)onnon-customerfundedresearchanddevelopment.ThemanagementofeachGroupbusinessisresponsibleforidentifyingandcarryingoutsuitableresearchanddevelopmentprogrammeshavingregardtoparticularmarketandproductneeds.

Furtherinformationonresearchanddevelopmentappearsonpages5,9and20.

Major interests in sharesAsat2March2011,beingadatenotmorethanamonthpriortothedateoftheAGMnotice,theCompanyhadbeennotifiedofthefollowinginterestsof3%ormoreintheOrdinaryShares:

Numberofsharesatthedateofnotification

Percentageatdateofnotification

CreditSuisseGroupAG 59,008,164 5.11

SprucegroveInvestmentManagementLimited 57,730,347 5.05

NewtonInvestmentManagementLimited 57,695,346 5.00

Legal&GeneralGroupplc 56,779,341 4.91

Financial instrumentsNotes26,27and28totheGroupfinancialstatementsandnote12totheparentcompanyfinancialstatementscontaindisclosuresrelatingtotheuseoffinancialinstruments.

PeopleAttheendof2010,Cobhamemployed11,375people(includingcontractors)onfivecontinentswithmajorpopulationcentresintheUK,France,NorthAmericaandAustralia.

AcrossCobham,implementationoforganisationalstructuresdesignedtosupporttheGroup’sdeclaredstrategyofbuildingitscapabilitiesacrossallfunctionscontinuedwithanemphasisoncollaborationtobetterutiliseresourcesandsuccessionplanningtoincreaseopportunitiesforpersonalandprofessionaldevelopment.

Cobhamiscommittedtoequalopportunitiesforallofitsemployees.TheGroupaimstoensurethattheworkplaceisfreefromdiscrimination;recruitment,selectionandcareerdevelopmentarebasedoncompetenceandjobrequirements,irrespectiveofrace,sex,sexualpreference,


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religionordisability.Cobhamcontinuestomonitorandimproveitspoliciesandpracticestoreflecttherequirementsofagediscriminationlegislation.Withregardtoemployeeswhobecomedisabled,thepolicyistotakeallreasonablesteps,includingretraining,toensurethattheycanremaininemploymentwhereverpracticable.TheimportanceofemployeedevelopmentandtrainingisrecognisedandGroupbusinessesarerequiredtoencourageemployeestotakeadvantageofavailableandrelevanttrainingprogrammesandopportunitiesforadvancement.

TheGroupencouragesemployeeparticipationandconsultationatalllevelsandalsothesharingofrelevantbusinessinformation.Suchanapproachfacilitatesthedevelopmentofnewideasandpracticesthataddvaluetothebusiness,promotesteammembercommitmentandhelpstofocusCompanyandemployeeexpectations.In-housenewsletters,intranet,extranetandinternetcommunications,Companyannouncements,teammeetingsandsuggestionschemesallplayapartinthisprocess.UKemployeesaregiventheopportunitytobecomeshareholdersintheCompanythroughtheCobhamSavingsRelatedShareOptionSchemeandtheCobhamShareIncentivePlan.Undertheformer,employeescanacquiresharesthroughtheexerciseofoptionsgrantedata20%discounttomarketvaluewithsavingsmadeoverthree,fiveorsevenyears.Underthelatter,sharesmaybepurchasedoutofpre-taxincome.

Corporate responsibility and sustainabilityInformationinrelationtotheGroup’scommitmenttoCorporateresponsibilityandsustainability(includingadditionalinformationinrelationtoemploymentmatters)issetoutonpages28to31.

Creditors payment policyPaymentisgenerallymadebyGroupcompaniestotheircreditorsinaccordancewithagreedtermsofbusinessprovidedthatthosetermshavebeenmet.ItisthepolicyoftheCompanythatallinvoicesarepaidwithin30daysfollowingtheendofthemonthinwhichtheinvoicesareapproved.ThetotalamountoftheCompany’stradecreditorsfallingduewithinoneyearat31December2010represents45days’(2009:44days’)worthasaproportionofthetotalamountinvoicedbysuppliersduringtheyearendedonthatdate.

Events after the balance sheet dateNote35totheGroupfinancialstatementscontainsinformationinrespectofpost-balancesheetevents.

Political and charitable giftsNocontributionsweremadetopoliticalorganisations.Theamountdonatedduringtheyearforcharitablepurposeswas£84,005(2009:£85,423).Ofthissum,individualdonationsinexcessof£2,000toUKcharitiesweremadetothevalueof£2,500(2009:£10,000)toarmedservicescharities,£15,000(2009:£6,350)tobusinessenterprisecharitiesand£2,500(2009:£nil)toothercharities.

Land and buildingsDetailsofthecarryingamountandmarketvaluesoftheGroup’sinvestmentpropertiesareasdisclosedinnote15totheGroupfinancialstatements.

Auditors Theauditors,PricewaterhouseCoopersLLP,haveindicatedtheirwillingnesstocontinueinofficeandaresolutiontore-appointthemwillbeproposedattheAGM.

Annual General MeetingTheCompany’sAGMwillbeheldat12noononFriday,6May2011attheofficesofUBSInvestmentBank,1FinsburyAvenue,LondonEC2M2PP.

TheCompanyarrangesforthenoticeofAGMandrelatedpaperstobesenttoshareholdersatleast20workingdaysbeforethemeeting.

ByorderoftheBoardEleanor Evans2March2011,Chief Legal Officer & Company Secretary


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ThispartoftheAnnualReport,togetherwiththeDirectors’remunerationreportsetoutonpages41to48,describeshowtheCompanyhasbothappliedtheprinciplescontainedintherevisedCombinedCodeonCorporateGovernanceamendedinJune2008(theCode)andcompliedwiththeprovisionscontainedinsection1oftheCode.TheCodeisavailableatfrc.org.uk/corporate/combinedcode.cfm.

InMay2010,theFRCpublishedanewcode,theUKCorporateGovernanceCode(theGovernanceCode)whichwillreplacetheCodeforfinancialyearsbeginningonorafter29June2010.TheFRChasstatedthatchangeshavebeenmadetohelpcompanyboardstobecomemoreeffectiveandmoreaccountabletoshareholders.Wherepossible,theCompanyhasalreadyadoptedprinciplesfromtheGovernanceCode.

Statement of compliance with the provisions of the Combined CodeTheOrdinarySharesarelistedontheLondonStockExchange.InaccordancewiththeListingRulesoftheUKListingAuthority,theCompanyconfirmsthatthroughouttheyearended31December2010andatthedateofthisAnnualReport,itwascompliantwiththeprovisionsoftheCode.

Share capitalDetailsofthesharecapitaloftheCompanyaregivenintheDirectors’reportonpage34.

Board compositionTheBoardcomprisesaNon-executiveChairman(JohnDevaney),aChiefExecutiveOfficer(AndyStevens),aChiefFinancialOfficer(WarrenTucker)andsixotherNon-executiveDirectorsofwhomMarcusBeresfordistheSeniorIndependentDirector.AllNon-executiveDirectorsareconsideredtobeindependentandtheChairmanwasconsideredtobeindependentonappointment.

BiographiesoftheDirectors,givingdetailsoftheirexperienceandothersignificantcommitments,aresetoutonpages32to33and,inrelationtoallDirectorsofferingthemselvesforre-electionattheAGM,intheaccompanyingshareholdercircular.ThewiderangingexperienceandbackgroundsoftheNon-executiveDirectorsenablethemtodebateandconstructivelychallengemanagementinrelationtoboththedevelopmentofstrategyandtheperformanceoftheGroup.TheattendanceofDirectorsatBoardandprincipalBoardcommitteemeetingsasmembersofsuchcommitteesduringtheyearissetoutinthefollowingtable.

Board Audit Remuneration Nomination

Numberheld 10 4 4 4

Numberattended

AJStevens 10 – – –

WGTucker 10 – – –

DJTurner1 3 – 1 2

JDevaney2 8 – 4 2

MWHagee 9 3 3 3

PHooley 10 4 4 4

MBeresford 10 4 4 4

JSPatterson 10 4 4 4

MHRonald 10 – 4 4

MWareing3 1 1 – 1

1DJTurnerretiredon6May2010.2JDevaneyelectedon1February2010.3MWareingelectedon1December2010.

Non-executiveDirectorsareappointedforspecifiedtermsofthreeyearswhichcanbeextendedbyagreementprovidedthattheindividual’sperformancecontinuestobeeffective.AllNon-executiveshaveconfirmedtheywillhavesufficienttimetomeetwhatisexpectedofthemandcopiesoftheirappointmentlettersareavailableonrequesttotheCompanySecretaryandwillbeavailableforinspectionattheAGM.UndertheArticles,Directorsaresubjecttore-electionbyshareholdersatthefirstAGMaftertheirappointmentbytheBoardandaresubjecttore-appointmentiftheyhaveheldofficeforthreeyearsormoresincetheirpreviousappointmentbyshareholdersand,inthecaseofNon-executiveDirectors,iftheyhaveheldofficefornineyearsormoresincefirstbeingappointedbyshareholders.However,inaccordancewiththeUKCorporateGovernanceCode,whichrecommendsthatalldirectorsofFTSE350companiesseekre-electionbyshareholdersonanannualbasis,alldirectorscurrentlyinofficewillretireandseekre-electionattheAGM.Inaddition,MichaelWareing,whowasappointedbytheBoardon1December2010,isseekingelectionbyshareholdersatthe2011AGMforthefirsttime.TheBoardhassetoutinthecirculararesolutiontore-electMrWareingasaNon-executiveDirectorandexplainswhyitbelievesheshouldbere-elected.TheChairmanconfirmstoshareholderswhenproposingre-electionorre-appointmentthatfollowingformalperformanceevaluation,theindividual’sperformancecontinuestobeeffectiveandthattheindividualcontinuestodemonstratecommitmenttotherole.Non-executiveDirectorsaresubjecttoCompaniesActprovisionsrelatingtotheremovalofaDirector.

TheChairmanis,amongotherthings,responsibleforchairingBoardmeetingsandleadingtheBoard.TheChiefExecutiveOfficer’sresponsibilitiesincludeoperationalperformance,CorporatesocialresponsibilityandthedevelopmentandimplementationoftheGroup’sstrategy.HefocusesalsoonlongtermgrowthanddevelopmentoftheGroup,itspeopleandcustomerrelationships.TheBoard’spolicyisthattherolesofChairmanandChiefExecutiveOfficershouldbeperformedbydifferentpeople.ThedivisionofresponsibilitiesbetweentheChairman’sroleandthatoftheChiefExecutiveOfficerisdocumentedandclearlyunderstood.

TheSeniorIndependentDirector’sresponsibilitiesincludetheprovisionofanadditionalchannelofcommunicationbetweentheChairmanandtheNon-executiveDirectors.Healsoprovidesanotherpointofcontact


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forshareholdersiftheyhaveconcernswhichcommunicationthroughthenormalchannelsofChairman,ChiefExecutiveOfficerorChiefFinancialOfficerhasfailedtoresolve,orwherethesecontactsare inappropriate.

TheDirectorshavethebenefitofaDirectors’andofficers’liabilityinsurancepolicyandtheCompanyhasenteredintoqualifyingthirdpartyindemnityarrangementswiththem,aspermittedbytheCompaniesAct2006.TheDirectorsarepermittedtotakeindependentlegaladviceattheCompany’sexpensewithinsetlimitsinfurtheranceoftheirduties.

The Board and its proceedingsBoardmeetings,scheduledinaccordancewiththeannualtimetable,takeplaceseventimesayearandotherwiseasrequired.ThereiscontactbetweenmeetingstoprogresstheGroup’sbusinessasrequired.MeetingswereheldattheheadofficeinWimborne,attheCompany’sLondonofficeandatanoperationallocationintheUS.Inaddition,theSeniorIndependentDirectorheldameetingwiththeNon-executivesintheabsenceoftheChairmantoappraisetheChairman’sperformanceandhisperformancewasevaluated.Inaddition,theChairmanhasheldmeetingswiththeNon-executivesintheabsenceoftheExecutiveDirectors.

TheBoard’sroleistoleadtheGroupwithaviewtothecreationofstrong,sustainablefinancialperformanceandlongtermshareholdervalue.Indoingso,itreviewsandagreesGroupstrategy,ensuresthatthenecessaryresourcesareinplace,monitorsmanagementperformance,andsupervisestheconductoftheGroup’sactivitieswithinaframeworkofprudentandeffectiveinternalcontrols.Duringtheyear,theBoardandseniormanagementparticipatedinatwodaymeetingdevotedtotheconsiderationanddevelopmentoftheGroup’sstrategy.

TheBoardhasadoptedascheduleofmattersreservedforitsspecificapproval.ThescheduleprovidestheframeworkforthosedecisionswhichcanbemadebytheBoardandthosewhichcanbedelegatedeithertocommitteesorotherwise.AmongthekeymattersonwhichtheBoardalonemaymakedecisionsaretheGroup’sbusinessstrategy,itsfiveyearplan,itsconsolidatedbudget,Grouppolicies,dividends,acquisitionsanddisposals,andallappointmentstoandremovalsfromtheBoard.AuthorityisdelegatedtomanagementonastructuredbasisinaccordancewiththeprovisionsoftheCorporateFrameworkensuringthatpropermanagementoversightexistsattheappropriatelevel.Mattersdelegatedinthiswayinclude,withindefinedparameters,theapprovalofbidsandcontracts,capitalexpendituresandfinancingarrangements.

TheBoardhasadoptedproceduresrelatingtotheconductofitsbusiness,includingthetimelyprovisionofinformation,andtheCompanySecretaryisresponsibleforensuringthattheseareobservedandforadvisingtheBoardoncorporategovernancematters.TheCompanySecretaryisappointed,andcanonlyberemoved,bythe Board.

IfaDirectorweretohaveaconcernwhichcannotberesolvedthiswouldberecordedintheboardminutes.Onresignation,Non-executiveDirectorsareinvitedtoprovideawrittenstatementtotheChairmanforcirculationtotheBoardiftheyhaveconcerns.Nosuchstatementsweremadeduring2010.

Allpotentialsituationalandtransactionalconflictsofinterestaredisclosed,notedandauthorised.Proceduresareinplaceandoperatingeffectivelytokeepsuchdisclosuresuptodate.

Board committeesTheBoardissupportedinitsworkbyanumberofcommittees.InformationrelatingtothenominationandauditcommitteesappearsbelowandtheactivitiesoftheremunerationcommitteearedescribedintheDirectors’remunerationreportonpages41to48.TheCompanySecretaryactsassecretarytoallBoardcommittees.CommitteechairmenprovideoralreportsontheworkundertakenbytheircommitteesatthefollowingBoardmeeting.

OtherBoardcommitteesincludetheexecutivedirectorscommittee.TheExecutiveDirectorsaremembersofthiscommitteeunderthechairmanshipoftheChiefExecutiveOfficer.ThepurposeistoassisttheChiefExecutiveOfficerintheperformanceofhisdutiesanditstermsofreferenceincludeestablishingandimplementinginternalpolicies,systemsandcontrolstoensurethatpotentialinsideinformationiscommunicatedtoit,considered,verifiedandreleasedtothemarketwhererequired,thedischargeofobligationsarisingundertheCompany’sshareplans,thedeterminationoftheremunerationoftheNon-executiveDirectorsandtheapprovalofbankingfacilities.Thiscommitteemeton13occasionsduringtheyearand,inaddition,as requiredtorespondtobusinessneedsandmarketconditions.

AllBoardcommitteesareprovidedwithsufficientresourcestoundertaketheirduties.

Nomination committeeJohnDevaneyistheChairmanofthiscommittee.TheothermembersarePeterHooley,MarcusBeresford,JohnPatterson,MarkRonald,MikeHageeandMichaelWareing.JohnDevaneyjoinedthecommitteeinFebruary2010andMichaelWareingjoinedinDecember2010.Allcurrentmembersofthecommitteeareindependent.Detailsoftheirqualificationsandexperiencearesetoutonpages32to33.Duringtheyearthecommitteemetonfouroccasions.

Thecommittee’stermsofreference,whichwerereviewedduringtheyear,areavailableontheCompany’swebsiteoronapplicationtotheCompanySecretary.Thecommittee’smaindutiesaretoreviewthestructure,sizeandcompositionoftheBoardandtoconsidersuccessionplanningforDirectorsandotherseniorexecutives.Thecommitteedealtwiththesemattersduringtheyearand,inaddition,maderecommendationsregardingthere-electionandre-appointmentofcertainDirectorsatthe2010AGM,andwasengagedinsearching,withtheassistanceofexternalsearchconsultants,forMichaelWareing.ThecommitteeiscognisantoftheneedfordiversitywhenconsideringthecompositionoftheBoard.

Thenominationcommitteeevaluatesthebalanceofskills,knowledgeandexperienceoftheBoard.

ThesignificantcommitmentsoftheChairmanandotherNon-executiveDirectorsweredisclosedtotheBoardbeforeappointmentandanychangesarereportedtotheBoardastheyarise.Changesduringtheyeararenotedinthepersonalbiographiesonpages32and33.

Directors’ professional developmentOnappointment,DirectorsundertakeastructuredinductionprogrammeinthecourseofwhichtheyreceiveinformationabouttheoperationsandactivitiesoftheGroup,theroleoftheBoardandthemattersreservedforitsdecision,theCompany’scorporategovernancepracticesandproceduresandtheirduties,responsibilitiesandobligationsasDirectorsofalistedpubliclimitedcompany.Thisissupplementedby


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visitstokeylocationsandmeetingswith,andpresentationsby,senior executives.

TrainingforDirectorsisavailableasrequiredandisprovidedmainlybymeansofexternalcoursesorin-housepresentations.Inaddition,Directors’knowledgeofthelegalandregulatoryenvironmentisupdatedthroughtheprovisionofinformationbytheGroup’sadvisorsandbymeansofregularbriefingsfromtheCompanySecretary.AspartoftheExecutiveDirectordevelopmentprogrammeandwiththeagreementoftheBoard,WarrenTuckerwasappointedNon-executiveDirectorofReckittBenckiserGroupplcon24February2010.

Performance evaluationTheBoardconductsanevaluationofitsactivitiesonanannualbasis.During2010,theBoardundertookaninternalevaluation.Theevaluationincludedthereviewofactionstakeninresponsetothe2009externalevaluationanddiscussionswitheachmemberoftheBoardastoitseffectivenesswiththeChairman.TheBoardconsideredtheoutputandhasapprovedanactionplantoaddressissuesarising.

Succession planningSuccessionplanningtakesplaceatBoardandseniormanagementlevelonaregularbasistoensurethattheGroupismanagedbyexecutiveswiththenecessaryskills,experienceandknowledge.TheBoardhasaroletoplayinoverseeingthedevelopmentofmanagementresourcesintheGroup.Specifically,theBoardwantstoseedepthandqualityinmanagementandrobustprocessesareinplacetohelptheBoardinthis task.

SuccessionplanningforNon-executiveDirectorsisbasedonmaintainingadepthofknowledgeandexperienceontheBoard.ThenominationcommitteeactivelymanagesNon-executiveDirectorsuccessionhavingregardtoanticipatedretirementdatesforexistingDirectorsandinitiatesfocusedsearchesforNon-executiveDirectorsaspositionsarerequired.

Financial reportingIntheDirectors’view,theAnnualReportandAccountsfor2010,togetherwiththeinterimmanagementstatements,theinterimreportandotherreportsmadeduringtheyear,presentabalancedandunderstandableassessmentoftheGroup’spositionandprospects.

TheDirectorshaveadoptedthegoingconcernbasisinpreparingtheAnnualReportandAccountsasstatedintheFinancialreviewonpages20to25.

Internal control and risk managementTheGroupoperatesunderasystemofinternalcontrolswhichhasbeendevelopedandrefinedovertimetomeetitsneedsandtherisksandopportunitiestowhichitisexposed.Thisincludesastrategicplanningprocessinvolvingthepreparationofafiveyearplan,acomprehensivebudgetingsystemwithanannualbudgetwhichisapprovedbytheBoard,theregularrevisionofforecastsfortheyear,themonitoringoffinancialperformanceandtheappropriatedelegationofauthoritiestooperationalmanagement.DelegationsandotheroperationalcontrolsarecontainedintheCorporateFrameworkandtheGroupFinanceManual.SpecificallywithregardtothefinancialreportingprocessandthepreparationoftheGroupfinancialstatements,thesystemincludesanannualandsemi-annualrepresentationletterfromallbusinessunits.Includedinthoselettersarewrittenacknowledgementsthatfinancialreportingisbaseduponreliabledataandthattheresultsareproperly

statedinaccordancewithGrouppolicies.Thereviewandmonitoringoftheeffectivenessoftheinternalcontrolsincluding,butnotlimitedto,financialcontrolsandtheGroup’sriskmanagementsystemsisdelegatedtotheauditcommittee.

Riskmanagementisanintegralpartofthesystemofinternalcontrol.DivisionalPresidentsarerequiredtoensurethatappropriateprocesses,includingthemaintenanceofdivisionalriskregisters,existtoidentifyandmanagerisksandtoregularlycarryoutformalriskassessments.Theexecutiveriskcommitteeestablishedin2009undertakesatoplevelreviewofsignificantrisksandtheChiefExecutiveOfficerreportsregularlytotheBoardontheirmitigation.

Thelatestprincipalrisksarehighlightedonpages26to27.

TheBoardisresponsiblefortheGroup’ssystemofinternalcontrol,theaimofwhichistomanagerisksthataresignificanttothefulfilmentoftheGroup’sbusinessobjectivesandtocontributetothesafeguardingofshareholders’investmentandtheCompany’sassets.Theauditcommitteeisresponsibleformonitoringandreviewingtheeffectivenessofthesystem.However,suchasystemisdesignedtomanageratherthaneliminatetheriskoffailuretoachievebusinessobjectives,andcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.

TheBoardconfirmsthatthereisanongoingprocessforidentifying,evaluatingandmanagingthesignificantrisksfacedbytheGroup.Thisprocess,whichhasbeeninplacefortheyearunderreviewanduptothedateofapprovaloftheAnnualReportandfinancialstatements,isreviewedinaccordancewiththeguidanceforDirectorsoninternalcontrolissuedbytheFinancialReportingCouncil.

TheauditcommitteemonitorstheadequacyofinternalfinancialcontrolsandcompliancewithGroupstandardsthroughacombinationofaself-assessmentprocessinvolvingallsubsidiariessupplementedbyregularfinancialassurancereviewsandvisits.TheBoardreceivesreportsonaregularbasisfromtheexecutiveandauditcommitteesinrelationtotheeffectivenessoftheGroup’ssystemofinternalcontrolandhas,accordingly,reviewedtheeffectivenessoftheGroup’ssystemofinternalcontrolinrespectof2010.Thereviewcoveredallmaterialcontrols,includingfinancial,operationalandcompliancecontrolsandriskmanagementsystems.

Audit committee TheChairmanofthecommitteeisPeterHooley.HeisanindependentDirector.TheBoardissatisfied,sincehewasaFinanceDirectorofaFTSE100companyuntilmid-2006,hasbeenChairmanoftheauditcommitteefornineyearsandisacharteredaccountant,thathehas‘recentandrelevantfinancialexperience’asrequiredbytheCode.

Theothermembersofthecommittee,allofwhomareindependentDirectors,areMarcusBeresford,MikeHagee,JohnPattersonandMichaelWareing.Detailsoftheirexperiencearesetoutonpages32to33.Duringtheyear,thecommitteemetonfouroccasions.

MichaelWareingwasappointedasChairmanelectoftheauditcommitteeinDecember2010andwillassumeitschairmanshipattheretirementofPeterHooleyattheAGMinMay2011.MichaelWareingisalsoconsideredtohaverecentandrelevantfinancialexperiencegainedinhisexecutiveroleatKPMG.


Corporate governance continued

Thecommittee’stermsofreference,whichwerereviewedduringtheyear,areavailableontheCompany’swebsiteoronapplicationtotheCompanySecretary.Thecommittee’smaindutiesaretomonitortheintegrityoftheCompany’sfinancialstatementsandanyformalannouncementsrelatingtoitsfinancialperformance,toconsidertheeffectivenessoftheGroup’sinternalfinancialcontrolsystems,tomonitorandreviewtheeffectivenessoftheGroup’sinternalauditactivities,tomakerecommendationsastotheappointment,remunerationandtermsofengagementoftheexternalauditors,tomonitorandreviewtheexternalauditors’independenceandobjectivityandtheeffectivenessoftheauditprocessandtoreviewarrangementsbywhichtheGroup’semployeesmayconfidentiallyraiseconcernsaboutpossibleimproprieties.Inrelationtothelatter,itisthecommittee’sobjectivetoensurethatarrangementsareinplacefortheproportionateandindependentinvestigationofsuchmattersandforappropriatefollowupactiontobetaken.

MeetingsofthecommitteearenormallyattendedbyinvitationforpartbytheChiefFinancialOfficer,senioremployeeswithresponsibilitiesinrelationtofinance,accountingandfinancialcontrol,financialassuranceandtheexternalauditors.Inaddition,thecommitteeholdsmeetingswiththeexternalauditorsandtheHeadofFinancialAssuranceintheabsenceofexecutivemanagement.Invitationstonon-membersareatthediscretionofthecommittee.

Duringtheyear,thecommitteeconsideredreportsfromtheexternalauditorsandtheHeadofFinancialAssuranceaswellasreportsonriskmanagementandinternalcontrols.Reportswerealsoconsideredonanumberofmattersincludingthepensionscheme,treasuryandfundingplans,taxation,disasterrecoveryplanningandcorporategovernanceissues.TheGrouphasananti-bribery,anti-corruptionpolicyandarrangementsforhandlingwhistle-blowingandthecommitteeregularlyreceivesandconsidersreportsoncallsmadetothehelpline.In2010,boththecommitteeandtheBoardreviewedtheGroup’sproceduresinthelightoftheBriberyAct2010intheUK.Thecommitteebelievesthatthecurrentarrangementscomprisingarotationalprogrammeofinternalfinancialcontrolreviewsbythefinancialassurancefunction,businessreviewscarriedoutbytheChiefExecutiveOfficerandChiefFinancialOfficerandaprocessofself-assessmentofinternalfinancialcontrolsbyallsubsidiariesprovidesappropriateinternalauditcoverageoftheGroup’sactivities.Whereweaknesseshavebeenidentified,plansforremedyingthemaredevelopedandprogressmonitored.

Thecommitteeandtheexternalauditorshavesafeguardstoavoidthepossiblecompromiseoftheauditors’objectivityandindependence.Theseincludetheadoptionbythecommitteeofapolicyregardingthesupplyofauditandnon-auditservicesandofapolicyontheemploymentofexternalauditstaff.Non-auditservices,asdefinedfromtimetotimeinthepolicy,canbeprovidedsubjecttopre-approvalbythecommitteewherethecostofanyindividualengagementexceedsapre-definedlimit.Thecommitteehasreceivedreportsfromtheexternalauditorsconfirmingtheirindependenceandobjectivity.

Theexternalauditorsoperate,inrelationtotheseniorengagementauditor,arotationpolicyafterfiveyearsandthecurrentauditpartnerwasappointedinearly2009.ThecommitteehasreviewedtheeffectivenessoftheexternalauditorsandhasrecommendedthataresolutionisproposedattheAGMtore-appointtheexternalauditors

andtoallowtheBoardtosettheirremuneration.Thecommitteeissatisfiedthattheexternalauditorsremainindependent.

Feespaidtotheexternalauditorsduringtheyeararesetoutinnote2totheGroupfinancialstatements.

Shareholder relationsTheBoardisaccountabletoshareholdersfortheperformanceandactivitiesoftheGroupandengagesinregulardialoguewiththem.DuringtheyeartheChairman,ChiefExecutiveOfficerandChiefFinancialOfficerheldregularmeetingswithshareholderstodiscussinformationmadepublicbytheGroup.

InNovember2010,apresentationontheGroupforshareholderstookplaceinLondon.ThispresentationwasmadeavailableforviewingasawebcastontheinvestorrelationssectionoftheCompany’swebsiteatwww.cobhaminvestors.com.TherewereopportunitiesduringtheyearforfundmanagersandotherstoseeCobhamproductsandtolearnaboutthemthroughaccesstoanddialoguewithoperationalmanagement.Presentationsweregivenonthedayoftheannouncementofthepreliminaryandinterimresults.Copiesoftheassociatedpresentationmaterials,togetherwithwebcasts,canalsobeaccessedatwww.cobhaminvestors.com.PresentationsareconductedinaccordancewiththeFSA’sDisclosureRulesonthedisseminationofinsideinformationtoensuretheprotectionofsuchinformationthathasnotalreadybeenmadeavailablegenerallytotheCompany’sshareholders.

TheBoardiskeptinformedofinvestors’viewsthroughthereceiptofregularreportsfromtheCompany’sbrokersandupdatesfromtheChairman,ChiefExecutiveOfficerandChiefFinancialOfficer.Anysignificantcorrespondencewithshareholdersisalsomadeavailable.

CommunicationwithshareholderstakesplaceviaRNSannouncements,theCompany’swebsite,theAnnualReport,theinterimmanagementstatementsandattheAGM.TheAGMisattendedbyallDirectorsandshareholdershavetheopportunitytohearastatementastoprogressmadeduringtheyear,toquestiontheBoardonitsstewardshipoftheCompanyandtomeetDirectorsinformally.TheresultsofthevotesontheresolutionsproposedattheAGMarepublishedontheCompany’swebsite.

Responsibility statementsStatementsrelatingtotheresponsibilitiesoftheDirectorsareonpage49andthoserelatingtotheauditorsareonpages50and100.


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ThisreportprovidestheinformationrequiredbytheLargeandMedium-sizedCompaniesandGroups(AccountsandReports)Regulations2008(theRegulations).

ItalsodescribeshowtheCompanyappliestheprinciplesoftheCodeinrelationtoremuneration.ThereporthasbeenapprovedbytheBoardandshareholderapprovalwillbesoughtattheforthcomingAGM.

Remuneration committeeThecommittee’smaindutiesaretomakerecommendationstotheBoardontheGroup’spoliciesonExecutiveDirectors’remunerationandtodetermine,ontheBoard’sbehalf,thespecificremunerationpackagesoftheChairman,ExecutiveDirectorsandtheGroupExecutive.Thecommittee’stermsofreferenceareavailableontheCompany’swebsiteoronapplicationtotheCompanySecretary.

ThecommitteeconsistsexclusivelyofindependentNon-executiveDirectorsanditsmembersareJohnPatterson(Chairman),MarcusBeresford,JohnDevaney,MikeHagee,PeterHooleyandMarkRonald.JohnDevaneyjoinedthecommitteeinFebruary2010.Committeemeetings,scheduledinaccordancewiththeannualtimetable,takeplaceatleastthreetimesayearandotherwiseasrequired.TheChiefExecutiveOfficerandExecutiveVicePresidentHumanResourcesareinvitedtoattendmeetingsofthecommittee,otherthanwhentheirownremunerationisbeingdiscussed.

ThecommitteereceivedadviceduringtheyearfromDeloitteLLPonremunerationstrategy,incentivedesignandmarketdata.AdditionaladvicewasreceivedfromtheExecutiveVicePresidentHumanResourcesandtheCompanySecretary.DeloitteLLPdonotprovideotherservicestotheGrouporhaveanyotherconnectionwiththeGroup.DeloitteLLPwereappointedinNovember2009andtheirperformanceconsideredbythecommitteeaspartoftheirperformanceevaluation.

Remuneration policyTheBoard’spolicyistorecruit,motivateandretainexecutivesofhighcalibrebyrewardingthemforsuperiorperformancewithcompetitiveremunerationpackages.Inparticular,theexecutivepaypolicyforthecurrentandsubsequentfinancialyearsisdesignedtoretainthoseexecutiveswiththeskillsandexperiencenecessarytoenabletheGrouptoachieveitsobjectivesandsatisfyshareholderexpectations.

PayingforperformanceistheguidingprincipleoftheCompany’sTotalCompensationStrategy.CompensationdecisionsarecloselylinkedtotheCompany’sperformancemanagementsystem.

Thephilosophyistodelivertotalcompensationcomparabletotheupperquartileofaerospaceanddefencepeercompetitorsifsustainedupperquartileperformanceisachieved.Forsolidperformance,actualtotalcompensationdeliveredistargetedinlinewiththemarket.

Themainelementsofthe2010remunerationpackagefocusonsupportingdifferentobjectives,asillustratedinthefollowingtablewhichalsoshowsthechangesfrom2010tothe2011remunerationpackage:

Element Purpose Operation Value–FY2010 Value–FY2011

AnnualBaseSalary

Toprovidecompetitivefixedremuneration

Reflectsthevalueoftheindividual,theirskillsandexperienceandperformance

ChiefExecutive–£600,000

ChiefFinancialOfficer–£428,400

Unchanged

AnnualIncentive

Motivateachievementofkeyannualobjectives

Underlyingearningspershare(EPS)growth,cashflowandpersonalobjectives

Cappedat100%ofsalary Unchanged

LongTermIncentives

Incentiviselong-termprofitablegrowthandsectorout-performance

Rewardrelativesharepriceanddividendgrowth

Providealignmentwithshareholders’interests

Supportretention

Promoteshareownership

BonusCo-investmentPlan 50%ofnetbonusmaybeinvestedandmatchedonuptoatwoforonebasissubjecttoEconomicProfittargetsbeingmet

Unchanged

PerformanceSharePlan Normalgrantsupto100%ofsalary,cappedat150%,withvestingsplitequallybetweenTSRandEPS

Normalgrantsupto150%ofsalarywithvestingsplitequallybetweenTSRandEPS

ExecutiveShareOptionScheme Normalgrantscappedatapproximately100%ofsalarywithexercisesubjecttoEPStargetsbeingmet

NofurthergrantsmadetoUK-basedemployees(includingexecutivedirectors)

Pension Providecompetitivepost-retirementcompensationandbenefits

Employmentmarketplace DefinedBenefitandDefinedContributionarrangements

Unchanged

IndefiningCobham’sremunerationpolicy,thecommitteetakesintoaccountbestpracticeguidelinessetbyinstitutionalinvestorbodiessuchastheAssociationofBritishInsurers.TheChairmanoftheCompanyalsoensurestheCompany,throughthecommitteeanditsChairman,maintainscontactwithprincipalshareholdersaboutremunerationmatters.

Directors’ remuneration report

19%

18%

38%

14%

4%

7%

32

4

5

6

1

1

2

3

4

5

6

2010 2009

Base salary 38% 39%

Annual bonus 19% 19%

Bonus Co-investment Plan (BCP) 4% 4%

Performance Share Plan (PSP) 14% 14%

Executive Share Option Scheme (ESOS) 7% 6%

Pension 18% 18%


TheCompany’sshort-termincentivesarepaid,andlong-termincentivesvest,onlyifstretchingperformancetargetsareachievedandthecommitteeissatisfiedthatexecutivemanagementhasactedinaresponsibleanddiligentmanner.TheremunerationcommitteeconsiderscorporateperformanceongovernanceissueswhensettingtheremunerationtargetsofExecutiveDirectorsandtheGroupExecutive.Theremunerationcommitteehasconsideredwhethertheincentivestructuresmayraiserisksbyinadvertentlymotivatingirresponsiblebehaviourandisoftheviewthatthisisnotthecase.

Theremunerationcommitteehasintroducedclawbackprovisionstotheincentiveprogrammeswhichwillapplytothe2011annualincentiveandlongtermincentiveawards,givingthemdiscretiontoreduceawardsinlinewithbestpractice.

AroundhalfofeachExecutiveDirector’sremunerationisvariableandislinkedtocorporateperformance.ThefollowingchartillustratestheproportionsoftheExecutiveDirectors’remunerationpackagescomprisingfixed(i.e.salaryandpension)andvariableelementsofpay,assumingtargetannualbonusandexpectedvaluesoflong-termincentivesareachieved.

Executive Director pay mix, 2010

DilutionTheCompany’sshareschemescanbefundedthroughacombinationofsharespurchasedinthemarketandnewissueshares,asappropriate.In November2010,theCompanyrequestedthatthetrusteesoftheEmployeeBenefitTrustsettleallexistingandfutureobligationsundertheCompany’slong-termincentivearrangementsandSavingsRelatedShareOptionSchemeplansusingmarketpurchasedshares.Nofurtherallotmentofnewsharestosatisfyoptionexercisesiscontemplatedinthenearfuture.

Fundingofawardsthroughnewissuesharesissubjecttoanoveralldilutionlimitof10%ofissuedsharecapitalinanytenyearperiod.Ofthis,5%maybeusedinconnectionwiththeCompany’sdiscretionaryshareschemes.Asof31December2010,27.9m(2.42%)and15.0m(1.30%)shareshavebeenissuedpursuanttoawardsmadeintheprevioustenyearsinconnectionwithallshareschemesanddiscretionaryschemesrespectively.Awardsthataremade,butthenlapseorareforfeited,areexcludedfromthecalculations.

Base salaryExecutiveDirectors’salarieshavehistoricallybeenreviewedannuallywithchangestakingeffectfrom1January.Salariesarebenchmarkedbythecommittee’sadvisorsagainstcomparablerolesin(i)globallistedaerospaceanddefencecompaniesand(ii)UKbasedcompanieswithasimilarmarketcapitalisationtotheCompany.Whenreviewingsalariesthecommitteealsoassessestheindividualresponsibilities,experience,performanceandachievementofpersonalobjectives.

AndyStevenswasappointedtothepositionofChiefExecutiveOfficeron1January2010onanannualsalaryof£600,000.Hissalarywaspositionedbelowthemarketmedianwiththeintentiontoincreasetowardsthemediansubjecttoperformanceovertime.WarrenTucker,theChiefFinancialOfficer,receivedasalaryof£428,400in2010.For2011,theannualreviewdatehasbeenmovedto1Marchinordertoenableallaspectsofcompensationtobeplannedforatthesametime.However,giventhewidereconomicenvironment,nosalaryincreaseswillbeproposedfortheExecutiveDirectors,theGroupExecutiveandcertainoftheirdirectreportsfor2011.Otheremployeesmaybeentitledtoasalaryincreasedependentontheperformanceoftheirbusinessunit,personalcontributionandretentionrisk.

Annual incentiveTheCompanyoperatesanannualcashincentiveschemeforitsExecutiveDirectors.Annualincentiveswereawardedbythecommitteeinrespectof2010havingregardtotheperformanceoftheGroupandpersonalperformanceobjectivesfortheyear.ThemaximumannualbonusopportunityforExecutiveDirectorsis100%ofbasesalary,ofwhich84%isdeterminedbyfinancialperformanceand16%bypersonalobjectives.Theon-targetbonusforExecutiveDirectorsis50%ofsalary.

FinancialperformanceismeasuredthroughunderlyingEPSgrowthandcashgeneration.PersonalobjectivesfortheChiefExecutiveOfficeraresetandassessedbytheChairman,andbytheChiefExecutiveOfficerfortheChiefFinancialOfficerandGroupExecutive.ThecommitteereviewsandapprovesannualincentiveawardsfortheExecutiveDirectorsandtheGroupExecutive.The2010annualincentiveawardsfortheExecutiveDirectorswere33.5%and32%ofbasesalaryfortheChiefExecutiveOfficerandChiefFinancialOfficerrespectively.ThefinanciallydrivenperformanceoftheExecutiveDirectors’annualincentivein2010,whichequatedto20%ofannualbasesalary,wasearnedasaresultofachievingactualGroupcashgenerationof£218.6m(measuredatconstantcurrencyexchangerateswhichexceededthemaximumperformancelevelof£216.0m).TheunderlyingEPSgrowththresholdof5%(actualresultwas3.8%,measuredatconstantcurrencyexchangerates)wasnotmet.ThebalanceoftheExecutiveDirectors2010annualincentivewaslinkedtotheachievementofpersonalobjectivessuchasthestrategicreviewandtheExcellenceinDeliveryprogramme.

Consistentwithprioryears,performanceinthe2011annualincentiveschemefortheExecutiveDirectorswillcontinuetobemeasuredthroughunderlyingEPSgrowth,cashgenerationandpersonalperformance.Themaximumannualbonusopportunitywillremainunchangedat100%ofsalaryandthetargetwillremainunchangedat50%ofsalary.

Directors’ remuneration report continued


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Long-term incentivesExecutiveDirectors,seniorexecutivesandcertainotherstaffareeligibletoparticipateintheCompany’slong-termincentivearrangements.In2010,theseincludedthePerformanceSharePlan(PSP),theExecutiveShareOptionScheme(ESOS)and,inthecaseoftheGroupExecutive,theBonusCo-investmentPlan(BCP).TheperformancemeasuresagainstwhichPSP,ESOSandBCPawardsvestincluderelativeTSR,realunderlyingEPSgrowthandrealEconomicProfitgrowth.Togethertheseperformancemeasureshelpensuretheinterestsofexecutivesarealignedwiththoseofshareholders(throughTSR)whilstalsoreinforcingcapitalefficiency(throughEconomicProfit)andbottom-linegrowthforshareholders(throughunderlyingEPS).

AnexercisewascarriedoutbytheChairmanoftheremunerationcommitteeinearly2011toconsultmajorshareholdersandrepresentativebodiesfollowingwhichthestructureofremunerationpackageshavebeensimplifiedgoingforward.GrantsofoptionstoUK-basedemployees(includingExecutiveDirectors)undertheESOSwillbediscontinuedandreplacedwithafurthergrantunderthePSP.Theadditionalgrantwillhavethesamefairvalue,calculatedusingBlackScholesmethodology,astheESOSgrantitreplaces,therebyensuringthatthereisnoincreaseintheoverallexpectedvalueofremuneration.TheincreasedPSPawardswillcontinuetobemadewithinthemaximumlimitof150%ofsalary.

Inaddition,theEPSandEconomicProfittargetsattachedtovestingoffutureawardsunderthePSPandBCPrespectivelyhavebeenamendedsothattheyaredeterminedbyabsoluteratherthanrealgrowth.GiventheglobalnatureoftheCompany’sbusinesswherethemajorityofitsrevenueisderivedfromoutsidetheUK,linkingperformancetargetstoUKRPIisnolongerapplicableasCobhampricesdonotincreasewithanypriceindexinanyofitsmarkets.TheCommitteebelievesthattheproposedtargetsarestretchingandchallenginginthecurrenteconomicenvironment.

Bonus Co-investment PlanTheExecutiveDirectorsandothermembersoftheGroupExecutivewereinvitedbythecommitteetodeferupto50%oftheirnetearnedannualbonusin2009(paidinSpring2010)intoOrdinarySharesinreturnforanopportunitytoearnamatchingawardofsharesagainstthegrossbonusinvested.Thresholdperformanceresultsininvestedsharesbeingmatchedsothata2:1matchisawardedformaximumlevelsofperformance.MatchingawardsvestafterthreeyearssubjecttostretchingthreeyearEconomicProfitgrowthtargets.EconomicProfittargetsareconsideredtobecommerciallysensitiveandthereforearenotdisclosedatthestartofthecycle.Thefirstawardmadein2008becomeseligibleformatchingin2011andfulldetailsofperformancetargetswillbeincludedinnextyear’sremunerationreport.Intheeventofachangeofcontrol,vestingofBCPmatchingawardsisnotautomaticandwoulddependontheextenttowhichtheperformanceconditionshadbeenmetatthetimeandtheperiodelapsedsincethedateofgrant.

Forthe2011BCPawards,UKRPIwillberemovedfromtheperformanceconditions.

Performance Share PlanUnderthePSP,approvedbyshareholdersin2007,conditionalshareawardsofupto150%ofbasesalarymaybegrantedannuallytoeligibleexecutives.Theindividuallimitof150%ofsalarycanbeexceededinexceptionalcircumstancesinvolvingtherecruitmentorretentionofasenioremployeebyapprovalofthecommittee.During2010,awardsweremadeto20seniorexecutives,includingtheExecutiveDirectors.Theawards,equalto100%ofthesalary,madetotheExecutiveDirectorsaredisclosedonpage47.

In2010thecommitteeagreedtoamendtherulesofthePSPtomakeawardsmoretaxefficientforUKparticipantsbyofferingawardsintheformofnilcostoptionsratherthanconditionalshares.ThefirstsuchawardsweremadeinMarch2010.ThereisnoadditionalcosttotheCompanyinprovidingnilcostoptions.

ThePSPawardin2007vestedat74%on26March2010.TheJune2007awardunderthePSPwaspermittedtoveston26March2010alongwithallotherPSPawardsmadein2007toenabletheholdersoftheawardtoreceivetheirvestedawardspriortotheincreaseintherateofUKincometax.Therulesallowedforthecommitteetoexerciseitsdiscretioninthisregardandtherewasnootheradvantagetotheholdersastheperformanceconditionsweredeterminedasat31December2009.Theresultantsharescouldnotbesolduntiltheoriginalvestingdateandthiswasobservedbyallparticipants.

VestingofPSPawardsisbased50%ontheCompany’sthreeyearTSRrelativetoacomparatorgroupofaerospaceanddefencesectorpeersand50%ontheCompany’sthreeyearrealunderlyingEPSgrowth.CompaniesintheTSRcomparatorgroupforawardsgrantedin2010were:

BAESystems ITTIndustries RaytheonBoeing L-3Communications RockwellCollinsEADS LockheedMartin Rolls-RoyceFlirSystems Meggitt SmithsGroupGoodrich NorthropGrumman VTGroup*IMI QinetiQ

*VTGroupwasacquiredbyBabcockon9July2010.InlinewiththeprevioustreatmentofEDO,VTGrouphavebeendroppedfromthecomparatorgroupfortheentireperformanceperiod.

TSR-basedawardsin2010vestonlyifCobham’sTSRoverthethreeyearperformanceperiodisatleastmedian,atwhichpoint16.7%ofthesharessubjecttothispartoftheawardvestandtheTSR-basedawardvestsinfulliftheCompany’sTSRoutperformsthemedianby10%perannum.Awardsvestonastraightlineslidingscaleforperformancebetweentheselevels;noawardsvestifTSRperformanceisbelowmedian.ThelevelofoutperformancerequiredtotriggermaximumvestingisequivalenttoconventionalupperquartilerelativeTSRperformance.

16.7%oftheunderlyingEPS-basedawardsin2010vestforcompoundgrowthinunderlyingEPSofRPI+4%overthethreeyearperformanceperiod.EPSbasedawardsvestinfullifunderlyingEPSgrowsbyatleastRPI+13%perannum.Awardsvestonastraightlineslidingscaleforperformancebetweentheselevels;noawardsvestifunderlyingEPSgrowsbylessthanRPI+4%perannum.

0

20

40

60

80

100

120

140

160

180

31 Dec2005

31 Dec2006

31 Dec2007

31 Dec2008

31 Dec2009

31 Dec2010

Cobham FTSE 100 Source: Kepler Associates


Forthe2011PSPawards,havingremovedUKRPIfromtheperformanceconditions,thethresholdwillremainat3%growthperannum,withthefullawardvestingatthemaximumof11%growthperannum.Awardscontinuetovestonastraightlineslidingscaleforperformancebetweentheselevels.TheTSRmetricremainsunchanged.

Totheextentthattheperformancetargetsarenotmetoverthethreeyearperformanceperiod,awardswilllapse,i.e.thereisnore-testingoftheperformanceconditions.Intheeventofachangeofcontrol,vestingofPSPawardsisnotautomaticandwoulddependontheextenttowhichtheperformanceconditionshadbeenmetatthetimeandtheperiodelapsedsincethedateofgrant.

Executive Share Option SchemeTheESOSwasapprovedbyshareholdersatthe2004AGMandamendedatthe2007AGM.Itincludesan‘Approved’plan,whichhasbeenapprovedbyHMRevenueandCustoms(HMRC),andan‘Unapproved’planwhichisnotdesignedforHMRCapproval.OptionstoacquireOrdinarySharesmaybeawardedtoparticipantsuptoamaximumannualvalueof200%ofbasesalary(300%forUS-basedparticipants).Todate,annualgrantsawardedtoExecutiveDirectorshavebeenintheregionof100%ofsalary.Theactualpercentageofsalaryvariesyearonyearsincethenumberofsharesplacedunderoptionremainsbroadlyunchanged.Thisapproachensuresthatparticipantsdonotbenefitfromreceivinglargegrantsofoptionsshouldtherebeafallinshareprice.

InMarch2010,theExecutiveDirectorsweregrantedoptionawardsoverapproximately120%ofsalaryreflectingthehighersharepriceatthetimeofgrant.Thevestingofoptionsgrantedin2010isconditionaluponthegrowthintheCompany’sunderlyingEPSexceedinginflationbyatleast3%perannumoverathreeyearperiod.OptionsvestinfullforunderlyingEPSgrowthofRPI+10%perannum.25%vestforunderlyingEPSgrowthofRPI+3%perannum.Optionsvestonastraightlineslidingscaleforperformancebetweentheselevels;nooptionsvestifunderlyingEPSgrowthislessthanRPI+3%perannum.Totheextentthattheperformancetargetsarenotmetattheendofthethreeyearperiod,optionswilllapse,i.e.thereisnore-testingofperformancetargets.ThevestingofoptionsgrantedtoUS-basedparticipants(otherthanseniorexecutiveswhoseawardsaresubjecttoperformance)isconditionalonlyoncontinuedemploymentandvestin25%incrementsoneachanniversaryofgrantoverfouryears.SuchphasedvestingisinlinewithcommonUSpractice.

GoingforwarditisnotintendedtograntESOStoUKemployeesandinsteadthefairvaluepreviouslyofferedundertheESOSistobeprovidedinnilcostoptionsunderthePSPusingtheBlackScholesmethodology.ESOSawardswillcontinuetobemadetooverseasemployees.

Forthe2011ESOSawards,whichwillnotbemadetoUKemployees,havingremovedUKRPIfromtheperformanceconditions,thethresholdwillremainat3%growthperannum,withthefullawardvestingatthemaximumof11%growthperannum.Awardscontinuetovestonastraightlineslidingscaleforperformancebetweentheselevels.

Intheeventofachangeofcontrol,vestingofESOSawardsisnotautomaticandwoulddependontheextenttowhichthecommitteedeterminestheperformanceconditionshadbeenmetatthetime.Anyvestedawardsnotexercisedwithinonemonthofthechangeofcontrolwouldlapse.

TheESOSawardsmadein2007vestedat100%on26March2010basedonanannualisedrealEPSgrowthoverone3yearvestingperiodof16%.

Other share schemes TheCobhamSavingsRelatedShareOptionSchemeisanHMRCapprovedschemeopentoallUKemployees.Themaximumthatcanbesavedeachmonthis£250andsavingsplusinterestmaybeusedtoacquiresharesbyexercisingtherelatedoption.Optionshavebeengrantedata20%discounttomarketvalue.TheExecutiveDirectorsarepermittedtoparticipateintheschemeanddetailsoftheirparticipationareincludedinTable3bonpage47.

TheCompanyalsooperatesanotherHMRCapprovedall-employeesharescheme,theCobhamShareIncentivePlan.ThisschemeoperateswithinspecifictaxlegislationandenablesparticipantstobuyOrdinarySharesoutofpre-taxincome.TheExecutiveDirectorsarepermittedtoparticipateintheschemeanddetailsoftheirparticipationareincludedinTable3aonpage47.

Performance graphThefollowinggraphillustratestheTSRperformance(sharepricegrowthplusdividends)oftheCompanyagainsttheFTSE100Indexoverthepastfiveyears.TheFTSE100IndexwaschosenasitisarecognisedbroadequitymarketindexofwhichtheCompanywasamemberuntilDecember2010.

Five year TSR performance – Cobham vs FTSE100Valueof£100investedoverthefiveyearperiodending31December2010

Directors’ pensions ExecutiveDirectorsparticipateintheCobhamExecutivesPensionPlan(thePensionPlan).ThePensionPlanprovidesbenefitsonfinalpayprinciplesagainstanormalpensionageof60subjecttoactuarialreductionforearlierretirement.Pensionaccruesat1/30thofpensionableearnings,i.e.basesalary(cappedasappropriate),foreachyearofserviceandparticipantscontributeatarateof7%-15%ofpensionableearnings.ContributionstothePensionPlanarepaidthroughasalarysacrificearrangement.

Allpensionsinpaymentrelatingtopost-April1997rightsareincreasedinlinewiththeretailpricesindex(RPI),subjecttoaminimumof3%perannumandamaximumof5%perannum,withthebalanceofpensionbeingincreasedat3%perannum.Ondeathinservice,alumpsumoffourtimespensionableearningsispayabletogetherwithaspouse’s



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pensionoftwo-thirdsofthemember’sprospectivepension.Ondeathafterretirement,aspouse’spensionispaidattherateoftwo-thirdsofthemember’spre-commutationpension.Similarspouses’pensionsarepayableonthedeathofadeferredpensionerpriortoretirement.

ThepensionbenefitsofDirectorswhoaremembersofthePensionPlanwererestrictedbytheHMRCearningscapuntil5April2006andthereafterbyaschemespecificsalarycap.Contributionsinrespectofsuchmemberswerepaidintofundedunapprovedretirementbenefitschemes(FURBS)until5April2006.NofurthercontributionshavebeenorwillbemadetoFURBSafter6April2006.CashpaymentsinlieuofcontributionstoFURBSmadetoDirectorsaresetoutinnotestoTable1onpage46.

ThepolicyinrespectofnewlyappointedDirectorsisthatpaymentsbytheCompanytoadefinedcontributiontop-uparrangementorintheformofnon-pensionablecashallowancesshouldnormallybe2%ofannualbasicsalarypermonth.

DetailsofDirectors’pensionbenefitsasrequiredbytheRegulationsaresetoutinTable2onpage46.

Service contractsTheBoard’spolicyonnoticeperiodsfornewExecutiveDirectorsisthattheseshouldnotnormallyexceedoneyear.Itrecognises,however,thatitmaybenecessaryinthecaseofnewexecutiveappointmentstoofferalongerinitialnoticeperiodwhichwouldsubsequentlyreducetooneyear.AndyStevens’servicecontract,whichwasrevisedon6August2009effectivefrom1January2010,isterminableononeyear’snoticebyeitherparty.WarrenTucker’sservicecontractdated1January2004isterminableononeyear’snoticeby,andsixmonths’noticeto,theCompany.

TheconsultancyagreementwithASLMConsultantsLimitedandMrCook,theformerChiefExecutive,underwhichMrCook’sserviceswereprovidedtotheCompanyduring2010,asrequiredbytheChiefExecutiveOfficer,cametoanendin2010.

TheCompanymayelecttoterminateDirectors’servicecontractsbymakingpaymentsinlieuofnotice.Suchpaymentsarecalculatedbyreferencetothebasesalaryotherwisepayableduringthenoticeperiod.Paymentsinrespectofannualbonusfortherelevantperiodsmayalsobepayable.InthecaseofWarrenTucker,anypaymentinlieuofnoticeshallincludeasumequaltothevalueofhisannualbenefits.TheCompanyrecognisesandendorsestheobligationofdepartingDirectorstomitigatetheirownlosses.

Personal shareholdingNon-executiveDirectorsarerequiredtoacquire,withinsixmonthsofelectiontotheBoard,andholdashareholdingof5,000OrdinaryShares.

OwnershipguidelinesrequiretheExecutiveDirectorstomaintainOrdinarySharestothevalueofatleastoneyear’ssalaryandtoretainaminimumof50%ofnetvestedPSPandBCPmatchingshares,andsharesequalto50%ofthenetgainsresultingfromtheexerciseofESOSoptionsuntiltherelevantshareholdinglevelismet.

ThepersonalshareholdingguidelinesforbothNon-executiveDirectorsandExecutiveDirectorshavebeenachieved.

Non-executive DirectorsTheBoardaimstorecruitNon-executiveDirectorsofahighcalibrewithbroadcommercial,internationalorotherrelevantexperience.TheNon-executiveDirectorsdonothaveservicecontracts.DetailsofthetermsoftheappointmentofthecurrentNon-executiveDirectorsareasfollows:

Director Commencementdate Expirydate

PeterHooley 12June2002 8May2011

MarcusBeresford 1March2004 9May2013

JohnPatterson 1November2005 31October2011

MarkRonald 8January2007 9May2013

MikeHagee 3December2008 2December2011

JohnDevaney 1February2010 9May2013

MikeWareing 1December2010 30November2013

Nocompensationispayableintheeventofanappointmentbeingterminatedearly.

Theexecutivedirectorscommittee,themembershipofwhichcomprisesExecutiveDirectorsonly,isresponsibleforrecommendingtheremunerationoftheNon-executiveDirectorswiththeexceptionoftheChairman,whoseremunerationisdeterminedbytheremunerationcommittee.Thecurrentleveloffeespayableisasfollows:

Chairman £270,000

Non-executiveDirector(basic) £55,000

Chairmanofauditcommittee £10,000

Chairmanofremunerationcommittee £10,000

SeniorIndependentDirector £10,000

Membershipofeachoftheauditandremunerationcommittees £2,500

Non-executiveDirectorsdonotparticipateinanyoftheCompany’sshareschemes,pensionschemesorbonusarrangements.

MarkRonaldandMikeHageereceiveanallowanceof£5,000inrespectoftheadditionaltravellingtimerequiredtoensuretheirattendanceatBoardmeetings.

TheCompanyreimbursesreasonabletravelandincidentalexpenditureincurredbyDirectorsinattendingmeetingsoftheBoard.

NoadditionalfeesarepayabletotheChairmaninrespectofhismembershipofanyofthecommitteesorhischairmanshipofthenominationcommittee.

Auditable partTheauditablepartofthisDirectors’remunerationreportissetoutonpages46to48.


Table 1: Directors’ emolumentsTheremunerationoftheDirectors,includingtheChairmanandthehighestpaidDirector,wasasfollows:

£k

ExecutiveDirectors’basesalaries

Feesandotherpayments Bonus

Benefitsexcludingpension

Totalexcludingpension

2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

JDevaney1 – – 248 – – – – – 248 –

AJStevens2 600 445 144 107 201 409 30 28 975 989

WGTucker3 428 420 102 101 137 382 27 26 694 929

AECook4 – 610 – 212 – 567 – 32 – 1,421

PHooley – – 68 67 – – – – 68 67

MBeresford – – 70 70 – – – – 70 70

JSPatterson – – 68 67 – – – – 68 67

MHRonald – – 62 63 – – – – 62 63

DJTurner5 – – 91 260 – – – – 91 260

MWHagee – – 65 64 – – – – 65 64

MWareing6 – – 6 – – – – – 6 –

Totalremuneration 1,028 1,475 924 1,011 338 1,358 57 86 2,347 3,930

Subjectasfollows,benefitsrelatetotheprovisionofcompanycarsandfuel,medicalinsuranceandtelephones.AJStevens’benefitsdonotincludetelephones.WGTucker’sbenefitsincludetheprovisionofprofessionaladvice.1JDevaneywasappointedtotheBoardon1February2010.2EmolumentsforAJStevensfor2010include–underfeesandotherpayments–thesumof£144,000(2009:£106,800),inlieuofpaymentsintoanapproveddefinedcontributiontop-up

arrangement.Thesepaymentsarenottakenintoaccountincalculatingbonusandshareschemeentitlements.3EmolumentsforWGTuckerfor2010include–underfeesandotherpayments–thesumof£102,816(2009:£100,800),inlieuofpaymentstoanapproveddefinedcontributiontop-up

arrangement.Thesepaymentsarenottakenintoaccountincalculatingbonusandshareschemeentitlements.WGTuckerservedasaNon-executiveDirectorofReckittBenckiserplcduringtheyearforwhichthefeewas£69,678perannum.HewasnotrequiredtowaiveorreturnthisfeetotheCompany.

4During2010,£250,000waspaidtoAECook,inrespectoftheconsultancyagreementwhichASLMConsultantsLimitedandMrCookenteredintowiththeCompanywhichcommencedon1January2010underwhichMrCook’sserviceswereprovidedtotheCompanyduring2010,asrequiredbytheChiefExecutiveOfficer.Theconsultancyarrangementisnowconcluded.

5DTurnerretiredasadirectorandChairmanoftheCompanyon6May2010.6MWareingwasappointedtotheBoardon1December2010.

Table 2: Directors’ pensions

Accruedpensionat31.12.10

Increaseinaccruedpensionfrom

previousyearend(withno

adjustmentforinflation)

Additionalpensionearnedinexcessof

inflationduring2010

Transfervalueofpensionaccruedinexcessofinflation

andmembers’contributions

during2010

Transfervalueofaccruedpensionat

31.12.09

Transfervalueofaccruedpensionat

31.12.10

Additionaltransfervalueinexcessof

inflationandmembers’

contributionsduring2010

£p.a. £p.a. £p.a. £ £ £ £

AJStevens 31,875 5,260 5,633 85,420 527,156 611,432 64,167

WGTucker 34,500 5,333 5,742 74,818 479,159 533,646 45,102

Members’contributionstakenintoaccountintheabovefiguresare:

Rate Total(£)

AJStevens 15% 20,109

WGTucker 7% 9,384

Membercontributionsarepaidthroughsalarysacrifice,fromMarch2010andFebruary2010forAndyStevensandWarrenTuckerrespectively.EmployercontributionsfortheyearrelatingtotheaboveExecutiveDirectorswas£162,752(2009:£157,061).

Theinflationfigureusedfor2010is-1.4%,beingthestatutoryrevaluationratefordeferredpensionersfor2009–10foramembernotretiringin2010after1year’sservice.


47www.cobham.com

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Cobham plc | AnnualReportandAccounts2010

Table 3(a): Directors’ share interests TheinterestsoftheDirectorsandtheirfamiliesinOrdinaryShareswere:

At01.01.10 At31.12.10

AJStevens 175,592* 281,089*

WGTucker 141,363* 216,140*

PHooley 5,000 5,000

MBeresford 15,000 15,000

JSPatterson 5,000 5,000

MHRonald 5,000 5,000

DJTurner1 20,000 Notapplicable

MWHagee 5,000 5,000

JDevaney – 30,000

MWareing – 20,000

1DJTurnerretiredasaDirectorandChairmanoftheCompanyon6May2010.*IncludesBCPsharespurchasedandheldintrustwithCapitaOffshoreTrustees;AJStevensholds53,596suchsharesandWGTuckerholds111,063suchshares.

AndyStevensholds2,610sharesandWarrenTuckerholds4,034sharesintheShareIncentivePlan.TheseholdingsarenotincludedinTable3(a)above.

Theaboveinterestsareallbeneficial.InterestsinshareoptionsandsharesprovisionallyallocatedunderthePSPandmatchedelementoftheBCParenotincludedinTable3(a)butaredisclosedinTables3(b)and4respectively.

Interestsat2March2011,beingadatenomorethanonemonthpriortothedateofthenoticeconveningtheAGM,werethesameasat31 December2010.

Table 3(b): Directors’ share options DetailsofDirectors’interestsinoptionsoverOrdinarySharesgrantedundertheCobhamSavingsRelatedShareOptionScheme,ESOSandPSPnilcostoptionswere:

Numberofoptionsduringtheyear

At01.01.10 Granted Exercised Lapsed At31.12.10Exerciseprice

–pence

Marketpriceatdateofexercise

–pence

Datefromwhich

exercisable Expirydate

AJStevens 15,350 – 15,350*** – – 107.6 234.7 01.02.10 01.08.10

167,000* – – – 167,000 134.7 – 20.09.07 20.09.14

180,070* – – – 180,070 133.7 – 11.05.08 11.05.15

202,341* – – – 202,341 185.3 – 20.04.09 20.04.16

192,543* – – – 192,543 204.5 – 26.03.10 26.03.17

205,058* – – – 205,058 201.5 – 01.04.11 01.04.18

217,603* – – – 217,603 184.0 – 11.03.12 11.03.19

313,370* – – – 313,370 191.5 – 31.03.13 31.03.20

– 293,397* – – 293,397 247.3 – 10.03.13 10.03.20

– 242,649** – – 242,649 0 – 10.03.13 10.03.20

– 5,369 – – 5,369 169.0 – 01.02.13 01.08.13

Totals 1,493,335 541,415 15,350 – 2,019,400

WGTucker 16,610 – – – 16,610 107.6 – 01.02.12 01.08.12

155,860* – – – 155,860 134.7 – 20.09.07 20.09.14

180,070* – – – 180,070 133.7 – 11.05.08 11.05.15

186,154* – – – 186,154 185.3 – 20.04.09 20.04.16

178,826* – – – 178,826 204.5 – 26.03.10 26.03.17

190,450* – – – 190,450 201.5 – 01.04.11 01.04.18

205,379* – – – 205,379 184.0 – 11.03.12 11.03.19

– 209,486* – – 209,486 247.3 – 10.03.13 10.03.20

– 173,251** – – 173,251 0 – 10.03.13 10.03.20

Totals 1,113,349 382,737 – – 1,496,086

* GrantedundertheESOS.** GrantedunderthePSPasnilcostoptions. AllotheroptionsweregrantedundertheCobhamSavingsRelatedShareOptionScheme.***ExercisedundertheapprovedCobhamSavingsRelatedShareOptionSchemeon1February2010,resultinginaprofitof£19,510.


ThemarketpriceoftheOrdinarySharesasat31December2010was203.50ppershareandtheclosingpricerangeduringtheyearwas192.30pto275.90p.

During2009,theremunerationcommitteedeterminedthatalloptionsheldbyAECookundertheESOSmaybeexercisedfromtheirnormalvestingdateatanytimeuptothedatethatis42monthsafterthedateofthegrant,subjecttothesatisfactionofanyperformanceconditions.ThenumberofsharessubjecttotheconditionalawardsgrantedtoAECookin2009underthePSPthatvestwillbereducedproratatoreflectAECook’speriodofservicefor2009only.

NooptionsundertheESOShavebeenexercisedbytheDirectorsandaccordinglynogainsweremadebyDirectorsontheexerciseofshareoptionsduringtheyear.

Table 4: Allocations under the Cobham PSP and matched element of the BCP

Allocationat01.01.10

Conditionallyawardedduring

theyear1

Forfeitedduringtheyear

Vestedduringyear

Allocationat31.12.10

Monetaryvalueofvestedawards

–pence Expirydate2

AJStevens 184,859* – 48,063 136,796*** – – 26.03.10

208,112* – – – 208,112 – 01.04.11

57,522** – – – 57,522 – 25.03.11

241,891* – – – 241,891 – 11.03.12

313,370* – – – 313,370 – 31.03.13

– 49,670** – – 49,670 – 10.03.13

WGTucker 171,690* – 44,639 127,051*** – – 26.03.10

193,285* – – – 193,285 – 01.04.11

97,446** – – – 97,446 – 25.03.11

228,302* – – – 228,302 – 11.03.12

124,680** – – – 124,680 – 01.06.12

216,234* – – – 216,234 – 31.03.13

* ConditionalawardsunderthePSPand**thematchedelementoftheBCP.*** The2007PSPvestedon26March2010at74%whenthemarketpriceofanOrdinarySharewas262.60p.Themarketpricesatthetimeoftheawardwas203.25p(forthe26March2007

award)and213.25p(forthe12June2007award).

1ThemarketpriceofanOrdinaryShareon10March2010,beingthedateoftheawardsmadeduringtheyear,was249.20p.2Theexpirydateisthelastdatebywhichqualifyingconditionsinrespectofanyoutstandinginterestsundertherelevantplanhavetobefulfilled.Thisdatemayeitherbetheexpiryofany

relevantholdingperiodor(whereapplicable)ofanyrestrictedperiod.3ThenumberofBCPawardsmarked**inthetableabovereflectmatchingsharesgrantedagainstthenetbonusinvested.Therulesoftheschemeallowforamatchedawardbasedonthe

grossamountofthebonus,dependentuponsatisfactionoftheperformanceconditions.Theexactamountoftheentitlementwillbeascertaineduponvestingoftheawards.

Allocationsat2March2011,beingadatenotmorethanonemonthpriortothedateofthenoticeconveningtheAGM,werethesameasat31 December2010.

ByorderoftheBoardJ S Patterson 2March2011,Chairman of the remuneration committee



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Statement of Directors’ responsibilities

ThefollowingstatementsetsouttheresponsibilitiesoftheDirectorsinrelationtothefinancialstatementsofboththeGroupandtheCompany.ThereportsoftheindependentauditorsfortheGroupandtheCompanysetouttheirresponsibilitiesinrelationtothosefinancialstatements.

CompanylawrequirestheDirectorstopreparefinancialstatementsforeachfinancialyear.UnderthatlawtheDirectorshavepreparedtheGroupfinancialstatementsinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEuropeanUnion,andtheparentcompanyfinancialstatementsandtheDirectors’remunerationreportinaccordancewithapplicablelawandUnitedKingdomAccountingStandards(UnitedKingdomGenerallyAcceptedAccountingPractice).UndercompanylawtheDirectorsmustnotapprovethefinancialstatementsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheGroupandtheCompanyandoftheprofitorlossoftheGroupandtheCompanyforthatperiod.

Inpreparingthosefinancialstatements,theDirectorsarerequiredto:

•Selectsuitableaccountingpoliciesandthenapplythemconsistently;•Makejudgementsandaccountingestimatesthatarereasonable

andprudent;•StatethattheGroupfinancialstatementscomplywithIFRSas

adoptedbytheEuropeanUnion,andwithregardtotheparentcompanyfinancialstatementsthatapplicableUKAccountingStandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedintheGroupandCompanyfinancialstatementsrespectively;and

•PreparetheGroupandparentcompanyfinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheGroupandtheCompanywillcontinueinbusiness.

TheDirectorsconfirmthattheyhavecompliedwiththeaboverequirementsinpreparingthefinancialstatements.

TheDirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheCompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandtheGroupandtoenablethemtoensurethattheGroupfinancialstatementscomplywiththeCompaniesAct2006andArticle4oftheIASRegulationandtheparentcompanyfinancialstatementsandtheDirectors’remunerationreportcomplywiththeCompaniesAct2006.TheyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandtheGroupandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.

TheDirectorsarerequiredtopreparefinancialstatementsandtoprovidetheauditorswitheveryopportunitytotakewhateverstepsandundertakewhateverinspectionstheauditorsconsidertobeappropriateforthepurposeofenablingthemtogivetheirauditreport.

TheDirectorsareresponsibleforthemaintenanceandintegrityoftheAnnualReportonwww.cobham.cominaccordancewiththeUKlegislationgoverningthepreparationanddisseminationoffinancialstatements.AccesstothewebsiteisavailablefromoutsidetheUK,wherecomparablelegislationmaybedifferent.

TheDirectorsconsiderthattheyhavepursuedtheactionsnecessarytomeettheirresponsibilitiesassetoutinthisstatement.

Directors’ declaration in relation to relevant audit informationHavingmadeenquiriesoffellowDirectors,eachoftheDirectorsconfirmsthat:

•Tothebestofhisknowledgeandbelief,thereisnorelevantauditinformationofwhichtheCompany’sauditorsareunaware;and

•HehastakenallstepsthataDirectormightreasonablybeexpectedtohavetakeninordertomakehimselfawareofrelevantauditinformationandtoestablishthattheCompany’sauditorsareawareofthatinformation.

Directors’ responsibility statementTheDirectorsconfirmtothebestoftheirknowledgeandbeliefthat:

•Thefinancialstatements,preparedinaccordancewiththeapplicableaccountingstandardsidentifiedabove,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheGroup;and

•TheDirectors’reportandBusinessreviewincludeafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheGroupandtheCompany,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.

ThenamesoftheDirectorsandtheirdetailsappearonpages32to33.

TheresponsibilitystatementwasapprovedbytheBoardofDirectorson2March2011andsignedonitsbehalfby:

A J StevensChief Executive Officer

W G TuckerChief Financial Officer

Group financial statements50 Cobham plc | AnnualReportandAccounts2010

Independent auditors’ report to the members of Cobham plcWehaveauditedtheGroupfinancialstatementsofCobhamplcfortheyearended31December2010whichcomprisetheconsolidatedincomestatement,theconsolidatedstatementofcomprehensiveincome,theconsolidatedbalancesheet,theconsolidatedstatementofchangesinequity,theconsolidatedcashflowstatement,theaccountingpoliciesandtherelatednotes.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandInternationalFinancialReportingStandards(IFRSs)asadoptedbytheEuropeanUnion.

Respective responsibilities of Directors and Auditors AsexplainedmorefullyintheStatementofDirectors’responsibilitiessetoutonpage49,theDirectorsareresponsibleforthepreparationofthegroupfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.OurresponsibilityistoauditandexpressanopinionontheGroupfinancialstatementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(UKandIreland).ThosestandardsrequireustocomplywiththeAuditingPracticesBoard’sEthicalStandardsforAuditors.

Thisreport,includingtheopinions,hasbeenpreparedforandonlyfortheCompany’smembersasabodyinaccordancewithChapter3ofPart16oftheCompaniesAct2006andfornootherpurpose.Wedonot,ingivingtheseopinions,acceptorassumeresponsibilityforanyotherpurposeortoanyotherpersontowhomthisreportisshownorintowhosehandsitmaycomesavewhereexpresslyagreedbyourpriorconsentinwriting.

Scope of the audit of the financial statements Anauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetothegroup’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebytheDirectors;andtheoverallpresentationofthefinancialstatements.

Opinion on financial statements InouropiniontheGroupfinancialstatements:

• giveatrueandfairviewofthestateoftheGroup’saffairsasat31 December2010andofitsprofitandcashflowsfortheyearthenended;

• havebeenproperlypreparedinaccordancewithIFRSsasadoptedbytheEuropeanUnion;and

• havebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006andArticle4ofthelASRegulation.

Opinion on other matters prescribed by the Companies Act 2006 Inouropinion:

• theinformationgivenintheDirectors’reportforthefinancialyearforwhichtheGroupfinancialstatementsarepreparedisconsistentwiththeGroupfinancialstatements;and

• theinformationgivenintheCorporategovernancestatementsetoutonpages37to40withrespecttointernalcontrolandriskmanagementsystemsandaboutsharecapitalstructuresisconsistentwiththefinancialstatements.

Matters on which we are required to report by exception Wehavenothingtoreportinrespectofthefollowing:

UndertheCompaniesAct2006wearerequiredtoreporttoyouif,inouropinion:• certaindisclosuresofDirectors’remunerationspecifiedbylaw

arenotmade;or• wehavenotreceivedalltheinformationandexplanationswe

requireforouraudit;or• aCorporategovernancestatementhasnotbeenpreparedbythe

parentCompany.

UndertheListingRuleswearerequiredtoreview:• theDirectors’statement,setoutonpage49,inrelationtogoing

concern;• thepartoftheCorporategovernancestatementrelatingtothe

company’scompliancewiththenineprovisionsoftheJune2008CombinedCodespecifiedforourreview;and

• certainelementsofthereporttoshareholdersbytheBoardonDirectors’remuneration.

Other matter WehavereportedseparatelyontheparentcompanyfinancialstatementsofCobhamplcfortheyearended31December2010andontheinformationintheDirectors’remunerationreportthatisdescribedashavingbeenaudited.

Stuart Watson(SeniorStatutoryAuditor)forandonbehalfofPricewaterhouseCoopersLLPCharteredAccountantsandStatutoryAuditorsLondon2March2011


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Accounting policies

Thefollowingstandards,amendmentstostandardsandinterpretationswhichhavebeenendorsedbytheEUhavealsobeenadoptedwitheffectfrom1January2010orasstatedbelow.Nochangestopreviouslypublishedaccountingpoliciesorotheradjustmentswererequiredontheiradoption.

• AmendmenttoIAS39FinancialInstruments:RecognitionandMeasurement:EligibleHedgedItemsandAmendmenttoIAS39ReclassificationofFinancialAssets:EffectiveDateandTransition.

• IFRIC17,DistributionsofNon-cashAssetstoOwners.• AmendmenttoIFRIC9andIAS39,EmbeddedDerivatives.• AmendmenttoIFRS2,GroupCash-settledShare-based

PaymentTransactions.• RevisedIFRS1,FirstTimeAdoptionofIFRSandAmendments

toIFRS 1,AdditionalExemptionsforFirst-timeadopters.

Theprincipalaccountingpolicies,whichhavebeenconsistentlyappliedotherthanasnotedabove,areassetoutbelow.

Basis of consolidationTheGroupfinancialstatementsincludethefinancialstatementsoftheparentcompanyandofallitssubsidiariesmadeuptotheendofthefinancialperiod.

SubsidiariesareallentitiesoverwhichtheCompanyhascontrol,whichisdefinedasthepowertogovernthefinancialandoperatingpoliciessoastoobtainbenefitsfromitsactivities.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheCompanyuntilthedatethatcontrolceases.

Jointventuresareentitieswherecontrolissharedwithoneormorethirdparties.Theyarenotconsolidatedbutareaccountedforusingtheequitymethod.TheGroupfinancialstatementsincludetheGroup’sshareofthepostacquisitionchangeinnetassetsandtheprofitorlossofthejointlycontrolledentityfromthedatethatjointcontrolcommencesuntilthedatethisceases.

Allintra-grouptransactions,balances,incomeandexpensesareeliminatedonconsolidation.

Business combinationsBusinessesacquiredareaccountedforusingtheacquisitionmethodofaccountingwitheffectfromthedatecontrolpasses.Thecostofanacquisitionismeasuredasthefairvalueoftheconsiderationtransferred.Thisisthefairvaluesoftheassetstransferred,theliabilitiesincurredandtheequityinterestsissuedbytheGroup.Acquisition-relatedcostsareexpensedasincurred.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.TheexcessoftheconsiderationtransferredoverthefairvalueoftheGroup’sshareoftheidentifiablenetassetsacquiredisrecordedasgoodwill.

General informationThesefinancialstatementsaretheconsolidatedfinancialstatementsofCobhamplc(theCompany),apubliccompanylimitedbyshares,registeredanddomiciledintheUnitedKingdomanditssubsidiaries(theGroup).TheaddressoftheregisteredofficeisBrookRoad,Wimborne,Dorset,EnglandBH212BJ.

Basis of preparationTheseconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asadoptedbytheEU,InternationalFinancialReportingInterpretationCouncil(IFRIC)interpretationsandthosepartsoftheCompaniesAct2006applicabletocompaniesreportingunderIFRS.

Thesefinancialstatementshavebeenpreparedonagoingconcernbasisunderthehistoricalcostconvention,asmodifiedbytherevaluationofderivativecontractswhichareheldatfairvalue.

Thepreparationoffinancialstatementsinconformitywithgenerallyacceptedaccountingprinciplesrequirestheuseofestimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesatthedateofthefinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Althoughtheseestimatesarebasedonmanagement’sbestknowledgeoftheamount,eventoractions,actualresultsultimatelymaydifferfromthoseestimates.

Standards,amendmentstostandardsandinterpretations,endorsedbytheEU,whichhavebeenadoptedfrom1January2010andwhichimpactonthefinancialstatementsareasfollows:

• RevisionstoIFRS3,BusinessCombinationsandIAS27,ConsolidatedandSeparateFinancialStatementsissuedinJanuary2008.TheseincludeconsequentialamendmentstoIAS28andIAS31.UnderIFRS 3(Revised),forbusinesscombinationscompletedonorafter1 January2010,allpaymentstopurchaseabusinessarerecordedatfairvalueattheacquisitiondate,withcontingentpaymentsclassifiedasdebtandsubsequentlyre-measuredthroughtheincomestatement.Also,allacquisitionrelatedcostsareexpensed.Therevisionsalsochangetheaccountingfornon-controlling(minority)interestsandchangestherein.OnadoptingIFRS3(Revised)animmaterialamountofacquisitioncostsheldonthebalancesheetrelatingtoacquisitionactivitywerewrittenoff.

• WithinIFRSAnnualImprovements2009therewasarevisiontoIFRS8whichamendedtherequirementtopresenttotalassetsandliabilitiesbysegment.FollowingthisamendmentsegmentdisclosureofassetsandliabilitiesareonlyrequiredwhentheyarereviewedintotalbytheChiefOperatingDecisionMaker(CODM).WhilsttheCODM(theBoard)reviewscertainassetandliabilitycategories,areviewoftotalassetsandliabilitiesisnotperformed.However,segmentalassetdisclosureshavebeenprovidedconsistentwithprioryears.


Accounting policies continued

Contingentconsideration(notintheformofequityinstruments)inrelationtobusinessesacquiredonorafter1January2010isaccountedforasafinancialliability.Adjustmentstothiscontingentconsiderationisaccountedforasagainorlossrecognisedthroughprofitorloss.Forbusinessesacquiredpriorto1January2010,contingentconsiderationisaccountedforasaprovisionand,underthetransitionalarrangementswithinIFRS3(revised),acquisitioncostisadjustedtoreflectchangestothefairvalueofcontingentconsideration.PriortotheadoptionofIFRS3(revised)acquisitioncostsweretreatedaspartofthecostoftheacquisition.

Businessesdisposedofareaccountedforupuntilcontrolpassesatthepointoftheirdisposal.Theresultsofbusinessesdisposedofaredisclosedasarisingfromdiscontinuedoperationswheretheymeetthecriteriatobetreatedassuch.

AnychangestotheGroup’sownershipinterestswhichdonotresultinlossofcontrolareaccountedforasequitytransactions.Wherecontrolislost,anyremaininginterestintheentityisre-measuredtofairvalue,andagainorlossisrecognisedintheincomestatement.TheGroupalsotreatstransactionswithnon-controllinginterestsastransactionswithequityownersoftheGroup.

Underlying measuresInadditiontotheinformationrequiredbyIFRSandtoassistwiththeunderstandingofearningstrends,theGrouphasincludedwithinitspublishedstatementstradingprofitandunderlyingearningsresults.

Tradingprofitandunderlyingearningshavebeendefinedasoperatingprofitfromcontinuingoperationsexcludingtheimpactsofcertaintransactionrelatedcostsandbusinessrestructuringcostsasdetailedbelow.Alsoexcludedarethemarkingtomarketofcurrencyinstrumentsnotrealisedintheperiod,impairmentsofintangibleassetsanditemsdeemedbytheDirectorstobeofanexceptionalnaturesuchasthesettlementofalong-standingcommercialdispute.

Transactionrelatedcostsexcludedfromtradingprofitandunderlyingearningsincludetheamortisationofintangibleassetsrecognisedonacquisition,thewritingoffofthepre-acquisitionprofitelementofinventorywrittenuponacquisitionandcostschargedpostacquisitionrelatedtoacquiredshareoptions.Transactionrelatedcostsalsoincludeotherdirectcostsassociatedwithbusinesscombinationsanddirectcostsarisingfromanyterminatedacquisitionsordisposals.

Businessrestructuringcostscompriseexceptionalprofitsorlossesarisingondisposalsactuallycompleted,aswellasexceptionalcostsorprofitsassociatedwiththerestructuringoftheGroup’sbusinessandsiteintegrations.ThisincludescostsassociatedwiththeExcellenceinDeliveryprogramme.

Allunderlyingmeasuresincludetherevenueandoperationalresultsofbothcontinuinganddiscontinuedbusinessesuntilthepointofsaleoftheoperation.

Netdebtisdefinedasthenetofcashandcashequivalentslessborrowingsatthebalancesheetdate.

Revenue recognitionRevenueismeasuredatthefairvalueoftherighttoconsideration,netofreturns,rebatesandothersimilarallowances.

Revenuefromthesaleofgoodsnotunderalongtermcontractisrecognisedwhenthesignificantrisksandrewardsofownershipandeffectivecontrolofthegoodshavebeenpassedtothecustomer,recoveryoftheconsiderationisprobable,andtheamountofrevenueandcostscanbemeasuredreliably.Inthecaseofcontractswithalongduration,includingcontractswithafundeddevelopmentphase,revenueisrecognisedbaseduponthefairvalueofworkperformedtodateassessedwithreferencetocompletedcontractmilestoneswhichhavebeenacceptedbythecustomer.

LongtermcontractaccountingasdescribedinIAS11ConstructioncontractsisrarelyapplicabletothelongertermcontractsforsalesofgoodsenteredintobyGroupcompanies.Wherelongtermcontractaccountingisapplicable,revenueisrecognisedonapercentageofcompletionbasiswherebyaportionofthecontractrevenueisrecognisedbasedoncontractcostsincurredtodatecomparedwithtotalestimatedcostsatcompletion.Revenueforservicesisrecognisedastheservicesarerenderedwithreferencetotheproportionoftheservicedeliveredtodate.For‘cost-plus’contracts(typicallywithgovernmentdepartmentsandagencies),revenueisrecognisedtotheextentofreimbursablecostsincurred,plusaproportionateamountoftheestimatedfeeearned.Forcontractswhererevenueisdeterminedonaunitactivitybasis,revenueisrecognisedonthebasisofactivityundertakenintheperiod.

Revenueexcludesinter-companysales,valueaddedtaxandothersalestaxes.

Operating segmentsThechiefoperatingdecisionmakingbodyfortheGrouphasbeenidentifiedastheBoard.ItreviewstheGroup’sinternalreportinginordertoassessperformanceandallocateresources,whichisbasedontheGroup’soperatingDivisionsandhasbeenusedtodetermineoperatingsegments.Thesesegmentsaredescribedfurtherinnote1.DetailsofthecompositionandpurposeoftheBoardcanbefoundonpages37–38.

TheBoardassessestheperformanceofoperatingDivisionsbasedonrevenue,tradingprofitasdefinedaboveandoperatingcashgeneration.Interestincomeandexpenditure,andtaxationarenotsegmentedandarereviewedbytheBoardonaGroupbasis.

TheBoarddoesnotreviewanyinformationonsegmentassetsandliabilities.Segmentassetsasdisclosedinnote1havebeendefinedtoincludeintangibleassets,property,plantandequipment,investmentproperties,inventoryandtradeandotherreceivables.Theydonotincludetaxreceivables,cashandbankbalancesandderivativefinancialassets.ThisdefinitionofsegmentassetsisconsistentwithdisclosuresgiveninpreviousyearsinaccordancewithIAS14.

TheGroupaccountingpoliciesareappliedconsistentlyacrossallDivisionsandactivities.TradingbetweenGroupcompaniesiscontractedandpricedatarm’slengthcommercialterms.

PensionsTheGroupoperatesanumberofdefinedbenefitanddefinedcontributionschemes.

Fordefinedbenefitschemestheamountschargedtooperatingprofitarethecurrentservicecosts.Gainsandlossesonsettlementsand


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(OCI)ordirectlyinequity,inwhichcasethedeferredtaxisalsodealtwithinOCIorinequityrespectively.

Taxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetcurrenttaxassetsagainstcurrenttaxliabilitiesandwhenthedeferredtaxesrelatetothesamefiscalauthority.

DividendsDividendsarerecognisedasaliabilityintheperiodinwhichtheyarefullyauthorised.

Share-based paymentsForgrantsmadeundertheGroup’sequitysettledshare-basedpaymentschemes,amountswhichreflectthefairvalueofoptionsawardedasatthetimeofgrantarechargedtotheincomestatementovertherelevantvestingperiods.

Thecostsofawardsmadeundercashsettledshare-basedpaymentschemesaremeasuredinitiallyatthegrantdateandexpensedoverthevestingperiod.Theliabilityisremeasuredateachbalancesheetdateuptoandincludingthesettlementdatewithchangesinfairvaluerecognisedthroughtheincomestatement.

ThevaluationmethodologyforallschemesisbasedontheBlack-Scholesmodel,modifiedwhererequiredtoallowfortheimpactofmarketrelatedperformancecriteriaandtakingintoaccountallnon-vestingconditions.

Wherethetermsofshare-basedpaymentschemeshavebeenmodifiedasaresultofacquisition,thecostsofawardshavebeenallocatedbetweenacquisitioncostandpost-combinationexpensebasedontheproportionofthevestingperiodcompletedpriortotheacquisitionandtherespectivefairvaluesoftheoriginalandreplacementawardsatthatdate.

Intangible assetsGoodwillGoodwillrepresentstheexcessofthecostofacquisitionovertheGroup’sinterestinthefairvalueoftheidentifiableassetsandliabilitiesofasubsidiaryatthedateofacquisition.Goodwillacquiredisallocatedatacquisitiontothecashgeneratingunitsthatareexpectedtobenefitfromthatbusinesscombination.Cashgeneratingunitsaretypicallybusinessunitswhichareseparatelymanaged,forwhichfinancialresultsareindividuallyreportedandwhichgeneratecashflowsthatarelargelyindependent.

GoodwillarisingonoverseasacquisitionssincethedateoftransitiontoIFRSistreatedasaforeigncurrencyassetandrevaluedatthebalancesheetdate.Foreignexchangedifferencesarisingaretakenthroughothercomprehensiveincometothetranslationreserveandreclassifiedtotheincomestatementwhentherelatedsubsidiaryissold.

Goodwillarisingonacquisitionsofbusinesses,subsidiariesandjointventuresiscapitalisedandreviewedforimpairmentatleastannually.Anyimpairmentisrecognisedimmediatelyintheincomestatementandcannotbesubsequentlyreversed.

Ondisposalofasubsidiaryorjointventure,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.

curtailmentsarisingonabusinessdisposalareincludedinprofitondisposal.Pastservicecostsarerecognisedimmediatelyintheincomestatementifthebenefitshavevested.Ifthebenefitshavenotvested,thecostsarerecognisedovertheperioduntilvestingoccurs.Theexpectedreturnonassetsandinterestcostareshownwithinfinanceincomeandexpense.Actuarialgainsandlossesarerecognisedimmediatelyinthestatementofcomprehensiveincome.

Definedbenefitschemesarefunded,withtheassetsoftheschemeheldseparatelyfromthoseoftheGroup,inseparatetrusteeadministeredfunds.Pensionschemeassetsaremeasuredatfairvalueandliabilitiesaremeasuredonanactuarialbasisusingtheprojectedunitmethodanddiscountedatarateequivalenttothecurrentrateofreturnonahighqualitycorporatebondofequivalentcurrencyandtermtotheschemeliabilities.Theactuarialvaluationsareobtainedatleasttrienniallyandareupdatedateachbalancesheetdate.Theresultingdefinedbenefitassetorliabilityispresentedseparatelyonthefaceofthebalancesheet.

Fordefinedcontributionschemestheamountschargedtotheincomestatementinrespectofpensioncostsandotherpost-retirementbenefitsarethecontributionspayableintheyear.Differencesbetweencontributionspayableintheyearandcontributionsactuallypaidarerecordedaseitheraccrualsorprepaymentsinthebalancesheet.

Taxation including deferred taxationThetaxexpenserelatestothesumofcurrenttaxanddeferredtax.

Currenttaxisbasedontaxableprofitfortheyear,whichdiffersfromprofitbeforetaxationasreportedintheincomestatement.Taxableprofitexcludesitemsofincomeandexpensethataretaxableordeductibleinotheryearsandalsoexcludesitemsthatarenevertaxableordeductible.TheGroup’sliabilityforcurrenttaxiscalculatedusingratesthathavebeenenactedorsubstantivelyenactedatthebalancesheetdate.

Deferredtaxisaccountedforusingthebalancesheetliabilitymethodinrespectoftemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingvaluesintheconsolidatedfinancialstatements.

TemporarydifferencesariseprimarilyfromtherecognitionofdeficitsontheGroup’sdefinedbenefitpensionschemes,acceleratedtaxdepreciationandacquisitionaccounting.Deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassetstoberecovered.

Deferredtaxisprovidedontemporarydifferencesarisingoninvestmentsinsubsidiaries,exceptwherethetimingofthereversalofthetemporarydifferenceiscontrolledbytheGroupanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.

Deferredtaxiscalculatedatthetaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdateandthatareexpectedtoapplytotheperiodwhentheassetisrealisedortheliabilityissettled.Taxischargedorcreditedtotheincomestatementexceptwhenitrelatestoitemsrecognisedinothercomprehensiveincome



Research and developmentResearchexpenditurenotchargeabletocustomersiswrittenoffasincurred.DevelopmentcostsnotchargeabletocustomersarewrittenoffasincurreduntilitcanbedemonstratedthattheconditionsforcapitalisationasdescribedinIAS38,IntangibleAssets,aremet.Atthatpointfurthercostsarecapitalisedasanintangibleassetuntiltheintangibleassetisreadilyavailableforuseanditisthenamortisedonastraight-linebasisovertheasset’sestimatedusefullife.

Other intangible assetsIntangibleassetsotherthangoodwillwhichareacquiredbytheGrouparestatedatcostlessaccumulatedamortisationandimpairmentlosses.Theseincludecustomerrelationships,technologyandsoftware,trademarks,licencesandpatents.Theonlyinternallygeneratedintangibleassetsaredevelopmentcostswhicharecapitalisedasdescribedabove,andinternallydevelopedsoftwarewhereassetrecognitioncriteriaaremet.

Allotherintangibleassetsareamortisedovertheasset’sestimatedusefullifeonastraight-linebasisasfollows:

Customerrelationships 2to15years

Technologyandsoftware 2to10years

Developmentcosts 2to10years

Otherintangibleassets 6monthsto10years

Usefullivesareassessedforeachassetonanindividualbasistakingintoaccountthespecificcharacteristicsoftheasset.

Property, plant and equipmentFreeholdlandisnotdepreciated,butisreviewedforimpairmentatleastannually.

Freeholdandleaseholdbuildings,plantandequipmentareheldathistoriccostlessaccumulateddepreciationandanyrecognisedimpairmentlosses.

Allproperty,plantandequipmentotherthanlandisdepreciatedonastraight-linebasistotheestimatedresidualvaluesovertheestimatedusefullives.Theselivesareasfollows:

Freeholdbuildings(includinginvestment properties)

50years

Leaseholdproperties Theperiodofthelease

Plantandequipment 3to15years

Estimatedresidualvaluesandtheestimatedusefullivesarereviewedannuallyandadjustedwherenecessary.

Assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,thetermoftherelevantlease.

Thegainorlossarisingonthedisposalorretirementofanassetisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedintheincomestatement.

Investment propertiesInvestmentproperties,whicharepropertiesheldtoearnrentalsand/orforcapitalappreciation,arestatedatcostatthebalancesheetdate.Theyaredepreciatedonastraight-linebasistotheirestimatedresidualvalueovertheirestimatedusefullives.

Rentalincomeisrecognisedasrevenueonastraight-linebasis.

Aircraft overhaul expenditureMajoroverhaulexpenditureonownedaircraftiscapitalisedwhenincurredandtheresultantproperty,plantandequipmentisdepreciatedoveritsusefuleconomiclife.Majoroverhaulcoststhatarecontractuallyrequiredonaircraftheldunderoperatingleasesareprovidedforovertheperiodbetweenthescheduledmaintenanceevents.

InventoriesInventoriesarestatedatthelowerofcostandnetrealisablevalue.Costcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition.Costiscalculatedusingthefirst-in,first-outmethod.Netrealisablevaluerepresentstheestimatedsellingpricelessallestimatedcostsofcompletionandcoststobeincurredinmarketing,sellinganddistribution.

Financial instrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.Financialassetsarerecognisedattradedate.

Financial assets and liabilitiesFinancialassetsarecategorisedoninitialrecognitionasassetsheldatfairvaluethroughprofitorloss,orloansandreceivablesdependentuponthepurposeforwhichtheassetswereacquiredandasfollows:

• AssetsheldatfairvaluethroughprofitorlossarethosecategorisedasheldfortradingunderIAS39andareclassifiedascurrentassetsornon-currentassetsdependentuponmaturity.

• Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentswhicharenotquotedinanactivemarket.Theseareclassifiedascurrentornon-currentassetsdependentuponmaturityandincludedwithintradeandotherreceivables.

NoneoftheGroup’smaterialfinancialassetsfallintotheheldtomaturityoravailableforsalecategorieswhicharedefinedasfollows:

• Heldtomaturityinvestmentsarenon-derivativefinancialassetswithfixedmaturitydateswhichtheGroupintendstoholdtomaturity.

• Availableforsalefinancialassetsarethosenon-derivativefinancialassetseitherdesignatedbymanagementasavailableforsaleornotfallingintoanyoftheabovecategories.

Financialliabilitiesarecategorisedoninitialrecognitionasliabilitiesheldatfairvaluethroughprofitorloss,orotherliabilitiesheldatcost.LiabilitiesheldatfairvaluethroughprofitorlossarethosecategorisedasheldfortradingunderIAS39andareclassifiedascurrentornon-currentliabilitiesdependantuponthematuritydateoftheinstruments.


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Preferencesharecapitalisclassifiedasaliabilityifitisredeemableonaspecificdateorattheoptionofthepreferenceshareholdersorifdividendpaymentsarenotdiscretionary.Dividendsonpreferencesharecapitalclassifiedasliabilitiesarerecognisedintheincomestatementasfinanceexpense.

Derivative financial instruments and hedge accountingAsexplainedinnote28,theGroup’sactivitiesexposeitprimarilytothefinancialrisksofchangesinforeigncurrencyexchangeratesandinterestrates.TheGroupusesforeignexchangecontractsandinterestrateswapcontractstoreducetheseexposuresanddoesnotusederivativefinancialinstrumentsforspeculativepurposes.TheGrouphasdocumenteditsriskmanagementobjectivesandstrategyforundertakingvarioushedgetransactions,andutiliseshedgeaccountingprinciplesinrelationtointerestrateswaps.ThesearedesignatedascashflowhedgeswhichmitigatetheGroup’sexposuretochangesininterestratesarisingonfloatingratedebt.Fromtimetotime,theGroupmayalsouseinterestrateswapstomanageitsexposuretochangesinthefairvalueoffixedrateborrowings,howevertherearenosuchcontractsoutstandingatthepresenttime.Foreignexchangecontractsenteredintotomitigateforeignexchangeimpactsoftradinginnon-functionalcurrenciesarenotaccountedforusinghedgeaccounting.

Derivativessuchasforeignexchangecontractsandinterestrateswapcontractsareinitiallyrecognisedatfairvalueonthedatethecontractisenteredintoandaresubsequentlyre-measuredattheirfairvalue.Themethodofrecognisingtheresultinggainorlossdependsonwhetherthederivativeisdesignatedasahedginginstrumentand,ifso,thenatureoftheitembeinghedged.

Wherehedgeaccountingisapplied,therelationshipbetweenhedginginstrumentsandhedgeditemsisdocumentedattheinceptionofthetransaction.TheGroupalsodocumentsitsassessment,bothathedgeinceptionandonanongoingbasis,ofwhetherthederivativesusedinhedgingtransactionsarehighlyeffectiveinoffsettingchangesincashflows(orfairvaluesifappropriate)ofhedgeditems.

Forderivativesthataredesignatedandqualifyascashflowhedges,theeffectiveportionofchangesinfairvalueisrecognisedinothercomprehensiveincomethroughthehedgingreserve.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheincomestatement.Amountsaccumulatedinequityarereclassifiedtofinanceincomeandexpenseintheincomestatementintheperiodswhenthehedgeditemaffectsprofitorloss.

Whenacashflowhedginginstrumentexpiresorissold,orwhenahedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativegainorlossexistinginthehedgingreserveinequityatthattimeremainsinequityandisrecognisedwhentheforecasttransactionisultimatelyrecognisedintheincomestatement.Ifahedgedtransactionisnolongerexpectedtooccur,thenetcumulativegainorlossrecognisedinthehedgingreserveinequityisimmediatelytransferredtotheincomestatementfortheperiod.

Thefairvalueofahedgingderivativeisclassifiedasacurrentassetorliabilityexceptwhentheremainingmaturityofthehedgeditemismorethan12months.

Derivativesarecategorisedasheldfortradingunlesstheyaredesignatedashedges.

Whenafinancialassetorliabilityisrecognisedinitially,itismeasuredatitsfairvalue.Inthecaseofafinancialassetorfinancialliabilitynotatfairvaluethroughprofitorloss,fairvalueisadjustedfortransactioncoststhataredirectlyattributabletotheacquisitionorissueofthefinancialassetorfinancialliability.Financialassetsandliabilitiesatfairvaluethroughprofitorlossaresubsequentlycarriedatfairvalue.Loansandreceivablesarecarriedatamortisedcostusingtheeffectiveinterestmethod.Financialliabilitiesnotatfairvaluethroughprofitorlossarestatedatamortisedcost.

Trade and other receivablesTradeandotherreceivablesarestatedattheiramortisedcost,reducedbyappropriateallowancesforestimatedirrecoverableamounts.AllowancesforirrecoverableamountsaremadewhenthereisevidencethattheGroupmaynotbeabletocollecttheamountdue.Alltradereceivableswhicharemorethansixmonthsoverdueareprovidedforbasedonestimatedirrecoverableamountsdeterminedbyreferencetopastdefaultexperience.Amountswhicharelessthansixmonthsoverdueareprovidedwhererecoveryofthebalancedueisconsideredtobedoubtful.Theimpairmentrecordedisthedifferencebetweenthecarryingvalueofthereceivablesandthepresentvalueoftheestimatedfuturecashflows.Anyimpairmentrequiredisrecordedintheincomestatementinadministrativeexpenses.Thebalancemaybewrittenoffinfullgenerallywherereceivablesareinexcessof12monthsold.Atthattimeanyamountspreviouslyprovidedforimpairmentarereleased.

Trade payablesTradepayablesdonotcarryanyinterestandarestatedattheirnominalvalue.

Bank borrowingsInterest-bearingbankloansandoverdraftsarerecordedattheamountofproceedsreceived,netofdirectissuecosts.Borrowingcosts,netofamountscapitalised,includingpremiumspayableonsettlementorredemptionanddirectissuecosts,arechargedtotheincomestatementandareaddedtothecarryingamountoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.Borrowingcoststhataredirectlyattributabletorelevantproperty,plantandequipmentarecapitalisedaspartofthecostofthatasset.

Cash and cash equivalentsCashandcashequivalentscomprisecashbalancesandbankdepositswithanoriginalmaturityofthreemonthsorless.BankoverdraftsthatarerepayableondemandandformanintegralpartoftheGroup’scashmanagementareincludedasacomponentofcashandcashequivalentsforthepurposeoftheconsolidatedcashflowstatement.

Share capitalOrdinarysharecapitalisclassifiedasequity.Financialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.AnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroupafterdeductingallofitsliabilities.


ProvisionsforonerouscontractsarerecognisedwhentheexpectedbenefitstobederivedbytheGroupfromacontractarelowerthantheunavoidablecostofmeetingitsobligationsunderthecontract.

Asnotedabove,provisionsforcontingentconsiderationrelatingtoacquisitionscompletedbefore1January2010wererecognisedwhenitwasconsideredprobablethattheconditionsattachingtopotentialpaymentwouldbemet.

Aircraftmaintenanceprovisionsareestablishedinrespectofsignificantperiodicmaintenancecosts,wheremaintenanceactivityisrequiredonleasedoperationalaircraftorenginesonacyclegreaterthan12months.Costsarechargedtotheincomestatementonthebasisofutilisationoftheaircraft.Maintenancecarriedoutonacycleof12monthsorlessischargedtotheincomestatementasincurred.

Whenaircraftareleased,itiscustomaryforthecontracttocontainspecificconditionsregardingtheconfigurationoftheaircraftonitsreturntothelessorattheendofthelease.Theestimatedcostassociatedwithfulfillingtheserequirementsischargedtotheincomestatementonanaircraftutilisationbasis.

ProvisionsforclaimsmadeagainsttheGroupandcommitmentsmadeunderperformanceguaranteesarerecognisedattheDirectors’bestestimatesoftheexpenditurerequiredtosettletheGroup’sliabilities.

Provisionsarediscountedatanappropriaterisk-freeratewhentheimpactismaterial.

Impairment lossesThecarryingamountsoftheGroup’sassetsarereviewedatleastannuallytodeterminewhetherthereisanyindicationofimpairment.Ifanysuchindicationexists,theasset’srecoverableamountisestimated.

Therecoverableamountisthehigheroffairvaluelesscoststosellandvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.

Animpairmentlossisrecognisedwherethecarryingamountofanassetishigherthanitsrecoverableamount.Anintangibleassetwithanindefiniteusefullifeistestedforimpairmentannuallyandwheneverthereisanindicationthattheassetmaybeimpaired.Anyimpairmentlossesarerecognisedintheincomestatement.

Animpairmentloss(otherthanarisingongoodwill)isreversedonlyafterachangeintheestimatesusedtoassessrecoverableamountandonlytotheextentthattheasset’scarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciationoramortisation,ifnoimpairmentlosshadbeenrecognised.Anyreversalisrecognisedintheincomestatement.

Wherehedgeaccountingisnotapplied,movementsinfairvaluesareincludedintheincomestatementaspartofoperatingprofit.Thefairvalueofsuchderivativesisclassifiedasacurrentornon-currentassetorliabilitydependentuponthematurityofthederivativecontracts.

Foreign currenciesThepresentationcurrencyoftheGroupissterling.MostGroupcompanies,includingtheparentcompany,usetheirlocalcurrencyastheirfunctionalcurrency.Transactionsincurrenciesotherthanthefunctionalcurrencyaretranslatedattheexchangeraterulingatthedateofthetransaction.Monetaryassetsandliabilitiesdenominatedinnon-functionalcurrenciesareretranslatedattheexchangeraterulingatthebalancesheetdateandanyexchangedifferencesarisingaretakentotheincomestatement.

Asnotedabove,inordertomanageitsexposuretocertainforeignexchangeriskstheGroupentersintoforwardcontracts,whichareaccountedforasderivativefinancialinstruments.

Forconsolidationpurposestheassetsandliabilitiesofoverseassubsidiaryundertakingsandjointventuresaretranslatedattheclosingexchangerates.Incomestatementsofsuchundertakingsareconsolidatedattheaverageratesofexchangeasanapproximationforactualratesduringtheyear.Exchangedifferencesarisingonthesetranslationsareaccountedforinothercomprehensiveincomeandthetranslationreserve.

LeasingLeasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.

AssetsheldunderfinanceleasesarerecognisedasassetsoftheGroupattheirfairvalueor,iflower,atthepresentvalueoftheminimumleasepayments,eachdeterminedattheinceptionofthelease.Thecorrespondingliabilitytothelessorisincludedinthebalancesheetasafinanceleaseobligation.Leasepaymentsareapportionedbetweenfinancechargesandreductionoftheleaseobligationsoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.Financechargesarechargeddirectlytotheincomestatement.

Rentalspayableunderoperatingleasesarechargedtotheincomestatementonastraight-linebasisoverthetermoftherelevantlease.

Benefitsreceivedandreceivableasanincentivetoenterintoanoperatingleasearealsospreadonastraight-linebasisovertheleaseterm.

ProvisionsAprovisionisrequiredwhentheGrouphasapresentlegalorconstructiveobligationasaresultofapasteventanditisprobablethatsettlementwillberequiredofanamountthatcanbereliablyestimated.

Provisionsforwarrantycostsarerecognisedatthedateofsaleoftherelevantproducts,attheDirectors’bestestimateoftheexpenditurerequiredtosettletheGroup’sliability.



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Retirement benefitsTheGroupfinancialstatementsincludecostsandliabilitiesinrelationtoretirementbenefitobligations.Anumberofassumptionsaremadeinassessingthecostsandpresentvalueofthepensionassetsandliabilitieswhichincludethelong-termrateofincreaseofsalarycosts,discountrate,inflation,theexpectedreturnonplanassetsandmortalityrates.TheGroupusespublishedindicesandindependentactuarialadvicetoselectthevaluesofcriticalassumptions,whicharedisclosedinnote9.

Provisions and contingent liabilitiesTheconsolidatedfinancialstatementsincludeappropriateprovisionsfortheestimatedoutcomeofcommercialdisputes.Nosuchprovisionisincludedforcontingentliabilities.Duetothesignificantuncertaintyassociatedwiththefuturelevelofsuchclaimsandcontingenciesandofthecostsarisingoutofanyrelatedlitigation,therecanbenoguaranteethattheassumptionsusedtoestimatetheprovisionwillresultinanaccuratepredictionoftheactualcoststhatmaybeincurredand,asaresult,theprovisionmaybesubjecttorevisionsfromtimetotimeifnewinformationbecomesavailableasaresultoffutureevents.TheDirectorstakeaccountoftheadviceofexpertsinquantifyingtheexpectedcostsoffutureadversejudgements.

Accounting standards not yet effectiveCertainnewstandardsandamendmentstoexistingstandardshavebeenpublishedthataremandatoryforfutureaccountingperiods,subjecttoEUendorsement.ThosewhichtheGrouphasnotadoptedearlyandwhichareapplicablefrom1January2011areasfollows:

• RevisedIAS24RelatedPartyDisclosures.• AmendmenttoIFRIC14PrepaymentsofaMinimumFunding

Requirement.• IFRIC19ExtinguishingFinancialLiabilitieswithEquityInstruments.• AmendmenttoIFRS1LimitedExemptionfromComparativeIFRS7

DisclosureforFirst-timeAdopters.• AnnualImprovements2010.

NoneoftheseareexpectedtohaveanimpactontheGroup.

SubjecttoEUendorsement,theamendmentstoIFRS7FinancialInstruments:Disclosures,IAS12DeferredTax:RecoveryofUnderlyingAssetsandIFRS1FirsttimeadoptionofIFRS:SevereHyperinflationandRemovalofFixedDatesforFirst-TimeAdoptersareeffectivefrom1 January2012andIFRS9FinancialInstrumentsiseffectivefrom1 January2013.

Critical accounting estimates and judgementsEstimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.Thecurrenteconomicconditionshavebeenconsideredwhenevaluatingaccountingestimatesandjudgements,includingtheapplicationofthegoingconcernbasisofpreparation.

Management judgement and estimation uncertaintyIntheprocessofapplyingtheGroup’saccountingpoliciesmanagementhasmadeanumberofjudgements,estimatesandassumptions.Theresultingaccountingestimateswill,bydefinition,seldomequaltherelatedactualresults.Thekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthebalancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitiesinthenextfinancialyear,areasfollows:

Intangible assets recognised on acquisitionOncompletionofabusinesscombination,thecostisallocatedbyrecognisingtheidentifiableassets,liabilitiesandcontingentliabilitiesacquiredatfairvalue.Intangibleassetsarerecognisedwheretheyareseparableorarisefromcontractualorlegalrights,andhaveafairvaluethatcanbemeasuredreliably.FortheGrouptheseintangibleassetsusuallycomprisecontractualarrangements,customerrelationshipsandtechnologybasedassets,butcanalsoincludeacquiredpatents,softwarerightsandlicencesanddevelopmentcosts.

Inestablishingthefairvalueforintangibleassetsrecognisedonacquisitionandtheirestimatedusefullives,theGrouptakesaccountoftheindividualcircumstancesoftheentityacquired.Thisincludestradingdata,suchasthevalueanddurationofcontractsacquired,thestrength,durationanddegreeofexclusivityofrelationshipswithcustomers,aswellasvaluationestimates,suchastheestimationoflikelyexternalroyaltyratesthatcouldbeassociatedwithtechnologyandbrandingassetsandattributablefuturecashflows.

Impairment of goodwillTheGroupdetermineswhethergoodwillisimpairedatleastonceayear.Thisrequiresestimationofthevalueinuseofthecashgeneratingunitstowhichthegoodwillisallocated.EstimatingthevalueinuserequirestheGrouptomakeanestimateoftheexpectedfuturecashflowsfromthecashgeneratingunitsandalsotochooseasuitablediscountrateinordertocalculatethepresentvalueofthosecashflows.Furtherdetailsaregiveninnote13.

TaxationTheGroupissubjecttotaxesinnumerousjurisdictions.Significantjudgementisrequiredindeterminingtheworldwideprovisionfortax.Therearemanytransactionsandcalculationsforwhichtheultimatetaxdeterminationisuncertainduringtheordinarycourseofbusiness.TheGrouprecognisesliabilitiesforanticipatedtaxauditissuesbasedonestimatesofwhetheradditionaltaxeswillbedue.Wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthecurrenttaxprovision,deferredtaxprovisionsandincomestatementintheperiodinwhichsuchdeterminationismade.


£m Note 2010 2009

Revenue 1,2 1,902.6 1,880.4

Costofsales (1,298.1) (1,284.0)

Grossprofit 604.5 596.4

Sellinganddistributioncosts (87.2) (90.4)

Administrativeexpenses 7 (293.2) (225.5)

Shareofpost-taxresultsofjointventures 6.0 6.1

Operatingprofit 2 230.1 286.6

Financeincome 3 37.8 37.6

Financeexpense 3 (80.1) (79.3)

Otherincome 2 1.5 –

Profitbeforetaxation 1 189.3 244.9

Taxation 4 (36.5) (59.0)

Profitaftertaxationfortheyear 152.8 185.9

Profitattributabletoequityshareholders 152.7 185.8

Profitattributabletonon-controllinginterests 0.1 0.1


AllactivitiesoftheGroupareclassedascontinuinginthecurrentandcomparativeyear.

EarningsperOrdinaryShare 6

–Basic 13.27p 16.26p

–Diluted 13.20p 16.17p

Consolidated income statementFortheyearended31December2010


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Consolidated statement of comprehensive incomeFortheyearended31December2010

£m Note 2010 2009


Nettranslationdifferencesoninvestmentsinoverseassubsidiaries 30 20.8 (3.8)

Actuarialgain/(loss)onpensions 9 15.6 (72.5)

Actuariallossonotherretirementobligations 9 (0.4) –

Movementsinhedgedfinancialinstruments 26 (7.4) 22.0

Taxeffects 4 (3.6) 14.1

Othercomprehensiveincome/(expense)fortheyear 25.0 (40.2)

Totalcomprehensiveincomefortheyear 177.8 145.7

Attributableto:

Equityholdersoftheparent 177.7 145.6

Non-controllinginterests 0.1 0.1

177.8 145.7

Tradingprofitiscalculatedasfollows:

£m Note 2010 2009

Operatingprofit 2 230.1 286.6

Adjustedtoexclude: 7

Businessrestructuring 17.5 7.7

Unrealisedlosses/(gains)onrevaluationofcurrencyinstruments 2.8 (42.9)

Amortisationofintangibleassetsarisingonbusinesscombinations 63.3 78.7

Settlementofcommercialdispute 28.8 –

Transactionrelatedadjustments 5.9 6.9

Tradingprofit 7 348.4 337.0


Consolidated balance sheetAsat31December2010

£m Note 2010 2009

Assets

Non-currentassets

Intangibleassets 12 1,048.4 1,063.0

Property,plantandequipment 14 339.7 318.2

Investmentproperties 15 11.2 11.3

Investmentsinjointventures 16 17.2 17.4

Tradeandotherreceivables 18 19.3 44.4

Derivativefinancialinstruments 26 0.5 2.3

Deferredtaxationassets 23 11.4 22.3

1,447.7 1,478.9

Currentassets

Inventories 17 287.4 249.8

Tradeandotherreceivables 18 339.0 329.1

Corporationtax 15.7 9.8


Cashandcashequivalents 19 473.0 366.4

1,121.6 963.2

Assetsclassifiedasheldforsale 20 1.6 –

1,123.2 963.2

Liabilities

Currentliabilities

Borrowings 24 (315.9) (402.8)

Tradeandotherpayables 21 (359.3) (357.1)

Derivativefinancialinstruments 26 (14.8) (10.6)

Corporationtax (100.0) (80.7)

Provisions 22 (37.8) (52.5)

(827.8) (903.7)

Non-currentliabilities

Borrowings 24 (483.2) (376.2)

Tradeandotherpayables 21 (32.2) (26.8)

Derivativefinancialinstruments 26 (27.2) (26.7)

Deferredtaxationliabilities 23 (37.7) (37.3)

Provisions 22 (4.6) (7.9)

Retirementbenefitobligations 9 (82.0) (115.2)

(666.9) (590.1)

Netassets 1,076.2 948.3

Equity

Calledupsharecapital 29 28.9 28.6

Sharepremiumaccount 126.6 112.5

Otherreserves 30 69.8 53.8

Retainedearnings 850.5 753.1

Totalshareholders’equity 1,075.8 948.0

Non-controllinginterestinequity 0.4 0.3

Totalequity 1,076.2 948.3

Netdebt 11 (326.1) (412.6)

ApprovedbyadulyappointedandauthorisedcommitteeoftheBoardon2March2011andsignedonitsbehalfby:

A J StevensW G TuckerDirectors


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Consolidated statement of changes in equityFortheyearended31December2010

£m

Calledupshare

capital

Sharepremiumaccount

Otherreserves

(note30)Retainedearnings

Totalshareholders’

equity

Non-controlling

interestinequity

Totalequity

Totalequityat1January2009 28.5 103.9 37.2 678.6 848.2 0.6 848.8

Profitfortheyear – – – 185.8 185.8 0.1 185.9

Actuariallossonpensions – – – (72.5) (72.5) – (72.5)

Nettranslationdifferencesoninvestmentsinoverseassubsidiaries – – (3.8) – (3.8) – (3.8)

Movementsinhedgedfinancialinstruments(note26) – – 8.1 – 8.1 – 8.1

Reclassificationofcashflowhedgefairvalues(note26) – – 13.9 – 13.9 – 13.9

Taxeffects(note4) – – (6.2) 20.3 14.1 – 14.1

Totalcomprehensiveincomefortheyear – – 12.0 133.6 145.6 0.1 145.7

Issueofshares 0.1 6.7 – – 6.8 – 6.8

Purchaseoftreasuryshares – – – (0.7) (0.7) – (0.7)

Acquisitionofnon-controllinginterests – – – – – (0.3) (0.3)

Dividendsauthorised(note5) – – – (58.2) (58.2) – (58.2)

Dividendspaidtonon-controllinginterests – – – – – (0.1) (0.1)

Share-basedpayments(note10) – – 5.8 – 5.8 – 5.8

TransferofshareoptionsreserveonvestingofLTIPs – 1.9 (1.9) – – – –

Transferofshareoptionsreserveonexercise(note30) – – (2.9) 2.9 – – –

Releaseofhedgereserve(note26) – – 2.6 – 2.6 – 2.6

Taxeffects – – 1.0 (3.1) (2.1) – (2.1)

Totalequityat31December2009 28.6 112.5 53.8 753.1 948.0 0.3 948.3

Totalequityat1January2010 28.6 112.5 53.8 753.1 948.0 0.3 948.3

Profitfortheyear – – – 152.7 152.7 0.1 152.8

Actuarialgainonpensions – – – 15.6 15.6 – 15.6

Actuariallossonotherretirementobligations – – – (0.4) (0.4) – (0.4)

Nettranslationdifferencesoninvestmentsinoverseassubsidiaries – – 20.8 – 20.8 – 20.8

Movementsinhedgedfinancialinstruments(note26) – – (21.9) – (21.9) – (21.9)

Reclassificationofcashflowhedgefairvalues(note26) – – 14.5 – 14.5 – 14.5

Taxeffects(note4) – – 1.5 (5.1) (3.6) – (3.6)

Totalcomprehensiveincomefortheyear – – 14.9 162.8 177.7 0.1 177.8

Issueofshares 0.3 11.4 – – 11.7 – 11.7

Purchaseoftreasuryshares – – – (4.6) (4.6) – (4.6)

Dividendsauthorised(note5) – – – (64.6) (64.6) – (64.6)

Share-basedpayments(note10) – – 7.3 – 7.3 – 7.3

TransferofshareoptionsreserveonvestingofPSPs – 2.7 (2.7) – – – –

Transferofshareoptionsreserveonexercise(note30) – – (4.6) 4.6 – – –

Releaseofhedgereserve(note26) – – 2.6 – 2.6 – 2.6

Taxeffects – – (1.5) (0.8) (2.3) – (2.3)

Totalequityat31December2010 28.9 126.6 69.8 850.5 1,075.8 0.4 1,076.2


Consolidated cash flow statementFortheyearended31December2010

£m Note 2010 2009

Cashflowsfromoperatingactivities

Cashgeneratedfromoperations 11 299.7 371.1

Corporationtaxespaid (21.6) (31.2)

Interestpaid (45.1) (64.1)

Interestreceived 7.9 18.3

Netcashfromoperatingactivities 240.9 294.1

Cashflowsfrominvestingactivities

Dividendsreceivedfromjointventures 34 6.0 5.2

Purchaseofproperty,plantandequipment 14 (64.9) (74.6)

Purchaseofintangibleassets 12 (1.9) (4.8)

Capitalisedexpenditureonintangibleassets 12 (0.3) (0.1)

Proceedsondisposalofproperty,plantandequipmentandinvestmentproperty 10.0 2.5

Proceedsondisposalofheldforsaleassets 20 23.2 19.3

Acquisitionofsubsidiariesnetofcashacquired 31 (18.9) (18.9)

Proceedsofdisposal 31 6.4 –

Acquisitionofnon-controllinginterests – (0.3)

Netdeferredandcontingentconsideration (2.6) (21.7)

Othercostsrelatedtobusinesscombinations (6.1) (6.0)

Specialpensioncontributionsrelatingtodisposalsinprioryears 9 (7.9) (5.5)

Restructuringcosts (13.4) (7.8)

Netcashusedininvestingactivities (70.4) (112.7)

Cashflowsfromfinancingactivities

Issueofsharecapital 11.7 6.8

Dividendspaid 5 (64.6) (58.2)

Dividendspaidtonon-controllinginterests – (0.1)

Purchaseoftreasuryshares (4.6) (0.7)

Newborrowings 98.3 437.1

Repaymentofborrowings (114.1) (507.7)

Repaymentofobligationsunderfinanceleases (0.1) (0.2)

Netcashusedinfinancingactivities (73.4) (123.0)

Netincreaseincashandcashequivalents 97.1 58.4

Cashandcashequivalentsatstartofyear 361.4 304.4

Exchangemovements 12.2 (1.4)

Cashandcashequivalentsatendofyear 19 470.7 361.4

Areconciliationofcashandcashequivalentstothebalancesheetisdetailedinnote19.


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Notes to the Group financial statements

1. Segmental informationBusiness segmentsTheGroupreportsfoursegmentswhicharetheoperatingDivisionswhoserevenueandresultsarereportedtotheBoard.TheprincipalactivitiesoftheseDivisionsareasfollows:

CobhamAvionicsandSurveillance Providingasuiteofend-to-endavionicsproducts,lawenforcementandnationalsecuritysolutions,andsatellitecommunicationequipmentforland,seaandairapplications.

CobhamDefenceSystems Criticaltechnologyfornetworkcentricandintelligenceoperations,movinginformationaroundthedigitalbattlefieldwithcustomisedandoff-the-shelfsolutionsforpeopleandsystemstocommunicateonland,seaandair.

CobhamMissionSystems Providingsafetyandsurvivalsystemsforextremeenvironments,nose-to-tailrefuellingsystemsandwing-tiptowing-tipmissionsystemsforfastjets,transportaircraftandrotorcraft.

CobhamAviationServices Deliveringoutsourcedaviationservicesformilitaryandcivilcustomersworldwidethroughmilitarytraining,specialmissionflightoperations,outsourcedcommercialaviationandaircraftengineering.

InformationisalsopresentedforthecombinedresultsoftheTechnologyDivisions,namelyCobhamAvionicsandSurveillance,CobhamDefenceSystemsandCobhamMissionSystems.

Headofficeresults(netofrecoveries)arenotincludedwithintheoperatingsegmentsasdescribedabove.

£m Note 2010 2009

Revenue

AvionicsandSurveillance 447.4 487.3

DefenceSystems 859.2 873.0

MissionSystems 344.1 317.0

Inter-segmentrevenue(technologydivisions) (20.6) (23.6)

Sub-totalTechnologyDivisions 1,630.1 1,653.7

AviationServices 273.5 230.9

Inter-segmentrevenue (1.1) (5.0)

Totalsegmentrevenuefromexternalcustomers 1,902.5 1,879.6

Revenue–otheractivities 0.1 0.8

Totalrevenuefromoperations 1,902.6 1,880.4

Profit




Eliminationofinter-segmentitems (0.1) (0.2)

Sub-totalTechnologyDivisions 310.3 305.6


Totalsegmenttradingprofit 346.7 336.9

Headofficeandotheractivities 1.7 0.1

Totaltradingprofit 348.4 337.0

Businessrestructuring 7 (17.5) (7.7)

Unrealised(losses)/gainsonrevaluationofcurrencyinstruments 26 (2.8) 42.9

Amortisationofintangibleassetsonacquisition 7 (63.3) (78.7)

Settlementofcommercialdispute 7 (28.8) –

Adjustmentsrelatedtobusinesscombinations 7 (5.9) (6.9)

Netfinanceexpense 3 (42.3) (41.7)

Otherincome 20 1.5 –

Profitbeforetaxation 189.3 244.9

TheGroup’sshareofthepost-taxresultsofjointventurestotalling£6.0m(2009:£6.1m)arisesintheCobhamAviationServicesDivision.


Notes to the Group financial statements continued

Depreciation and amortisation of internally generated intangiblesDepreciationandamortisationisincludedinthecalculationoftradingprofitasprovidedtotheBoard.Segmentalanalysisisasfollows:

£m 2010 2009




Sub-totalTechnologyDivisions 35.2 31.7


Segmentdepreciationandamortisationofinternallygeneratedintangibles 57.9 49.9

Depreciationandamortisationallocatedtootheractivities 1.8 0.4

Totaldepreciationandamortisationofinternallygeneratedintangibles 59.7 50.3

Segment assetsAvionicsandSurveillance 438.0 419.5

DefenceSystems 1,016.6 1,028.4


Sub-totalTechnologyDivisions 1,752.5 1,721.3


Segmentassets 1,991.1 1,939.2

Interestsinjointventures 17.2 17.4

2,008.3 1,956.6

Assetsallocatedtootheractivities 55.5 76.6

Unallocatedassets 507.1 408.9

Consolidatedtotalassets 2,570.9 2,442.1

Detailsofemployeesanalysedbyoperatingsegmentcanbefoundinnote8.

Geographical informationRevenuefromexternalcustomersanalysedbytheirgeographicallocation,irrespectiveoftheoriginofthegoodsandservices,isshownbelow.RevenuefromcustomerslocatedinindividualcountrieswithintheEU(exceptUK)andtheRestoftheWorldisnotconsideredtobeindividuallymaterial.

£m UK USA AustraliaOther

EUcountriesRestof

theWorld Total

Revenue

Yearto31December2010 169.5 1,150.6 188.1 235.7 158.7 1,902.6

Yearto31December2009 169.8 1,162.6 145.7 229.0 173.3 1,880.4

Non-currentassets

Non-currentassetsbelowexcludefinancialinstrumentsanddeferredtaxassets

Yearto31December2010 246.1 955.0 127.3 66.9 40.5 1,435.8

Yearto31December2009 247.2 973.1 110.9 72.0 51.1 1,454.3


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2. Revenue and profit for the yearRevenueRevenuecomprisesincomefromthesaleofgoodsandservicesduringtheyearandcanbeanalysedasfollows:

£m 2010 2009

Revenuefromsaleofgoods 1,392.9 1,393.3

Revenuefromservices 509.7 487.1

1,902.6 1,880.4

Major customers£336.7m(2009:£356.1m)ofrevenueisattributabletoUSGovernmentdepartmentsandagencies.Thisaccountsfor17.7%(2009:18.9%)ofTechnologyDivisionrevenue,primarilyCobhamDefenceSystems.

Profit for the yearTheprofitfortheyearisaftercharging/(crediting):

£m Note 2010 2009

Staffcosts 8 625.9 582.8

Materialscostofgoodssold 606.1 560.6

Companyfundedresearchanddevelopment 73.8 88.3

Propertyrentalincome (1.7) (1.8)

Royaltyincome (1.4) (0.7)

Otherincome 20 (1.5) –


Depreciationofproperty,plantandequipment 14

–ownedassets 54.1 46.8

–underfinanceleases 0.3 0.3

Depreciationofinvestmentproperties 15 0.3 0.3

Amortisationofintangibleassets 12

–intangibleassetsrecognisedonbusinesscombinations 63.3 80.4

–relatingtobusinessrestructuring 7 2.0 –

–otherintangibleassets 5.0 2.9

Writebackofnegativegoodwill 13 – (1.7)

Loss/(profit)ondisposalofproperty,plantandequipment 2.3 (0.5)

Operatingleaserentals

–Aircraft 7.2 6.1

–Otherincludingplant&machineryandproperty 26.7 26.0

Netforeignexchangelosses 0.2 2.7

Amortisationofintangibleassetsisincludedinadministrativeexpenses.

DuringtheyeartheGroup(includingoverseassubsidiaries)obtainedthefollowingservicesfromtheCompany’sauditorsatcostsasdetailedbelow:

£m 2010 2009

FeespayabletotheCompany’sauditorsfortheauditoftheparentcompanyandGroupfinancialstatements 1.2 1.2

FeespayabletotheCompany’sauditorsanditsassociatesfortheauditoftheCompany’ssubsidiariespursuanttolegislation 0.8 0.8

Totalfeespayableforauditservices 2.0 2.0

FeespayabletotheCompany’sauditorsanditsassociatesforotherservices:

–Otherservicesrelatingtotaxation 1.3 1.2

–Servicesrelatingtocorporatefinancetransactions 0.1 0.5

–Allotherservices 0.1 0.1

Totalfeespayableforotherservices 1.5 1.8

Totalfeespayabletotheauditors 3.5 3.8

Inadditiontotheamountsshownabove,theauditorsreceivedfeesof£30,000(2009:£29,000)forauditoftheGroup’spensionschemes.



AdescriptionoftheworkoftheauditcommitteeissetoutintheCorporategovernancestatementonpages39to40andincludesanexplanationofhowauditorobjectivityandindependenceissafeguardedwhennon-auditservicesareprovidedbytheauditors.

3. Finance income and expense

£m Note 2010 2009

Financeincome:

Bankinterest 5.4 11.2

Expectedreturnonpensionschemeassets 9 29.9 23.7

Otherfinanceincome 2.5 2.7

Totalfinanceincome 37.8 37.6

Financeexpense:

Interestonbankoverdraftsandloans (43.6) (46.2)

Interestonpensionschemeliabilities 9 (31.6) (28.5)

Otherfinanceexpense (4.9) (4.6)

Totalfinanceexpense (80.1) (79.3)

Netfinanceexpenseexcludingpensionschemes (40.6) (36.9)

Netfinanceexpenseonpensionschemes (1.7) (4.8)

Netfinanceexpense (42.3) (41.7)

Otherfinanceexpenseaboveincludes£3.1m(2009:£2.6m)inrelationtocashflowhedgeswhichwereterminatedduring2009asdescribedinnote26.

4. Income tax expense

£m Note 2010 2009

Currenttax 34.3 71.7

Deferredtax 23 2.2 (12.7)

Totaltaxchargefortheyear 36.5 59.0

ThetotalincometaxexpenseisanalysedbetweenUKandoverseastaxasfollows:

£m 2010 2009

UnitedKingdom 28.4 38.1

Overseas 8.1 20.9


Taxchargeincludedinshareofpost-taxresultsofjointventures 2.4 2.4

IncometaxfortheUKiscalculatedatarateof28.0%(2009:28.0%)oftheestimatedassessableprofitfortheyear.Taxationforotherjurisdictionsiscalculatedattheratesprevailingintherelevantjurisdictions.

Thetotalchargefortheyearcanbereconciledtotheaccountingprofitasfollows:

£m 2010 2009

Profitbeforetax 189.3 244.9

Taxatthedomesticincometaxrateof28.0%(2009:28.0%) 53.0 68.6

Taxeffectofshareofresultsofjointventures (1.7) (1.7)

Effectofdifferencesinoverseastaxationrates 1.9 3.9

ExpenditurequalifyingforadditionalR&Dtaxrelief (6.3) (4.1)

Adjustmentstotaxchargeinrespectofprioryears (7.4) (4.8)

Impactofotheritems (3.0) (2.9)



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Inadditiontothetaxexpensechargedtotheincomestatement,ataxchargeof£3.6m(2009:£14.1mcredit)hasbeenincludedintheconsolidatedstatementofcomprehensiveincomeasfollows:

£m 2010 2009

Actuariallossonpensions 5.2 (20.3)

Actuariallossonotherretirementobligations (0.1) –

Movementsinhedgedfinancialinstruments (1.5) 6.2

3.6 (14.1)

5. DividendsThefollowingdividendsonOrdinaryShareswereauthorisedandpaidduringtheyear:

£m 2010 2009

Finaldividendof3.971ppersharefor2009(2008:3.61p) 45.8 41.3

Interimdividendof1.628ppersharefor2010(2009:1.48p) 18.8 16.9

64.6 58.2

Inadditiontotheabove,theDirectorsareproposingafinaldividendinrespectofthefinancialyearended31December2010of4.372pencepersharewhichwillabsorbanestimated£50.5mofshareholders’funds.ThisdividendissubjecttoapprovalbyshareholdersattheAnnualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.Ifauthorised,itwillbepaidon3June2011toshareholderswhoareontheregisterofmembersasat6May2011.Thetotaldividendinrespectofthefinancialyearended31December2010willthereforebe6.0pencepershare(2009:5.45pence).Thetotalamountpaidinrespectof2010willbe£69.3m(2009:£62.7m).

6. Earnings per Ordinary Share (EPS)

2010 2009

Earnings£m

Weighted average number

of shares million

Per-share amount

penceEarnings

£m

Weightedaveragenumber

ofsharesmillion

Per-shareamount

pence

Basicearningspershare(EPS)

Earningsattributabletoordinaryshareholders 152.7 1,150.7 13.27 185.8 1,142.4 16.26

Effectofdilutivesecurities:

Options 3.9 2.8

Longtermincentiveplans 2.2 3.6

DilutedEPS 152.7 1,156.8 13.20 185.8 1,148.8 16.17

7. Underlying profit and earnings per shareInadditiontotheinformationrequiredbyIAS33,Earningspershare,theDirectorsbelievethatitishelpfultocalculateanunderlyingearningspersharefigure.Underlyingprofitisdefinedindetailintheaccountingpoliciesonpage52.

£m Note 2010 2009

Operatingprofit 230.1 286.6

Businessrestructuring 17.5 7.7

Unrealisedlosses/(gains)onrevaluationofcurrencyinstruments 26 2.8 (42.9)

Amortisationofintangibleassetsarisingonbusinesscombinations 63.3 78.7


Transactionrelatedadjustments 5.9 6.9

Tradingprofit 348.4 337.0

Netfinanceexpense 3 (42.3) (41.7)

Underlyingprofitbeforetaxation 306.1 295.3

Taxationchargeonunderlyingprofit (79.5) (80.4)

Non-controllinginterest (0.1) (0.1)

Underlyingprofitaftertaxattributabletoequityshareholders 226.5 214.8

UnderlyingbasicEPS 19.68p 18.80p

UnderlyingdilutedEPS 19.58p 18.70p



Duringtheyearto31December2010,businessrestructuringcostsof£17.5mrelatetoactivityinthesecondhalfoftheyear.Expenditureof£23.4mrelatedtositeconsolidation,workforcereductionsandassetwritedownsresultingfromtheExcellenceinDeliveryprogramme.PartiallyoffsettingthesecostswerereleasesofprovisionsnotrequiredfromprevioussiteconsolidationactivitiesandprofitsfromthesaleofpartoftheWimborne,UKsite.Thechargeof£7.7mfortheyearto31December2009relatedtothecompletionofactionsarisingfromthe2005strategyreview.

Underlyingadministrativeexpensesamountedto£174.9m(2009:£175.1m).Thisdoesnotincludebusinessrestructuringcosts,thesettlementofthecommercialdispute,unrealisedgainsandlossesonrevaluationofcurrencyinstruments,amortisationofintangibleassetsrecognisedonbusinesscombinationsnortransactionrelatedadjustments.

8. Employment costsTheaggregateemploymentcostsofGroupemployeesareasfollows:

£m Note 2010 2009

Wagesandsalaries 532.3 491.9

Socialsecuritycosts 48.7 49.2

Pensioncosts–definedbenefit 9 4.8 4.1

–definedcontribution 9 30.8 27.7

Share-basedpayments 10 9.3 9.9

625.9 582.8

Theaveragenumberofemployeesduringtheyear,analysedbyDivision,isasfollows:

2010 2009

CobhamAvionicsandSurveillance 2,843 3,135

CobhamDefenceSystems 5,435 5,427

CobhamMissionSystems 1,518 1,574

Sub-totalTechnologyDivisions 9,796 10,136

CobhamAviationServices 1,720 1,794

Totaloperatingsegments 11,516 11,930

Otheractivities 120 114

11,636 12,044

9. Retirement benefit schemesDefined contribution schemesTheGroupmanagesanumberofdefinedcontributionpensionarrangements.

Thetotalexpenserecognisedintheincomestatementof£30.8m(2009:£27.7m)representscontributionspayabletotheseschemesbytheGroupatratesspecifiedintherulesoftheschemes.

£3.7m(2009:£11.9m)wasoutstandinginrespectofdefinedcontributionschemesbutnotdueforpaymentat31December2010.

Defined benefit schemesTheGroupoperatesanumberofdefinedbenefitschemes,themostsignificantbeingtheCobhamPensionPlan(CPP),whichisafundeddefinedbenefitscheme. TheassetsofalloftheseschemesareheldseparatelyfromthoseoftheGroupinfundsunderthecontroloftrustees. Alldefinedbenefitschemeshavebeenclosedtonewmemberssince2003.

Specialcontributionsof£7.9mwerepaidin2010(2009:£5.5m)totheCPPasagreedinconnectionwiththedisposaloftheFluidandAirgroupwhichcompletedin2005.Therewerenosignificantcontributionsoutstandingattheendof2010or2009forthedefinedbenefitschemes.

ActuarialvaluationsofthepresentvalueofthedefinedbenefitobligationsfortheCPParecarriedoutonatriennialbasisbyqualifiedindependentactuaries,themostrecentvaluationwasasat1April2009.Theactuarialvaluationswereupdatedbyqualifiedindependentactuariesforaccountingpurposesto31December2010.Actuarialvaluationsofotherschemeshavebeencarriedoutatregularintervalsasrequiredbytheapplicablecountryregulations.


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Theprincipalassumptionsusedforthepurposeoftheactuarialvaluationswereasfollows:

2010 2009

UK Schemes USA Scheme UKSchemes USAScheme

Rateofincreaseinsalarycosts 4.09% 4.09% 4.13% 4.13%

Rateofincreaseinpensionsinpayment 4.09% 4.09% 4.13% 4.13%

Rateofincreaseindeferredpensions 3.39% 4.09% 4.13% 4.13%

Discountrate 5.42% 5.54% 5.66% 5.91%

Inflationassumption 3.59% 3.59% 3.63% 3.63%

Expectedreturnonschemeassets 6.25% 6.80% 6.65% 7.06%

Pensionsincreaseunlessoverriddenbyspecificschemerules 3.59% n/a 3.63% n/a

ThemortalityassumptionsusedfortheCPParebaseduponactualrecentmortalityexperienceofmemberswithintheschemeandalsoallowforfuturemortalityimprovements.Themortalityassumptionusedin2010and2009isdenotedbyactuariesas“PA92yearofbirthprojectionslongcohort”.Inpracticaltermsthisisdemonstratedinthetablebelow:

Furtherlifeexpectancy Yearofbirth Yearage65

Male 1945 2010 23.8years

Male 1980 2045 25.4years

At31December2010ithasbeenassumedthatmemberswillcommuteonaverage20%(2009:20%)oftheirpensionforcashatretirement.Thisimpliesafulltake-upofthepermitted25%(2009:25%)commutationbyapproximately80%(2009:80%)ofeligiblemembersonretirement.

Thesensitivityofschemeliabilitiestochangesincertainkeyassumptionsisprovidedbelow:

• Increasingthediscountrateby0.1%woulddecreaseschemeliabilitiesby£10.2m.• Increasingtheinflationrateby0.1%wouldincreaseschemeliabilitiesby£7.0m.• Ifeachschemememberwasexpectedtoliveforanadditionalyearthenschemeliabilitieswouldincreaseby£10.4m.

TheamountsrecognisedinthebalancesheetinrespectoftheGroup’sdefinedbenefitschemesareasfollows:

£m 2010 2009

Presentvalueoffundedobligations (592.8) (561.3)

Fairvalueofschemeassets 510.8 446.1

Netliability (82.0) (115.2)

ThepresentvalueoffundedobligationsrelatingtotheUSschemeisUS$26.0m(2009:US$22.8m)andthefairvalueofschemeassetsrelatingtotheUSschemeisUS$17.5m(2009:US$16.1m).

TheschemeassetsdonotincludeanyoftheGroup’sownfinancialinstruments,noranypropertyoccupiedby,orotherassetsusedby,theGroup.

Amountsrecognisedinoperatingprofitinrespectofthedefinedbenefitschemesareasfollows:

£m 2010 2009

Currentservicecostincludedinadministrativeexpenses 4.8 4.1

Amountscredited/(charged)tootherfinanceincome/expense:

£m Note 2010 2009

Expectedreturnonpensionschemeassets 3 29.9 23.7

Interestonpensionschemeliabilities 3 (31.6) (28.5)

Netreturn (1.7) (4.8)



Amountrecognisedintheconsolidatedstatementofcomprehensiveincome:

£m 2010 2009

Actualreturnlessexpectedreturnonpensionschemeassets 24.1 13.8

Experiencelossesarisingonschemeliabilities 1.3 1.8

Changesinassumptionsunderlyingpresentvalueofschemeliabilities (9.8) (88.1)

Actuarialgain/(loss)recognisedintheconsolidatedstatementofcomprehensiveincome 15.6 (72.5)

ThecumulativeamountofactuarialgainsandlossesrecognisedintheconsolidatedstatementofcomprehensiveincomesincetransitiontoIFRSis£126.2mloss(2009:£141.8mloss).Oftheactuariallossesrecognisedintheyearforchangesinassumptionsunderlyingpresentvalueofschemeliabilities,approximately£28mrelatedtothedecreaseinthediscountratemitigatedpartlybythegeneralincreaseintheinflationassumptionandachangeintherecognisedinflationassumptionfromRPItoCPIfordeferredpensions.

Theactualreturnonschemeassetswas£54.0mgain(2009:gain£37.5m).

Changesinthepresentvalueofthedefinedbenefitobligationsareasfollows:

£m 2010 2009

Openingdefinedbenefitobligations 561.3 458.4

Currentservicecost 4.8 4.1

Interestcost 31.6 28.5

Actuarialloss 8.5 86.3

Contributionsbymembers 3.3 3.0

NIrebates 0.7 0.7

Exchangedifferences 0.5 (1.8)

Benefitspaid (17.9) (17.9)

Closingdefinedbenefitobligations 592.8 561.3

Changesinthefairvalueofschemeassetsareasfollows:

£m 2010 2009

Openingfairvalueofschemeassets 446.1 407.2

Expectedreturn 29.9 23.7

Actuarialgain 24.1 13.8

Contributionsbymembers 3.3 3.0

NIrebates 0.7 0.7

Contributionsbyemployers 16.2 11.3

Specialcontributions 7.9 5.5

Exchangedifferences 0.5 (1.2)

Benefitspaid (17.9) (17.9)

Closingfairvalueofschemeassets 510.8 446.1

TheGroupexpectstocontribute£19.6mtoitsdefinedbenefitpensionschemesin2011.

Thefairvalueofmajorcategoriesofschemeassets,andasapercentageoftotalschemeassets,areasfollows:

2010 2009

£m % £m %

Equityinstruments 238.7 46.8 210.3 47.1

Debtinstruments 223.4 43.7 188.4 42.2

Property 43.1 8.4 39.1 8.8

Otherassets 5.6 1.1 8.3 1.9

510.8 100.0 446.1 100.0

Theexpectedratesofreturnonindividualcategoriesofschemeassetsaredeterminedbyreferencetorelevantindicespublishedby,forexample,theLondonStockExchange.Theoverallexpectedrateofreturniscalculatedbyweightingtheindividualratesinaccordancewiththeanticipatedbalanceintheschemes’investmentportfolio.


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Thehistoryoftheschemeforthecurrentandpreviousfourperiodsisasfollows:

£m 2010 2009 2008 2007 2006

Presentvalueofdefinedbenefitobligations (592.8) (561.3) (458.4) (457.7) (447.8)

Fairvalueofschemeassets 510.8 446.1 407.2 420.5 418.2

Deficit (82.0) (115.2) (51.2) (37.2) (29.6)

Experienceadjustmentsonschemeliabilities 1.3 1.8 (5.5) (0.3) 0.8

Experienceadjustmentsonschemeassets 24.1 13.8 (49.2) (31.2) 13.2

Other retirement benefit schemesAnumberoftheGroup’ssubsidiariesbasedinFrancecontributetoaretirementindemnityscheme.Theliabilitiesoftheschemewerevaluedbyanindependentactuaryasat31December2010at€3.8mandarerecordedinthesefinancialstatementsat£3.3m(2009:£2.6m).Theseliabilitiesareincludedinotherliabilitiesinnote21.

Theactuariallossfortheyearto31December2010asrecognisedintheconsolidatedstatementofcomprehensiveincomewas£0.4m.

10. Share-based paymentsThetotalexpenseforshare-basedpaymentsisasfollows:

£m 2010 2009

Equitysettledshare-basedpaymentschemes 7.3 5.8

Cashsettledshare-basedpaymentschemes (0.2) –

Cashsettledshare-basedpaymentsrelatedtobusinesscombinations 2.2 4.1

Totalshare-basedpaymentexpense 9.3 9.9

Detailsoftheschemeswhichgiverisetothesechargesareasfollows:

Equity settled share-based payment schemesTheGroupoperatesanumberofincentiveschemesforcertainseniorexecutivesasfollows:

• TheCobhamPerformanceSharePlan(PSP).• TheCobhamExecutiveShareOptionScheme(ESOS).• TheCobhamBonusCo-investmentPlan(BCP).

ThePSPschemeallowsforannualgrantsofconditionalshareswhichvest50%basedontheGroup’sthreeyearTotalShareholderReturnrelativetothatofasectorcomparatorgroupand50%basedonthegrowthoftheGroup’sunderlyingEPSoverthesameperiod.

UndertheESOS,optionsaregrantedatapricenotlessthanthemarketvalueoftheGroup’sOrdinaryShareson,orshortlybefore,thedatetheoptionsaregranted.ExerciseisconditionalupontheGroup’sunderlyingEPSgrowthoverathreeyearperiod.Theschemealsoincludesa‘time-only’sectionwhichisofferedtoparticipantsbasedintheUSA.Thisallowsforoptionstobegrantedwith25%vestingoneachannualanniversaryconditionalonlyoncontinuedemploymentwithintheGroup.

TheBCPschemeallowsparticipantstodeferupto50%oftheirnetearnedannualperformancebonusintoCobhamsharesinreturnforanopportunitytoearnuptoa2:1matchingawardofsharesagainstthegrossbonusinvested,basedonthree-yearEconomicProfitgrowthtargets.

AnumberofawardsweremadeundertheCobhamLong-TermIncentivePlan(LTIP)upto2006andthefinalawardunderthisschemevestedduring2009.Theseawardsweremadeatnilcost,vestingoverathreeyearperformanceperiodbasedontheGroup’sTotalShareholderReturnrelativetothatofacomparatorgroupandalsoconditionalupontheGroup’sunderlyingEPSgrowthoverthesameperiod.

FurtherdetailsoftheaboveschemescanbefoundintheDirectors’remunerationreportonpages43and44.Inaddition,entrytotheCobhamSavingsRelatedShareOptionScheme(ShareSave)isavailabletoallemployeesofparticipatingUKsubsidiaries.EmployeesmaypurchasetheGroup’ssharesat80%oftheclosingmarketpriceonthedateofgrantduringatwo-weekperiodeachyear,uptoamaximumcontributionvalueof£3,000inanyoneyear.Thesharessopurchasedaregenerallyplacedintheemployee’ssharesavingsplanandwillonlybereleasedtoemployeeswhoremainintheGroup’semploymentforaperiodofthreeyearsfromthedateofgrant.



Detailsoftheawardsareasfollows:

Number of awards LTIP PSP BCP ESOS ShareSave

At1January2009 1,083,175 3,104,437 551,122 20,430,406 8,643,143

Awardsgranted – 2,691,221 373,706 7,130,568 1,876,526

Awardsforfeitedorcancelledbyemployee (33,891) (64,683) – (1,098,846) (243,920)

Exercised (1,049,284) – – (3,378,552) (1,863,669)

Expired – – – – (168,116)

At1January2010 – 5,730,975 924,828 23,083,576 8,243,964

Awardsgranted – 1,592,165 172,978 5,097,184 1,631,776

Awardsforfeitedorcancelledbyemployee – (631,490) (15,540) (1,686,273) (262,349)

Exercised – (998,963) – (5,267,753) (1,977,000)

Expired – – – (14,670) (123,686)

At31December2010 – 5,692,687 1,082,266 21,212,064 7,512,705

Exercisableat31December2010 – – – 5,453,656 143,904


Theweightedaverageremainingcontractuallifeinyearsofawardsisasfollows:

Outstandingat31December2010 – 1.28 0.65 7.44 2.24


ThenumberofBCPawardsshowninthetableabovereflectsmatchingsharesgrantedagainstthenetbonusinvestedandwillbegrossedupfortaxatthetimeofvesting.TherulesoftheBCPschemeallowforamatchedawardbasedonthegrossamountofthebonus,dependentuponsatisfactionoftheperformanceconditions.Theexactamountoftheentitlementwillbeascertaineduponvestingoftheawards.

UndertheLTIP,ESOSandShareSaveschemes,exercisesweremadeatvarioustimesthroughouttheyear.Theaveragesharepriceinthatperiodwas£2.330(2009:£2.002).

AllawardsunderthePSP,BCPandLTIPschemeshaveanilexerciseprice.TheweightedaverageexercisepricesofawardsundertheESOSandShareSaveschemesareasfollows:

£ ESOS ShareSave

At1January2009 1.780 1.377

Awardsgranted 1.841 1.690

Awardsforfeitedorcancelledbyemployee 1.941 1.655

Exercised 1.414 1.097

Expired – 1.499

At1January2010 1.842 1.501


Awardsforfeitedorcancelledbyemployee 2.016 1.686


Expired 1.037 1.568

At31December2010 1.997 1.619

Exercisableat31December2010 1.740 1.519



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TherangeofexercisepricesforESOSandShareSaveawardsareasfollows:

Outstandingat31December2010

Lowestexerciseprice 0.912 0.939

Highestexerciseprice 2.473 1.790




Detailsofawardsgrantedorcommencingduringthecurrentandcomparativeyearareasfollows:

PSP BCP ESOS ShareSave

During2010:

Effectivedateofgrantorcommencementdate15Marchand

13April 5March15and26

March 1February

Averagefairvalueatdateofgrantorschemecommencement(£) 2.005 0.895 0.586 0.508

During2009:

Effectivedateofgrantorcommencementdate

11March,7 Julyand17 August

29Mayand11 August

11March,9 Julyand17 August 1February


ThefairvaluesinthetableabovewerecalculatedusingtheBlack-Scholesoptionpricingmodel(modifiedbyaMonteCarlosimulationforPSPawards)todeterminethelikelyimpactofmarketrelatedperformanceconditions.Theinputsintothemodelwereasfollows:


2010

Weightedaverageshareprice £2.693 £2.486 £2.614 £2.155

Weightedaverageexerciseprice nil nil £2.473 £1.690

Expectedvolatility 31% 31% 29% 21%–25%

Expectedlife 3years 3years 4.5years 3–7years

Expectedemployeecancellationrate 4.0% – 8.0% 2.2%

Riskfreerate 1.9% 1.9% 2.5% 2.1%

Expecteddividendyield n/a 2.2% 2.1% 2.3%

2009

Weightedaverageshareprice £1.838 £2.060 £1.788 £1.829

Weightedaverageexerciseprice nil nil £1.841 £1.730

Expectedvolatility 18% 26% 28% 24%–26%

Expectedlife 3years 3years 5years 3–7years

Expectedemployeecancellationrate – – 2.0% 2.2%

Riskfreerate 2.9% 4.0% 2.7% 3.8%

Expecteddividendyield n/a 2.1% 2.8% 2.5%

Expectedvolatilitywasdeterminedthroughtheassessmentofthehistoricalvolatilityoveraperiodconsistentwiththeexpectedlifeoftheaward.Theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement’sbestestimate,fortheeffectsofnon-transferability,exerciserestrictionsandbehaviouralconsiderations.Theexpectedemployeecancellationrateisbasedonanassessmentofhistoricratesofvoluntarycancellationsofcontractsbyemployees.

ParticipantsofthePSPschemereceivethebenefitofdividendpaymentsandthereforedividendyieldsarenottakenintoconsiderationinthevaluationmodel.



Cash settled share-based payment schemesDuring2006and2007,theGroupissuedshareappreciationrights(SARs)andawardsunderaphantomLTIPschemetocertainseniorexecutivesthatrequiretheGrouptopaytheintrinsicvalueoftheawardtotheemployeeatthedateofexercise.Theseawardsvestedduring2009andnofurtherawardshavebeenmadeundertheseschemes.TheexpensefortheyearfortheSARandphantomLTIPrightsisbasedonthefairvalueoftheoutstandingliabilityatthebalancesheetdateof£0.1mat31December2010(2009:£0.4m),togetherwithanyadditionalamountsarisingatthedateofexercise.

SARsweregrantedatapricenotlessthanthemarketvalueoftheGroup’sOrdinaryShareson,orshortlybefore,thedatetherightsweregranted.AswiththeESOSawards,exerciseisconditionalupontheGroup’sunderlyingEPSgrowthoverathreeyearperiodandispossiblebetweenthreeandfiveyearsaftergrant.

PhantomLTIPawardsvestedinfullin2009.

Detailsoftheawardsareasfollows:PhantomLTIPs SARs

At1January2009 101,606 811,636

Forfeitedduringtheyear (26,031) (95,304)

Exercisedduringtheyear (75,575) (202,224)

At1January2010 – 514,108

Forfeitedduringtheyear – (106,308)

Exercisedduringtheyear – (184,980)

At31December2010 – 222,820

Exercisableasat31December2010 – 222,820

Exercisableasat31December2009 – 514,108

Fairvalueofawardsat31December2010 – £0.204

Fairvalueofawardsat31December2009 – £0.688


Outstandingat31December2010 – 0.86

Outstandingat31December2009 – 1.86

ThefairvaluesoftheSARswerecalculatedusingtheBlack-Scholesoptionpricingmodeltodeterminethelikelyimpactofmarketrelatedperformanceconditions.Theinputsintothemodelwereasfollows:

At31December2010

Sharepriceatdateofvaluation £2.035

Exerciseprice £1.898

Expectedvolatility 29%

Expectedlife 5years

Riskfreerate 2.3%

Expecteddividendyield 2.8%

At31December2009

Sharepriceatdateofvaluation £2.515

Exerciseprice £1.898

Expectedvolatility 28%

Expectedlife 5years

Riskfreerate 3.0%

Expecteddividendyield 2.2%

ExpectedvolatilitywasdeterminedbycalculatingthehistoricalvolatilityoftheGroup’ssharepriceoverthepreviousthreeyears.Theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement’sbestestimate,fortheeffectsofnon-transferability,exerciserestrictionsandbehaviouralconsiderations.


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Share-based payments related to business combinationsTheagreementfortheacquisitionofSPARTAInc(nowtradingasCobhamAnalyticSolutions)byCobhamin2008providedforunvestedequity-settledoptionsheldbyemployeesofSPARTAatthedateofacquisitiontobereplacedwithcash-settledoptionrights.Thesewereissuedon3June2008andvestoveramaximumofthreeyears,basedonthevestingdateoftheoriginaloptions.Thelatestvestingdateis9January2011.Thenewawardswereconditionalonlyuponanemployee’scontinuedemploymenttothevestingdate.Theaverageexerciseprice(basedontheoriginaloptions)ofeachnewrightgrantedis£1.160.TherightsvestatapricelinkedtothemarketpriceofCobhamplc’sshareswithaminimumvalueatthedateofvesting,basedonthemarketvalueofCobhamplcshareson3June2008,of£2.0925.

Aportionofthefairvalueoftherightsatthedateofissueassociatedwithpre-acquisitionservicewasallocatedtothecostofacquisitionandtheliabilityforthiselementhasbeenincludedwithinprovisionsascontingentconsideration.

Thefairvalueofthetotaloutstandingliabilityforthesecash-settledawardsat31December2010wasinsignificant(2009:£4.9m).Thetotalexpensefortheyearimpactingtheincomestatementis£2.2m(2009:£4.1m)andthisisincludedwithintransactionrelatedadjustmentsandexcludedfromunderlyingearningsasdescribedinnote7.

Detailsoftheawardsareasfollows:SPARTAawards

At1January2009 550,711

Forfeitedduringtheyear (38,499)

Exercisedduringtheyear (259,892)

At1January2010 252,320

Forfeitedduringtheyear (10,831)

Exercisedduringtheyear (241,291)

At31December2010 198

Vestedandexercisableasat31December2010 –

Vestedandexercisableasat31December2009 10

Averagefairvalueofawardsat31December2010 £1.152

Averagefairvalueofawardsat31December2009 £1.166

ThesefairvalueswerecalculatedusingtheBlack-Scholesoptionpricingmodeltodeterminethelikelyimpactofmarketrelatedperformanceconditions.Theinputsintothemodelwereasfollows:

At 31 December 2010

At31December2009

Sharepriceatdateofvaluation £2.035 £2.515

Exerciseprice £1.254 £1.160

Expectedvolatility 34% 32%

Averageoptionlife 3years 3years

Averageriskfreerate 1.5% 2.2%

Expecteddividendyield 2.8% 2.2%

ExpectedvolatilitywasdeterminedwithreferencetothehistoricalvolatilityoftheCobhamplcsharepriceandtheformulasharepriceforSPARTAsharesovertheexpectedlifeoftheoptions.Theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement’sbestestimate,fortheeffectsofnon-transferability,exerciserestrictionsandbehaviouralconsiderations.



11. Notes to the consolidated cash flow statementCash flows from operating activities

£m Note 2010 2009


Adjustmentsfor:

Taxcharge 4 36.5 59.0

Shareofpost-taxprofitsofjointventures (6.0) (6.1)

Netfinanceexpense 3 42.3 41.7

Depreciation 14,15 54.7 47.4

Amortisationofintangibleassetsexcludingthatarisingfromrestructuring 12 68.3 83.3

Writebackofnegativegoodwill 13 – (1.7)

Loss/(gain)onsaleofproperty,plantandequipment 2.3 (0.5)

Otherincome 20 (1.5) –

Businessrestructuring 7 17.5 7.7

Transactionrelatedadjustments 7 5.9 6.9

Unrealisedlosses/(gains)onrevaluationofcurrencyinstruments 26 2.8 (42.9)

Pensioncontributionsinexcessofpensionexpense (11.4) (7.2)

Share-basedpayments 10 7.3 5.8

Decreaseinprovisions (16.6) (5.8)

Operatingcashflowsbeforemovementsinworkingcapital 354.9 373.5

Increaseininventories (18.6) (19.2)

(Increase)/decreaseintradeandotherreceivables (1.0) 5.6

(Decrease)/increaseintradeandotherpayables (35.6) 11.2

Movementsinworkingcapital (55.2) (2.4)

Cashgeneratedfromoperations 299.7 371.1

Cashgeneratedfromoperationsfortheyearended31December2010isafterpaymentof£28.8minsettlementofacommercialdispute.

Reconciliation of net cash flow to movement in net debt

£m 2010 2009

Increaseincashandcashequivalentsintheyear 97.1 58.4

Netdecreaseinborrowings 15.9 70.8

Exchangemovements (26.5) 99.5

Movementinnetdebtintheyear 86.5 228.7

Netdebtatbeginningofyear (412.6) (641.3)

Netdebtatendofyear (326.1) (412.6)


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12. Intangible assets

£m Note 2010 2009

Goodwill 13 745.4 719.3

Otherintangibleassets(asbelow) 303.0 343.7

Totalintangibleassets 1,048.4 1,063.0

Movementsinotherintangibleassetsareasfollows:

£mCustomer

relationshipsTechnology

basedassetsDevelopment

costs Other Total

Cost

At1January2009 329.4 124.0 12.7 103.0 569.1

Additions–purchased – – – 4.8 4.8

Additions–internallygenerated – – 0.1 – 0.1

Recognisedonbusinesscombinations 11.6 0.3 – 1.3 13.2

Disposals – – – (0.1) (0.1)

Foreignexchangeadjustments (33.5) (12.1) (0.5) (10.7) (56.8)

Reclassifications – 8.5 (8.5) – –

At1January2010 307.5 120.7 3.8 98.3 530.3

Additions–purchased – – – 1.9 1.9

Additions–internallygenerated – – 0.3 – 0.3

Recognisedonbusinesscombinations 12.5 2.4 – 0.2 15.1

Disposalsandderecognitions – – – (39.5) (39.5)

Foreignexchangeadjustments 8.5 2.9 0.1 3.4 14.9

Reclassifications – – – 2.0 2.0

At31December2010 328.5 126.0 4.2 66.3 525.0

Accumulatedamortisation

At1January2009 48.1 21.2 1.8 44.8 115.9

Chargefortheyear 41.7 17.1 (0.2) 24.7 83.3

Disposals – – – (0.1) (0.1)

Foreignexchangeadjustments (5.2) (2.1) (0.1) (5.1) (12.5)

At1January2010 84.6 36.2 1.5 64.3 186.6

Chargefortheyear 40.9 16.4 0.6 12.4 70.3

Disposalsandderecognitions – – – (39.4) (39.4)

Foreignexchangeadjustments 1.7 0.6 – 2.2 4.5

At31December2010 127.2 53.2 2.1 39.5 222.0

Carryingamount

At31December2010 201.3 72.8 2.1 26.8 303.0

At31December2009 222.9 84.5 2.3 34.0 343.7

Customerrelationshipsrepresentsthecostofcustomerlists,customercontractsandtherelatedcustomerrelationshipsheldbyacquiredbusinessesatthedateofacquisition.

Technologybasedassetsrepresentsthecostoftradesecretsandprocesses,patentedandunpatentedtechnologyandknow-howheldbytheacquiredbusinessesatthedateofacquisition,togetherwithpurchasedtechnologyassets.

Otherintangibleassetsrepresentpurchasedandacquiredpatents,licencesandtrademarks,softwarerightsandlicencesandtheorderbacklogofacquiredbusinessesatthedateofacquisition.Duringtheyearto31December2010,thecostandaccumulatedamortisationoforderbacklogwhichhasbeenfullyrealisedhavebeenderecognised.



13. Goodwill

£m Note Total

Cost

At1January2009 758.6

Arisingonbusinesscombinations 10.5

Arisingonbusinesscombinationsinprioryears 3.9

Resultingfrommovementsincontingentconsideration (5.0)

Writebackofnegativegoodwill 1.7

Foreignexchangeadjustments (50.4)

At1January2010 719.3

Arisingonbusinesscombinations 31 15.6

Resultingfrommovementsincontingentconsideration (0.4)

Eliminatedondisposalofundertakings (0.5)

Foreignexchangeadjustments 11.4

At31December2010 745.4

Accumulatedimpairmentlosses

At1January2009and2010,and31December2010 –

Carryingamount



ThegoodwillarisingonbusinesscombinationsinthecurrentandprioryearrelatestothebusinesscombinationsofRVision,IncandArgotek,Incasdescribedinnote31.

During2009thecontingentconsiderationinrespectofthepurchaseofPatriotAntennaSystemswasreassessed,resultinginthegenerationofnegativegoodwillwhichwaswrittenbacktotheincomestatementinaccordancewithIFRS3,BusinessCombinations.Additionallyduring2009,thecarryingvalueofintangibleassetswhicharoseontheacquisitionofPatriotAntennaSystemswasreassessedandadditionalamortisationof£2.6mwaschargedtotheincomestatement.Thisisincludedwithintheamortisationchargefortheyearasshowninnote12.

TheGrouphasnoindefinitelifeintangibleassetsotherthangoodwill.Goodwillisallocatedtoapproximately50cashgeneratingunits(CGUs).TheGrouptestsgoodwillimpairmentforeachCGUannuallyormorefrequentlyifthereareindicationsthatgoodwillmightbeimpaired.

TherecoverableamountsoftheCGUsaredeterminedfromvalueinusecalculationsunlessspecificconditionsataCGUdictateotherwise.Forboththecurrentandcomparativeyearstherehavebeennosuchexceptions.Thekeyassumptionsforthevalueinusecalculationsarethoseregardingthediscountrates,growthratesandoperatingcashprojectionsduringtheperiodforwhichmanagementhavedetailedplans.Managementestimatediscountratesusingpre-taxratesthatreflectcurrentmarketassessmentsoftheGroup’stimevalueofmoneyandtherisksspecifictotheCGUbeingmeasured.

TheGroupannuallypreparescashflowforecastsforthefollowingfiveyearsatstrategicbusinessunitlevelandthisisapprovedbymanagementforthecomingyear.Thegrowthrateassumedafterthisfiveyearperiodisbasedonlong-termGDPprojectionsoftheprimarymarketfortheCGU.Thelong-termprojectionsusedareintherange2.5%to3.0%.ThegrowthratesassumethatdemandforourproductsintheUSAandintheUKremainsbroadlyinlinewiththeunderlyingeconomicenvironmentinthelongtermfuture.Takingintoaccountourexpectationoffuturemarketconditionswebelievethattheevolutionofsellingpricesanddirectcostswillreflectpastpractices.WhereCGUsareatbusinessunitlevelfiveyearforecastsarenotavailableandthereforethelong-termgrowthprojectionsareappliedtothefollowingyear’scashflowforecast.

Thepre-taxrateusedtodiscounttheforecastcashflowsis10.1%(2009:10.6%)havingconsideredthecountryandcurrencyrisksintheprincipalterritoriesinwhichtheGroupoperates.

Followingdetailedreview,noimpairmentlosseshavebeenrecognisedintheperiod.

ThegoodwillallocatedtoeachofCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdaleareconsideredtobeindividuallysignificantastheyrepresentmorethan10%oftheGroup’stotalgoodwillcarryingvalue.Aftertranslationusingyear-endforeignexchangerates,theseCGUshave£134.5m,£93.8mand£75.9mofgoodwillrespectively,representing40.8%ofthetotalbalance.Withintheremaining£441.2mtherearenootheramountsconsideredindividuallysignificant.CobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdaleareallwithintheCobhamDefenceSystemsDivisionandtheyalloperateprimarilyintheUSdefencemarket.


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Therecoverableamountsassociatedwiththesegoodwillbalanceshavebeendeterminedonavalueinusebasis.Avalueinusetestrequirescomparisonofassetcarryingvalueswithpre-taxcashflows.Keyassumptionsandsensitivitiesareasfollows:

• ThefiveyearplansforCobhamAnalyticSolutionsandoneyearplansforM/A-COMandCobhamSensorElectronicsinLansdalehavebeenextrapolatedinperpetuityusingalong-termUSGDPgrowthrateof3.0%anddiscountedusingtheGroup’sdiscountrate.AkeyassumptioninderivingthegrowthrateisthatmarketdemandintheproductsandservicesprovidedbyCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdalegrowbroadlyinlinewiththeunderlyingeconomicenvironmentfortheforeseeablefuture.Thegrowthratewouldneedtodecreaseto-3.1%,0.6%and2.3%forCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdalerespectivelyinorderforthecarryingvaluetobeimpaired.

• Sensitivityanalysishasdeterminedthatthediscountrateof10.1%isaninfluentialassumptionontheoutcomeoftherecoverableamountcalculation.TherecoverableamountsofCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdaleexceedthetotalcarryingvalueofassetsfortheCGUbyUS$220.6m,US$82.1mandUS$19.4mrespectively;thediscountratewouldneedtoincreaseto14.1%,12.5%and10.8%forCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdalerespectivelyinorderforthecarryingvaluetobeimpaired.

• Sensitivityanalysishasalsobeenperformedontheoperatingcashflowprojections.Cashflowscanbeimpactedbychangestosalesprojections,salespricesanddirectcosts.InorderforthecarryingvalueofgoodwillforCobhamAnalyticSolutions,M/A-COMandCobhamSensorElectronicsinLansdaletobeimpairedtheexpectedcashflowsforeveryyearwouldneedtoreduceby37%,25%and8%respectively.

TheDirectorshavenotidentifiedanyotherlikelychangesinothersignificantassumptionsthatwouldcausethecarryingvalueofrecognisedgoodwilltoexceeditsrecoverableamount.



14. Property, plant and equipment

Landandbuildings Plantandmachinery

(includingaircraft&vehicles)

Fixturesfittings

toolsandequipment

Paymentsonaccountandassetsunderconstruction Total£m Freehold

Longleases

Shortleases

Cost

At1January2009 75.5 32.4 8.3 469.9 72.7 7.0 665.8

Additions 4.6 0.5 0.8 47.6 9.7 11.4 74.6

Acquiredwithbusinesscombinations – – – 0.1 – – 0.1

Arisingfrombusinesscombinationsinprioryears – – – (1.2) – – (1.2)

Disposals – – (0.1) (17.1) (6.4) (0.1) (23.7)

Foreignexchangeadjustments (2.8) (1.4) (0.9) 11.8 (2.0) (0.9) 3.8

Reclassifications 0.1 – 0.4 0.9 – 0.2 1.6

At1January2010 77.4 31.5 8.5 512.0 74.0 17.6 721.0

Additions 5.4 1.8 4.0 27.6 8.4 17.7 64.9

Acquiredwithbusinesscombinations – – – 0.1 0.2 – 0.3

Disposalofundertakings – – – (1.4) (1.1) – (2.5)

Disposals (6.6) (0.2) – (20.9) (6.8) – (34.5)

Foreignexchangeadjustments 3.0 0.3 0.2 36.9 2.9 0.4 43.7

Reclassifications 7.0 – – 6.1 4.8 (23.3) (5.4)

At31December2010 86.2 33.4 12.7 560.4 82.4 12.4 787.5

Accumulateddepreciation

At1January2009 21.5 7.2 3.7 290.1 52.2 – 374.7

Depreciationchargefortheyear 2.8 1.9 1.3 32.6 8.5 – 47.1

Eliminatedondisposals – – (0.1) (17.1) (5.2) – (22.4)

Foreignexchangeadjustments (0.8) (0.3) (0.4) 5.5 (1.2) – 2.8

Reclassifications – – 0.1 0.5 – – 0.6

At1January2010 23.5 8.8 4.6 311.6 54.3 – 402.8

Depreciationchargefortheyear 3.2 2.3 1.3 39.1 8.5 – 54.4

Eliminatedondisposalofundertakings – – – (1.3) (1.0) – (2.3)

Eliminatedondisposals (4.0) – – (17.4) (5.9) – (27.3)

Foreignexchangeadjustments 0.8 0.1 0.1 18.1 2.1 – 21.2

Reclassifications (0.9) – 0.1 0.2 (0.4) – (1.0)

At31December2010 22.6 11.2 6.1 350.3 57.6 – 447.8

Carryingamount

At31December2010 63.6 22.2 6.6 210.1 24.8 12.4 339.7

At31December2009 53.9 22.7 3.9 200.4 19.7 17.6 318.2

ThecarryingamountoftheGroup’splantandmachineryincludesanamountof£0.3m(2009:£0.6m)inrespectofassetsheldunderfinanceleases.Theseassetsareheldassecurityagainstthefinanceleaseliabilities.


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15. Investment properties

£m Total

Cost

At1January2009 14.8

Disposals (1.6)

Foreignexchangeadjustments (0.7)

At1January2010 12.5

Foreignexchangeadjustments 0.2



At1January2009 1.8

Eliminatedondisposals (0.9)

Depreciationchargefortheyear 0.3

At1January2010 1.2

Depreciationchargefortheyear 0.3


Carryingamount



AlloftheGroup’sinvestmentpropertiesareheldunderfreeholdinterestsandarevaluedunderthecostmodel.

PropertyrentalincomeearnedbytheGroupfromitsinvestmentpropertiesamountedto£1.7m(2009:£1.8m),whichisnetofalldirectcostsassociatedwiththeleasingoftheproperty,savefordepreciation.Thebuildingsareleasedtocommercialusersonoperatingleaseswithtermsofbetween5and25years,commencingin1998,2006,2008,2009and2010.

ThefairvalueoftheGroup’sUKinvestmentpropertieshasbeenassessedtobe£10.8m(2009:£9.5m).For2010thisisbasedonaDirectorsestimatewhilefor2009thisisbasedonestimatedmarketpricesprovidedbyexternalvaluers,VailWilliamsLLP,asat31December2009.ThefairvalueoftheGroup’sinvestmentpropertyintheUSAisassessedtobeUS$10.0m(2009:US$8.9m)basedonmarketdata.

16. Investments in joint venturesTheGrouphasthefollowinginterestsinjointventureswithintheAviationServicesDivision:

• 45%ofthevotingsharecapitalinAviationDéfenseServiceSA,acompanyincorporatedinFrance.• 50%ofthevotingsharecapitalinFBHeliservicesLimited,acompanyincorporatedinEngland.• 50%ofthevotingsharecapitalinFBSLimited,acompanyincorporatedinEngland.• 50%ofthevotingsharecapitalinFBLeasingLimited,acompanyincorporatedinEngland.

Notwithstandingthefactthattheholdingis45%,thegovernancestructureforAviationDéfenseServiceSAissuchthatthegrouphasjointcontrolwithitspartnerandthereforetheinvestmentistreatedasajointventure.

WithintheCobhamDefenceSystemsDivision,theGrouphasa50%interestinNorthropGrummanCobhamIntercomsLLC,acompanyincorporatedintheUSA.



Theshareofthebalancesheetsandincomestatementsofthejointventureswhichhasbeenincludedintheconsolidatedfinancialstatementsisasfollows:

£m 2010 2009

Currentassets 16.1 13.6

Non-currentassets 46.7 47.5

62.8 61.1

Currentliabilities (18.2) (16.3)

Non-currentliabilities (27.4) (27.4)

(45.6) (43.7)

Netassets 17.2 17.4

Income 44.1 47.5

Expenses (35.7) (39.2)

17. Inventories

£m 2010 2009

Rawmaterialsandconsumables 125.1 121.5

Workinprogress 170.4 141.3

Finishedgoodsandgoodsforresale 32.2 27.7

Allowanceforobsolescence (40.3) (40.7)

287.4 249.8

Duringtheyear£15.0m(2009:£12.7m)wasprovided,£10.7m(2009:£10.8m)wasutilisedand£2.6m(2009:£4.9m)oftheallowanceforobsolescencewasreversed.Inaddition,£2.7mwasreleasedasaresultofbusinessdisposalsintheyear(2009:nil).

Thisallowanceisreviewedbymanagementonaregularbasisandfurtheramountsareprovidedorreleasedasconsiderednecessary.Theamountsaregenerallydeterminedbasedonfactorswhichincludeageingandknowndemand.Subsequenteventsmaygiverisetotheseestimatesbeingrevisedand,consequently,toreversalofamountspreviouslyprovided.Noinventorywaswrittenoffdirectlytotheincomestatement(2009:£nil).

Inventorywillberealisedwithinthenormaloperatingcycleofthebusinessesandtheamountexpectedtoberealisedaftermorethan12monthsisnotconsideredtobematerial.

18. Trade and other receivables18a. Current

£m 2010 2009

Tradereceivables(netofprovisionforimpairment) 265.8 258.4

Accruedincome 38.3 33.7

Otherreceivables 12.6 11.6

Prepayments 22.3 25.4

339.0 329.1

18b. Non-current

£m 2010 2009

Otherreceivables 19.3 44.4

At31December2009,othernon-currentreceivablesincludedUS$30mseniorloannoteswhichwerereceivedonthedivestmentofM/A-COMTechnologySolutionsInc(MTS).TheseloannoteswererepaidearlyinDecember2010.


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18c. Impairment of trade receivables

£m 2010 2009

Tradereceivables 268.2 263.8

Provisionforimpairmentoftradereceivables (2.4) (5.4)

Nettradereceivables 265.8 258.4

TheGrouphasnotexperiencedanymaterialchangeinperformancewithrespecttotherecoveryoftradereceivables.Asignificantproportionofitsbusinessisdirectlywithgovernmentagenciesorinrespectoflargegovernmentfundedmilitaryprogrammes,whereriskisconsideredtoremainlow.Informationconcerningcreditriskisshowninnote28.

Thecreditqualityoftradereceivablescanbeanalysedasfollows:

£m 2010 2009

Amountscurrentlyornotyetdueandnotimpaired 218.5 210.5

Amountspastduebutnotimpaired 46.6 42.7

Amountsforwhichfullorpartialimpairmentprovisionhasbeenmade 3.1 10.6

At31December 268.2 263.8

Tradereceivableswhicharepastduebutnotconsideredbymanagementtobeimpairedareagedasfollows:

£m 2010 2009

Dueat31December 32.9 32.1

1monthoverdue 5.9 6.9

2monthsoverdue 4.0 1.9

3ormoremonthsoverdue 3.8 1.8

46.6 42.7

Thetotalamountsandageingoftradereceivablesconsideredtobefullyorpartiallyimpairedareasfollows:

£m 2010 2009

Dueat31December 0.5 4.9

1monthoverdue 0.1 1.8

2monthsoverdue – 1.1

3ormoremonthsoverdue 2.5 2.8

3.1 10.6

£2.4m(2009:£5.4m)hasbeenprovidedagainsttheabovetradereceivableswhichareconsideredfullyorpartiallyimpaired.Movementsinthisprovisionduringtheyearareasfollows:

£m 2010 2009

At1January 5.4 9.7

Additionalprovisions 2.6 1.7

Utilised (1.5) (1.5)

Unusedamountsreversed (4.2) (4.4)

Foreignexchangemovements 0.1 (0.1)

At31December 2.4 5.4

Thecreationandreversaloftheprovisionforimpairedtradereceivableshavebeenincludedinadministrativeexpensesintheincomestatement.Asnotedabove,theGroup’sexperienceoftherecoverabilityofreceivableshasnotchangedsignificantlyoverthelastfewyears.Therefore,thebalanceoftheadditionalprovisionmadein2008toreflectuncertaintyintheeconomyandthecommercialmarketplacehasnowbeenreleased.

Otherclassesoffinancialassetswithintradeandotherreceivablesdonotincludeanyoverdueorimpairedassets.



18d. Trade investmentsCobhamplcsubscribedfornon-controllingshareholdingsinthreecompaniesinconnectionwiththeFutureStrategicTankerAircraftprojectin2008.Thetotalamountinvestedtodateis£44,000,thisisheldasatradeinvestmentandtheresultsofthesecompaniesarenotconsolidatedwithintheresultsoftheGroup.Cobhamplchascommittedtomakingfurtherinvestmentsforthisprojectasdetailedinnote33.

19. Cash and cash equivalents

£m 2010 2009

Cashandcashequivalentsperbalancesheet 473.0 366.4

Bankoverdrafts (2.3) (5.0)

Cashandcashequivalentspercashflowstatement 470.7 361.4

CashandcashequivalentsincludetermdepositsinAustraliaequivalentto£9.3mintotal(2009:£8.4m).Thesetermdepositscurrentlysatisfyarequirementtoprovidesecurityovertheresidualvalueofleasedassetsunderanagreementwhichexpiresin2020butcanberealisedwithinthreemonthsunderthetermsoftheagreements.Also,inconnectionwiththeFutureStrategicTankerAircraftproject,asmallnumberofaccountshavebeenestablished,thebalancesofwhicharesubjecttochargesincertaincircumstances.Therewerenobalancesontheseaccountsduring2010or2009orattheyearenddates.

20. Assets held for sale

£m 2010 2009

Assetsheldforsale 1.6 –

Assetsrecognisedasheldforsaleat31December2010includepropertyandprepaymentsandrelatetotheclosureofonesiteasaresultofrestructuringactivities.

TheassetsofM/A-COMTechnologySolutionsInc(MTS)wereshownasheldforsaleasat31December2008andthedivestmentofMTSwascompletedinMarch2009.Duringtheyearto31December2010aprofitof£1.5mwasrecognisedrelatingtotheearnoutagreement.Theconsiderationforthedivestmentincludedcash,securedseniorloannotesandanamountcontingentonfuturerevenuesintheperiod2010to2012.Duringtheyearto31 December2010,£24.5m(2009:£19.9m)wasreceivedinconnectionwiththistransaction.

Othercashoutflowsarisingintheyearfromassetsheldforsaleinprioryearsamountedto£1.3m(2009:£0.6m).

21. Trade and other payables21a. Current liabilities

£m 2010 2009

Paymentsreceivedonaccount 62.8 42.9

Tradepayables 107.5 97.5

Othertaxesandsocialsecurity 19.0 17.2

Accrualsanddeferredincome 138.5 138.6

Contingentanddeferredconsideration 3.5 6.2

Otherliabilities 28.0 54.7

359.3 357.1

21b. Non-current liabilities

£m 2010 2009

Paymentsreceivedonaccount 7.9 10.1

Tradepayables 0.2 0.2


Contingentanddeferredconsideration 12.0 –

Otherliabilities 6.0 8.6

32.2 26.8

Contingentanddeferredconsiderationat31December2010includescontingentconsiderationrelatingtobusinesscombinationscompletedonorafter1January2010.Forbusinesscombinationscompletedpriortothatdate,contingentconsiderationisincludedinprovisionsinnote22.


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22. Provisions

£m 2010 2009

Currentliabilities 37.8 52.5

Non-currentliabilities 4.6 7.9

42.4 60.4

Movementsinprovisionsduringtheyearareasfollows:

£mContingent

considerationWarranty

claimsContractloss

provisions

Aircraftmaintenance

provisions

Provisionsonbusinessdisposals Other Total

At1January2010 4.1 7.1 5.8 4.8 17.6 21.0 60.4

Additionalprovisionsintheyear 0.3 3.8 3.5 2.2 – 2.5 12.3

Acquiredonbusinesscombinations – – – – – 0.1 0.1

Utilisationofprovisions (4.2) (1.8) (2.7) (2.3) (1.8) (6.9) (19.7)

Unusedamountsreversedintheyear (0.4) (0.7) (5.2) (2.3) – (5.8) (14.4)

Reclassifications – (2.0) 4.3 – – 0.4 2.7

Foreignexchangeadjustments 0.2 0.1 (0.1) 0.6 – 0.2 1.0

At31December2010 – 6.5 5.6 3.0 15.8 11.5 42.4

Closingbalancesareanalysedas:

Currentliabilities – 6.5 4.7 0.6 15.8 10.2 37.8

Non-currentliabilities – – 0.9 2.4 – 1.3 4.6

– 6.5 5.6 3.0 15.8 11.5 42.4

Contingent considerationContingentconsiderationincludedinprovisionsabovehasbeenprovidedinrelationtobusinesscombinationscompletedpriorto1January2010.Thesewereallsettledin2010.Contingentconsiderationrelatingtobusinesscombinationscompletedafter1January2010isincludedasafinancialliabilityandshowninnote21.

Provisionsforcontingentconsiderationweremadewhereitisconsideredprobablethattheconditionsapplicabletothepaymentofcontingentconsiderationwouldbemet.Theamountprovidedisthereforetheamountconsideredlikelytobepayable.Arrangementsofthisnaturevaried,buttypicallyextendedforuptofiveyearsandwerediscountedwherepayableaftertwoyears.Theprovisionat31December2009wasnotdiscountedalthoughtheunwindingofdiscountsintheyearto31December2009resultedinafinancechargeof£0.1m.Anyreassessmentsoftheseprovisionsareaccountedforasadjustmentstogoodwill.

UndercurrentIFRSstandardsadditionto,orreleaseof,contingentconsiderationprovisionsinperiodsafterthecompletionoftherelatedtransactionwereregardedaspurchasepriceadjustmentsandareaccountedforasadjustmentstogoodwill(seenote13).

Warranty claimsThewarrantyprovisionrepresentsmanagement’sbestestimateoftheGroup’sliabilityunderwarrantiesgrantedonproductssold,basedonpastexperienceandindustryaveragesfordefectiveproducts.Itisanticipatedthatmostofthesecostswillbeincurredinthenextfinancialyear.

Contract loss provisionsContractlossprovisionsrepresentmanagement’sbestestimateoftheamountbywhichtheexpectedbenefitsfromcertainspecificcontractsarelowerthantheunavoidablecostofmeetingitsobligationsunderthosecontracts.Thetimeframewithinwhichsuchprovisionswillunwindvariesbycontract,butisgenerallywithinoneyear.

Aircraft maintenance provisionsAircraftmaintenanceprovisionsareestablishedinrespectofsignificantperiodicmaintenancecosts,wheremaintenanceactivityisrequiredonleasedoperationalaircraftorenginesonacyclegreaterthan12months,andwherespecificconditionsexistregardingthestateofaleasedaircraftonitsreturntothelessorattheendofthelease.Costsarechargedtotheincomestatementonthebasisofutilisationoftheaircraftandarecreditedtotheprovision.Theprovisionisthenutilisedbyabsorbingtheactualcostsincurredincarryingoutthemaintenanceactivityoronincurringtheexpenditurerequiredtoreturntheaircrafttothestateofmaintenancerequiredbeforereturnoftheaircrafttothelessor.



Provisions on business disposalsTheseprovisionsincludeamountsprovidedinrespectofthedivestmentofMTSin2009andwarrantiesgivenonthedisposalsoftheCountermeasuresoperationsandtheFluidandAirgroupin2005.Allamountshavebeendeterminedbasedonmanagement’scurrentestimatesoflikelyoutcomes.Duetouncertaintiessurroundingthetimingofsettlementoftheseitems,theyhavebeendisclosedasduewithinoneyear.

Other provisionsOtherprovisionsincludeamountsprovidedinrespectofannouncedbusinessrestructuringandlegalclaims.Allamountshavebeendeterminedbasedonmanagement’scurrentestimatesoflikelyoutcomesandmostareexpectedtobesettledwithinoneyear.

23. Deferred tax

£m 2010 2009

Deferredtaxassets (11.4) (22.3)

Deferredtaxliabilities 37.7 37.3

26.3 15.0

ThefollowingarethemajordeferredtaxliabilitiesandassetsrecognisedbytheGroup,andthemovementsthereon:

£mAcceleratedtax

depreciationRetirementbenefit

obligationsIntangible

assets Other Total

At1January2009 10.5 (14.3) 56.0 (3.2) 49.0

(Credit)/chargetoincomestatement (1.1) 2.2 3.0 (16.8) (12.7)

(Credit)/chargetoothercomprehensiveincome – (20.3) – 2.3 (18.0)

Chargetoreserves – – – 2.0 2.0

Foreignexchangeadjustments 0.4 0.1 (5.5) (0.3) (5.3)

At1January2010 9.8 (32.3) 53.5 (16.0) 15.0

Charge/(credit)toincomestatement 1.7 5.0 (10.4) 5.9 2.2

Charge/(credit)toothercomprehensiveincome – 5.2 – (4.8) 0.4

Chargetoreserves – – – 2.0 2.0

Acquiredwithbusinesscombinations – – 6.1 – 6.1

Foreignexchangeadjustments 0.5 – 1.5 (1.4) 0.6

At31December2010 12.0 (22.1) 50.7 (14.3) 26.3

Inthetableabove,intangibleassetsexcludesbalancesrelatingtogoodwill.Otherdeferredtaxassetsandliabilitiesshownaboveincludebalancesarisingfromtemporarydifferencesinrelationtoprovisions,share-basedpayments,goodwillandderivativefinancialinstruments.

CertaindeferredtaxassetsandliabilitieshavebeenoffsetinaccordancewiththeGroup’saccountingpolicy.Deferredtaxbalances(afteroffset)forbalancesheetpurposesareanalysedasfollows:

£m 2010 2009

Deferredtaxliabilitiesfalldueasfollows:

Withinoneyear 0.9 1.1

Afteroneyear 36.8 36.2

37.7 37.3

Deferredtaxassetsarerecoverableasfollows:

Withinoneyear (6.1) (18.8)

Afteroneyear (5.3) (3.5)

(11.4) (22.3)


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Withouttakingintoconsiderationtheoffsettingofbalances,deferredtaxbalancesareasfollows:

£mAcceleratedtax

depreciationRetirementbenefit

obligationsIntangible

assets Other Total

Deferredtaxassets (0.1) (22.1) – (24.2) (46.4)

Deferredtaxliabilities 12.1 – 50.7 9.9 72.7

At31December2010 12.0 (22.1) 50.7 (14.3) 26.3

Deferredtaxassets (0.1) (32.3) – (25.2) (57.6)

Deferredtaxliabilities 9.9 – 53.5 9.2 72.6

At31December2009 9.8 (32.3) 53.5 (16.0) 15.0

Atthebalancesheetdate,theGrouphasunusedcapitallossesof£65.6m(2009:£73.5m)potentiallyavailableforoffsetagainstfutureprofitsincertaincircumstances. Nodeferredtaxassethasbeenrecognisedinrespectofthisamountbecauseoftheunpredictabilityoffuturequalifyingprofitstreams. Theselossescanbecarriedforwardindefinitely.

Atthebalancesheetdate,theaggregateamountoftemporarydifferencesassociatedwithundistributedearningsofsubsidiariesandjointventuresforwhichdeferredtaxliabilitieshavenotbeenrecognisedis£403.9m(2009:£407.8m).

ThemainrateofUKcorporationtaxwillreducefrom28%to27%from1April2011,withfurtherreductionsproposedtoreducetherateto24%by1April2014.

TheGroup’sshareofthetaxontemporarydifferencesarisinginconnectionwithinterestsinjointventures(includedwithintheGroup’sshareofassetsandliabilitiesasshowninnote16)was£3.7m(2009:£4.0m).

24. Borrowings

£m Note 2010 2009

Current

Bankloansandoverdrafts 313.3 401.5

Loannotes 1.3 1.2

Seniornotes 1.1 –

Otherborrowings 0.1 –

Financeleases 25 0.1 0.1

315.9 402.8

Non-current

Bankloans 47.9 46.4

Loannotes 2.4 3.7

Seniornotes 432.1 325.1

Otherborrowings 0.2 0.3

Preferenceshares 29 – –

Financeleases 25 0.6 0.7

483.2 376.2

Totalborrowings 799.1 779.0

Bankloansandoverdraftsincludeatotalof£307.3mdrawnunderrevolvingmulti-currencycreditagreementsofUS$75.0mand£300.0mwhichexpireinJuly2012.Thedrawdownsunderthesearrangementsareforperiodsnotexceedingthreemonthsandhencethisbalanceisreportedwithincurrentborrowings.

OtherprincipalborrowingfacilitiesincludeaUS$75.0m(£47.9m)fullydrawncreditagreementwhichexpiresinDecember2031althoughthelenderhasaseriesofputoptionsexercisableeverythreeyearsfromDecember2013.

Allbankoverdraftsarerepayableondemand.

Inadditiontobankloansandoverdrafts,fixedrateseniornoteshavebeenissuedinpreviousyearsandatotalofUS$520.0mareoutstandingattheyearend.Duringtheyearto31December2010,atotalofUS$155.0mfloatingrateseniornoteswereissued,expiringin2017and2018.



Seniornotesclassifiedasnon-currentmatureasfollows:

£m 2010 2009

Betweenoneandtwoyears 109.5 –

Betweentwoandthreeyears – 161.0

Betweenthreeandfouryears 54.3 –

Afterfiveyears 268.3 164.1

432.1 325.1

Amountsdueafterfiveyearsmaturein2017,2018and2019.

NoneofthevariousloanandnotesubscriptionagreementscontainanyprovisionsforchargesoverGroupassets,althoughtheydoincludebothfinancialandnon-financialcovenants.ThetermsofthefinancialcovenantsarebasedonadjustedIFRSresults.Therehavebeennobreachesofthetermsofagreementsordefaultsduringthecurrentorcomparativeperiods.

Borrowingsareheldunderbothfixedandfloatingratesasfollows:

£m 2010 2009

Fixedrates:


Floatingrates:

Bankloansandoverdrafts 361.2 447.9

Seniornotes 99.0 –

Loannotes 3.7 4.9

Otherborrowingsandfinanceleases 1.0 1.1

799.1 779.0

TheGroupusesinterestrateswapstomanageinterestraterisks;furtherdetailsaregiveninnote28.

ThecarryingamountsoftheGroup’sborrowingsaredenominatedinthefollowingcurrencies:

£m 2010 2009

Sterling 0.1 5.0

USdollars 733.0 711.1

Australiandollars 64.7 62.3

Euros 0.5 0.2

Othercurrencies 0.8 0.4

Total 799.1 779.0

FurtherdetailsoftheGroup’smanagementofforeigncurrencyriskaregiveninnote28.

25. Obligations under finance leasesTheGrouphastotalobligationsunderfinanceleasesof£0.7m(2009:£0.8m),ofwhich£0.1m(2009:£0.1m)isdueforsettlementwithinoneyear.Thepresentvalueoftheminimumleasepaymentsandthegrossminimumleasepaymentswerenotmateriallydifferentinthecurrentorcomparativeyear.


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26. Derivative financial instrumentsThefairvaluesofderivativefinancialinstrumentsareasfollows:

£mInterestrateswaps–cashflowhedges

Foreignexchangederivatives Total

Derivativefinancialinstruments–non-currentassets – 0.5 0.5

Derivativefinancialinstruments–currentassets – 6.5 6.5

Derivativefinancialinstruments–currentliabilities (9.6) (5.2) (14.8)

Derivativefinancialinstruments–non-currentliabilities (15.1) (12.1) (27.2)

Fairvalueat31December2010 (24.7) (10.3) (35.0)

Derivativefinancialinstruments–non-currentassets – 2.3 2.3


Derivativefinancialinstruments–currentliabilities (6.7) (3.9) (10.6)

Derivativefinancialinstruments–non-currentliabilities (10.6) (16.1) (26.7)


Themovementsinfairvalueofderivativefinancialinstrumentsduringtheyearcanbeanalysedasfollows:

£m NoteInterestrateswaps–cashflowhedges


Fairvalueat1January2009 (53.2) (57.4) (110.6)

Movementsinyearto31December2009

–cancellationofcashflowhedge 13.6 – 13.6

–fairvaluegainthroughincomestatement–nothedged – 42.9 42.9

–fairvaluegainthroughincomestatement–other – 5.2 5.2

–fairvaluegainreclassifiedtoincomestatement 13.9 – 13.9

–fairvaluegain/(loss)throughOCI–hedgeditems 30 5.2 (0.3) 4.9

–foreignexchangeadjustments 30 3.2 – 3.2


Movementsinyearto31December2010

–fairvaluelossthroughincomestatement–nothedged – (2.8) (2.8)

–fairvaluegainthroughincomestatement–other – 2.1 2.1

–fairvaluegainreclassifiedtoincomestatement 14.5 – 14.5

–fairvaluelossthroughOCI–hedgeditems 30 (21.2) – (21.2)

–foreignexchangeadjustments 30 (0.7) – (0.7)


Interestrateswapsaredesignatedascashflowhedginginstrumentsandhedgeaccountingisapplied.Thereisnomaterialineffectivenessincashflowhedgestobereportedthroughtheincomestatement.

Foreignexchangederivativesarenotaccountedforusinghedgeaccountingandmovementsinfairvaluesarerecordedintheincomestatementaspartofoperatingprofit.Themovementinthefairvalueofcurrencyswapswhichoffsetmovementsincurrencybalancesareoffsetagainstexchangemovementsinthosebalancesintheincomestatement.

FulldetailsoftheGroup’sfinancialinstrumentaccountingpoliciesandriskmanagementstrategies,objectivesandpoliciesaresetoutinthestatementofaccountingpoliciesandinnote28.

During2009interestrateswapswhichhadpreviouslybeendesignatedascashflowhedgeswereterminated,andtherelatedhedgereserveisbeingamortisedoverthelifeoftheoriginalforecastissuance.In2010£3.1m(2009:£2.6m)wasreclassifiedfromthehedgereservetotheincomestatementandreflectedinotherfinanceexpense.



27. Financial instrumentsTheGroup’sfinancialassetsandliabilitiescanbecategorisedasfollows:

£m NoteLoansand

receivablesFairvaluethrough

profitorlossAmortised

costDerivativesused

forhedgingTotalcarrying

amount

Financialassets

Cashandcashequivalents 19 473.0 – – – 473.0

Tradereceivables 18 265.8 – – – 265.8

Otherreceivables 18 70.2 – – – 70.2

Derivativecontracts(nothedgeaccounted) 26 – 7.0 – – 7.0

Financialliabilities

Tradepayables 21 – – (107.7) – (107.7)

Borrowings 24 – – (799.1) – (799.1)

Derivativecontracts(nothedgeaccounted) 26 – (17.3) – – (17.3)

Otherliabilities 21 – – (139.2) – (139.2)

Hedginginstruments

Liabilities 26 – – – (24.7) (24.7)

Netfinancialliabilitiesasat31December2010 (272.0)

Financialassets

Cashandcashequivalents 19 366.4 – – – 366.4

Tradereceivables 18 258.4 – – – 258.4

Otherreceivables 18 89.7 – – – 89.7

Derivativecontracts(nothedgeaccounted) 26 – 10.4 – – 10.4

Financialliabilities

Tradepayables 21 – – (97.7) – (97.7)

Borrowings 24 – – (779.0) – (779.0)

Derivativecontracts(nothedgeaccounted) 26 – (20.0) – – (20.0)

Otherliabilities 21 – – (139.7) – (139.7)

Hedginginstruments

Liabilities 26 – – – (17.3) (17.3)

Netfinancialliabilitiesasat31December2009 (328.8)

Marketvalueshavebeenusedtodeterminethefairvaluesofbankoverdraftsandfloatingrateloans.Thecarryingvalueoftradeandotherreceivablesandtradepayablesandotherliabilitiesareassumedtoapproximatetotheirfairvaluesduetotheirshorttermnature.

IFRS7requiresthedisclosureoffinancialassetsandliabilitiesheldatfairvalueusingahierarchythatreflectsthesignificanceoftheinputsusedinmakingthemeasurements.Allfinancialinstrumentsmeasuredatfairvalueinthetableaboveareclassifiedaslevel2inthefairvaluemeasurementhierarchy,astheyhavebeendeterminedusingsignificantinputswhicharebasedonobservablemarketdata.Thefairvalueofinterestrateswaps,forwardforeignexchangecontracts,fixedrateloansandfinanceleaseshavebeendeterminedbytheuseofvaluationtechniques,primarilydiscountedcashflows,basedonassumptionsthataresupportedbyobservablemarketpricesorrates.

Asat31December2010,thefairvalueofthefixedrateseniornotesis£394.7m(2009:£377.7m).TheDirectorsconsiderthatthecarryingamountsofallotherfinancialassetsandliabilitiesrecordedinthesefinancialstatementsisequaltoorapproximatestotheirfairvalue.

TheGroup’sinvestmentintheFSTAcompaniesdescribedinnote18disclassifiedasavailableforsale.TheGroupdoesnotholdanyfinancialassetswhichwouldbeclassifiedasheldtomaturity.

Thetotalinterestincomeandexpenseforfinancialassetsandliabilitiesnotheldatfairvaluethroughprofitorlossisasfollows:

£m 2010 2009

Interestincome 7.9 13.9

Interestexpense (48.5) (50.8)


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28. Financial instruments and risk managementTheGroup’smulti-nationaloperationsanddebtfinancingexposeittoavarietyoffinancialriskswhichincludetheeffectsofchangesinforeigncurrencyexchangerates,creditrisk,liquidityriskandinterestrates.TheGrouphasinplaceariskmanagementprogrammethatseekstolimittheadverseeffectsonthefinancialperformanceoftheGroupbyusingforeigncurrencyfinancialinstruments,debt,andotherinstruments,includinginterestrateswaps.

Financial instrumentsTheGroupfinancesitsoperationsprimarilythroughamixtureofretainedprofitsandborrowings.TheGroupdoesnotusecomplexderivativefinancialinstruments.Whereitdoesusederivativefinancialinstrumentstheseareputinplacetomanagethecurrencyfinancingrisksandinterestraterisksarisingfromnormaloperations.Itis,andhasbeenthroughouttheperiodunderreview,theGroup’spolicythatnotradinginfinancialinstrumentsshallbeundertaken.

ForeigncurrencyriskandinterestrateriskarethemostsignificantexposuresfortheGroupforwhichfinancialinstrumentsareemployedasmitigation.TheGroupisexposedtootherriskssuchasliquidityriskandcreditrisk.TheBoardreviewsandagreespoliciesformanagingeachoftheserisksandtheyaresummarisedbelow.Thepolicieshaveremainedunchangedthroughouttheyear.

Foreign currency risk TheGroup,whichisbasedintheUKandreportsinsterling,hassignificantinvestmentinoverseasoperationsintheUSA,withfurtherinvestmentsinotherEuropeancountries,AustraliaandCanada.Asaresult,theGroup’sbalancesheetcanbeaffectedbymovementsinthesecountries’exchangerates.TheGroup’spolicyistoreduce,oreliminatewherepracticable,bothstructuralandtransactionalforeignexchangerisk.AllcurrencyexposuresarereviewedregularlyandallsignificantforeignexchangetransactionsareapprovedbyCobhamplcmanagement.

ThecarryingamountsoftheGroup’stotalforeigncurrencydenominatedmonetaryassetsandmonetaryliabilities,translatedattherelevantyear-endexchangerate,areasfollows:

2010 2009

£m US$ € AUS$ US$ € AUS$

Monetaryassets 268.8 86.7 85.3 316.3 76.8 58.8

Monetaryliabilities (882.9) (37.8) (109.5) (872.1) (47.6) (98.8)

ForeigncurrencyborrowingsareusedtomitigatetheimpactofforeigncurrencyexchangeratesontheGroup’soverseasnetassets.TheGrouptypicallyborrowsUSdollarstofundacquisitionsintheUSAandusesintercompanydebttocreateanaturaleconomichedge.Thefollowingborrowings(includedinmonetaryliabilitiesinthetableabove)andforeignexchangecontractsmatchexposuresarisingfromcurrencydenominatednetassets:

£m 2010 2009

USdollarborrowings 526.9 699.7

USdollarforeignexchangecontracts 161.0 172.8

Onconsolidation,thenetassetsofoverseassubsidiaries(whichincludesmonetaryassetsandliabilitiesshowninthetablesabove)aretranslatedatclosingexchangeratesandexchangedifferencesarisingareaccountedforinothercomprehensiveincomeandthetranslationreserve(note30).

TheGroupisexposedtoforeigncurrencyriskintheincomestatementwhereindividualsubsidiariesholdnon-functionalcurrencymonetaryassetsandliabilitiesandwhenanoperatingunitmakessalesandpurchasesincurrenciesotherthanitsownfunctionalcurrency.TheGroupundertakesaformalprocesstoactivelymanageandmitigatethisexposurethroughacombinationofmatchingnon-functionalcurrencyrevenuesandcosts,matchingnon-functionalcurrencymonetaryassetsandliabilitiesandthroughtheuseofforwardcontracts.

Thesterling/USdollarexchangerateisthemostimportantasfarastheGroupisconcerned,particularlygiventhelevelofUSdollarswhichnonUSbasedsubsidiariesexpecttoreceivefromtheirnormalbusinessactivities,andtheproportionoftheGroupbasedintheUSA.Inadditiontothelongertermborrowingstructure,anumberoffinancialinstrumentsareusedtomanagetheforeignexchangeposition,suchasforwardcontracts.ItistheGroup’scurrentbeliefthatthenetdollarreceiptsbyitssubsidiarieswillexceedtheleveloftheoutstandingcommitment.

ThefollowingtabledetailstheforwardforeigncurrencycontractsforsalesofUSdollarsoutstandingasat31December:

US$amount AverageUS$:£exchangerate

million 2010 2009 2010 2009

Expiringwithinoneyear 182.7 176.6 1.56 1.59

Expiringwithinonetotwoyears 52.4 78.8 1.60 1.57

Expiringaftertwoyears 83.1 32.0 1.61 1.68

318.2 287.4 1.58 1.59

ThelatestexpirydateofforwardforeigncurrencycontractsforsalesofUSdollarsisDecember2014.



ThefollowingtabledetailstheGroup’ssensitivitytoaweakeninginsterlingagainsttherespectiveforeigncurrencies.Thesensitivitiesbelowrepresentmanagement’sassessmentofthepossiblechangesinforeignexchangerates,basedonexperienceoverthepreviousfiveyears.ThesensitivityanalysisoftheGroup’sexposuretoforeigncurrencyriskatthereportingdatehasbeendeterminedbasedontheassumptionthatthechangeiseffectivethroughoutthefinancialyear.Theanalysisassumesthatallothervariables,includinginterestrates,remainconstantandincludestheeffectofderivativefinancialinstruments.Apositivenumberindicatesanincreaseinprofitaftertaxationandtotalequity.

2010 2009

£m Sensitivity Profit/(loss) Total equity Sensitivity Profit/(loss) Totalequity

USdollars 21% (33.9) (33.9) 20% (29.9) (29.9)

Euros 15% (9.0) (9.0) 14% (9.2) (9.2)

Australiandollars 21% (0.3) (0.3) 19% (0.1) (0.1)

Theexposuretomovementsinexchangeratesarisesduetooutstandingnon-functionalcurrencyfinancialinstruments,receivablesandpayablesattheyearend,includingborrowings.

Inordertoprovidecomparableinformation,sensitivityhasalsobeenassessedbasedona10%weakeninginsterlingagainsttherespectiveforeigncurrency,asfollows:

2010 2009

£m Sensitivity Profit/(loss) Total equity Sensitivity Profit/(loss) Totalequity

USdollars 10% (14.2) (14.2) 10% (13.2) (13.2)

Euros 10% (5.6) (5.6) 10% (6.3) (6.3)

Australiandollars 10% (0.1) (0.1) 10% – –

Interest rate riskTheGrouphasvariouslongandshorttermborrowings,principallyinUSdollarsandAustraliandollarsatbothfixedandfloatingratesofinterest.TheGroupcontinuallymonitorsitsexposuretomovementsininterestratesinordertobringgreaterstabilityandcertaintywithrespecttoborrowingcosts.Grouppolicyistoassessborrowingswithregardtofixedorvariableratesofinterestdependingonprevailingmarketconditionsandtouseinterestrateswapstomanagetheinterestraterisk.

Allfloatingrateborrowingshaveregularrepricingdates.Interestrateswapswhichmitigatetheexposurearisingonfloatingratedebtarealldesignatedascashflowhedgesandareasfollows:

Periodofswapcontract2010 2009

Hedgeditem Fixedrate from to Currencyvalue £m £m

USdollarloans 3.22% June2010 June2013 US$260.0m 166.1 161.0

3.49% March2008 March2013 US$139.0m 88.8 86.1

3.61% August2008 August2013 US$211.0m 134.8 130.7

Australiandollarloans 6.30% May2006 January2020 AUS$82.7m 54.1 50.6

6.40% January2007 January2020 AUS$16.1m 10.5 9.9

Surplusfundsareplacedonshorttermfixedratedepositsandassuchalsogiverisetointerestrateexposure.

ThefollowingtabledetailstheGroup’ssensitivitytoachangeof1.0%ininterestratesthroughouttheyear,withallothervariables,includingforeigncurrencyexchangerates,heldconstant.Apositivenumberindicatesanincreaseinprofitaftertaxationandtotalequitywhereinterestratesrise.Afallininterestrateswouldhavetheequalbutoppositeeffectonthebasisthatallothervariablesremainconstant.

2010 2009

£m Profit/(loss) Total equity Profit/(loss) Totalequity

Sterling 1.9 – 1.4 –

USdollars – 9.1 0.3 12.1

Euros 0.1 – 0.1 –

Australiandollars 0.2 2.6 0.3 2.6


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Liquidity riskTheGrouphasapositivecashflowfromoperatingactivitiesandwherepracticablethefundsgeneratedbyoperatingcompaniesaremanagedonaregionalbasis.ForshorttermworkingcapitalpurposesintheUK,mostoperatingcompaniesutiliselocalbankfacilitieswithinanoverallGrouparrangement.IntheUSacentraltreasuryfunctionismaintainedwhichallUSsubsidiariesuse.Thesepracticesallowabalancetobemaintainedbetweencontinuityoffunding,securityandflexibility.

Asregardsliquidity,theGroup’spolicythroughouttheyearhasbeentomaintainamixofshort,mediumandlong-termborrowingswiththeirlenders.ShorttermflexibilityisachievedbyoverdraftfacilitiesandtheuseoftheGroup’srevolvingcreditfacilitywhichexpiresinJuly2012.ThetablebelowsummarisestheremainingcontractualmaturityfortheGroup’sfinancialliabilities.Theamountsshownarethecontractualundiscountedcashflowswhichincludeinterest,analysedbycontractualmaturity.

2010 2009

£m Within one year 1–5 years Over 5 years Withinoneyear 1–5years Over5years

Non-derivativefinancialliabilities:

Tradeandotherpayables 220.8 26.4 2.7 218.5 16.1 2.8

Borrowings 316.0 214.9 268.4 402.9 212.2 164.2

Contingentconsideration(includedwithinprovisions) – – – 4.1 – –

Derivativecontracts:

Grosscashoutflows (74.8) (151.8) – (56.1) (133.0) –

Grosscashinflows 59.2 127.4 – 43.3 110.7 0.3

Inaddition,andtoprovideflexibilityinthemanagementoftheGroup’sliquidity,itistheGroup’spolicytomaintainundrawncommittedborrowingfacilitiesinvariouscurrencies.Thefollowingfacilities,whichareatfloatingrates,wereavailableat31December:

£m 2010 2009

Expiringwithinoneyear 46.6 48.4

Expiringbetweenoneandfiveyears – 65.4

46.6 113.8

Credit riskTheGrouphasnosignificantconcentrationsofcreditrisk.TheGroup’sprincipalfinancialassetsarebankbalances,cashandtradeandotherreceivables.

Thecreditriskonliquidfundsandderivativefinancialinstrumentsisminimalbecausethecounterpartiesarebankswithsatisfactorycreditratingsassignedbyinternationalcreditratingagencies.TheGroupfurtherlimitsriskinthisareabysettingamaximumlevelfordepositsoroverdraftswithanyonecounterparty.ThesefacilitiesarereviewedperiodicallyandalsoifthereisanindicationthatthecreditratingofanyoftheGroup’scorebankshasfallenbelowaMoody’sAa3rating.

ConcentrationsofcreditriskwithrespecttotradereceivablesarelimitedduetotheGroup’scustomerbasebeinglargeandunrelated.Customersaretypicallylargeglobalcompaniesorgovernmentagencieswithlong-termtradingrelationships.TheGroupalsohasinplaceproceduresthatrequireappropriatecreditchecksonpotentialcustomersbeforesalesaremade.Existingcustomeraccountsarealsomonitoredonanongoingbasisandappropriateactionistakenwherenecessarytominimiseanycreditrisk.TheDirectorsthereforebelievethereisnofurthercreditriskprovisionrequiredinexcessofnormalprovisionforimpairedreceivables.

Groupmanagementmonitortheageingofreceivableswhicharemorethanonemonthoverdueanddebtordaysonaregularbasis.At31December2010,6.1%(2009:6.2%)ofgrosstradereceivableswereoverduebyonemonthormore.

Themaximumexposuretocreditriskat31December2010isthefairvalueofeachclassofreceivableasdisclosedinnote18.Lettersofcreditaretheonlycollateralheldassecurityagainsttradereceivables.Theseareobtainedinalimitednumberofcasesinaccordancewithgoodbusinesspracticeandsecurelessthan£1.0mofreceivables.

TheGrouphaspledgedassetsonlyinrespectoffinanceleasesandbankaccountsasdisclosedinnotes14and19.NoassetshavebeenpledgedinrespectofanyoftheGroup’sprimaryborrowingfacilitiesorotherfinancialliabilities.

IntheUKandtheUSA,theGrouphasmasternettingarrangementsinrespectofbankbalances.Inthenormalcourseofbusinessthesebankaccountsaresettledonanetbasiswithineachcurrencyandassucharepresentednetinthefinancialstatements.Intheeventofanautomaticenforcementeventthebankbalancesareautomaticallysetoffagainsteachothertoachieveanetposition.



Capital risk managementGrouppolicyistomaintainastrongcapitalbase,definedastotalshareholders’equity,excludingnon-controllinginterests,totalling£1,075.8mat31 December2010(2009:£948.0m),soastomaintaininvestor,creditorandmarketconfidenceandtosustainfuturedevelopmentofthebusiness.Withinthisoverallpolicy,theGroupseekstomaintainanoptimumcapitalstructurebyamixtureofdebtandretainedearnings.Fundingneedsarereviewedperiodicallyandalsoeachtimeasignificantacquisitionismade.Anumberoffactorsareconsideredwhichincludethenetdebt/EBITDAratio,futurefundingneeds(usuallypotentialacquisitions)andproposeddividendlevels.Groupbankingarrangementsarealsoconsidered,theseincludefinancialcovenantswhicharebasedonadjustedIFRSresults.ThispolicyhasbeenreviewedbytheBoardonaregularbasisduringtheyearand,giventhecurrenteconomicclimate,continuestobeconsideredappropriate.TherehavebeennobreachesofthetermsoftheGroupbankingarrangementsordefaultsduringthecurrentorcomparativeperiods.

Duringtheyear,additionalfundinghasbeensecuredthroughprivateplacements.SuchagreementsareoneoftheGroup’sprimarysourcesoffundingandtypicallytheGroupborrowsUSdollarstofundacquisitionsintheUSA.Asnotedabove,theGroupmaintainsamixtureoffixedandfloatinginterestratearrangementsand,withinoverallnetdebt,willholddepositsinsterlingandborrowingsinoverseascurrenciessuchasUSdollars,eurosandAustraliandollarsfundingoverseasoperations.

29. Share capitalAuthorised

£m 2010 2009

1,479,200,000(2009:1,479,200,000)OrdinarySharesofparvalue2.5p 37.0 37.0

20,0006%secondcumulativePreferenceSharesof£1 – –

Ordinary Shares – issued and fully paid

Numberofshares £m

At1January2009 1,140,042,652 28.5

Exerciseofshareoptions 6,291,505 0.1

At1January2010 1,146,334,157 28.6

Exerciseofshareoptions 8,193,468 0.3

At31December2010 1,154,527,625 28.9

TheCompanyhasoneclassofOrdinaryShareswhichcarrynorighttofixedincome,representing99.9%ofthetotalissuedsharecapital.OnashowofhandseverymemberholdingOrdinaryShareswhoispresentinpersonorbyadulyauthorisedrepresentativehasonevoteandonapolleverymemberwhoispresentinpersonorbyproxyhasonevoteforevery£1innominalvalueofthesharesofwhichthememberistheholder.

19,7006%secondcumulativePreferenceShareshavebeenissued,representing0.1%oftotalissuedsharecapital.Thesearenon-redeemableandareclassifiedasborrowingswithavalueof£19,700.

Theshareholdersofthe6%secondcumulativePreferenceSharesareentitledtoreceiveafixedcumulativepreferencedividendattherateof6%perannuminprioritytothepaymentofdividendsontheOrdinaryShares.Inaddition,onareturnofassetsontheliquidationorotherwiseoftheCompany,theassetsavailablefordistributionaretobeappliedfirstinrepayingtotheholdersofthe6%secondcumulativePreferenceSharestheamountspaidupontheirshares.Onashowofhands,everymemberholding6%secondcumulativePreferenceShareswhoispresentinpersonhasonevoteandonapoll,everymemberhasonevoteforevery£1innominalamountofthesharesofwhichthememberistheholder.


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30. Other reserves

£m NoteTranslation

reserveHedgingreserve

Shareoptionsreserve

Totalotherreserves

At1January2009 45.1 (30.1) 22.2 37.2

Currencydifferencesontranslationofforeignoperations (3.8) – – (3.8)

Movementsoncashflowhedges 26 3.2 5.2 – 8.4

Reclassificationtoincomestatement – 16.5 – 16.5

Movementsinhedgedforeignexchangecontracts – (0.3) – (0.3)

Share-basedpaymentsrecognisedinreserves 10 – – 5.8 5.8

TransferofshareoptionsreserveonvestingofLTIPs – – (1.9) (1.9)

Transferofshareoptionsreserveonexercise – – (2.9) (2.9)

Taxeffects (0.9) (6.0) 1.7 (5.2)

At1January2010 43.6 (14.7) 24.9 53.8

Currencydifferencesontranslationofforeignoperations 20.8 – – 20.8

Movementsoncashflowhedges 26 (0.7) (21.2) – (21.9)

Reclassificationtoincomestatement – 17.1 – 17.1

Share-basedpaymentsrecognisedinreserves 10 – – 7.3 7.3

TransferofshareoptionsreserveonvestingofPSPs – – (2.7) (2.7)

Transferofshareoptionsreserveonexercise – – (4.6) (4.6)

Taxeffects 0.2 0.4 (0.6) –

At31December2010 63.9 (18.4) 24.3 69.8

ThetranslationreservecomprisesallforeignexchangedifferencesarisingontheresultsandfinancialpositionofsubsidiarieswhosefunctionalcurrenciesdifferfromtheGroup’sreportingcurrency,togetherwiththeforeignexchangemovementoncashflowhedgesasshowninnote26.

Thehedgingreservereflectsmovementsinfairvaluesoncashflowhedgingderivativesandhedgedforeignexchangecontractsasdetailedinnotes26and28.

TheshareoptionsreserveincludesthecostofshareoptionsasassessedunderIFRS2togetherwithdeferredtaxprovidedunderIAS12relatingtoshare-basedpayments,wherethecalculatedfuturetaxbenefitisinexcessoftheamountchargedtodateunderIFRS2.WhereshareoptionswhichgaverisetochargesunderIFRS2havebeenexercised,theappropriateproportionoftheshareoptionsreserveistransferredtoretainedearnings.

RetainedearningsincludesthepurchaseofCobhamplcordinarysharesbytheCobhamEmployeeBenefitTrustinconnectionwiththeCobhamBonusCo-investmentPlan,theCobhamExecutiveShareOptionSchemeandtheCobhamSavingsRelatedShareOptionScheme,andtheallocationofthesharesupontheexerciseofoptions.Unallocatedsharesareheldastreasuryshares.At31December2010,thetrustheld1,959,353(2009:nil)ordinaryshareswithamarketvalueof£4.0m(2009:nil).

31. Business combinationsTheacquisitionoftheentiresharecapitalofRVision,Incwascompletedon30December2010.RVisiondesigns,manufacturesandintegratestechnicallyadvancedelectro-opticalandinfraredimagingsystems,includingruggedisedpan/tilt/zoomcameras,hardenedprocessorsandtacticalvideohardwareandisreportedwithintheCobhamAvionicsandSurveillanceDivision.

ThetotalconsiderationforthisbusinesscombinationbeforediscountingwasUS$48.0m(£30.7m),includingcontingentconsiderationofuptoUS$20.0m(£12.8m),payablebetween2012and2014.Thecontingentconsiderationprovidedhasbeendiscountedandisincludedinfinancialliabilitiesinnote 21.

Thenetcashflowsresultingfrombusinesscombinationsareasfollows:

£m

Cashconsiderationpaidforthebusinesscombinationcompletedinthecurrentyear 17.5

Cashacquiredwiththebusinesscombinationcompletedinthecurrentyear (2.3)

Considerationrelatingtobusinesscombinationscompletedinpriorperiods 3.7

18.9

NoprofithasbeenrecognisedwithintheGroupresultssincethedateofacquisitionforRVision.



Iftheacquisitionhadtakeneffecton1January2010,itisestimatedthatGrouptotalrevenueswouldhavebeen£1,911.8mandprofitaftertax£153.5m.Thisinformationisnotnecessarilyindicativeoftheresultshadtheoperationsbeenacquiredatthestartoftheperiod,noroffutureresultsofthecombinedoperations.

AprovisionalsummaryofthebookandfairvaluesofthenetassetsacquiredontheacquisitionofRVisionisasfollows:

£mBookvaluepriorto

acquisition Fairvalue

Non-currentassets 0.3 15.4

Currentassets 4.9 4.9

Currentliabilities (0.9) (0.9)

Non-currentliabilities – (6.1)

Netassetsacquired 4.3 13.3

Goodwill 15.6

Totalconsideration(afterdiscountingofcontingentconsideration) 28.9

Theresidualexcessofthetotalcostoverthefairvalueofthenetassetsacquiredisrecognisedasgoodwillinthefinancialstatements.Goodwillrepresentsthepremiumpaidinanticipationoffutureeconomicbenefitsfromassetsthatarenotcapableofbeingseparatelyidentifiedandseparatelyrecognised.AdjustmentsfrombookvaluetofairvalueincludeadjustmentsarisingfromtherecognitionofintangibleassetsunderIFRS3,BusinessCombinations.

TheacquisitionoftheentiresharecapitalofArgotek,Incwascompletedon21May2009fortotalconsiderationofUS$36.25m,includingdeferredconsiderationofUS$10m.Fulldetailscanbefoundinthe2009AnnualReport.

Detailsofbusinesscombinationswhichtookplaceafter31December2010andbeforeapprovalofthesefinancialstatementsareshowninnote35,Eventsafterthebalancesheetdate.

On29September2010,thedivestmentofSatoriSASwasannounced,realisingalossof£0.3m.Cashconsiderationtotalling€7.9m(£6.4m)wasreceivedforthispartoftheAvionicsandSurveillanceDivision’sFrenchoperations.

32. Operating lease arrangementsAtthebalancesheetdatetheGrouphadoutstandingcommitmentsforminimumleasepaymentsdueundernon-cancellableoperatingleasesasfollows:

£m 2010 2009

Withinoneyear 31.1 29.5

Betweenoneandfiveyears 103.9 86.2


261.0 221.5

OperatingleasepaymentsrepresentrentalspayablebytheGroupforcertainofitsofficeandoperationalproperties,andoperationalaircraftusedinitsservicebusinesses.

33. Contingent liabilities and commitmentsAt31December2010,theCompanyandtheGrouphadcontingentliabilitiesinrespectofbankandcontractualperformanceguaranteesandothermattersarisingintheordinarycourseofbusiness.Whereitisexpectedthatamaterialliabilitywillariseinrespectofthesematters,appropriateprovisionismadewithintheGroupconsolidatedfinancialstatements.Astheconditionsoftheseguaranteesarecurrentlybeingmet,noobligatingeventisforeseeableandthereforenoprovisionhasbeenmadeattheyearend.

TheCompanyhasalsocommitted,inconnectionwiththeFutureStrategicTankerAircraftproject,toinvest£6.0mintheequitysharecapitalofthreecompaniesandtoprovideadditionalfundingof£18.1mintheformofredeemableloannotesbyMarch2013atthelatest.Inaddition,anumberofperformanceguaranteesandlettersofcredithavebeenprovidedtosecurethefundingofthisproject.Noprovision(2009:£3.0m)hasbeenprovidedinconnectionwiththeseguaranteesasat31December2010.

TheCompanyandvariousofitssubsidiariesare,fromtimetotime,partiestovariouslegalproceedingsandclaimsandmanagementdonotanticipatethattheoutcomeofthese,eitherindividuallyorinaggregate,willhaveamaterialadverseeffectupontheGroup’sfinancialposition.

Thenatureofmuchofthecontractingworkdonebythegroupmeansthattherearereasonablyfrequentcontractualissues,variationsandrenegotiationsthatariseintheordinarycourseofbusiness.Thegrouphasrecentlyidentifiedandisreviewingthecircumstancessurroundingone,moresignificant,contractualbreachdatingbacksomeyears.Thecontractwasinrespectofgoodsprovidedintoageographicmarketwhichrepresentsonlyasmallamountofrevenueforthegroup.Theoutcomecannotbeestimatedatthisstageandresolutionmaytakesometime.Asitcouldbeprejudicial,nofurtherinformationisdisclosed.


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At31December2010,theGrouphadcommitmentsfortheacquisitionofproperty,plantandequipmentof£5.4m(2009:£8.6m).

34. Related party transactionsTransactionsbetweentheCompanyanditssubsidiaries,whicharerelatedpartiesoftheCompany,havebeeneliminatedonconsolidationandarenotdisclosedinthisnote.DetailsoftransactionsbetweentheGroupandotherrelatedpartiesaredisclosedbelow.

£m 2010 2009

Transactionsbetweengroupentitiesandjointventuresduringtheyear:

Salesofgoods 0.8 0.3

Purchasesofgoods – 0.1

Dividendsreceived (6.0) (5.2)

Attheyearendbalanceswithjointventureswereasfollows:

Amountsowedtogroupentities 0.1 –

SalesofgoodstorelatedpartiesweremadeattheGroup’susuallistpricesforsalestonon-relatedparties.Goodsareboughtonthebasisofthepricelistsinforcewithnon-relatedparties.

Theamountsoutstandingareunsecuredandwillbesettledincash.Noguaranteeshavebeengiventoorreceivedfromrelatedparties.Noexpensehasbeenrecognisedintheperiodforbadordoubtfuldebtsinrespectoftheamountsowedbyrelatedparties.

Compensation of key management personnelTheremunerationofDirectorsandothermembersofkeymanagementduringtheyearwasasfollows:

£m 2010 2009

Remuneration 5.0 8.0

Post-employmentbenefits 0.6 0.7

Share-basedpayments 3.7 3.8

9.3 12.5

TheremunerationofDirectorsandkeymanagementpersonnelisdeterminedbytheremunerationcommitteehavingregardtotheperformanceofindividualsandmarkettrends.

TheDirectorsofCobhamplchadnomaterialtransactionswiththeCompanyduringtheyear,otherthanasaresultofserviceagreements.DetailsofDirectors’remunerationaredisclosedintheDirectors’remunerationreportonpages41to48.

35. Events after the balance sheet dateOn19January2011,agreementwasreachedtopurchasetheentiresharecapitalofTelerobGmbHfor€78.0monadebt-free,cash-freebasis.ThecompanyisbasedinGermanyandmanufacturesadvancedbombdisposalrobotsandthreatresponsevehicles.

TheacquisitionofthesharecapitaloftheUSsurveillancetechnologycompanyCorpTenInternationalwasannouncedon7February2011.ConsiderationcomprisesUS$11.5mwithadditionalcashconsiderationofuptoUS$12.5mcontingentuponfutureperformance.

ItistheDirectors’opinionthatitisimpracticabletogivedetaileddisclosureonthesebusinesscombinationsduetotheproximityofcompletionofthetransactionsinrelationtothesigningoftheGroupaccounts.

ThedivestmentoftheEngineeringConsultancyGroup,partofCobhamTechnicalServiceswasannouncedon21February2011.Considerationcomprises£13.5monadebt-freecash-freebasis.

36. SubsidiariesAllsubsidiaryundertakingshavebeenincludedintheGroupconsolidation.Theundertakingsheldat31December2010which,intheopinionoftheDirectors,principallyaffectedtheresultsfortheyearorthenetassetsoftheGroupwere:

Nameofundertaking Placeofincorporation(orregistration)andoperation

ACRElectronicsEuropeGmbH Austria

ACRElectronics,Inc USA

AFIFlightInspectionGmbH Germany

AirPrécisionSAS France

AtlanticMicrowaveCorporation USA



Nameofundertaking Placeofincorporation(orregistration)andoperation

CarletonLifeSupportSystems,Inc USA

CarletonTechnologies,Inc USA

CheltonAntennasSA France

CheltonAvionics,Inc USA

CheltonLimited England

CheltonTelecom&MicrowaveSAS France

Chelton,Inc USA

Cobham(India)PvTLimited India

CobhamAdvancedCompositesLimited England

CobhamDefenceCommunicationsLimited England

CobhamDefenseElectronicSystems–M/A-COM,Inc USA

CobhamFlightInspectionLimited England

CobhamHoldings,Inc USA

CobhamMALLimited England

CobhamTrackingandLocatingLimited Canada

ComantIndustries,Inc USA

ConaxFloridaCorporation USA

ContinentalMicrowave&ToolCo,Inc USA

CredowanLimited England

domoLimited England

DTCCommunications,Inc USA

ERATechnologyLimited England

EuropeanAntennasLimited England

FlightRefuellingLimited* England

FRAviationLimited England

FRAviationServicesLimited England

GlobalMicrowaveSystems,Inc USA

Hyper-TechnologiesSAS France

KevlinCorporation USA

LabelSAS France

LockmanElectronicHoldingsLimited* England

LockmanInvestmentsLimited* England

MastsystemInternationalOy Finland

MicromillElectronicsLimited England

NationalAirSupportPtyLimited Australia

NationalJetSystemsPtyLimited Australia

NECAeroSAS France

NorthernAirborneTechnologyLimited Canada

NuradTechnologies,Inc USA

OmniplessManufacturing(Proprietary)Limited SouthAfrica

PatriotAntennaSystems,Inc USA

REMECDefense&Space,Inc USA

SeaTel,Inc USA

Sensor&AntennaSystems,Lansdale,Inc USA

SiversLabAB Sweden

SPARTA,Inc USA

SpectronicDenmarkA/S Denmark

S-TECCorporation USA

SurveillanceAustraliaPtyLimited Australia

TEAMSA France

TracStarSystems,Inc USA

Allsubsidiariesare100%ownedwiththeexceptionofNorthernAirborneTechnologyLimited(99.9%owned)andTEAMSA(98.7%owned).Inthecaseofthecompaniesmarked*,issuedsharesareheldby,orbyanomineefor,Cobhamplc.Otherwisesharesareheldby,orbyanomineefor,asubsidiaryofCobhamplc.


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£m 2006 2007 2008 2009 2010

Revenue 1,012.1 1,061.1 1,466.5 1,880.4 1,902.6

Underlyingprofitbeforetaxation 182.9 206.5 243.8 295.3 306.1

Profitoncontinuingoperationsbeforetaxation 185.2 173.5 120.7 244.9 189.3

Taxoncontinuingoperations (50.7) (47.3) (28.1) (59.0) (36.5)

Profitoncontinuingoperationsaftertaxation 134.5 126.2 92.6 185.9 152.8

Profitaftertaxationfromdiscontinuedoperations 13.8 5.8 2.9 – –

Profitaftertaxationfortheyear 148.3 132.0 95.5 185.9 152.8

Net assets employedIntangibleassets 482.6 476.1 1,211.8 1,063.0 1,048.4

Property,plantandequipment(includinginvestmentproperties) 194.0 211.0 304.1 329.5 350.9

Investments 15.7 18.8 16.9 17.4 17.2

Othernon-currentassets 24.7 26.0 31.9 69.0 31.2

Currentassets 717.3 858.9 994.9 963.2 1,123.2

1,434.3 1,590.8 2,559.6 2,442.1 2,570.9

Currentliabilities (498.7) (560.7) (1,342.7) (903.7) (827.8)

Long-termliabilities (191.0) (188.8) (316.9) (474.9) (584.9)

Netassetsexcludingpensionliabilities 744.6 841.3 900.0 1,063.5 1,158.2

Pensionliabilities (29.6) (37.2) (51.2) (115.2) (82.0)

Netassetsincludingpensionliabilities 715.0 804.1 848.8 948.3 1,076.2

Financed byOrdinarysharecapital 28.3 28.4 28.5 28.6 28.9

Reserves 686.6 775.3 819.7 919.4 1,046.9

Shareholders’funds 714.9 803.7 848.2 948.0 1,075.8

Non-controllinginterest 0.1 0.4 0.6 0.3 0.4

Netassets 715.0 804.1 848.8 948.3 1,076.2

Net(debt)/cash 0.9 77.9 (641.3) (412.6) (326.1)

pence

DividendpaidperOrdinaryShare 3.51 3.86 4.63 5.09 5.60

EarningsperOrdinaryShare–underlying 11.66 13.09 15.42 18.80 19.68

EarningsperOrdinaryShare–basic(continuing) 11.90 11.10 8.13 16.26 13.27

EarningsperOrdinaryShare–diluted(continuing) 11.79 11.04 8.08 16.17 13.20

NetassetsperOrdinaryShare 63.2 70.8 74.5 82.7 93.2

£m

Marketcapitalisation 2,191 2,373 2,343 2,883 2,349

Group financial record


Independent auditors’ report to the members of Cobham plcWehaveauditedtheparentcompanyfinancialstatementsofCobhamplcfortheyearended31December2010whichcomprisetheparentcompanybalancesheet,thereconciliationofmovementsinshareholders’funds,theaccountingpoliciesandtherelatednotes.ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandUnitedKingdomAccountingStandards(UnitedKingdomGenerallyAcceptedAccountingPractice).

Respective responsibilities of Directors and Auditors AsexplainedmorefullyinthestatementofDirectors’responsibilitiessetoutonpage49,theDirectorsareresponsibleforthepreparationoftheparentcompanyfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.OurresponsibilityistoauditandexpressanopinionontheparentcompanyfinancialstatementsinaccordancewithapplicablelawandInternationalStandardsonAuditing(UKandIreland).ThosestandardsrequireustocomplywiththeAuditingPracticesBoard’sEthicalStandardsforAuditors.

Thisreport,includingtheopinions,hasbeenpreparedforandonlyfortheCompany’smembersasabodyinaccordancewithChapter3ofPart16oftheCompaniesAct2006andfornootherpurpose.Wedonot,ingivingtheseopinions,acceptorassumeresponsibilityforanyotherpurposeortoanyotherpersontowhomthisreportisshownorintowhosehandsitmaycomesavewhereexpresslyagreedbyourpriorconsentinwriting.

Scope of the audit of the financial statementsAnauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.Thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetotheparentcompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebytheDirectors;andtheoverallpresentationofthefinancialstatements.

Opinion on financial statements Inouropiniontheparentcompanyfinancialstatements:

• giveatrueandfairviewofthestateoftheCompany’saffairsasat31 December2010;

• havebeenproperlypreparedinaccordancewithUnitedKingdomGenerallyAcceptedAccountingPractice;and

• havebeenpreparedinaccordancewiththerequirementsoftheCompaniesAct2006.

Opinion on other matters prescribed by the Companies Act 2006Inouropinion:

• thepartoftheDirectors’remunerationreporttobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesAct2006;and

• theinformationgivenintheDirectors’Reportforthefinancialyearforwhichtheparentcompanyfinancialstatementsarepreparedisconsistentwiththeparentcompanyfinancialstatements.

Matters on which we are required to report by exception WehavenothingtoreportinrespectofthefollowingmatterswheretheCompaniesAct2006requiresustoreporttoyouif,inouropinion:

• adequateaccountingrecordshavenotbeenkeptbytheCompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or

• theparentcompanyfinancialstatementsandthepartoftheDirectors’remunerationreporttobeauditedarenotinagreementwiththeaccountingrecordsandreturns;or

• certaindisclosuresofDirectors’remunerationspecifiedbylawarenotmade;or

• wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.

Other matter WehavereportedseparatelyontheGroupfinancialstatementsofCobhamplcfortheyearended31December2010.

Stuart Watson(SeniorStatutoryAuditor)forandonbehalfofPricewaterhouseCoopersLLPCharteredAccountantsandStatutoryAuditorsLondon2March2011


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Parent company accounting policies

Accounting conventionThesefinancialstatementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationofderivativecontractswhichareheldatfairvalue,inaccordancewiththeCompaniesAct2006andapplicableaccountingstandards(UKGAAP).

Theprincipalaccountingpolicies,whichhavebeenconsistentlyapplied,areassetoutbelow.

Dividends Dividendspayablearerecognisedasaliabilityintheperiodinwhichtheyarefullyauthorised.Dividendincomeisrecognisedwhentheshareholder’srighttoreceivepaymenthasbeenestablished.

PensionsTheCompanyoperatesandcontributestoamulti-employerdefinedbenefitpensionscheme.Contributionsandpensioncostsareapportionedacrosstheschemeasawholeandassessedinaccordancewiththeadviceofqualifiedactuaries.Theschemeisclosedtonewmembersandhasahighproportionofdeferredandpensionermembersfrombusinessesthatnolongerparticipateinthescheme.TheCompanyisthereforenotabletoidentifyitsshareofunderlyingassetsandliabilitiesoftheschemeonareasonableandconsistentbasisandinaccordancewiththemulti-employerexemptioncontainedinFRS17,RetirementBenefits,theschemehasbeenaccountedforasifitwasadefinedcontributionscheme.Thechargetotheprofitandlossaccountthereforereflectspaymentsfortheyear.

Contributionstodefinedcontributionschemesarechargedtotheprofitandlossaccountintheperiodthecontributionsarepayable.

TheCompanyalsomakescontributionsforcertainemployeestoindividualpersonalpensionandstakeholderschemes.Contributionsarechargedtotheprofitandlossaccountintheyeartowhichtheyrelate.

Deferred taxationDeferredtaxisrecognisedinrespectofalltimingdifferencesthathaveoriginatedbutnotreversedatthebalancesheetdate,wheretransactionsoreventsthatresultinanobligationtopaymoretaxinthefutureorarighttopaylesstaxinthefuturehaveoccurredatthebalancesheetdate.

Anetdeferredtaxassetisrecognisedasrecoverablewhen,onthebasisofallavailableevidence,itcanberegardedasmorelikelythannotthattherewillbesuitabletaxableprofitsfromwhichthefuturereversalofunderlyingtimingdifferencescanbededucted.

Deferredtaxismeasuredatthetaxratesthatareexpectedtoapplyintheperiodsinwhichthetimingdifferencesareexpectedtoreverse,basedontaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.Deferredtaxhasnotbeendiscounted.

Intangible assetsIntangibleassets,comprisingsoftware,arestatedatcostlessaccumulatedamortisationandimpairmentlosses.Theyareamortisedonastraight-linebasisovertheirestimatedusefulliveswhichrangefromthreetofiveyears.

Tangible fixed assetsPlantandmachineryfixedassetsareinitiallyrecognisedatcostanddepreciatedonastraight-linebasistotheirestimatedresidualvaluesovertheirestimatedusefulliveswhichrangefromthreetosixyears.

Investments in group and other undertakingsInvestmentsinsubsidiaryundertakingsarestatedatcostlessanyprovisionforimpairmentinvalueandincludethefairvalueatthedateofgrantofshareoptionsawardedtoemployeesofsubsidiaryundertakings,netofamountsrecoveredasmanagementcharges.

Otherinvestmentsarestatedatcostlessanyprovisionforimpairmentinvalue.

Operating leasesOperatingleasepaymentsforassetsleasedfromthirdpartiesarechargedtotheprofitandlossaccountonastraight-linebasisoverthetermofthelease.

ProvisionsAprovisionisrecognisedwhentheCompanyhasapresentlegalorconstructiveobligationasaresultofapasteventanditisprobablethatsettlementwillberequiredofanamountthatcanbereliablyestimated.

Share capitalOrdinarysharecapitalisclassifiedasequity.Financialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualagreementsenteredinto.AnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheCompanyafterdeductingallofitsliabilities.

Preferencesharecapitalisclassifiedasaliabilityifitisredeemableonaspecificdateorattheoptionofthepreferenceshareholdersorifdividendpaymentsarenotdiscretionary.Dividendsonpreferencesharecapitalclassifiedasliabilitiesarerecognisedintheprofitandlossaccountasinterestexpense.Foreign currenciesThefunctionalcurrencyoftheCompanyissterling.Transactionsincurrenciesotherthanthelocalcurrencyaretranslatedattheexchangeraterulingatthedateofthetransaction.Monetaryassetsandliabilitiesdenominatedinnon-functionalcurrenciesareretranslatedattheexchangeraterulingatthebalancesheetdate.

Allexchangedifferencesarisingaretakentotheprofitandlossaccount.

InordertomanagetheGroup’sexposuretocertainforeignexchangerisks,theCompanyentersintoforwardcontractsandoptionswhichareaccountedforasderivativefinancialinstruments.

Derivative financial instruments and hedge accounting Derivativesareinitiallyrecognisedatfairvalueonthedateaderivativecontractisenteredintoandaresubsequentlyre-measuredattheirfairvalue.Themethodofrecognisingtheresultinggainorlossdependsonwhetherthederivativeisdesignatedasahedginginstrument,andifso,thenatureoftheitembeinghedged.


Parent company accounting policies continued

TheCompany’sactivitiesexposeitprimarilytothefinancialrisksofchangesinforeigncurrencyexchangeratesandinterestrates.TheCompanyusesforeignexchangecontractsandinterestrateswapcontractstoreducetheseexposures.TheCompanydoesnotusederivativefinancialinstrumentsforspeculativepurposes.

TheCompanydocumentsattheinceptionofaninterestrateswaptransactiontherelationshipbetweenhedginginstrumentsandhedgeditems,aswellasitsriskmanagementobjectivesandstrategyforundertakingvarioushedgetransactions.TheCompanyalsodocumentsitsassessment,bothathedgeinceptionandonanongoingbasis,ofwhetherthederivativesusedinhedgingtransactionsarehighlyeffectiveinoffsettingchangesinfairvaluesorcashflowsofhedgeditems.

Hedgeaccountingisnotusedtoaccountforforeignexchangederivativesenteredintotomitigateforeignexchangeimpactsoftradinginnon-localcurrenciesandmovementsinfairvaluesarereportedintheprofitandlossaccount.

Cash flow hedgesTheeffectiveportionofchangesinfairvaluesofderivativesthataredesignatedandqualifyascashflowhedgesarerecognisedinreserves.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheprofitandlossaccount.Amountsaccumulatedinreservesarerecycledtotheprofitandlossaccountintheperiodswhenthehedgeditemaffectsprofitorloss.

Whenahedginginstrumentexpiresorissold,orwhenahedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativegainorlossexistinginreservesatthattimeremainsinequityandisrecognisedwhentheforecasttransactionisultimatelyrecognisedintheprofitandlossaccount.Ifahedgedtransactionisnolongerexpectedtooccur,thenetcumulativegainorlossrecognisedinreservesisimmediatelytransferredtotheprofitandlossaccountfortheperiod.

Other financial instrumentsAmountsreceivablefromandowedtosubsidiariesarerecognisedattheirnominalvalue,receivablesarereducedbyappropriateallowancesforestimatedirrecoverableamounts.

Interest-bearingbankloansandoverdraftsarerecordedattheproceedsreceived,netofdirectissuecosts.Financechargesareaccountedforonanaccrualsbasisintheprofitandlossaccountusingtheeffectiveinterestratemethodandareaddedtothecarryingamountoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.

Share-based paymentsForgrantsmadetoemployeesofCobhamplcundertheGroup’sshare-basedpaymentschemes,amountswhichreflectthefairvalueofoptionsawardedasatthetimeofgrantarechargedtotheprofitandlossaccountoverthevestingperiod.Thefairvalueofoptionsawardedtoemployeesofsubsidiaryundertakings,netofamountsrecoveredasmanagementcharges,isrecognisedasacapitalcontributionandrecordedininvestments.

ThevaluationoftheoptionsutilisesamethodologybasedontheBlack-Scholesmodel,modifiedwhererequiredtoallowfortheimpactofmarketrelatedperformancecriteriaandtakingintoaccountallnon-vestingconditions.


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Parent company balance sheet (under UK GAAP)Asat31December2010

£m Note 2010 2009

Fixedassets

Investmentsingroupundertakings 4 777.0 780.5

Intangibleassets 5 0.3 0.4

Tangibleassets 6 0.3 0.4

Financialassets:Derivativefinancialinstruments 12 7.8 2.3

785.4 783.6

Currentassets

Financialassets:Derivativefinancialinstruments 12 2.5 7.2

Debtors 7 1,098.6 1,066.0

Cashatbankandinhand 298.2 322.8

1,399.3 1,396.0

Creditors:Amountsfallingduewithinoneyear 8 (687.4) (824.2)

Netcurrentassets 711.9 571.8

Totalassetslesscurrentliabilities 1,497.3 1,355.4

Creditors:Amountsfallingdueaftermorethanoneyear 9 (914.7) (805.2)

Provisionsforliabilitiesandcharges 10 (6.6) (10.4)

Netassets 576.0 539.8

Capitalandreserves

Calledupsharecapital 13 28.9 28.7

Sharepremiumaccount 14 126.6 112.5

Specialreserve 14 43.6 43.6

Otherreserves 14 (0.2) 3.2

Profitandlossaccount 14 377.1 351.8

Equityshareholders’funds 576.0 539.8

ApprovedbyadulyappointedandauthorisedcommitteeoftheBoardon2March2011andsignedonitsbehalfby:

A J Stevens W G TuckerDirectors


Reconciliation of movements in shareholders’ fundsFortheyearended31December2010

£m Note 2010 2009

Profitforthefinancialyear 89.9 85.2

Dividends 1 (64.6) (58.2)

Retainedprofitforthefinancialyear 25.3 27.0

Issueofshares 13 0.2 0.2

Premiumonissueofshares 14 14.1 8.6

Treasuryshares 14 (4.6) (0.7)

Movementsinhedgingreserve 14 (3.4) 15.3

Creditinrespectofshare-basedpayments 14 4.6 3.9

Netadditiontoshareholders’funds 36.2 54.3

Shareholders’fundsat1January 539.8 485.5

Shareholders’fundsat31December 576.0 539.8

Profit for the financial yearInaccordancewiththeconcessiongrantedunderSection408oftheCompaniesAct2006,theprofitandlossaccountofCobhamplchasnotbeenseparatelypresentedinthesefinancialstatements.


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Notes to the parent company financial statements

1. DividendsThefollowingdividendsonOrdinaryShareswereauthorisedandpaidduringtheyear:

£m 2010 2009

Finaldividendof3.971ppersharefor2009(2008:3.61p) 45.8 41.3

Interimdividendof1.628ppersharefor2010(2009:1.48p) 18.8 16.9

64.6 58.2

Inadditiontotheabove,theDirectorsareproposingafinaldividendinrespectofthefinancialyearended31December2010of4.372pencepersharewhichwillabsorbanestimated£50.5mofshareholders’funds.ThisdividendissubjecttoapprovalbyshareholdersattheAnnualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.Ifauthorised,itwillbepaidon3June2011toshareholderswhoareontheregisterofmembersasat6May2011.Thetotaldividendinrespectofthefinancialyearended31December2010willthereforebe6.0pencepershare(2009:5.45pence).Thetotalamountpaidinrespectof2010willbe£69.3m(2009:£62.7m).

2. Directors’ emoluments and pension costsDisclosuresinrespectofDirectors’emolumentscanbefoundintheDirectors’remunerationreportonpages41to48totheGroupfinancialstatements.

Defined benefit pension schemesTheCompanyoperatesandparticipatesintheCobhamPensionPlan(CPP)andtheCobhamExecutivePensionPlan(CEPP).Thepensionschemesareofthedefinedbenefittypeandassetsareheldinseparatetrusteeadministeredfunds.Thefundsarevaluedeverythreeyearsbyaprofessionallyqualifiedindependentactuaryandtheratesofcontributionpayablearedeterminedbytheactuary.ThelatesteffectivedatesoftheactuarialassessmentoftheCPPandCEPPwere1April2009and1April2010respectively.Theassessmentswereupdatedto31December2010atwhichdatethetotalnetliabilitiesoftheschemeswereassessedtobe£35.8m.TheDirectorsofthecompaniesinvolvedintheGroupschemeswillcontinuetomonitorthepensiondeficitsandtakeadvicefromindependentactuariesasappropriate.

Theschemeshavebeenaccountedforasiftheyweredefinedcontributionschemesandthechargetotheprofitandlossaccountthereforereflectspaymentsfortheyear.

ContributionstotheGroupschemesfor2010amountedto£0.3m(2009:£0.4m)ofnormalfundingandaspecialcontributionof£7.9m(2009:£5.5m).Nocontributionswereoutstandingattheendof2010or2009.

Defined contribution pension schemesTheCompanyalsooperatesandparticipatesintheCobhamplcmoneypurchasepensionarrangements.TheassetsoftheschemesareheldseparatelyfromthoseoftheCompanyinindependentlyadministeredfunds.ThepensioncostschargedrepresentscontributionspayablebytheCompanytothefundsandamountedto£0.6m(2009:£0.5m).Nocontributionswereoutstandingattheendof2010or2009.

3. Share-based paymentsEmployeesofCobhamplcparticipateinthefollowingequitysettledshare-basedpaymentschemeswhichareoperatedbytheGroupforcertainseniorexecutives:

• TheCobhamPerformanceSharePlan(PSP).• TheCobhamExecutiveShareOptionScheme(ESOS).• TheCobhamBonusCo-investmentPlan(BCP).

AnumberofawardsweremadeundertheCobhamLong-TermIncentivePlan(LTIP)in2006andthefinalawardunderthisschemevestedduring2009.

EmployeesalsoparticipateintheCobhamSavingsRelatedShareOptionScheme(ShareSave)operatedbytheGroupwhichisopentoallemployeesofparticipatingsubsidiaries.

TheCompanyrecognisedtotalexpensesof£3.8m(2009:£4.0m)relatedtoequitysettledshare-basedpaymenttransactionsduringtheyear(includingnationalinsurance).Asshowninnote4,investmentsinGroupundertakingshavebeenadjustedtoreflectthevalueofoptionsgrantedtoemployeesoftheCompany’ssubsidiaries,lessamountsrechargedtodate.

FurtherdetailsoftheseschemescanbefoundintheDirectors’remunerationreportonpages43to44andintheGroupfinancialstatementsonpages71to75.


Notes to the parent company financial statements continued

DetailsoftheawardsheldbytheCompany’semployeesareasfollows:

Number of share options LTIP PSP BCP ESOS ShareSave

At1January2009 824,223 2,044,988 415,764 6,200,776 297,966

Awardsgranted – 1,784,388 373,706 2,058,505 84,057

Awardsforfeited – – – – (5,419)

Exercised (762,411) – – (427,321) (61,327)

Expired – – – (35,175) (4,504)

EmployeestransferredtootherGroupcompanies (61,812) (153,309) – (500,818) –

At1January2010 – 3,676,067 789,470 7,295,967 310,773

Awardsgranted – 783,259 153,764 1,311,926 73,259

Awardsforfeited – (221,029) – – (8,562)

Exercised – (629,097) – (1,634,196) (63,658)

Employeestransferred(to)/fromotherGroupcompanies – (51,004) – (351,949) 14,153

At31December2010 – 3,558,196 943,234 6,621,748 325,965






ThenumberofBCPawardsshowninthetableabovereflectsmatchingsharesgrantedagainstthenetbonusinvestedandwillbegrossedupfortaxatthetimeofvesting.TherulesoftheBCPschemeallowforamatchedawardbasedonthegrossamountofthebonus,dependentuponsatisfactionoftheperformanceconditions.Theexactamountoftheentitlementwillbeascertaineduponvestingoftheawards.

UndertheESOSandShareSaveschemes,exercisesweremadeatvarioustimesthroughouttheyear.Theaveragesharepriceinthatperiodwas£2.330(2009:£2.002).

AllawardsunderthePSP,BCPandLTIPschemeshaveanilexerciseprice.TheweightedaverageexercisepricesofawardsundertheESOSandShareSaveschemesareasfollows:

£ ESOS ShareSave

At1January2009 1.786 1.420


Awardsforfeited – 1.650


Expired 2.045 1.489

EmployeestransferredtootherGroupcompanies 1.858 –

At1January2010 1.815 1.405


Awardsforfeited – 1.669


Employeestransferredto/fromotherGroupcompanies 1.641 1.436

At31December2010 1.975 1.650




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TherangeofexercisepricesforESOSandShareSaveawardsareasfollows:

£ ESOS ShareSave







Thefairvaluesofawardsgrantedduringtheyear,togetherwitheffectivedatesofgrant(commencementdateforShareSaveawards),wereasfollows:


During2010

Effectivedateofgrantorcommencementdate 15Marchand13April

5March 15and26March

1February


During2009

Effectivedateofgrantorcommencementdate

11March,7Julyand17August

29Mayand11August

11March,9Julyand17August

1February


Details,includingmethodsandassumptionsusedinthecalculationoffairvalues,oftheawardsgrantedduringthecurrentandcomparativeyearareasshowninnote10totheGroupfinancialstatements.

4. Investments in Group and other undertakings

£m Shares Options Total

Costandnetbookamount

At1January2010 764.7 15.8 780.5

Optionsgrantedtoemployeesofsubsidiaryundertakingsnetofrecoveries – (3.5) (3.5)

At31December2010 764.7 12.3 777.0

TheCompanysubscribedforminorityshareholdingsinthreecompaniesinconnectionwiththeFutureStrategicTankerAircraftprojectin2008.Thetotalamountinvestedtodateis£44,000andthisisheldasatradeinvestment.TheCompanyhascommittedtomakingfurtherinvestmentsasdetailedinnote15.

Alistofsignificantsubsidiariesisprovidedinnote36totheGroupfinancialstatements.ThemarketcapitalisationoftheGroupasawholeisgivenintheGroupfinancialrecordonpage99.

5. Intangible assets

£m Software

Cost

At1Januaryand31December2010 0.7

Accumulatedamortisation

At1January2010 0.3

Chargefortheyear 0.1


Netbookamount





6. Tangible fixed assets

£m Plantandmachinery

Cost

At1January2010 0.9

Additions 0.2

Disposals (0.1)



At1January2010 0.5

Chargefortheyear 0.2


Netbookamount



7. Debtors

£m Note 2010 2009

Amountsowedbysubsidiaryundertakings 1,074.0 1,047.2

Prepaymentsandaccruedincome 1.9 3.1

Deferredtax 11 22.7 15.7

1,098.6 1,066.0

Interestischargedonamountsowedbysubsidiaryundertakingsatratesvaryingbetween6%and9%.Theseamountsareunsecuredandarerepayableondemand.

8. Creditors: Amounts falling due within one year

£m Note 2010 2009

Bankoverdrafts 173.0 255.1

Bankloansrepayableondemand 307.3 393.0

Seniornotes 1.1 –

Totalborrowings 481.4 648.1

Tradecreditors 6.2 1.6

Amountsowedtosubsidiaryundertakings 104.4 104.8


Othertaxesandsocialsecurity 2.7 2.1

Corporationtaxpayable 50.8 34.0


687.4 824.2

DetailsoftheCompany’sprincipalborrowingfacilitiesaredisclosedinnote24totheGroupfinancialstatements.

Allbankoverdraftsarerepayableondemand.

Interestispayableonamountsowedtosubsidiaryundertakingsatratesvaryingbetween5%and8%.Theseamountsareunsecuredandarerepayableondemand.


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9. Creditors: Amounts falling due after more than one year

£m Note 2010 2009

Bankloans 47.9 46.4


Amountsowedtosubsidiaryundertakings 407.0 407.0


914.7 805.2

Amountsowedtosubsidiaryundertakingsconsistoffrozenloanswhichareunsecured,interestfreeandnotrepayablewithinoneyear.

BankloansdueaftermorethanoneyearexpireinDecember2031althoughthelenderhasaseriesofputoptionsexercisableeverythreeyearsfromDecember2013.Seniornotesfallingdueaftermorethanoneyearmatureasfollows:

£m 2010 2009

Betweenoneandtwoyears 109.5 –

Betweentwoandfiveyears 54.3 161.0


432.1 325.1

Amountsdueafterfiveyearsmaturein2016,2017,2018and2019.

10. Provisions for liabilities and charges

£m

Deferredtaxliabilities

(Note11)Other

provisions Total

At1January2010 0.8 9.6 10.4

Credittoprofitandlossaccount (0.8) (3.0) (3.8)

At31December2010 – 6.6 6.6

OtherprovisionsrelatetowarrantiesgivenonthedisposaloftheFluidandAirgroupin2005andtheFutureStrategicTankerAircraftprojectdiscussedinnote15.AllamountshavebeendeterminedbasedontheDirectors’currentestimatesoflikelyoutcomesandareexpectedtounwindoveraperiodofmorethanoneyear.

11. Deferred tax

£m Note 2010 2009

Deferredtaxassets 7 22.7 15.7

Deferredtaxliabilities 10 – (0.8)

22.7 14.9

Thenetdeferredtaxassetcanbeanalysedasfollows:

£m 2010 2009

Derivativefinancialinstruments 16.5 10.6

Share-basedpayments 6.2 5.1

Othertimingdifferences – (0.8)

22.7 14.9

Movementsinthenetdeferredtaxassetareasfollows:

£m Total

At1January2010 14.9

Credittoreserves 5.9

Credittoprofitandlossaccount 1.9


Thedeferredtaxassetisconsideredrecoverableonthebasisthatsufficienttaxableprofitswillbeavailabletoutiliseanytaxlossesthatmayarise.



12. Derivative financial instruments

£mInterestrateswaps–cashflowhedges


Derivativefinancialinstruments–fixedassets – 7.8 7.8


Derivativefinancialinstruments–creditorsduewithinoneyear (9.6) (8.0) (17.6)

Derivativefinancialinstruments–creditorsdueaftermorethanoneyear (15.1) (12.6) (27.7)


Derivativefinancialinstruments–fixedassets – 2.3 2.3


Derivativefinancialinstruments–creditorsduewithinoneyear (6.7) (3.7) (10.4)

Derivativefinancialinstruments–creditorsdueaftermorethanoneyear (10.6) (16.1) (26.7)


13. Share capital

£m 2010 2009

Authorised

Equity

1,479,200,000(2009:1,479,200,000)OrdinarySharesofparvalue2.5p 37.0 37.0

Nonequity

20,000(2009:20,000)6%secondcumulativePreferenceSharesof£1 – –

Allotted,issuedandfullypaid

Equity

1,154,527,625(2009:1,146,334,157)2.5pOrdinaryShares 28.9 28.7

Nonequity

19,700(2009:19,700)6%secondcumulativePreferenceSharesof£1 – –

TheCompanyhasoneclassofOrdinaryShareswhichcarrynorighttofixedincome,representing99.9%ofthetotalissuedsharecapital.OnashowofhandseverymemberholdingOrdinaryShareswhoispresentinpersonorbyadulyauthorisedrepresentativehasonevoteandonapolleverymemberwhoispresentinpersonorbyproxyhasonevoteforevery£1innominalvalueofthesharesofwhichthememberistheholder.

ThenumberofOrdinarySharesissuedduringtheyearinconnectionwithshareschemeswereasfollows:

2010 2009

ESOS 5,228,191 3,378,552

ShareSave 1,966,314 1,863,669

PSP/LTIP 998,963 1,049,284

Totalnumberofsharesissued 8,193,468 6,291,505

£m

NominalvalueofOrdinarySharesissued 0.2 0.2

Totalcashconsiderationreceivednetofcosts 11.7 6.8

19,700issued6%secondcumulativePreferenceSharesrepresent0.1%oftotalissuedsharecapital.Thesearenon-redeemableandareclassifiedasborrowingswithavalueof£19,700.

Theshareholdersofthe6%secondcumulativePreferenceSharesareentitledtoreceiveafixedcumulativepreferencedividendattherateof6%perannuminprioritytothepaymentofdividendsontheOrdinaryShares.Inaddition,onareturnofassetsontheliquidationorotherwiseoftheCompany,theassetsavailablefordistributionaretobeappliedfirstinrepayingtotheholdersofthe6%secondcumulativePreferenceSharestheamountspaidupontheirshares.Onashowofhands,everymemberholding6%secondcumulativePreferenceShareswhoispresentinpersonhasonevoteandonapoll,everymemberhasonevoteforevery£1innominalamountofthesharesofwhichthememberistheholder.


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14. Reserves

Otherreserves

£mShare

premiumaccountSpecialreserve

Hedgingreserve

Shareoptionsreserve

Profitandlossaccount

At1January2010 112.5 43.6 (15.0) 18.2 351.8

Profitforthefinancialyear – – – – 89.9

Dividends – – – – (64.6)

Purchaseoftreasuryshares – – – – (4.6)

Premiumonissueofshares 11.4 – – – –

Movementinfairvalueofhedgeaccountedderivatives – – (21.2) – –

Reclassificationstoprofitandlossaccount – – 17.4 – –

Taxeffectofhedgingreservemovements – – 0.4 – –

Share-basedpaymentsrecognisedinreserves – – – 7.3 –

TransferofshareoptionsreserveonvestingofPSPs 2.7 – – (2.7) –

Transferofshareoptionsreserveonexercise – – – (4.6) 4.6

At31December2010 126.6 43.6 (18.4) 18.2 377.1

Theimpactofforeignexchangetotheprofitforthefinancialyearisa£0.4mloss(2009:£0.5mgain).

Reservesarewhollyattributabletoequityinterests.

172,978(2009:373,706)OrdinaryShareswerepurchasedduringtheyearinconnectionwiththeCobhamBonusCo-investmentPlanandareheldintreasury.Distributablereserveshavebeenreducedby£0.6m(2009:£0.7m),beingtheconsiderationpaidfortheseshares.

TheprofitandlossaccountalsoincludesthepurchaseofOrdinarySharesbytheCobhamEmployeeBenefitTrustinconnectionwiththeCobhamBonusCo-investmentPlan,theCobhamExecutiveShareOptionSchemeandtheCobhamSavingsRelatedShareOptionScheme,andtheallocationofthesharesupontheexerciseofoptions.Unallocatedsharesareheldastreasuryshares.Theconsiderationpaidforsharesduringtheyearwas£4.1m(2009:nil)and£0.1m(2009:nil)wasreceivedasaresultoftheallocationofthesesharestoemployeesupontheexerciseofoptions.At31 December2010,thetrustheld1,959,353(2009:nil)OrdinaryShareswithamarketvalueof£4.0m(2009:nil).

Asaresultofthepurchaseoftreasuryshares,theprofitandlossaccountof£377.1m(2009:£351.8m)includes£5.3m(2009:£0.7m)notavailablefordistributionasadividend.

Thespecialreservewascreatedin1996,withthesanctionoftheHighCourt,againstwhichgoodwillarisingonsubsequentacquisitionsmaybecharged.

TheshareoptionsreserverelatestoprovisionsmadeinaccordancewithFRS20forsharesallocatedtotheCompany’semployeesundertheGroup’sshareoptionschemes.WhereshareoptionswhichgaverisetochargesunderFRS20havebeenexercised,theappropriateproportionoftheshareoptionsreserveistransferredtotheprofitandlossaccountinequity.

15. Contingent liabilities and commitmentsTheCompanyhascontingentliabilitiesinrespectofbankandcontractualperformanceguaranteesandothermattersarisingintheordinarycourseofbusinessenteredinto,for,oronbehalfof,certainGroupundertakings.

Astheconditionsoftheaboveguaranteesarecurrentlybeingmet,noobligatingeventisforeseeableandthereforenocontingentliabilityprovisionhasbeenmadeattheyearend.

In2008,Cobhamplccommitted,inconnectionwiththeFutureStrategicTankerAircraftproject,toinvest£6.0mintheequitysharecapitalofthreecompaniesandtoprovideadditionalfundingof£18.1mintheformofredeemableloannotesbyMarch2013atthelatest.Inaddition,anumberofperformanceguaranteesandlettersofcredithavebeenprovidedtosecurethefundingofthisproject.Asat31December2010noprovisionwasmade(2009:£3.0m)inconnectionwiththeseguarantees.

TheCompanyhadnocapitalcommitmentsat31December2010(2009:£nil).


Notes to the parent company financial statement continued

16. Related party transactionsTheDirectorsofCobhamplchadnomaterialtransactionswiththeCompanyduringtheyear,otherthanasaresultofserviceagreementsasdisclosedinnote34totheGroupfinancialstatements.DetailsoftheDirectors’remunerationaredisclosedintheremunerationreport.

ExemptionhasbeentakenunderFRS8(revised)fromdisclosingrelatedpartytransactionswithwhollyownedgroupcompanies.Theonlytransactionswithnon-whollyownedsubsidiariesrelatetothereceiptofmanagementchargestotalling£0.6m(2009:£0.3m).Noamountswereoutstandingatthecurrentorprioryearend.


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Shareholder information

Analysis of shareholders(a)At31December2010,5,987ordinaryshareholderswereontheregistercomparedwith6,556at31December2009.(b)Analysisofordinaryshareholdersontheregisterat31December2010:

SizeofholdingNumberof

registeredholdersPercentage

registeredholders%Numberof

OrdinarySharesheldPercentageof

OrdinaryShares%

Upto1,000 1,698 28.37 852,867 0.071,001–10,000 3,027 50.56 11,045,446 0.9610,001–50,000 712 11.89 15,153,216 1.3150,001–250,000 229 3.82 25,232,994 2.19250,001–1,000,000 161 2.69 84,530,397 7.321,000,001andabove 160 2.67 1,017,712,705 88.15

5,987 100.00 1,154,527,625 100.00Source:EquinitiLimited

Registrars Enquiriesconcerningshareholdingsordividendsshould,inthefirstinstance,beaddressedtotheCompany’sregistrars,EquinitiLimited,AspectHouse,SpencerRoad,Lancing,WestSussexBN996DA(telephone:08713842163).Shareholdersshouldpromptlynotifytheregistrarsofanychangeofaddressorotherparticulars.

Theregistrarsprovidearangeofshareholders’servicesonline.Theportfolioserviceprovidesaccesstoinformationoninvestmentsincludingbalancemovements,indicativesharepricesandinformationonrecentdividendsandalsoenablesaddressandmandatedetailstobeamendedonline.Forfurtherinformationandpracticalhelpontransferringsharesorupdatingyourdetails,pleasevisitwww.shareview.co.uk.ThesharedealingserviceenablessharestobesoldbyUKshareholdersbytelephone,postorovertheinternet.Fortelephonesalespleasecall08456037037between8.30a.m.and4.30p.m.Forpostalsalespleasesendyourcompleteddocumentationtotheaddressabove.Forinternetsalespleasevisitwww.shareview.co.uk/dealing.

Individual Savings Accounts (ISAs)TheCompanyhasintroducedcorporatesponsoredISAsthroughTheShareCentreLimited,anindependentstockbroker.FurtherinformationmaybeobtainedfromTheShareCentreLimitedon+44(0)1296414141orbywritingtoTheShareCentreLimited,POBox2000,Aylesbury,BucksHP218ZB.Alternatively,detailscanberequestedviaemail:[email protected].

Youshouldbearinmindthatinvestments,theirvalueandtheincometheyprovidecangodownaswellasupandyoumightnotgetbackwhatyouoriginallyinvested.

Capital gains taxFortheinformationofshareholderswhoheldCobhamplcOrdinaryShareson31March1982,themarketvalue,adjustedforcapitalisationandrightsissues,oftheCompany’sOrdinarySharesonthatdateforcapitalgainstaxpurposes,unadjustedforthesharesub-divisionofJuly2005,was86.02p.

Financial calendarAGM 6May2011Finaldividend 3June2011Interimresults 4August2011Interimdividend 11November2011

Registered OfficeBrookRoad,Wimborne,Dorset,EnglandBH212BJTel:+44(0)1202882020Fax:+44(0)1202840523Internet:www.cobham.comRegisteredNumberinEngland:30470


Glossary

AIA AerospaceIndustriesAssociation

ASD AerospaceandDefenceIndustriesAssociationofEurope

A&D AerospaceandDefence

AARGM AdvancedAnti-RadiationGuidedMissile

AAR Air-to-AirRefuelling

Acq Acquisition

AGM AnnualGeneralMeeting

AMRAAM AdvancedMedium-RangeAir-to-AirMissile

BCP BonusCo-investmentPlan

BE&CC BusinessEthicsandComplianceCommittee

BECO BusinessEthicsComplianceOfficer

BGAN BroadbandGlobalAreaNetwork

C4ISR Command,Control,Communications,Computers,Intelligence,SurveillanceandReconnaissance

CAGR CompoundAnnualGrowthRate

CAS CobhamAvionicsandSurveillance

CAvS CobhamAviationServices

CDS CobhamDefenceSystems

CEO ChiefExecutiveOfficer

CFO ChiefFinancialOfficer

CMS CobhamMissionSystems

CBLS CarrierBombLightStores

COFDM CodedOrthogonalFrequencyDivisionMultiplexing

COMAC CommercialAircraftCorporationofChina

CR&S CorporateResponsibilityandSustainability

DARPA DefenseAdvancedResearchProjectsAgency

DoD DepartmentofDefense

EBITDA EarningsBeforeInterestTaxDepreciationandAmortisation

EOD ExplosiveOrdinanceDisposal

EPS EarningsperShare

ERU EjectorReleaseUnits

ESOS ExecutiveShareOptionScheme

EW ElectronicWarfare

FAA FederalAviationAdministration

FBH FBHeliservices

FRC FinancialReportingCouncil

FSA FinancialServicesAuthority

FSTA FutureStrategicTankerAircraft

FTSE FinancialTimesStockExchange

FURBS FundedUnapprovedRetirementBenefitScheme

FX ForeignExchange

GA GeneralAviation

GAAP GenerallyAcceptedAccountingPrinciples

GE GroupExecutive

GHG GreenHouseGas

HeliSAS HelicopterAutopilotStabilityAugmentationSystem

HMMWV HighMobilityMultipurposeWheeledVehicle

HMRC HerMajesty’sRevenue&Customs

IAS InternationalAccountingStandards

IDDQ IndefiniteDeliveryDefiniteQuantity

IDIQ IndefiniteDeliveryIndefiniteQuantity

IED ImprovisedExplosiveDevice

IFRIC InternationalFinanceReportingInterpretationsCommittee

IFRS InternationalFinancialReportingStandards

ISA IndividualSavingsAccount

JSF JointStrikeFighter

KPI KeyPerformanceIndicator

LIBOR LondonInterbankOfferedRate


Businessoverview

Corporategovernance


Other information

LCM LifeCycleManagement

LTIP LongTermIncentivePlan

MCU MicroclimateCoolingUnit

MDA MissileDefenceAgency

MFTS MilitaryFlyingTrainingServices

MiDAESS MissileDefenceAgencyEngineeringandSupportServices

MoD MinistryofDefence

MRTT MultiRoleTankerTransport

NASA NationalAeronauticsandSpaceAdministration

OBIGGS OnBoardInertGasGeneratingSystem

OCI OrganisationalConflictofInterest

OE OriginalEquipment

PBT ProfitBeforeTax

PSI PriceSensitiveInformation

PSP PerformanceSharePlan

PV PrivateVenture(companyfundedR&D)

QDR QuadrennialDefenseReview

R&D ResearchandDevelopment

RF RadioFrequency

RNAS RoyalNavalAirStation

RNS RegulatoryNewsService

RoW RestofWorld

RPI RetailPricesIndex

SATCOM SatelliteCommunication

SBU StrategicBusinessUnit

SDSR StrategicDefenceandSecurityReview

S|H|E Safety,HealthandEnvironment

SOF StandardOperatingFramework

STOVL ShortTakeoffandVerticalLanding

TSR TotalShareholderReturn

UK-DMC UnitedKingdomDisasterMonitoringConstellation

UAS UnmannedAutonomousSystem

UAV UnmannedAerialVehicle

UGV UnmannedGroundVehicle

VIS-X VehicleIntercommunicationSystem–Expanded

WnAN WirelessNetworkAfterNext


Definitions

ThefollowingdefinitionsapplythroughouttheAnnualReportandAccounts.

Toassistwiththeunderstandingofearningstrends,theGrouphasincludedwithinitspublishedstatementstradingprofitandunderlyingearningsresults.Tradingprofitandunderlyingearningshavebeendefinedasoperatingprofitfromcontinuingoperationsexcludingtheimpactsofcertaintransactionrelatedcostsandbusinessrestructuringcostsasdetailedbelow.Alsoexcludedarethemarkingtomarketofcurrencyinstrumentsnotrealisedintheperiod,impairmentsofintangibleassetsanditemsdeemedbytheDirectorstobeofanexceptionalnaturesuchasthesettlementofalong-standingcommercialdispute.

Transactionrelatedcostsexcludedfromtradingprofitandunderlyingearningsincludetheamortisationofintangibleassetsrecognisedonacquisition,thewritingoffofthepre-acquisitionprofitelementofinventorywrittenuponacquisitionandcostschargedpostacquisitionrelatedtoacquiredshareoptions.Transactionrelatedcostsalsoincludeotherdirectcostsassociatedwithbusinesscombinationsanddirectcostsarisingfromanyterminatedacquisitionsordisposals.

Businessrestructuringcostscompriseexceptionalprofitsorlossesarisingondisposalsactuallycompleted,aswellasexceptionalcostsorprofitsassociatedwiththerestructuringoftheGroup’sbusinessandsiteintegrations.ThisincludescostsassociatedwiththeExcellenceinDeliveryprogramme.

Allunderlyingmeasuresincludetherevenueandoperationalresultsofbothcontinuinganddiscontinuedbusinessesuntilthepointofsaleoftheoperation.

Netdebtisdefinedasthenetofcashandcashequivalentslessborrowingsatthebalancesheetdate.

Areconciliationofunderlyingprofitisshownonpage22.

Operatingcashflowisdefinedascashgeneratedfromoperations,adjustedforcashflowsfromthepurchaseordisposaloftangiblefixedassets.Operatingcashconversionisdefinedasoperatingcashflowasapercentageoftradingprofit,excludingprofitfromjointventures.Freecashflowisoperatingcashflowafternetinterestandtaxation.

Cobham’sTechnologyDivisionscompriseCobhamAvionicsandSurveillance,CobhamDefenceSystemsandCobhamMissionSystems.

Organicrevenuegrowthisdefinedasrevenuegrowthstatedatconstanttranslationexchange,excludingtheincrementaleffectofacquisitionsanddisposals.

Cobham’s products and services have been at the heart of sophisticated military and civil systems for more than 75 years, keeping people safe, improving communications, and enhancing the capability of land, marine, air and space platforms. The Group has three divisions employing more than 11,000 people on five continents, with customers and partners in more than 100 countries and annual revenue of some £1.9bn/$3bn.

Front cover image Cobham’s latest ‘fifth generation’ 905E Air-to-Air Refuelling (AAR) pod has been certified as part of the Airbus A330 Multi Role Tanker Transport (MRTT) for the Royal Australian Air Force. The A330 MRTT with Cobham 905E pods has also been selected for the UK MoD Future Strategic Tanker Aircraft (FSTA) programme, the Saudi Arabia Air Force and the United Arab Emirates Air Force, with a current requirement for more than 50 pods.

You can view this Annual Report, other results material, including a webcast of the results presentation, and other information for shareholders online at www.cobhaminvestors.com

Designed and produced by Addison www.addison.co.ukPrinted by Park Communications.

The paper used in this report is produced from 50% recovered waste and 50% virgin fibre. The pulp is bleached using an Elemental Chlorine Free (ECF) process. The Forest Stewardship Council has given this paper its Mixed Sources accreditation, acknowledging it has been produced from recycled fibre, well managed forests and other controlled sources. The paper mill and printer are certified to the ISO14001 environmental management standard.

When you have finished with this report, please pass it on to other interested parties or remove the cover and dispose of it in your recycled paper waste.

Cobham plc

Annual Report and Accounts 2010

The most important thing we build is trust

Fifth generation refuelling

www.cobham.comCobham plc

We are technically diverse, innovative and agile by design

Brook Road, Wimborne, Dorset, BH21 2BJ England

T: +44 (0)1202 882 020

F: +44 (0)1202 840 523

Cobham

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