TIDMCHRT
RNS Number : 3859G
Cohort PLC
23 July 2019
One Waterside Drive
Arlington Business Park Cohort plc
Reading
Berks
RG7 4SW
23 July 2019
COHORT PLC
PRELIMINARY RESULTS
FOR THE YEARED 30 APRIL 2019
Cohort plc today announces its unaudited results for the year
ended 30 April 2019.
Highlights include: 2019 2018(2) %
Unaudited Unaudited
* Revenue GBP121.2m GBP110.5m 10
* Adjusted operating profit(1) GBP16.2m GBP15.2m 6
* Adjusted earnings per share(1) 33.60p 29.08p 16
(GBP6.4m) GBP11.3m n/a
* Net (debt)/funds
* Order intake GBP189.9m GBP76.6m 148
* Order book (closing) GBP190.9m GBP103.8m 84
* Proposed final dividend per share 6.25p 5.65p 11
* Total dividend per share 9.10p 8.20p 11
Statutory 2019 2018(1) %
Unaudited Unaudited
* Statutory profit before tax GBP5.7m GBP10.2m (44)
* Basic earnings per share 13.37p 18.95p (29)
-- Overall results in line with expectations:
o Initial contribution from Chess better than expected
o Growth at MASS, SEA and MCL
o Weaker performance at EID
-- Record order intake of GBP189.9m (2018: GBP76.6m), with
better performance across the Group
-- All the large order opportunities signalled last year were
won - both renewals and new orders
-- 81.84% of Chess acquired for an initial cash consideration of GBP20.1m in December 2018
-- Chess's Counter Unmanned Air Vehicle (C-UAV) system was
deployed at Gatwick Airport in December 2018
-- Dividend increased by 11% - dividend raised every year since IPO in 2006
(1) Excludes exceptional items, amortisation of other intangible
assets, research and development expenditure credits and
non-trading exchange differences, including marking forward
exchange contracts to market.
(2) 2018 figures have been restated for the impact of IFRS 15
'Revenue from Contracts with Customers'.
Looking forward:
-- Strong order book and pipeline of prospects provide a good
underpinning for revenue in the coming year.
-- The 30 April order book of GBP190.9m underpins nearly GBP81m
of revenue, representing 55% (2018: 46%) of consensus forecast
revenue for the year. This has risen to 60% as at the end of
June.
-- Expect the Group to grow, including an improved performance from EID.
-- Financial resources in place for investment and acquisitions.
Net debt expected to remain flat.
Commenting on the results, Nick Prest CBE, Chairman of Cohort
plc said:
"MASS, MCL and SEA all posted increases in profits and the
result also benefitted from the acquisition of Chess in December
2018, partially offset by a weaker performance at EID."
"Our record order intake of nearly GBP190m and an all time high
closing order book of GBP191m gives us a strong base for the coming
financial year. We also have a good pipeline of order
prospects."
"Overall, we expect the Group to continue to make progress in
the coming year and beyond, taking into consideration the budgetary
risks of our main UK customer, the timing of exports and the strong
opening order book".
A presentation for analysts is being hosted today 23 July 2019
at 9.15am for 9.30am
at the IET Savoy Place, 2 Savoy Place, London WC2R 0BL.
For further information please contact:
Cohort plc 0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Investec Bank Plc (NOMAD and Broker) 020 7597 5970
Daniel Adams, Chris Baird
MHP Communications Limited 020 3128 8100
Reg Hoare, Ollie Hoare, Luke Briggs
NOTES TO EDITORS
Cohort plc (www.cohortplc.com) is the parent company for four
innovative, agile and responsive businesses working primarily for
defence, wider government and industry clients.
-- Chess (www.chess-dynamics.com & www.vision4ce.com) -
Chess Technologies provides specialist products and
technologies in the areas of electro-optics, tracking and fire
control to customers world-wide. It was acquired by Cohort in
December 2018.
-- EID (www.eid.pt) - a Portugal based supplier of advance
electronics, communication, and command and control
products and systems for the global defence market. Cohort
acquired a majority stake in June 2016.
-- MASS (www.mass.co.uk) - a specialist defence and technology
business, focused mainly on electronic warfare,
information systems and cyber security. Acquired by Cohort in
August 2006.
-- MCL (www.marlboroughcomms.com) - an expert in sourcing,
design and integration of communications and
surveillance technology, as well as support and training for UK
end users including the MOD and other government
agencies. MCL has been part of the Group since July 2014.
-- SEA (www.sea.co.uk) - an advanced electronic systems and
software house operating in the defence, transport and offshore
energy markets. Acquired by Cohort in October 2007.
Cohort (AIM: CHRT) was admitted to London's Alternative
Investment Market in March 2006. It has its headquarters in
Berkshire and employs in total around 900 core staff there and at
its other operating company sites in Bristol, Cambridgeshire,
Devon, Lincolnshire, Somerset, Surrey, West Sussex, Scotland and
Portugal.
Chairman's statement
Cohort made further progress in 2019, achieving a record
adjusted operating profit of GBP16.2m (2018 restated: GBP15.2m).
MASS, MCL and SEA all posted increases in profits and the result
also benefitted from the acquisition of Chess Technologies (Chess)
in December 2018, which performed ahead of our expectations.
These gains were partially offset by a weaker performance at EID
caused by lower naval activity and slippage of deliveries on a
major contract in its Tactical division. As a result, the Group
performance, excluding Chess, was slightly below last year.
We acquired Chess on 12 December 2018 for an initial
consideration of just over GBP20m for 81.84% of the business with
an option to acquire the remaining 18.16% on or before 31 October
2021 for a maximum consideration of GBP9.1m. We also agreed an earn
out with the selling shareholders of Chess of up to GBP12.7m. The
magnitude of these further payments will depend on the performance
of the business over the three years ending 30 April 2021. Our
current view is that the further consideration payable, including
earn out, to take control of the whole of Chess in 2021 will be
GBP5.5m.
The Chess transaction accords with our strategy of acquiring
businesses, primarily in the defence and security sector, with a
strong niche capability and market position. Chess also increases
the Group's reach and potential in international markets. We were
pleased with the contribution from Chess, which included order
intake, revenue and profit arising from the deployment of Chess's
Counter Unmanned Air Vehicle (C-UAV) system at Gatwick just before
Christmas in response to drone flights over the airport.
The Group had a record year for order intake, securing GBP189.9m
of orders in 2019 (2018: GBP76.6m). This intake included GBP70m of
important renewals, primarily at MASS, and also some key wins at
MCL for submarine systems and at EID to supply communications
equipment to a Middle East customer.
The acquisition of Chess added a further GBP20m to the Group's
order book which closed at an all-time high of GBP190.9m. This
provides a solid base for the coming financial year and beyond.
Key financials
The 2018 comparative figures have been restated following
adoption by the Group of IFRS 15 'Revenue from contracts with
customers' on 1 May 2018. The impact of this restatement is
analysed in note 30, but overall it has been immaterial. The
comparative figures in this report are the restated figures.
In the year ended 30 April 2019, Cohort achieved revenue of
GBP121.2m (2018 restated: GBP110.5m), including GBP39.0m (2018:
GBP37.5m) from MASS Consultants Limited (MASS), GBP38.3m (2018
restated: GBP37.3m) from SEA (Group) Limited (SEA), GBP21.7m (2018:
GBP17.4m) from Marlborough Communications Limited (MCL), GBP11.5m
(2018 restated: GBP18.3m) from EID and an initial contribution from
Chess for five months of GBP10.7m.
The Group's adjusted operating profit was GBP16.2m (2018
restated: GBP15.2m). This included contributions from MASS of
GBP8.2m (2018: GBP7.1m), SEA GBP5.5m (2018 restated: GBP4.4m), MCL
GBP2.3m (2018: GBP2.1m), EID GBP1.3m (2018 restated: GBP4.3m) and a
good initial performance at Chess of GBP1.7m.
Cohort Group overheads were GBP2.8m (2018: GBP2.7m).
MASS, which remains the Group's largest profit contributor, saw
adjusted operating profit grow 15% on revenue growth of 4%. The
enhanced profitability was a result of improved mix, including
increased export sales.
MCL's adjusted operating profit grew by 10% on revenue growth of
25%. The marked revenue growth was driven by new long-term work on
UK submarines, although the high level of bought-in content on that
work and one problem project resulted in MCL's net margin falling
to 10.5% (2018: 11.9%).
After some years of little or no growth at SEA, a restructuring
exercise was completed in the first half of the financial year, at
a cost of GBP0.5m. As a result, on modest revenue growth of 3%,
SEA's adjusted operating profit increased by 25% from GBP4.4m in
2018 (restated) to GBP5.5m in 2019. The resulting net return of
just over 14% is a marked improvement.
EID had a disappointing year with its profitability falling by
nearly 70% from GBP4.3m in 2018 (restated) to just over GBP1.3m in
2019. This was a result of a drop in revenue of nearly 40% and
reflected a decline in higher margin naval activity and slippage of
deliveries on a major land communications order into the 2019/20
financial year.
Chess's initial contribution of just under GBP1.7m on GBP10.7m
of revenue, a net return of 15.8% was better than we expected when
we acquired the business last December, primarily due to the
contribution from C-UAV systems and support at two UK airports,
including Gatwick, following drone incursions before Christmas.
The Group's operating profit of GBP5.9m (2018 restated:
GBP10.3m) is stated after recognising amortisation of intangible
assets of GBP9.5m (2018: GBP5.3m), exceptional items of GBP1.5m
(2018: GBP0.1m) and research and development expenditure credits of
GBP0.7m (2018: GBP0.7m). Net foreign exchange gains of less than
GBP0.1m (2018: net loss of GBP0.3m) were also recognised. Profit
before tax was GBP5.7m (2018 restated: GBP10.2m) and profit after
tax was GBP5.1m (2018 restated: GBP8.1m).
Adjusted earnings per share (EPS) were 33.60 pence (2018
restated: 29.08 pence). The adjusted EPS figure was based upon
profit after tax, excluding amortisation of other intangible
assets, net foreign exchange movements and exceptional items. Basic
EPS were 13.37 pence (2018 restated: 18.95 pence). The adjusted EPS
benefitted from a lower tax charge on adjusted earnings of just
over 15% (2018: 21%).
Dividends
The Board is recommending a final dividend of 6.25 pence per
ordinary share (2018: 5.65 pence), making a total dividend of 9.10
pence per ordinary share (2018: 8.20 pence) for the year, an 11%
increase. This will be payable on 18 September 2019 to shareholders
on the register at 23 August 2019, subject to approval at the
Annual General Meeting on 17 September 2019. The growth in our
dividend reflects our policy of bringing the dividend growth into
line with our long-term growth expectations of the Group. The
dividend has now been increased every year since the Group's IPO in
2006
Cash
The Group moved into a net debt position following the
acquisition of Chess. The closing net debt of GBP6.4m (2018: net
funds of GBP11.3m) was better than our expectation, as a result of
improved working capital, partly from accelerated receipts but also
from lower supplier payments as a result of programme delays.
The GBP16.2m (2018 restated: GBP15.2m) of adjusted operating
profit and an overall working capital outflow resulted in GBP11.6m
(2018: GBP15.1m inflow) operating cash inflow.
The operating cash inflow was utilised in paying tax, dividends
and capital investment, a total outflow of GBP8.2m (2018: GBP5.5m),
as well as acquiring Chess (GBP21.0m including acquired net
debt).
Looking forward we expect net debt to rise over the first half
of the coming financial year as the positive timing advantage in
working capital unwinds before returning to a similar level of net
debt at the year end. With no other acquisitions we would expect
the Group to move back into net funds during the year ended 30
April 2021.
Board, management and staff
As always, my thanks go to all staff within the businesses.
Their hard work, skill and ability to deliver what the customer
needs are what continues to drive the performance of our Group.
Andy Thomis and his senior executive colleagues have continued
their dedicated and skilful work which has helped the Group to
progress in the face of challenging trading conditions in parts of
the defence market.
I also welcome the management and staff of Chess to the Cohort
Group. They showed the importance our people attach to playing
their part when deploying at short notice, for long shifts, to
assist Gatwick Airport to continue to operate over the Christmas
period.
As previously announced, Ed Lowe joined the Board of Cohort plc
on 1 July 2019, fulfilling the plan announced last year to appoint
a new Non-executive Director. Ed has great experience in the
defence sector and I look forward to his contribution to the Board
and business. Ed has joined the Audit Committee and taken over from
Sir Robert Walmsley as Chairman of the Remuneration &
Appointments Committee. Sir Robert has stepped down from both
committees after serving on them since 2006. I am grateful for all
the work he has put into these roles and the Board is pleased that
he is continuing to serve as a Non-executive Director. His
experience of the defence sector has been and continues to be of
great benefit. Jeff Perrin has taken over from Sir Robert in the
role of Senior Independent Director.
Outlook
Markets
The political and economic context within which Cohort operates
has not changed appreciably since last year. On the one hand the
international and domestic security environment calls for greater
resources to be devoted to defence and counter-terrorism in the UK
and many other countries. On the other hand, the pressures on
public expenditure in the UK are strong and this applies in varying
degrees in many other markets.
Although the UK defence market remains tight, the Cohort
businesses have strong and relevant capabilities, established
positions on some key long-term UK MOD programmes, and a good
pipeline of new opportunities. Export prospects for the Group
continue to develop and the acquisition of Chess has strengthened
our position in this respect. Outside of defence, MASS made
progress on its digital forensics service for the Metropolitan
Police and is now actively promoting this service to Police and
security forces in the UK and overseas. SEA's ROADflow product made
further progress with significant deliveries of its Red Light
System to Network Rail for improving safety at level crossings.
As already mentioned, Chess has deployed its C-UAV system at
major UK airports and has recently developed its product offering
for this market and is looking for customers in the UK and
overseas.
Our business from the UK into EU countries remains small
(GBP1.4m in 2019; GBP1.4m in 2018), and consequently we do not
expect any direct effects upon Cohort from the Brexit process. In
the longer term there could be indirect effects, resulting from the
broad economic and political consequences of Brexit, and the future
defence and security relationship that develops between the UK and
the EU. Whether these will be favourable or unfavourable is not
possible to say. The responsibility of the Cohort Board is to
manage our affairs so that our businesses prosper whatever the
political and economic backdrop.
Our collective experience of the defence business, our size and
our decentralised management structure, which together enables us
to make quick decisions, and our focus on niche product and service
offerings, for which demand is increasing both domestically and
internationally, are the keys to this.
We continue to look for opportunities to augment organic growth
through targeted acquisitions.
Divisional
Our strong order intake of nearly GBP190m and a closing order
book of nearly GBP191m give us a strong base for the coming
financial year.
We expect MASS, with a record order book, to make progress in
the coming year.
MCL had a slightly weaker closing order book than last year but
has good opportunities in key UK land programmes and we expect MCL
to make progress.
SEA, after restructuring in the current year, has set its
overhead base at a more appropriate level for a business with
revenue at just below GBP40m. SEA enters the coming year with lower
order cover than we have seen historically, and we expect, at best,
to see a flat year for SEA in 2019/20. Looking into the mid-term,
SEA is in a good position for a number of overseas naval programmes
and success in these will enable SEA to return to growth from
2020/21 onwards.
After a weak year, EID has a strong order book and expects to
secure some important long-term Portuguese orders in the first half
of this coming year. This gives us confidence that EID will return
to a satisfactory level of performance this year.
We expect the Group to benefit from a full year contribution
from Chess, albeit at a lower annualised level than the five month
contribution to 2018/19 would suggest. That period was stronger
than expected because of C-UAV orders. Looking further ahead Chess
has strong positions and potential on a range of naval and land
programmes with significant customers.
Our record order intake of nearly GBP190m and an all time high
closing order book of GBP191m gives us a strong base for the coming
financial year. We also have a good pipeline of order
prospects.
Overall, we expect the Group to continue to make progress in the
coming year and beyond, taking into consideration the budgetary
risks of our main UK customer, the timing of exports and the strong
opening order book.
Nick Prest CBE
Chairman
Business review
Operating review
2019 has been another year of progress for Cohort, with a record
level of adjusted operating profit and record closing order
book.
2019 highlights
The Group's adjusted operating profit of GBP16.2m (2018
restated(1) : GBP15.2m) on revenue of GBP121.2m (2018 restated(1) :
GBP110.5m) was a net return of 13.3% (2018 restated(1) :
13.8%).
MASS remains the strongest contributor to the Group's adjusted
operating profit and saw continued growth.
Cohort acquired 81.84% of Chess Technologies (Chess), and the
new business made a strong initial contribution.
MCL and SEA both improved their performance.
EID had a weaker year.
Operating review
2018/19 has been another year of progress for Cohort, with a
record level of revenue, adjusted operating profit and order
intake. Revenue grew by 10%. Both revenue and adjusted operating
profit benefited from a strong initial five-month contribution from
Chess, which was acquired in December 2018.
All of the Group's existing UK businesses delivered growth in
revenue and adjusted operating profit. The improvement at SEA was
in part due to the restructuring we announced last year, which was
completed in the first half of this year.
However, these improvements were offset by the performance at
EID whose revenue was down 40% and adjusted operating profit down
70%. As a result, the Group, excluding Chess, produced a mixed
performance with revenue flat year on year at GBP110.4m and trading
profit down GBP0.7m (5%).
The Group's adjusted operating profit grew by 6% to GBP16.2m
(2018 restated(1) : GBP15.2m) on revenue of GBP121.2m (2018
restated(1) : GBP110.5m), a net return of just over 13.3% (2018
restated(1) : 13.8%). The Group's operating profit of GBP5.9m (2018
restated(1) : GBP10.3m) is significantly impacted by the
amortisation of other intangible assets, a GBP9.5m charge in 2019
(2018: GBP5.3m charge). In this review, therefore, the focus is on
the adjusted operating profit of each business, which we consider
to be a more appropriate measure of performance year on year. The
adjusted operating profit is reconciled to the operating profit in
the Consolidated income statement and by business in note 2.
Adjusted operating profit by subsidiary
Adjusted operating profit Adjusted operating
margin
--------------- --------------------------------------------
2019 Unaudited 2018 (restated(1) Change 2019 2018 (restated(1)
GBPm ) % Unaudited )
Unaudited % Unaudited
GBPm %
--------------- --------------- ------------------ ------- ----------- ------------------
Chess 1.7 - - 15.8 -
EID 1.3 4.3 (70) 11.8 23.6
MASS 8.2 7.1 15 21.0 18.9
MCL 2.3 2.1 10 10.5 11.9
SEA 5.5 4.4 25 14.3 11.8
Central costs (2.8) (2.7) (4) - -
--------------- --------------- ------------------ ------- ----------- ------------------
16.2 15.2 6 13.3 13.8
--------------- --------------- ------------------ ------- ----------- ------------------
The growth at MASS was mainly due to growth in electronic
warfare operational support (EWOS) to overseas customers and
completion of a long-term support contract. A new contract, won in
competition, was subsequently received to continue this work. This
growth in higher margin areas offset weaker activity in Training
Support.
MCL delivered strong revenue growth, mostly on the supply of
systems to the UK submarine programme. An overall higher level of
bought-in content on this work and one poorly performing project
accounted for the reduction in MCL's net margin from 11.9% last
year to 10.5% this year.
After some difficult years, SEA delivered a 3% growth in revenue
and a much improved adjusted operating profit of GBP5.5m, up 24% on
2018 (GBP4.4m). Some of this improvement was a result of the
restructuring in the first half which delivered GBP0.6m of overhead
saving in the second half. This was somewhat ahead of our
expectation of an annualised saving of GBP1.0m.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
The remainder of the profit growth was a result of improved
margin, partly a result of a loss-making contract being completed
in late 2017/18 and no losses repeated in 2018/19.
EID had a disappointing year. Its adjusted operating profit of
just over GBP1.3m on revenue of GBP11.5m was significantly down on
last year's GBP4.3m on GBP18.3m of revenue (2018 figures were
restated for IFRS 15, see note 8).
The reduction at EID was in both its Tactical and Naval
divisions. In Tactical, this was due to slippage into 2019/20 of a
significant delivery due to have been made in the last quarter of
the year.
In the Naval division, various customer driven delays and
slippage of orders accounted for the weaker activity.
The more marked deterioration in profitability at EID is due to
the burden of the business overhead.
Chess delivered a good initial contribution for its first five
months within the Group. Its performance was stronger than we had
expected last December and was a result of the C-UAV systems it
deployed, along with support personnel, at two UK airports,
including Gatwick, over the Christmas period.
Operating strategy
Cohort operates as a group of five medium-sized businesses,
operating primarily in defence and security markets, and with a
strong emphasis on technology, innovation and specialist
expertise:
EID is a high-tech company with 35 years' experience in the
design, manufacture and support of advanced high performance
command, control and communications equipment for the global
defence and security market. The Royal Navy is amongst the
customers for its naval communications systems, as are the navies
of Portugal, the Netherlands, Spain and Belgium, and many other
export customers. In total its maritime products equip over 120
warships worldwide, and its army products have also enjoyed wide
domestic and export success.
EID operates through two market-facing divisions:
o Naval Communications: integrated command, control and
communications systems for warships and submarines; and
o Tactical Communications: tactical radio, vehicle intercoms,
field communications and networking equipment.
These divisions are supported by an internal production and
logistics unit. EID operates from an engineering facility near
Lisbon and has a regional office in Indonesia. It is led by its
Managing Director, António Marcos Lopes.
MASS is a business which enables customers to better protect,
analyse and interpret data to provide valuable information. It is a
leading international provider in the fields of electronic warfare
(EW) and secure communications, including cyber security. Its
products include the THURBON(TM) EW database and it provides EW
operational support services to customers in the UK and overseas.
MASS has some unique capabilities that have enabled it to establish
strong niche positions in these important areas. It also has an
increasing reputation as a leading provider of secure networks,
cyber protection and analysis (including digital forensics) to
defence and other security customers. MASS delivers training
support and simulation to the UK's Joint Forces Command, a service
the Group has provided for over 15 years. MASS was founded in 1983
and is led by its Managing Director, Chris Stanley.
MCL is a supplier of advanced electronic communications
equipment (including hearing protection systems), information
systems and signals intelligence technology, to defence and
security customers. It sources technologies from a global supplier
network, as well as developing and supplying its own solutions. MCL
has a reputation for being flexible and agile in creating
effective, mission deployable solutions for customers in the most
challenging of timeframes. MCL was founded in 1980 and is led by
its new Managing Director, Shane Knight. MCL's former Managing
Director, Darren Allery, remains in the business on a part-time
basis having stepped back into a more technical role and remains a
valued member of the MCL team.
SEA specialises in providing advanced technology systems and
specialist services to government and industry. Its External
Communications System (ECS) is being provided for the Royal Navy's
Astute and Vanguard class submarines and will ultimately be fitted
to all the Royal Navy's underwater fleet. Its products include
sonar systems and torpedo launchers. It also offers defence
technology research and technical support services. Outside of
defence, it provides software and systems for the transport market,
including the successful ROADflow range of traffic enforcement
products, and services for the offshore energy market. SEA was
founded in 1988 and is led by its Managing Director, Steve
Hill.
Chess Technologies (Chess) is a combination of two
businesses:
1. Chess Dynamics
2. Vision4ce
Chess Dynamics designs, develops, manufactures and supports a
range of surveillance, detecting and tracking systems for naval and
land-based platforms and installations. This capability includes
C-UAV systems for countering drones in both the military and
civilian environment. Chess Dynamics is based in Horsham and
Plymouth.
Vision4ce is a software house based in Wokingham which designs,
develops and supplies tracking and control software for both Chess
Dynamics products and systems and third-party applications.
Chess was founded in 1993 by Graham Beall, its Managing
Director.
Cohort's management approach is to allow its subsidiary
businesses a significant degree of operational autonomy in order to
develop their potential fully, while providing light-touch but
rigorous financial and strategic controls at Group level. Our
experience is that our customers prefer to work with businesses
where decision making is streamlined and focused on solving their
immediate problems. This model provides us with a degree of
competitive advantage over some larger rivals where the decision
making process can be more extended. It is also cost effective as
it avoids the need for additional layers of management involved in
coordination activities and for a large headquarters team. High
calibre employees find our business model attractive and more
rewarding as it allows them to be involved in decisions affecting
the business, even at a relatively junior level, rather than being
constrained to a narrow or purely technical role. This positions us
well with customers where such attributes are highly valued.
Although the degree of autonomy our subsidiary businesses enjoy
is high, and we believe that this is an effective operational
strategy, we take a practical view of the best way forward when
circumstances change. When the operational situation is such that a
merger, restructuring or even sale is necessitated, we will act and
have acted in the best interests of the wider Group and its
shareholders.
Within our markets we have sought to use our agility and
innovation to identify niches where prospects are attractive and
where we have some sustainable competitive advantage. These can be
for products, services or high value one-off projects to design
bespoke equipment or software. Examples include MASS's electronic
warfare operational support offerings, SEA's ECS for submarines,
MCL's range of hearing protection systems and Chess's recent Air
Shield and Air Guard solutions for countering drones at airports.
We have also been active in finding new customers for the
capabilities we have developed, both in export markets and for
non-defence purposes. During the recent year we have continued to
widen the customer base for our Thurbon EW database, our torpedo
launcher system and our small diameter sonar array (Krait).
Being part of the Cohort Group brings advantages to our
businesses compared with operating independently. The Group's
strong balance sheet gives customers the confidence to award large
or long-term contracts that we are technically well able to execute
but which might otherwise be perceived as risky. One example is a
GBP50m plus in-service support contract awarded to MASS this year,
a renewal of a contract we have been performing for over 15 years.
Others include approximately GBP80m of contracts awarded to SEA, so
far, for ECS across the UK's submarine platforms, over GBP30m of
orders won by MCL for supply and support of hearing protection
systems across a range of UK military users, and a recent single
order of GBP15m for supply of systems across the UK submarine
fleet.
The Group's Directors have long experience of operating in the
defence sector and have contacts and working relationships with
senior customers in the UK and internationally, which would be hard
for independent smaller businesses to establish. Our current four
UK operating businesses, while remaining operationally independent,
have close working relationships and benefit from each other's
technical capabilities, customer relationships and market
knowledge. We have made further progress in the year on ensuring
that EID participates in this collaborative approach and bringing
Chess fully into the Group. In the case of Chess, SEA was able to
find and deploy ex-service personnel to support Chess's C-UAV
solution at two major UK airports, including Gatwick, in the final
quarter of the financial year. We will continue to work to promote
the Group's services and products in wider markets, including
through business development visits. In the past year, Andy Thomis
has led visits of both UK and Portuguese teams to South East Asia
and Canada. Plans are in place for a team visit to Australia later
this year, and a large combined presence at the DSEI exhibition in
London.
Cooperation between the Group businesses has extended to the
sharing of technology. For example, SEA and EID continue to work
together on developing a secure communication system for the Royal
Navy's new Type 31 Frigate, bringing together EID's expertise in
surface ship communications with SEA's knowledge of the UK and
especially its security requirements. They are also collaborating
on an important trial of SEA's new anti-submarine warfare system,
based on its small diameter sonar array (Krait) with the Portuguese
Navy, which will take place this summer.
These strategies have allowed us to grow our profit at a time
when UK defence expenditure, our largest source of revenue, has
been tightly constrained. They have also generated long-term
customer relationships and good opportunities that give us
confidence that we can continue to prosper, despite the current
difficult and unpredictable market conditions.
Innovation and technology
With the acquisitions of EID and Chess and the evolving strategy
at SEA, the Group has become more focused on technology development
to enhance its product and service offerings. One of the benefits
of Cohort's operating model is the freedom it gives to our
subsidiaries, and this in turn leads to a culture of technological
innovation.
Chess, the newest member of the Group, has a history of
successful innovation that has created a portfolio of products with
real competitive advantage in terms of both performance and price.
For instance, the AUDS C-UAV system developed by Chess and its
partners Blighter and ECS is the only such system in service with
the US armed forces. Since the disruption at Gatwick Airport caused
by malicious drone use in December 2018, Chess has developed Air
Guard and Air Shield, new C-UAV systems designed to protect complex
civilian airports within their perimeter and along the aircraft
approach path. Chess's subsidiary business Vision4ce has supported
C-UAV development with work on high-performance optical tracking
and systems to discriminate hostile drones from birds and aircraft
using machine learning techniques. Chess has close partnerships
with world-leading defence technology businesses in the UK and
world-wide to create new and innovative products and systems.
EID, our Portuguese military communications business, is
investing in a new vehicle intercom system, based on a resilient
architecture and incorporating advanced technology. It provides a
capability matched by very few competitor systems at a much more
attractive price. EID is preparing to supply the system to its
first customers in 2019/20.
At SEA considerable development effort has been focused on the
Krait Defence System, an innovative new submarine detection and
tracking system optimised for use with light naval vessels. The
system is now in its second generation. The use of digital
transducers makes construction simpler and more reliable and
enables the production of longer arrays, with increased sensitivity
and bearing accuracy. It will take part in major customer trials
this year, and the future development strategy will be reviewed in
light of the results. SEA has also been investing in the
development of its ROADflow family of traffic enforcement systems.
New variants launched recently include Red Light for level crossing
protection, Motion for moving traffic offences, and Fusion, a
modular multi-purpose version.
Much of the development effort at MASS and MCL is related to
security classified programmes, but innovation activities are
underway in both businesses. In MASS's case this includes
enhancements to the CounterWorX suite of missile engagement
simulation software and the NEWTS electronic warfare training
system. MCL works with its partners on innovations to support close
combat soldiers, special forces and signals intelligence users.
Many of the Group's innovative products will be on display at
the DSEI exhibition in London in September 2019. We welcome current
and future customers, partners and investors to visit our stands
there.
Acquisitions
Alongside our organic growth strategy, we continue to see
opportunities to accelerate our growth by making further targeted
acquisitions. We believe that there are good businesses in the UK
and overseas that would thrive under Cohort ownership, whether as
standalone members of the Group or as "bolt-in" acquisitions to our
existing subsidiaries.
The most likely candidates for bolt-in acquisitions are
businesses with capabilities and/or customer relationships that are
closely linked to one of our existing subsidiaries. We would expect
to integrate an acquired business of this nature fully within the
relevant subsidiary. This could lead to both cost savings and
benefits from shared access to markets and technologies. The J+S
acquisition by SEA in 2014/15 is a good example of this.
For standalone acquisitions we are looking for agile, innovative
businesses that have reached a stage of development where there
will be mutual benefit in joining Cohort. It is likely that
candidates will be operating in the defence and security markets
either in the UK or internationally, as that is where the Group can
add most value. Growth prospects, sustainable competitive advantage
and the ability to operate as part of a publicly quoted UK group
will all be important.
On 12 December 2018, we announced the acquisition of 81.84% of
Chess for an initial consideration of just over GBP20m.
The acquisition includes an earn-out clause and an option for
acquiring the minority interest (18.16%), both based on Chess's
performance for the three years ending 30 April 2021. These
additional payments are capped at GBP12.7m and GBP9.1m
respectively. We currently expect to pay GBP5.5m in total on or
before 31 October 2021.
The acquisition model for Chess is very similar to that
successfully used for the acquisition of MCL, where we initially
acquired 50% in 2014 and the remainder in 2017.
The acquisition of Chess, although a competitive process, was a
business we knew well having first held discussions with the owners
of Chess in 2013.
Chess fits well with our acquisition strategy and importantly
increases the Group's exposure to scalable product and systems and
export customers, including the first significant relationship with
the US Department of Defence (DoD).
Divisional Review
Chess
2019 (5 months) 2018
Unaudited Unaudited
GBPm GBPm
-------------------- ---------------- -----------
Revenue 10.7 -
Adjusted operating 1.7 -
profit
Operating cash flow 1.3 -
-------------------- ---------------- -----------
Chess had a good start to its life within Cohort. It delivered a
much stronger result than we expected in December, benefiting from
the deployment of C-UAV systems at two UK airports, including
Gatwick, in response to drone incidents just before Christmas.
Chess gave an excellent demonstration of the Group's values in
delivering this response. Chess staff were deployed at short
notice, providing 24-hour cover over the Christmas and New Year
holidays. A further positive for the Group was SEA being able to
supply expert operational staff to relieve Chess's own stretched
resources.
Chess secured and undertook initial deliveries of further C-UAV
systems to the US DoD as well as continuing to deliver on longer
term programmes for the Royal Navy's Type 26 frigate and an export
land system.
Our initial experience has confirmed that Chess is a good
strategic fit for the Group. Chess is a leading supplier within its
market and has a strong ethos of innovation and responsiveness.
Chess has grown rapidly over the last few years which has caused
it some growing pains, especially in project control and delivery.
Cohort will work with Chess's management over the coming year to
strengthen its management and control processes to ensure that
Chess can successfully grow whilst still maintaining its agility
and innovative approach.
Chess's order book and prospects, especially on some significant
overseas land and naval programmes, give us optimism that Chess
will grow in the coming year.
Divisional review
EID
2019 2018 (resated(1)
Unaudited )
GBPm Unaudited
GBPm
--------------------- ----------- -----------------
Revenue 11.5 18.3
Adjusted operating
profit 1.3 4.3
Operating cash flow (1.7) 1.9
--------------------- ----------- -----------------
Following two strong years of performance for EID following its
acquisition in July 2016, this year has been disappointing and
below our expectations.
The fall in revenue of nearly 40% impacted directly on gross
margin, with a drop of 28%. As a result, the net margin of EID fell
from 23.5% (2018 restated) to 11.3% with the overhead, which only
marginally increased, weighing more heavily on the much lower
revenue.
The fall in revenue of nearly GBP7m was equally split between
its Naval and Tactical divisions. In the Naval division, this was
mostly completion of radio deliveries for the Portuguese Navy in
2017/18 and customer delay to the M-class frigate programmes for
Holland, Belgium and Portugal.
In the Tactical division, a key order was secured in 2018/19,
part of which was expected to be delivered in the year but delivery
delays have pushed this revenue into 2019/20. This delay accounts
for EID's unexpected deterioration since December and the
underlying Group, before Chess, falling short of our expectations
at the time of our Interim Statement.
The mix of work at EID is expected to continue to change in the
coming few years with lower levels of naval support activity and
increased deliveries of intercom and radio products. The latter
generate a lower margin, since they contain a higher proportion of
bought-in material. As a result, the net margin is expected to
return to more historically normal levels of around 18% to 20%.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
Divisional review
MASS
2019 2018
Unaudited Unaudited
GBPm GBPm
--------------------- ----------- -----------
Revenue 39.0 37.5
Adjusted operating
profit 8.2 7.1
Operating cash flow 7.4 7.1
--------------------- ----------- -----------
MASS had another year of good growth with adjusted operating
profit rising 15% on revenue that grew 4% compared to 2017/18.
The main drivers of growth in revenue were EWOS, especially for
overseas customers and MASS's long-term support contract to the UK
MOD.
The EWOS growth was a result of securing orders which had been
in discussion for some years, exemplifying the unpredictable nature
of export sales. This growth is at higher margins due to the high
level of input from MASS technical staff.
The long-term support contract was, after competition, renewed
in year for a further eight years and the growth was a result of
closing out the old contract. Going forward we expect the revenue
in this area to be lower than that seen historically.
MASS's net margin increased to 21.0% (2018: 18.9%), with higher
revenue and, particularly, an improved mix increasing its gross
margins and more than offsetting a small growth in overheads.
MASS's operating cash flow this year was consistent with last
year with the improved profitability driving better cash
performance. Looking forward, we expect MASS's operating cash flow
to be broadly in line with its profitability.
MASS operated through the year with five divisions. The EWOS
division includes the THURBON(TM) EW database, SHEPHERD (the
provision of a system embodying THURBON to the UK MOD) and MASS's
EW managed service offerings in the UK and elsewhere. The Cyber
Security division includes MASS's offerings of solutions and
training to government security customers, including the
Metropolitan Police. This division also delivers secure network
design, delivery and support and information assurance services to
commercial, defence and educational customers. The Strategic
Systems division provides certain managed service and niche
technical offerings to the UK MOD. The Training Support division
provides training simulation and support to the UK's Joint Warfare
Centre as well as similar high level command training to other UK
and overseas customers. Finally, MASS's Information as a Service
division supports a key UK military intelligence platform as well
as providing similar information services to other defence and
commercial customers.
MASS has implemented a new management and reporting system, the
same product as SEA's new system, which went live in May 2019.
Divisional review
MCL
2019 2018
Unaudited Unaudited
GBPm GBPm
--------------------- ----------- -----------
Revenue 21.7 17.4
Adjusted operating
profit 2.3 2.1
Operating cash flow 4.4 5.9
--------------------- ----------- -----------
MCL's revenue grew 25% compared to last year, mostly from
initial deliveries of systems for the UK submarine fleet. The
bought-in content for these items is much higher and as a result,
although the absolute gross margin increased, the gross margin
percentage fell.
The overall profitability of MCL improved by 10% off the back of
increased volume and margin partly offset by slightly higher
overheads. The latter was the result of MCL's increased headcount
during 2018 with this year bearing the full annual cost.
MCL secured several key contracts in the year and its total
order intake of GBP26.0m was 1.2 times its revenue.
When we acquired MCL, back in July 2014, one of the primary
objectives was to support it in building an order book and business
with greater longevity and visibility. This year saw the order book
grow from GBP10.3m (April 2018) to GBP14.6m (April 2019). Despite
this, the visibility of MCL's revenue remains, on average, in the
three to six-month range.
The very strong operating cash flow was better than expected and
reflected MCL's peak of activity at the end of the financial year,
with supplier payments slipping into early 2019/20.
Divisional review
SEA
2019 2018 (restated(1)
Unaudited )
GBPm Unaudited
GBPm
--------------------- ----------- ------------------
Revenue 38.3 37.3
Adjusted operating
profit 5.5 4.4
Operating cash flow 0.8 4.0
--------------------- ----------- ------------------
SEA has had a better year. Its revenue did grow, mostly driven
by its transport division and with some growth in its research
activity. These were partly offset by a further contraction in its
submarine activity.
The change in SEA's business over the last few years is analysed
as follows:
2017 (restated(1) 2018 (restated(1) 2019
Unaudited ) Unaudited
GBPm Unaudited GBPm
GBPm
------------------- ------------------ ------------------ -----------
Submarines 16.9 7.3 4.7
Research 2.1 2.3 2.7
Other 25.7 27.7 30.9
------------------- ------------------ ------------------ -----------
SEA total revenue 44.7 37.3 38.3
------------------- ------------------ ------------------ -----------
The submarine and research activities are exclusively for the UK
MOD.
SEA's year-on-year revenue increase was 3%, but as a result of
the restructuring and improved margin mix, the net margin at SEA
improved from 11.8% to 14.6%, close to our expectations.
The improved margin mix is a continuation of a trend at SEA over
the last few years with increasing product sales, particularly in
export and transport, and a lower level of submarine activity,
which is subject to contractual limitations on margin.
This trend has been accompanied by less predictability in some
of the key revenue and major growth drivers. For instance, SEA's
transport contracts are typically on short time-frames from win to
delivery, usually a few weeks to months. As a result, SEA's opening
order book as at 1 May 2019 provides less cover for 2019/20 than we
have seen historically and we expect this situation to continue
until longer-term naval programmes (UK and export) are secured for
communications and Torpedo Launcher System (TLS) products. The
former is exclusively, at present, for the UK submarine programme
and we do not expect the Dreadnought class work to begin until
2020. For TLS, a number of overseas navies are regenerating their
fleets and this provides good opportunities for long-term
significant work for SEA.
SEA, as indicated last year, again saw modest growth in its
research activity.
SEA's main growth was in transport which increased from GBP5.3m
(2018 restated) to GBP9.2m in 2019. The growth mostly arose from
the delivery of Red Light variants of our ROADflow system for
Network Rail to improve safety at level crossings.
In the coming year SEA will trial its new Anti-Submarine Warfare
(ASW) system based upon its 16mm diameter Krait (sonar) array with
the Portuguese Navy. This activity will be supported by EID in
country and is an important step in positioning SEA as a supplier
of ASW capability for smaller ships for which we see demand in many
navies.
SEA's Subsea division saw revenue remain flat. The division's
gross margin stayed high due to the proportion of refurbishment and
repair activity, reflecting the cost-conscious approach in the oil
and gas sector. Much of this work is done by SEA's staff, with
lower bought-in content.
As we announced last year, restructuring was undertaken at SEA
to reduce both direct and indirect headcount. Back-office services
at SEA, including finance and purchasing, were concentrated at
Barnstaple. The total cost of this restructuring was GBP0.5m and is
expected to realise a saving of GBP1.0m per annum. The saving in
2018/19 was GBP0.6m in the second half.
SEA now reports through three divisions based upon their
geographical location. These are:
-- Communications (from the former Maritime division), Research
and Technical Support and Software Solutions and Products divisions
under a single manager based at Beckington.
-- The remainder of the former Maritime division, Launchers and
Advanced Technologies along with Production under a single manager
based at Barnstaple.
-- Subsea, based at Aberdeen under a single manager.
These changes have enabled SEA to improve its delivery and shape
its cost base to its current level of activity.
During 2018/19, SEA progressed the integration of SEA and J+S. A
new management and reporting system, the same as MASS's new system,
is expected to go live in September 2019 completing this
integration.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
Revenue by sector and business
Chess EID MASS MCL SEA Group
------------ ------------- ------------
2019 2018
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Unaudited Unaudited
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------- ---- ---------- ----
Defence and
security 10.7 - 11.4 16.4 35.8 34.6 21.7 17.4 26.9 29.8 106.5 88 98.2 89
Transport - - - - - - - - 9.2 5.3 9.2 7 5.3 5
Offshore
energy - - - - - - - - 2.1 2.1 2.1 2 2.1 2
Other
commercial - - 0.1 1.9 3.2 2.9 - - 0.1 0.1 3.4 3 4.9 4
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------- ---- ---------- ----
10.7 - 11.5 18.3 39.0 37.5 21.7 17.4 38.3 37.3 121.2 100 110.5 100
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------- ---- ---------- ----
The defence and security revenue is further broken down as
follows:
Chess EID MASS MCL SEA Group
--------------- -------------- -------------- -------------- -------------- ---------------- ------------------------------------
2019 2018
2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 Unaudited Unaudited
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
Direct to
UK MOD - - - - 18.1 20.1 20.2 15.7 7.8 6.9 46.1 38 42.7 39
Indirect to
UK MOD where
the Group
acts as a
subcontractor
or partner 1.2 - 0.2 0.4 3.6 4.2 0.3 0.3 10.9 15.9 16.2 13 20.8 19
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
Total to UK
MOD 1.2 - 0.2 0.4 21.7 24.3 20.5 16.0 18.7 22.8 62.3 51 63.5 58
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
Portuguese
MOD - - 4.4 4.5 - - - - - - 4.4 4 4.5 4
Security 4.8 - - - 3.2 3.3 1.0 0.9 - - 9.0 7 4.2 4
Export defence 4.7 - 6.8 11.5 10.9 7.0 0.2 0.5 8.2 7.0 30.8 26 26.0 23
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
9.5 - 11.2 16.0 14.1 10.3 1.2 1.4 8.2 7.0 44.2 37 34.7 31
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
10.7 - 11.4 16.4 35.8 34.6 21.7 17.4 26.9 29.8 106.5 88 98.2 89
--------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ---------- ----- ---------- -----
Note: EID and SEA 2018 figures have been restated for the impact
of IFRS 15 'Revenue from Contracts with Customers' (see note
8).
Note: The percentages applied to the defence and security
revenue is based on the total revenue for the Group in each
year.
Defence and security revenue is categorised into market segments
as follows:
Year ended
Year ended 30 April 2018
30 April (restated(1)
2019 )
Unaudited Unaudited
------------------------------------ ------------- -----------------
GBPm % GBPm %
------------------------------------ -------- --- ---------- -----
By market segment
Combat systems 22.9 19 20.9 19
C4ISTAR 51.1 42 43.5 39
Cyber security and secure networks 15.5 13 15.6 14
Simulation and training 6.5 5 9.4 9
Research, advice and support 9.3 8 6.6 6
Other 1.2 1 2.2 2
------------------------------------ -------- --- ---------- -----
Total defence and security revenue 106.5 88 98.2 89
------------------------------------ -------- --- ---------- -----
The Group's total revenue, broken down by type of deliverable is
as follows:
Year ended
Year ended 30 April 2018
30 April (restated(1)
2019 )
Unaudited Unaudited
--------------- -------------
GBPm % GBPm %
--------------- ------- ---- --------- ------
Product 65.2 54 60.6 55
Services 56.0 46 49.9 45
--------------- ------- ---- --------- ------
Total revenue 121.2 100 110.5 100
--------------- ------- ---- --------- ------
Note: The percentages applied to the defence and security
revenue is based on the total revenue for the Group in each
year.
Revenue analysis
The overall pattern of sales in 2018/19 was similar to 2017/18
in terms of market segment. The most noticeable changes were an
increase in C4ISTAR activity, mostly at MCL, and an increase in
research and advice at SEA. The reductions in this area were in
simulation and training, the latter at MASS where there was less
exercise activity by the Joint Forces Command, and at SEA in
relation to the DECKsim product.
Looking at our defence and security revenue by sector we saw a
fall in our overall rates to the UK MOD both directly and
indirectly. This was mostly in indirect sales and was due to the
continued fall in SEA's submarine activity. Direct sales to the MOD
were static reflecting the high proportion of our work that was in
service provision, which is generally a steady revenue stream.
Sales to Portugal were flat, but we expect this to increase in
the coming year with some deliveries on recently won land system
orders getting underway.
Both security and export sales saw growth. This was mostly due
to the initial contribution of Chess, but MASS and SEA also saw
their export sales increase, offsetting a drop at EID where some
naval projects delivered in 2017/18 were not repeated or slipped
into 2019/20.
The Group's defence and security business is, and is expected to
remain, the largest part of our business, supplying 88% of revenue
this year (2018: 89%). Nevertheless, the Group's non-defence
revenue was up by 19% compared to last year, with growth mostly
coming from SEA's transport activity. Transport sales rose from
GBP5.3m in 2018 to nearly GBP9.2m in 2019, much of this due to
delivery of Red Light ROADflow systems to Network Rail for safety
enforcement at level crossings.
Operational outlook
Order intake and order book
Order intake Order book
------- -------------------------------
2019 2018 2019 2018 (restated(1)
Unaudited Unaudited Unaudited )
GBPm GBPm GBPm Unaudited
GBPm
------- ----------- ----------- ----------- ------------------
Chess 11.3 - 20.8 -
EID 18.9 8.4 25.6 19.0
MASS 97.0 29.1 98.8 40.9
MCL 26.0 12.1 14.6 10.3
SEA 36.7 27.0 31.1 33.6
------- ----------- ----------- ----------- ------------------
189.9 76.6 190.9 103.8
------- ----------- ----------- ----------- ------------------
The 2019 order book includes GBP20.1m of order book acquired
with Chess in December 2018.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
The increase in the Group's order intake was across the Group.
As we indicated last year, we expected a number of key renewals,
especially at MASS, and these were all secured in the year. The
order intake was a record for the Group and has returned the order
cover for the coming year to over 55%.
Delivery of the Group's order book into revenue
http://www.rns-pdf.londonstockexchange.com/rns/3859G_1-2019-7-23.pdf
The above table shows the underpinning of future revenue from
the current order book (all figures are GBPm). The Group's order
intake and order book are the contracted values with customers and
do not include any value attributable to frameworks or other
arrangements where no enforceable contract exists. The order intake
and order book include contractual changes to existing orders
including extensions, variations and cancellations.
Chess's order intake of GBP11.3m included follow-on orders for
its C-UAV system for the US DoD and nearly GBP4m of orders for
C-UAV systems for civilian airports. Chess's closing order book of
GBP20.8m includes GBP15.0m for delivery in 2019/20 and Chess is
well positioned for several key naval and land programmes which we
hope will convert to orders in the coming year. Chess should
continue to grow in the coming year, but we do not expect Chess's
full year performance for 2019/20 to reflect what was an abnormally
strong five months for 2018/19.
EID's order intake for this year was just under GBP19m compared
with just over GBP8m last year. The main items of order intake for
EID in 2018/19 were in its Tactical division, securing an order of
over GBP4m to deliver radios for Portuguese armoured vehicles and
an important export order for vehicle intercoms, the initial batch
of which will now be delivered in 2019/20, later than expected.
EID's order book of GBP25.6m gives good underpinning for the year
ahead, especially in its Tactical division. The coming year is
important for EID to secure important Naval programmes and extend
its current export order for vehicle intercoms. We expect EID to
return to growth in 2019/20.
MASS's order intake of GBP97.0m was a record. It included
renewals, won in competition, of over GBP50m plus long-awaited
export EWOS orders. MASS's closing order book of nearly GBP99m
includes over GBP29m of revenue to be delivered in 2019/20. The
coming year for MASS should see further export orders for its EWOS
and THURBON offerings and an expansion of its digital forensics
offering. Its provision of support to the UK's Joint Forces
Command, a service the Group has provided for over 15 years, will
be subject to a competitive renewal, probably in early 2020/21.
MASS is expected to continue to grow in the coming year.
At MCL, order intake of GBP26.0m was higher than last year's
GBP12.1m. MCL's order intake was dominated by a large order to
provide systems across the UK's submarine fleet, a programme which
will run over a number of years. MCL's closing order book of
GBP14.6m includes just under GBP8m to be delivered in 2019/20. Our
long-term strategy remains to try and strengthen MCL's order book
and prospects to give it more visibility of future work flows and
with some key prospects in UK land programmes, MCL should continue
to grow, modestly, in the coming year.
SEA's order intake at GBP36.7m was above last year's GBP27.0m
and included GBP5.5m of research activity for the UK MOD and just
over GBP3m of extension and change orders for Submarine
communication systems. Various support orders for existing SEA
equipment on UK naval platforms totalled over GBP12m, much of this
deliverable over several years. SEA's transport division order
intake was just under GBP9m, half of which was for Red Light
ROADflow systems for Network Rail. SEA's order book of GBP31.1m
includes GBP12.3m for delivery in 2019/20, a historically low level
for SEA. SEA has an important year ahead to secure orders for its
medium and long-term prospects, especially in naval programmes in
the UK and overseas. SEA faces a challenging year and we expect a
relatively flat performance.
In the near term, the majority of Cohort's business will
continue to be derived from the UK MOD, either directly or
indirectly. The Government's Strategic Defence Review published in
November 2015 gave high priority to a number of areas where the
Group's capabilities are strong, including submarines, special
forces, cyber and secure communications. It also brought a welcome
increase in planned defence equipment spending. We do expect to see
opportunities arising from this increase, but it is also clear that
delays and cost growth are limiting the freedom of movement of the
UK MOD and armed forces in acquiring new equipment. As we predicted
last year, this tightness, coupled to a shortage of commercial
staff, has resulted in unpredictable fluctuations between purchase
commitments and cash controls during 2018/19. However, we have seen
the UK MOD continue to place orders for important and necessary
services and capability.
Unlike the year just gone, the coming year is not dependent upon
a few significant orders to deliver the in-year performance.
However, order infill is required, as always, across the Group,
especially at MCL and SEA. The coming year is an important one for
longer term orders at EID, Chess and SEA.
Funding resource and policy
The Group retains a robust financial position and continues to
be cash generative enabling it to continue to invest in internal
R&D and other value-adding projects on a carefully considered
basis as well as maintaining its progressive dividend policy.
The Group's cash position and its banking facility provide it
with the resources to conduct its acquisition strategy.
NatWest is the Group's primary bank, especially for clearing
purposes and day-to-day transactions. In November 2018 the Group
completed a new UK bank facility with Lloyds and NatWest.
The current facility is a revolving credit facility for four
years with an option to extend for one year. The amount of the
facility is GBP30m with an option to extend by a further GBP10m to
GBP40m.
The facility itself provides the Group with a flexible
arrangement to draw down for acquisitions and overdraft and, as at
30 April 2019, GBP25.0m of the facility was drawn leaving GBP5.0m
available to be drawn down.
This facility is available to the UK members of the Group and is
fully secured over the Group's assets, including those of Chess but
excluding EID's.
The UK Group has separate bilateral facilities with each of
Natwest and Lloyds to provide trading facilities for instruments
such as forward exchange rates, bank guarantees and letters of
credit. In addition, the Group is able to have such facilities with
other banks where pricing and operational efficiency warrant it.
MCL, for example, has a forward exchange facility with Investec
Bank.
The Group takes a prudent approach to treasury policy with its
overriding objective being protection of capital. In implementing
this policy, deposits are usually held with institutions with
credit ratings of at least Baa3. Deposits are generally held on
short (less than three months) duration to maturity on
commencement. This matches the Group's cash resources with its
internal monthly 13-week cash forecasts, retaining flexibility
whilst trying to ensure an acceptable return on its cash. Most of
the Group's UK cash (that is not on short-term deposit) is managed
through a set-off arrangement, enabling the most efficient use of
the Group's cash from day to day, under the supervision of the
Group's finance function.
EID's bank facilities are managed locally with banks in
Portugal. The cash is spread across a number of institutions to
mitigate risk to the capital.
EID provides no security over its assets and its wide range of
banks enable it to be well supported in executing export
business.
During the year, EID agreed a local overdraft facility of
EUR2.5m with Santander which is available to EID only. This was
undrawn at 30 April 2019.
The Group regularly reviews the ratings of the institutions with
which it holds cash and always considers this when placing a new
deposit.
The Group's return on net funds during the period was 0.00% to
0.15% (2018: 0.00% to 0.15%).
The Group's net debt as 30 April 2019 of GBP6.4m is after the
acquisition of Chess at a cost of just over GBP20m plus acquired
net debt of GBP1.0m.
Looking forward, we expect the Group's net debt at 30 April 2020
to be at a similar level to 30 April 2019 with the Group moving
back into net funds by 30 April 2021, if there is no further
corporate activity.
In addition to its cash resources, the Group has in issue 41.0m
ordinary shares of 10 pence each. Of these shares 0.1m (2018: 0.3m)
are owned by the Cohort plc Employee Benefit Trust (EBT), which
waives its rights to dividends. The EBT purchased a further 0.4m
shares in May 2019. In addition, the Group has issued options over
ordinary shares through Key Employee Share Option and SAYE schemes
to the level of 1.6m at 30 April 2019 (2018: 1.7m).
The Group's exposure to foreign exchange risk arises from two
sources:
1. the reporting of overseas subsidiaries' earnings (currently
only EID) and net assets in sterling; and
2. transactions in currencies other than our Group reporting
currency (GBP) or subsidiary reporting currency where different
(currently EUR at EID).
The first risk is a reporting rather than cash risk and we do
not hedge the reporting of earnings.
In terms of reporting the assets, we have in place a natural
hedge of borrowing in euros to acquire a euro asset (EID) but over
time as the asset grows and the loan diminishes, this hedge will
wane.
We take a prudent approach to transactional foreign exchange
risk requiring all significant sales and purchases to be hedged at
the point in time when we consider the likelihood of the
transaction to be certain, usually on contract award. We do not
hedge account and mark these forward contracts to market at each
reporting date, recognising any gain or loss in the income
statement.
The Group, as in the past, has maintained its progressive
dividend policy, increasing its dividend this year by 11% to a
total dividend paid and payable of 9.10 pence per share (2018: 8.20
pence).
The last five years' annual dividends, growth rate, earnings and
cash cover are as follows:
Cash cover
Earnings (based
cover (based upon
Dividend Growth over upon adjusted net cash
paid previous earnings inflow
and proposed year per from
Year ended 30 April Pence % share) operations)
--------------------- -------------- ------------ --------------- -------------
2019 9.1 11 3.8 2.3
2018 8.2 15 3.5 4.0
2017 7.1 18 3.9 0.2
2016 6.0 20 4.5 2.8
2015 5.0 19 4.1 9.2
2014 4.2 20 4.6 1.5
--------------------- -------------- ------------ --------------- -------------
The growth over recent years has moved the dividend from a
relatively low base to a more normal level for an established
cash-generative business.
Looking forward the Group plans to maintain a policy of growing
its dividend each year but we expect the rate of growth to reduce
over the coming years to align more closely with the earnings
growth of the Group.
The Group's cash generation in 2019 was, as had been expected,
weaker than last year. In summary, the Group's cash performance was
as follows:
2018 (restated(1)
2019 )
Unaudited Unaudited
GBPm GBPm
------------------------------------------------------- ----------- ------------------
Adjusted operating profit 16.2 15.2
Depreciation and other non-cash operating movements 1.4 1.4
Working capital movement (5.0) (0.9)
------------------------------------------------------- ----------- ------------------
12.6 15.7
------------------------------------------------------- ----------- ------------------
Acquisition of 81.84% of Chess (including costs of (22.0)
acquisition of GBP1.0m and acquired debt of GBP1.0m) -
Acquisition of EID: 23% in 2018 - (3.5)
Payment of final earn-out for MCL in 2018 - (2.5)
Restructuring of SEA (0.5) -
Reorganisation of SCS (0.5) (0.6)
Tax, dividends, capital expenditure, interest, loans
and other investments (7.3) (6.3)
------------------------------------------------------- ----------- ------------------
(Decrease)/increase in net funds (17.7) 2.8
------------------------------------------------------- ----------- ------------------
The slightly higher cash outflow in tax, dividends, etc. was
mostly due to higher capital expenditure, tax payments and
dividends. Looking forward, we retain the flexibility to use newly
issued shares as well as EBT shares to satisfy employee share
options.
The Group's customer base of governments, major prime
contractors and international agencies make its debtor risk low.
The year-end debtor days in sales were 22 days (2018: 24 days).
This calculation is based upon dividing the revenue by month,
working backwards from April, into the trade debtors balance
(excluding unbilled income and work in progress) at the year end.
This is a more appropriate measure than calculating based upon the
annual revenue as it takes into account the heavy weighting of the
Group's revenue in the last quarter of each year. The decrease in
debtor days reflects invoicing revenue, especially at MCL and MASS,
earlier in the final quarter than last year, enabling more receipts
to be collected in the financial year.
Tax
The Group's tax charge for the year ended 30 April 2019 of
GBP584,000 (2018: charge of GBP2,074,000) was at a rate of 10.3%
(2018: rate of 20.4%) of profit before tax. This includes a current
year corporation tax charge of GBP2,350,000 (2018: GBP3,357,000), a
prior year corporation tax credit of GBP9,000 (2018: credit of
GBP391,000) and a deferred tax credit of GBP1,757,000 (2018:
GBP892,000).
The Group's overall tax rate was below the standard corporation
tax rate of 19.00% (2018: 19.00%). The reduction is due to an
R&D tax credit in Portugal of GBP0.5m in respect of expenditure
incurred this year in developing an enhanced vehicle intercoms
system by EID.
The Group this year has reported research and development
expenditure credits (RDEC) for the UK in accordance with IAS 20 and
shown the credit (GBP744,000) in cost of sales and adjusted the tax
charge accordingly. The 2018 comparatives (GBP679,000) has been
restated accordingly. This results in the reported tax charge for
the Group being higher than would have been reported previously and
more in line with the headline tax rate for the UK.
The RDEC has been reversed in reporting the adjusted operating
profit for the Group to ensure comparability of operating
performance year on year.
Looking forward, the Group's effective current tax rate
(excluding the impact of RDEC reporting) for both 2019/20 and
2020/21 is estimated at 16%. This takes account of the expected
reduction in headline tax rates in the UK and assuming that the
R&D tax credit regime remains unchanged from its current level
and scope offset by an increased proportion of profit before tax
from EID at higher Portuguese tax rates. The Group maintains a
cautious approach to previous R&D tax credit claims for tax
periods that are still open, currently 2017/18 and 2018/19.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
Exceptional items
The exceptional items this year are GBP1.0m in respect of
acquiring Chess and GBP0.5m for restructuring SEA in the first half
of the year.
Adjusted earnings per share
The adjusted earnings per share (EPS) of 33.60 pence (2018
restated: 29.08 pence) is reported in addition to the basic
earnings per share and excludes the effect of exceptional items,
amortisation of intangible assets and exchange movement on marking
forward exchange contracts to market, all net of tax.
The adjusted earnings per share exclude the non-controlling
interest of EID (20%) and Chess (18.16%) for the five months from
acquisition.
The reconciliation is as follows:
Adjusted Adjusted
operating earnings
profit per share
Unaudited Unaudited
GBPm Pence
-------------------------------------------------------- ----------- -----------
Year ended 30 April 2018 (restated(1) ) 15.2 29.08
Contribution from Chess for five months (at 81.84%
for adjusted earnings per share) 1.7 2.72
100% owned businesses throughout the year ended 30
April 2019 2.2 4.33
EID (80% owned) (2.9) (4.51)
Change in tax rate 15.1% (2018: 21.0%) - 2.08
Dilution from higher weighted average number of shares
(due to option exercises) - (0.10)
-------------------------------------------------------- ----------- -----------
Year ended 30 April 2019 16.2 33.60
-------------------------------------------------------- ----------- -----------
Increase from 2018 to 2019 6% 16%
-------------------------------------------------------- ----------- -----------
The adjustments to the basic EPS in respect of exceptional
items, exchange movements and other intangible asset amortisation
of EID and Chess only reflect that proportion of the adjustment
that is applicable to the equity holders of the parent.
Accounting policies
The 2018 comparative figures have been restated to reflect the
impact of IFRS 15 'Revenue from Contracts with Customers' as shown
in note 8.
Our people
All of the Group's capabilities and customer relationships
ultimately derive from our people, and such success as we have
enjoyed is a result of their efforts. We would like to take this
opportunity to express our thanks to all employees of Cohort and
its businesses.
Andy Thomis Simon Walther
Chief Executive Finance Director
CONSOLIDATED INCOME STATEMENT
For the year ended 30 April 2019
Year ended Year ended
30 April 30 April 2018 (restated(1)
Notes 2019 )
Unaudited Unaudited
GBP000 GBP000
Revenue 2 121,182 110,547
Cost of sales (78,143) (70,856)
Gross profit 43,039 39,691
Administrative expenses (37,095) (29,429)
----------- ----------------------------
Operating profit 2 5,944 10,262
Comprising:
Adjusted operating profit 2 16,164 15,225
Amortisation of other intangible
assets (included in administrative
expenses) (9,514) (5,312)
Research and development
expenditure credit (RDEC)
(included in cost of sales) 744 679
Credit/(charge) on marking
forward exchange contracts
to market value at the year
end (included in cost of
sales) 33 (280)
Exceptional items:
Costs of acquisition of EID
(included in administration
expenses) 17 (50)
Costs of acquisition of Chess
(included in administrative
expenses) 7 (1,000) -
Restructuring of SEA (included
in administrative expenses) (500) -
Operating profit 2 5,944 10,262
------------------------------------- -------- -----------
Finance income 27 14
Finance costs (296) (103)
Profit before tax 5,675 10,173
Income tax charge 3 (584) (2,074)
Profit for the year 5,091 8,099
----------- ----------------------------
Attributable to:
Equity holders of the parent 5,447 7,710
Non-controlling interests (356) 389
5,091 8,099
------ ------
All profit for the year is derived from continuing
operations.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
Year ended Year ended
30 April 30 April 2018 (restated(1)
2019 )
Unaudited Unaudited
Pence Pence
Earnings per share 4
Basic 13.37 18.95
Diluted 13.29 18.76
Adjusted earnings per share 4
Basic 33.60 29.08
Diluted 33.42 28.79
Dividends per share paid and
proposed in respect of the
year 5
Interim 2.85 2.55
Final 6.25 5.65
----------- ----------------------------
9.10 8.20
----------- ----------------------------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 April 2019
Year ended
Year ended 30 April 2018 (restated(1)
30 April 2019 )
Unaudited Unaudited
GBP000 GBP000
------------------------------------------- -------------- ---------------------------
Profit for the year 5,091 8,099
Foreign currency translation differences
on net assets of EID, net of loan
used to finance acquisition (21) (167)
------------------------------------------- -------------- ---------------------------
Other comprehensive income for the
year, net of tax (21) (167)
------------------------------------------- -------------- ---------------------------
Total comprehensive income for the
year 5,070 7,932
------------------------------------------- -------------- ---------------------------
Attributable to:
Equity shareholders of the parent 5,559 7,410
Non-controlling interests (489) 522
------------------------------------------- -------------- ---------------------------
5,070 7,932
------------------------------------------- -------------- ---------------------------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 April 2019
At At
30 April 30 April 2018 (restated(1)
Notes 2019 )
Unaudited Unaudited
GBP000 GBP000
ASSETS
Non-current assets
Goodwill 41,354 39,156
Other intangible assets 20,588 6,168
Property, plant and equipment 10,956 9,597
Deferred tax asset 365 406
73,263 55,327
----------- ----------------------------
Current assets
Inventories 13,452 5,877
Trade and other receivables 42,971 34,693
Derivative financial instruments - 51
Cash and cash equivalents 18,763 20,511
75,186 61,132
Total assets 148,449 116,459
LIABILITIES
Current liabilities
Trade and other payables (35,225) (28,836)
Current tax liabilities - (265)
Derivative financial instruments (99) (183)
Bank loans and overdrafts (61) (9,173)
Other creditors - -
Provisions (818) (1,156)
(36,203) (39,613)
----------- ----------------------------
Non-current liabilities
Bank loans and overdrafts (25,126) -
Deferred tax liability (4,041) (1,414)
Provisions (608) (436)
Other creditors 7 (5,500) -
(35,275) (1,850)
----------- ----------------------------
Total liabilities (71,478) (41,463)
----------- ----------------------------
Net Assets 76,971 74,996
----------- ----------------------------
Equity
Share capital 4,096 4,096
Share premium account 29,657 29,657
Own shares (348) (1,190)
Share option reserve 603 626
Other reserve: option for
acquiring non-controlling
interest in Chess 7 (4,350) -
Retained earnings 41,034 39,253
Total equity attributable
to the equity shareholders
of the parent 70,692 72,442
Non-controlling interests 6,279 2,554
----------- ----------------------------
Total equity 76,971 74,996
----------- ----------------------------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
For the year ended 30 April 2019
Attributable to the equity shareholders
of the parent
----------------------------------------------------------------------
Share Share Non-
Share premium Own option Other Retained controlling Total
capital account shares reserve reserves earnings Total interests equity
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2017 4,096 29,657 (1,142) 783 (465) 36,901 69,830 4,158 73,988
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Impact of IFRS 15(1)
on
opening reserves - - - - - (270) (270) - (270)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Restated as at 30
April
2017 4,096 29,657 (1,142) 783 (465) 36,631 69,560 4,158 73,718
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Profit for the year
(restated(1)
) - - - - - 7,710 7,710 389 8,099
Other comprehensive
income
for the year - - - - - (300) (300) 133 (167)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income
for the year - - - - - 7,410 7,410 522 7,932
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners
of Group and
non-controlling
interests, recognised
directly in equity
Equity dividends - - - - - (3,035) (3,035) - (3,035)
Vesting of Restricted
Shares - - - - - 175 175 - 175
Own shares purchased - - (1,467) - - - (1,467) - (1,467)
Own shares sold - - 697 - - - 697 - 697
Net loss on selling
own
shares - - 722 - - (722) - - -
Share-based payments - - - 273 - - 273 - 273
Deferred tax
adjustment
in respect of
share-based payments - - - (248) - - (248) - (248)
Transfer of share
option
reserve on vesting
of options - - - (182) - 182 - - -
Completion of
acquisition
of MCL by settlement
of
non-controlling
interests'
earn-out - - - - 465 - 465 - 465
Effect of acquisition
of 23.09% of
non-controlling
interest
in EID - - - - - (1,388) (1,388) (2,126) (3,514)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2018
(restated(1)
) 4,096 29,657 (1,190) 626 - 39,253 72,442 2,554 74,996
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Profit for the year - - - - - 5,447 5,447 (356) 5,091
Other comprehensive
income
for the year - - - - - 112 112 (133) (21)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income
for the year - - - - - 5,559 5,559 (489) 5,070
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners
of Group and
non-controlling
interests, recognised
directly in equity
Equity dividends - - - - - (3,464) (3,464) - (3,464)
Vesting of Restricted
Shares - - - - - 178 178 - 178
Own shares purchased - - (631) - - - (631) - (631)
Own shares sold - - 743 - - - 743 - 743
Net loss on selling
own
shares - - 730 - - (730) - - -
Share-based payments - - - 291 - - 291 - 291
Deferred tax
adjustment
in respect
of share-based
payments - - - (76) - - (76) - (76)
Transfer of share
option
reserve on vesting
of options - - - (238) - 238 - - -
Acquisition of 81.84%
of Chess - - - - (4,350) - (4,350) 4,214 (136)
---------------------- -------- -------- -------- --------
At 30 April 2019 4,096 29,657 (348) 603 (4,350) 41,034 70,692 6,279 76,971
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 April 2019
Year ended Year ended
30 April 2019 30 April 2018
Notes Unaudited Unaudited
GBP000 GBP000
Net cash generated from
operating activities 6 8,635 13,220
---------------- ----------------
Investing activities
Interest received 27 14
Purchases of property, plant
and equipment (2,058) (747)
Acquisition of Chess 7 (20,885) -
Acquisition of EID - (3,514)
Acquisition of MCL - (2,529)
Net cash used in investing
activities (22,916) (6,776)
---------------- ----------------
Financing activities
Dividends paid (3,464) (3,035)
Repayment of borrowings (2,027) (3)
Drawdown of borrowings 18,017 5,514
Purchase of own shares (631) (1,467)
Sale of own shares 743 697
---------------- ----------------
Net cash generated from
financing activities 12,638 1,706
---------------- ----------------
Net (decrease)/increase
in cash and cash equivalents (1,643) 8,150
---------------- ----------------
Effect
of
foreign Debt
exchange acquired
At 1 May rate (note 7) At 30 April
2018 changes Cash flow GBP'000 2019
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- -------- --------- --------- ---------- -----------
Net funds reconciliation (unaudited)
Group
Cash and bank 20,511 (105) (1,643) - 18,763
Short-term deposits - - - - -
------------------------------------- -------- --------- --------- ---------- -----------
Cash and cash equivalents 20,511 (105) (1,643) - 18,763
------------------------------------- -------- --------- --------- ---------- -----------
Loan (9,167) 139 (15,973) (27) (25,028)
Finance lease (6) - (17) (136) (159)
------------------------------------- -------- --------- --------- ---------- -----------
Debt (9,173) 139 (15,990) (163) (25,187)
------------------------------------- -------- --------- --------- ---------- -----------
Net (debt)/funds 11,338 34 (17,633) (163) (6,424)
------------------------------------- -------- --------- --------- ---------- -----------
NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT
1. BASIS OF PREPARATION
The financial information contained within this preliminary
report has been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRS) as adopted by
the EU and applying at 30 April 2019. The information in this
preliminary statement has been extracted from the financial
statements for the year ended 30 April 2019 and as such, does not
contain all the information required to be disclosed in the
financial statements prepared in accordance with IFRS.
Throughout the period, the Group owned 80% of EID and had
effective control. Therefore, 100% of EID's result and balances has
been consolidated with the non-controlling interest identified.
81.84% of Chess was acquired 12 December 2018. The Group had
effective control from that date. Therefore, 100% of Chess's result
and balance sheet has been consolidated from 12 December 2018 with
the non-controlling interest identified.
The Group's Annual Report for the year ended 30 April 2019 has
yet to be delivered to the Registrar of Companies.
The comparative figures for the financial year ended 30 April
2018 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was:
i. unqualified,
ii. did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying
their report, and
iii. did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The comparative figures for the year ended 30 April 2018 have
been restated as a result of the adoption of IFRS 15 'Revenue on
Contracts from Customers', the impact of which is shown in note 8.
This restatement has not been audited for the purposes of this
statement and hence the comparative figures are unaudited.
The preliminary announcement was approved by the Board and
authorised for issue on 23 July 2019.
Copies of the Annual Report and accounts for the year ended 30
April 2019 will be posted to shareholders on 7 August 2019 and will
be available on the Company's website (www.cohortplc.com) from that
date.
2. SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT
Year ended Year ended
30 April 2019 30 April 2018
Unaudited (restated(1) )
GBP000 Unaudited
GBP000
Revenue
Chess 10,674 -
EID 11,530 18,298
MASS 38,936 37,553
MCL 21,715 17,381
SEA 38,327 37,315
--------------- ----------------
121,182 110,547
--------------- ----------------
Adjusted Operating Profit
Chess 1,682 -
EID 1,357 4,315
MASS 8,175 7,113
MCL 2,282 2,072
SEA 5,492 4,418
Central costs (2,824) (2,693)
16,164 15,225
--------------- ----------------
Amortisation of other intangible
assets (9,514) (5,312)
Research and development expenditure
credit (RDEC) 744 679
Credit/(charge) on marking forward
exchange contracts to market value
at the year end 33 (280)
Exceptional items:
Costs of acquisition of EID 17 (50)
Costs of acquisition of Chess (1,000) -
Restructuring of SEA (500) -
Operating Profit 5,944 10,262
--------------- ----------------
The above segmental analysis is the primary segmental analysis
of the Group.
All revenue and adjusted operating profit is in respect of
continuing operations.
The operating profit as reported under IFRS is reconciled to the
adjusted operating profit as reported above by the exclusion of
amortisation of other intangible assets, RDEC, change on marking
forward exchange contracts to market value at the year end and
exceptional items.
The adjusted operating profit is presented in addition to the
operating profit to provide the trading performance of the Group,
as
derived from its constituent elements on a consistent basis from
year to year.
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
3. TAX CHARGE
Year ended Year ended
30 April 2019 30 April 2018
Unaudited Unaudited
GBP000 GBP000
UK Corporation tax:
Current year 2,729 2,251
Prior year (10) (389)
Portugal corporation tax (409) 1,117
Other foreign corporation tax 31 (13)
2,341 2,966
--------------- ---------------
Deferred taxation:
Prior year (44) 264
Current year (1,713) (1,156)
--------------- ---------------
(1,757) (892)
--------------- ---------------
584 2,074
--------------- ---------------
The current year corporation tax charge (2018: charge) includes
GBP169,000 credit (2018: GBPnil) in respect of exceptional items
and the current year deferred tax credit includes a credit of
GBP1,688,000 (2018: credit of GBP1,063,000) in respect of the
amortisation of other intangible assets and a current year charge
of GBP6,000 (2018: GBP53,000 credit) in respect of marking forward
exchange contracts to market value at the year end.
4. EARNINGS PER SHARE
The earnings per share are calculated by dividing the earnings
for the year by the weighted average number of ordinary shares in
issue as follows:
Year ended Year ended
30 April 2019 30 April 2018
Unaudited (restated(1)
GBP000 )
Unaudited
GBP000
Earnings
Basic and diluted earnings 5,447 7,710
Amortisation of other intangible assets
(net of tax of GBP1,476,000; 2018:
GBP945,000) 6,956 3,844
(Credit)/charge on non-trading foreign
exchange movements (net of tax charge
of GBP6,000 (2018: credit of GBP53,000) (27) 227
Costs of acquisition of EID (nil tax) (17) 50
Costs of acquisition of Chess (net 926 -
of tax credit of GBP74,000)
Restructuring of SEA (net of tax credit 405 -
of GBP95,000)
Adjusted basic and diluted earnings 13,690 11,831
--------------- ---------------
The adjustments for the amortisation of intangible assets in
respect of EID and Chess for the year ended 30 April 2019 and EID
only for the year ended 30 April 2018 reflect the interests of the
equity holders of the parent only and exclude the proportion
allocated to the non-controlling interest in each year.
Number Number
Weighted average number of
shares
For the purposes of basic
earnings per share 40,749,551 40,400,179
Share options 224,086 553,515
For the purposes of diluted
earnings per share 40,973,637 40,953,694
----------- -----------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
Year ended Year ended
30 April 2019 30 April 2018
Unaudited (restated(1) )
Pence Unaudited
Pence
Earnings per share
Basic 13.37 18.95
Diluted 13.29 18.76
Adjusted earnings per share
Basic 33.60 29.08
Diluted 33.42 28.79
5. DIVIDS
The proposed final dividend for the year ended 30 April 2019 is
6.25 pence (2018: 5.65 pence) per ordinary share. This dividend
will be payable on 18 September 2019 to shareholders on the
register at 23 August 2019 subject to approval by shareholders at
the AGM on 17 September 2019.
The total paid and proposed dividend for the year ended 30 April
2019 is 9.10 pence per ordinary share; a cost of GBP3,718,000
(2018: 8.20 pence per ordinary share; cost of GBP3,336,000).
The charge for the year ended 30 April 2019 of GBP3,464,000 is
the final dividend for the year ended 30 April 2018 paid
(GBP2,300,000) and the interim dividend for the year ended 30 April
2019 paid (GBP1,164,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 2019 30 April 2018
Unaudited (restated(1)
GBP000 )
Unaudited
GBP000
Profit for the year 5,091 8,099
Adjustments for:
Tax charge 584 2,074
Depreciation of property, plant and
equipment 1,147 1,116
Amortisation of goodwill and other intangible
assets 9,514 5,312
Net finance expense 269 89
Share-based payment 291 273
Derivative financial instruments and
other non-trading exchange movements (33) 280
Decrease in provisions (1,186) (520)
Operating cash inflows before movements
in working capital 15,677 16,723
---------------- ----------------
Increase in inventories (2,812) (581)
(Increase)/decrease in receivables (794) 3,064
Decrease in payables (451) (4,081)
---------------- ----------------
(4,057) (1,598)
---------------- ----------------
Cash generated by operations 11,620 15,125
---------------- ----------------
Tax paid (2,689) (1,802)
Interest paid (296) (103)
---------------- ----------------
Net cash generated from operating activities 8,635 13,220
---------------- ----------------
1 Prior year comparatives have been restated upon the Group's
adoption of IFRS 15 'Revenue from Contracts with Customers'. See
note 8 for details regarding the restatement.
7. ACQUISITION OF CHESS TECHNOLOGIES LIMITED (CHESS) (UNAUDITED)
As announced on 12 December 2018, Cohort plc acquired 81.84% of
Chess for an initial cash consideration of just over GBP20.0m. The
Group has recognised 100% of Chess's results and net assets from
that date as it has effective control.
Under the sale and purchase agreement, up to a further GBP12.7m
is payable to the shareholders of Chess as an earn out based upon
its performance over the three years ended 30 April 2021. Based
upon latest forecasts, this earn out is estimated at GBP1.15m as at
30 April 2019.
The acquisition accounting is as follows:
Book value Fair Value
GBP'000 GBP'000
---------------------------------------------------------- ---------- ----------
Recognised amounts of identifiable assets and liabilities
assumed:
Property, plant and equipment 563 494
Other intangible assets 4,154 23,934
Inventory 5,195 4,214
Trade and other receivables 9,390 8,641
Trade and other payables (6,628) (7,699)
Provisions - (1,021)
Deferred tax (52) (4,349)
Loan (27) (27)
Finance leases (136) (136)
Overdraft (844) (844)
---------------------------------------------------------- ---------- ----------
11,615 23,207
---------------------------------------------------------- ---------- ----------
81.84% of net assets acquired 18,993
Goodwill 2,198
---------------------------------------------------------- ---------- ----------
Total consideration 21,191
---------------------------------------------------------- ---------- ----------
Satisfied by:
Cash 20,041
Deferred consideration 1,150
---------------------------------------------------------- ---------- ----------
Total consideration transferred 21,191
---------------------------------------------------------- ---------- ----------
Net cash outflow arising on acquisition:
Cash consideration paid 20,041
Plus: overdraft acquired 844
---------------------------------------------------------- ---------- ----------
20,885
---------------------------------------------------------- ---------- ----------
The loan and finance leases acquired (GBP163,000) are shown as
debt acquired in the net funds reconciliation on page 26.
The fair value adjustments reflect policy alignments and
adjustments arising out of Cohort's due diligence work on the
acquisition.
The most significant fair value adjustment is in respect of the
other intangible assets and is analysed as follows:
Book value Fair Value
GBP'000 GBP'000
----------------------------------- ---------- ----------
Goodwill held by Chess 56 -
Research & development expenditure 4,098 -
Contracts acquired - 8,091
Future orders and prospects - 15,843
----------------------------------- ---------- ----------
4,154 23,934
----------------------------------- ---------- ----------
The other intangible assets of GBP23.9m acquired and their
estimated useful lives are as follows:
Other intangible Estimated
asset life
GBP'000 years
---------------------------- ---------------- ---------
Contracts 8,091 6
Future orders and prospects 15,843 6
23,934
---------------------------- ---------------- ---------
A deferred tax liability of GBP4.3m in respect of the other
intangible assets balance above was established and is disclosed as
part of the fair value deferred tax liability.
The goodwill of GBP2.2m arising from the acquisition represents
the customer contracts, supplier relationships and know-how to
which no certain value can be ascribed. None of the goodwill is
expected to be deductible for tax purposes.
The sale and purchase agreement for the acquisition of Chess
includes an option for the purchase of the remaining shares
(18.16%) in Chess, the non-controlling interest.
This option is exercisable by 31 October 2021 and is capped at
GBP9.1m. The amount payable is dependent upon the performance of
the Chess business for the three years ended 30 April 2021.
The non-controlling interest is entitled to participate in any
dividends payable by Chess in the period to 30 April 2021.
In accordance with IFRS 3, the Group has ascribed a value to the
option to acquire the non-controlling interest of Chess. This value
is GBP4.35m and the option is shown as a non-current liability and,
as the non-controlling interest has a right to dividends, in the
other reserves as "option for acquiring non-controlling interest in
Chess".
The acquisition cost of GBP1.0m in respect of Chess was charged
as an exceptional item in the Consolidated Income Statement. This
cost includes GBP0.4m in respect of renewing the Group's banking
facility. GBP18.0m of this facility was utilised in acquiring
Chess.
Chess contributed GBP10.7m of revenue and GBP1.7m of adjusted
operating profit for the period from 12 December 2018 to 30 April
2019.
8. CHANGES IN ACCOUNTING POLICIES AND RESTATEMENTS
This note explains the impact of changes in accounting policies
on prior periods.
Impact on financial statements
As a result of changes in the Group's accounting policies, prior
year comparative information has been restated for the adoption of
IFRS 15 'Revenue from Contracts with Customers'.
The impact of IFRS 9 was not material and no restatement was
required.
The following tables show the adjustments recognised for each
individual line item. Line items that are not affected by the
changes have not been included. As a result, the sub-totals and
totals disclosed cannot be recalculated from the numbers
provided.
Consolidated income statement
Year ended 30 April 2018
---------------------------------------
Restated
on adoption
As previously Impact of of
stated IFRS 15 IFRS 15
Audited Unaudited Unaudited
GBP'000 GBP'000 GBP'000
-------------------------- ------------- ---------- ------------
Revenue 111,798 (1,251) 110,547
Cost of sales (71,730) 874 (70,856)
-------------------------- ------------- ---------- ------------
Gross profit 40,068 (377) 39,691
-------------------------- ------------- ---------- ------------
Operating profit 10,639 (377) 10,262
Adjusted operating profit 15,602 (377) 15,225
-------------------------- ------------- ---------- ------------
Profit before tax 10,550 (377) 10,173
Income tax charge (2,074) - (2,074)
-------------------------- ------------- ---------- ------------
Profit for the year 8,476 (377) 8,099
-------------------------- ------------- ---------- ------------
Year ended 30 April 2018
---------------------------------------
Restated
on adoption
As previously Impact of of
stated IFRS 15 IFRS 15
Audited Unaudited Unaudited
GBP'000 GBP'000 GBP'000
---------------------------------- ------------- ---------- ------------
Attributable to:
Equity shareholders of the parent 8,087 (377) 7,710
Non-controlling interests 389 - 389
---------------------------------- ------------- ---------- ------------
8,476 (377) 8,099
---------------------------------- ------------- ---------- ------------
Pence Pence Pence
---------------------------------- ------------- ---------- ------------
Earnings per share:
Basic 19.88 (0.93) 18.95
Diluted 19.68 (0.92) 18.76
---------------------------------- ------------- ---------- ------------
Consolidated statement of comprehensive income
Year ended 30 April 2018
---------------------------------------
Restated
on adoption
As previously Impact of of
stated IFRS 15 IFRS 15
Audited Unaudited Unaudited
GBP'000 GBP'000 GBP'000
---------------------------------------- ------------- ---------- ------------
Profit for the year 8,476 (377) 8,099
Total comprehensive income for the year 8,309 (377) 7,932
------------- ---------- ------------
Attributable to:
Equity shareholders of the parent 7,787 (377) 7,410
Non-controlling interests 522 - 522
---------------------------------------- ------------- ---------- ------------
8,309 (377) 7,932
---------------------------------------- ------------- ---------- ------------
Consolidated statement of financial position
Year ended 30 April 2018
---------------------------------------
Restated
on adoption
As previously Impact of of
stated IFRS 15 IFRS 15
Audited Unaudited Unaudited
GBP'000 GBP'000 GBP'000
----------------------------------------------------- ------------- ---------- ------------
Current assets 60,246 886 61,132
----------------------------------------------------- ------------- ---------- ------------
Total assets 115,573 886 116,459
----------------------------------------------------- ------------- ---------- ------------
Current liabilities (38,080) (1,533) (39,613)
----------------------------------------------------- ------------- ---------- ------------
Total liabilities (39,930) (1,533) (41,463)
----------------------------------------------------- ------------- ---------- ------------
Net assets 75,643 (647) 74,996
Equity
Retained earnings 39,900 (647) 39,253
----------------------------------------------------- ------------- ---------- ------------
Total equity attributable to the equity shareholders
of the parent 73,089 (647) 72,442
Non-controlling interests 2,554 - 2,554
----------------------------------------------------- ------------- ---------- ------------
Total equity 75,643 (647) 74,996
----------------------------------------------------- ------------- ---------- ------------
Note 8 - Earnings per share
Year ended 30 April 2018
---------------------------------------
Restated
on adoption
As previously Impact of of
stated IFRS 15 IFRS 15
Audited Unaudited Unaudited
------------------------------------ ------------- ---------- ------------
Basic earnings (GBP'000) 8,082 (377) 7,705
Diluted earnings (GBP'000) 8,082 (377) 7,705
------------------------------------- ------------- ---------- ------------
Adjusted earnings (GBP'000) 12,203 (377) 11,826
Diluted adjusted earnings (GBP'000) 12,203 (377) 11,826
------------------------------------- ------------- ---------- ------------
Weighted average number of shares 40,679,428 - 40,679,428
Share options 413,334 - 413,334
------------------------------------- ------------- ---------- ------------
Diluted weighted average number of
shares 41,092,762 - 41,092,762
------------------------------------- ------------- ---------- ------------
Basic earning per share - pence 19.88 (0.93) 18.95
Diluted earning per share - pence 19.68 (0.92) 18.76
------------------------------------- ------------- ---------- ------------
Adjusted earnings per share - pence 30.01 (0.93) 29.08
Diluted earnings per share - pence 29.71 (0.92) 28.79
------------------------------------- ------------- ---------- ------------
The Group has adopted IFRS 15 'Revenue from Customer Contracts'
fully retrospectively. Comparatives for the year ended 30 April
2018 have been restated accordingly.
The following expedients within the standard have been used:
- Revenue in respect of completed contracts that begin and end
in the same accounting period have not been restated.
- Revenue in respect of completed contracts with variable
consideration reflects the transaction price at the date the
contracts were completed.
In addition, the impact on retained earnings is shown in the
Consolidated statement of changes in equity and is summarised
below.
Note 2 - Segmental analysis for the year ended 30 April 2018
EID MASS MCL SEA Group
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- -------- --------
Revenue:
As previously reported (audited) 19,084 37,568 17,381 37,805 111,798
Impact of IFRS 15 (unaudited) (786) - - (465) (1,251)
--------------------------------- -------- -------- -------- -------- --------
As restated (unaudited) 18,298 37,568 17,381 37,340 110,547
--------------------------------- -------- -------- -------- -------- --------
Segment adjusted operating
profit:
As previously reported (audited) 4,677 7,113 2,072 4,433 15,602
Impact of IFRS 15 (unaudited) (362) - - (15) (377)
--------------------------------- -------- -------- -------- -------- --------
As restated (unaudited) 4,315 7,113 2,072 4,418 15,225
--------------------------------- -------- -------- -------- -------- --------
The impact of adoption of IFRS 15 on the Group's retained
earnings at 30 April 2018 and 30 April 2017 is as follows:
2018 2017
GBP'000 GBP'000
----------------------------------------------------- -------- ---------
Retained earnings as previously reported (audited) 39,900 36,901
Recognition of revenue for over-time contracts based
on
costs incurred and including attributable margin
(unaudited) (647) (270)
Adjustment to retained earnings upon adoption of
IFRS 15 (unaudited) (647) (270)
----------------------------------------------------- -------- ---------
Retain earnings - IFRS 15 (restated) (unaudited) 39,253 36,631
----------------------------------------------------- -------- ---------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EASXDADKNEEF
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