TIDMCHRT
RNS Number : 8267T
Cohort PLC
23 July 2020
One Waterside Drive
Arlington Business Park
Reading
Berks
RG7 4SW
23 July 2020
COHORT PLC
PRELIMINARY RESULTS
FOR THE YEARED 30 APRIL 2020
Cohort plc today announces its audited results for the year
ended 30 April 2020.
Highlights include: 2020 2019 %
* Revenue GBP131.1m GBP121.2m 8
* Adjusted operating profit(1) GBP18.2m GBP16.2m 12
* Adjusted earnings per share(1) 37.10p 33.60p 10
* Net debt (GBP4.7m) (GBP6.4m) 27
* Order intake GBP124.4m GBP189.9m (34)
* Order book (closing) GBP183.3m GBP190.9m (4)
* Proposed final dividend per share 6.90p 6.25p 10
* Total dividend per share 10.10p 9.10p 11
Statutory 2020 2019 %
* Statutory profit before tax GBP10.0m GBP5.7m 75
* Basic earnings per share 23.47p 13.37p 76
-- Results in line with expectations as announced 21 May 2020;
increased revenue, adjusted operating profit and EPS.
-- Better than expected cash performance.
-- Dividend increased by 11%.
-- COVID-19 negatively impacted the Group revenue by GBP3m and
adjusted operating profit by GBP1m. Sites continue to be
operational with social distancing and enhanced health and safety
protocols.
-- Divisional overview:
o Record performance from MASS
o Chess delivered a good first full year performance
o Improvement at EID
o Weaker results at MCL and SEA, the latter due to slippage of
export orders.
-- As expected, lower order intake of GBP124.4m (2019:
GBP189.9m, included a large multi-year renewal of over GBP50m).
-- Agreed to acquire ELAC for EUR11.25m (GBP9.8m) in December
2019; completion due by 30 September 2020.
(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.
Looking forward:
-- Order book and pipeline of prospects provide a good
underpinning for revenue in the coming year.
-- The 30 April 2020 order book of GBP183.3m underpins nearly
GBP84m of revenue, representing 62% (2019: 55%) of consensus
forecast revenue for the year. This has risen to 75% in early July
2020 following recently announced contract wins.
-- As stated on 21 May 2020, the Group's performance for 2020/21
is expected to be in line with 2019/20.
-- A restructuring exercise at SEA will largely complete by end
of July 2020 saving GBP1.3m per annum.
-- 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:
"Cohort continued to make good progress in 2020, achieving a
record adjusted operating profit despite the impact of COVID-19
restrictions in the last two months of our financial year. A full
year contribution from Chess, a record performance at MASS and
improvement at EID offset weaker trading at MCL and SEA.
"Our thanks go to all our employees, whose hard work, skill and
ability to deliver has allowed us to continue to safely provide
critical services and products to our customers since the onset of
the COVID-19 pandemic.
"Following order wins since the start of the financial year of
over GBP50m, some of which we announced recently, our order book
cover now stands at 75% of current financial year consensus
revenue. At this early stage of the year, we continue to expect our
trading performance for 2020/21 to be in line with that achieved in
the year ended 30 April 2020 and for our closing net debt to remain
flat for the year, both before any impact from the acquisition of
ELAC.
In the longer term, the Group expects to return to growth, as it
recovers the orders and revenue delayed due to COVID-19."
A presentation for analysts is being hosted today 23 July 2020
at 9.15am for 9.30am online as follows:
Please join the event 5-10 minutes prior to scheduled start
time. When prompted, provide the confirmation code or event
title.
WEBCAST:
https://webcasting.brrmedia.co.uk/broadcast/5f0c2d5a4c167c1215795823
TELECONFERENCE CALL LINE: +44 (0)330 336 9125
Confirmation Code: 8588162
Event Conference Title: Cohort PLC - Preliminary Results 2020
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Thursday, July 23, 2020
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, Christopher Baird
MHP Communications 020 3128 8570
Reg Hoare, Pete Lambie cohort@mhpc.com
NOTES TO EDITORS
Cohort plc ( www.cohortplc.com ) is the parent company of five
innovative, agile and responsive businesses based in the UK and
Portugal, providing a wide range of services and products for
domestic and export customers in defence and related markets.
Chess Technologies, through its operating businesses Chess
Dynamics and Vision4ce, offers electro-optical and
electro-mechanical systems to the defence and security markets. It
was acquired by Cohort plc in December 2018. www.chess-dynamics.com
& www.vision4ce.com
EID designs and manufactures advanced communications systems for
the defence and security markets. Cohort
acquired a majority stake in June 2016. www.eid.pt
MASS is a specialist data technology company serving the defence
and security markets, focused on electronic warfare, digital
services and training support. Acquired by Cohort in August 2006.
www.mass.co.uk
MCL designs, sources and supports advanced electronic and
surveillance technology for UK end users including the MOD and
other government agencies. MCL has been part of the Group since
July 2014. www.marlboroughcomms.com
SEA delivers products and services into the defence, transport
and offshore energy markets alongside performing specialist
research, training and product support. Acquired by Cohort in
October 2007. www.sea.co.uk
Cohort (AIM: CHRT) was admitted to London's Alternative
Investment Market in March 2006. It has headquarters in Reading,
Berkshire and employs in total around 900 core staff there and at
its other operating company sites across the UK and in
Portugal.
Chairman's statement
Performance
Cohort continued to make good progress in 2020, achieving a
record adjusted operating profit of GBP18.2m (2019: GBP16.2m) on
revenue of GBP131.1m (2019: GBP121.2m). MASS and EID both posted an
increase in profit and we benefited from a full year contribution
(2019: five months) of Chess.
These positive movements were partly offset by weaker
performances at MCL and SEA. MCL saw a drop off in hearing
protection activity and lower order intake than expected. SEA's
result was disappointing and was a result of delayed orders,
particularly from export customers for its naval defence
products.
The COVID-19 pandemic and subsequent lockdowns across the world
came in the last quarter of our financial year, typically our
busiest period. This resulted in some restriction of our
activities, particularly access to customer sites to complete
various integration and test milestones, and the inability of
certain customers to accept completed goods. We have estimated the
impact of COVID-19 on our reported results as a fall in revenue of
around GBP3m and adjusted operating profit of GBP1m. Our
interaction with customers has also been restricted and this has,
in some instances, led to a delay in the receipt of new orders.
This is discussed further in the Outlook section below.
Our order intake for the year was GBP124.4m (2019: GBP189.9m).
As expected, this was lower than last year which included a large
multi-year renewal of over GBP50m. The Group has significant new
domestic and export opportunities, and extensions to existing
contracts, across all our operating businesses.
The Group's operating profit of GBP10.7m (2019: GBP5.9m) is
stated after recognising amortisation of intangible assets of
GBP7.3m (2019: GBP9.5m), exceptional items of GBP0.8m (2019:
GBP1.5m) and research and development expenditure credits of
GBP0.8m (2019: GBP0.7m). Profit before tax was GBP10.0m (2019:
GBP5.7m) and profit after tax was GBP9.7m (2019: GBP5.1m).
The closing net debt of GBP4.7m (2019: net debt of GBP6.4m) was
better than our expectation. This was due to an improved operating
cash flow, mainly a result of accelerated receipts from our single
largest customer, the UK Ministry of Defence (MOD) in response to
the COVID-19 pandemic in March and April.
Strategic initiatives
We signed a share purchase agreement to acquire 100% of Wärtsilä
ELAC Nautik GmbH (ELAC) on 12 December 2019 for a consideration of
EUR11.25m (GBP9.8m) on a cash free, debt free basis. ELAC, a leader
in sonar systems technology for naval surface ships and submarines,
will join the Group as Cohort's sixth standalone subsidiary.
Completion of the transaction is subject to German Federal
Government approval, so timing is dependent on the progress of
discussions, but we currently expect this on or before 30 September
2020.
The ELAC transaction accords with our strategy of acquiring
businesses, primarily in the defence and security sector, with a
strong niche capability and market position. ELAC increases the
Group's reach and potential in new international markets and
provides Germany as a new home market.
When we acquired Chess in December 2018, we agreed to pay
further consideration depending 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 now be GBP4.0m (2019:
GBP5.5m).
Shareholder returns
Adjusted earnings per share (EPS) were 37.10 pence (2019: 33.60
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 23.47
pence (2019: 13.37 pence). The adjusted EPS benefited from a lower
tax charge on adjusted earnings of 11% (2019: 15%). In the five
years to 2020, the Group has had a cumulative average growth rate
of 12.7% in adjusted operating profit and 12.5% in adjusted
EPS.
The Board is recommending a final dividend of 6.90 pence per
ordinary share (2019: 6.25 pence), making a total dividend of 10.10
pence per ordinary share (2019: 9.10 pence) for the year, an 11%
increase. The dividend has been increased every year since the
Group's IPO in 2006. It will be payable on 18 September 2020 to
shareholders on the register at 14 August 2020, subject to approval
at the Annual General Meeting on 15 September 2020.
Our people
As always, my thanks go to all employees within the Cohort
businesses. Their hard work, skill and ability to deliver what the
customer needs are what continues to drive the performance of our
Group.
I think this is particularly so this year when the Group showed
its agility and flexibility in response to COVID-19. Within a day
of the commencement of the UK lockdown more than 70% of the Group's
employees were able to work from home. Over 20% of our people were
able to safely remain on site, mainly our production and support
staff, observing necessary social distancing and introducing more
flexible shift patterns. This enabled us to continue to deliver
essential products and services to the UK and Portuguese militaries
and our international customers. A team from MASS supported the
UK's Joint Forces Command as part of the UK Government's response
to COVID-19.
We are now in the phased process of returning colleagues to work
and currently have nearly 50% of employees back on site on a part
time or regular basis.
Andy Thomis, Simon Walther and their senor executive colleagues
have continued their dedicated and skilful work which has helped
the Group to progress in the face of very challenging
conditions.
Governance and Board
After serving on the Cohort Board for over 14 years, Sir Robert
Walmsley will retire from our Board on 31 December 2020. Rob joined
the Cohort Board at our inception in early 2006, and has served in
various capacities, including Chair of the Remuneration and
Appointments Committee and Audit Committee. I would like to thank
Rob on my and the Board's behalf for the major contribution he has
made to Cohort's progress and wish him all the best for the future.
When Ed Lowe joined the Board in 2019, it was partly in
anticipation of Rob Walmsley's retirement. There is therefore no
need to recruit a direct successor, though we will keep the
composition of the Board under review.
Outlook
The political and economic context within which Cohort operates
has, as a result of the COVID-19 pandemic, changed markedly since
last year. The international and domestic security environment
still calls for greater resources to be devoted to defence and
counterterrorism in the UK and many other countries. On the other
hand, the pressures on public expenditure are likely to be
significant as a result of the economic effect of government
responses to the pandemic. These are likely to have an impact on
government expenditure in many of our markets, including the UK,
but the extent to which this feeds through to defence and security
spending is hard to predict.
Although the UK defence market remains tight, the Cohort
businesses have strong and relevant capabilities for both the
current and evolving needs of our principal customer, established
positions on some key long-term UK MOD programmes and a good
pipeline of new opportunities. This was demonstrated by MASS's
recent contract extension in support of the UK Joint Forces
Command. Export prospects for the Group continue to develop and,
since the year end, have been demonstrated by some encouraging wins
at Chess. Our non-UK MOD business is now over 50% of revenue, the
first time in Cohort's history.
Our business from the UK into EU countries remains small
(GBP3.0m in 2020; GBP1.4m in 2019), 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 yet
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, of which ELAC is the most recent
example.
The Group has entered the new financial year with a substantial
long-term order book. The 30 April 2020 order book of GBP183.3m
underpins over GBP84m (2019: GBP80m) of current financial year
revenue, representing 62% of expected consensus revenue for the
year. Following order wins since the start of the financial year of
over GBP50m, including recent announcements, that cover now stands
at 75%.
As we indicated in our statement of 21 May 2020, the potential
impact of COVID-19 continues to make it more difficult than usual
to provide guidance. At this stage, the Board expects that
restrictions on international travel may result in short term
constraints on export activity, which represented over 30% of
Cohort's revenues in the year just ended.
Overall, we continue to expect that our trading performance for
2020/21 will be in line with that achieved in the year ended 30
April 2020 and for our closing net debt to remain flat for the
year, both before any impact from the acquisition of ELAC.
In the longer term, the Group expects to return to growth, as it
recovers the orders and revenue delayed due to COVID-19.
Nick Prest CBE
Chairman
Business Review
Operating review
2020 has been another year of good progress for Cohort, with a
record level of adjusted operating profit, despite the impact of
COVID-19 related restrictions in the last two months of the
financial year.
2020 highlights
The Group's adjusted operating profit of GBP18.2m (2019:
GBP16.2m) on revenue of GBP131.1m (2019: GBP121.2m) represented a
net return of 13.9% (2019: 13.3%).
-- MASS remains the strongest contributor to the Group's
adjusted operating profit and saw continued growth
-- Chess, which was acquired in December 2018, made a full year
contribution to this year's results
-- EID had a stronger year
-- MCL and SEA both had weaker performances
On 12 December 2019 the Group agreed to acquire Wärtsilä ELAC
Nautik GmbH (ELAC), subject to the German Federal Government and
other conditions.
Operating review
2019/20 has been another year of progress for Cohort, with a
record level of revenue and adjusted operating profit. Revenue grew
by 8% and adjusted operating profit by 12%. Both revenue and
adjusted operating profit benefited from a full year contribution
from Chess, which was part of the Group for only five months last
year.
MASS achieved a record adjusted operating profit and EID
returned to a better level of performance as a result of higher
export sales. These improvements were offset by weaker performances
at MCL and SEA. MCL's revenue was affected by changes in customer
plans, orders slipping into 2020/21 and the timing of deliveries on
other projects, which peaked in 2018/19. SEA also saw projects
slip, especially export orders, in part due to the impact of
COVID-19. The impact of these delays has required the cost base of
SEA to be adjusted to align with expected orders. An exercise to
reduce the annual cost by GBP1.3m will be completed by the end of
July 2020 and is expected to cost GBP0.7m. This will be recognised
as an exceptional cost in the first half of 2020/21.
The COVID-19 pandemic and resultant lockdowns impacted many of
our markets, with some business restrictions remaining in place
today. The impact arose in the final and busiest quarter of our
financial year and resulted in delays to orders and deliveries,
particularly at EID and SEA. Restrictions in movement affected our
ability to access customer sites to complete integration and
testing milestones, and prevented customers from accepting
deliveries of completed goods. We estimate the effects on our
reported results for the year ended 30 April 2020 as a reduction in
revenue of around GBP3m and a reduction in adjusted operating
profit of GBP1m. The impact of COVID-19 is not expected to affect
the Group's ability to continue as a going concern, as is discussed
in more detail below.
The Group's adjusted operating profit grew by 12% to GBP18.2m
(2019: GBP16.2m) on revenue of GBP131.1m (2019: GBP121.2m), a net
operating return of nearly 13.9% (2019: 13.3%). The Group's
statutory operating profit of GBP10.7m (2019: GBP5.9m) is
significantly impacted by the amortisation of other intangible
assets, a GBP7.4m charge in 2020 (2019: GBP9.5m 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
--------------- ------------------------------
2020 2019 Change 2020 2019
GBPm GBPm % % %
--------------- --------- -------- --------- --- ---------- ---------
Chess 3.9 1.7 229 15.6 15.8
EID 3.1 1.3 238 17.2 11.8
MASS 8.9 8.2 9 21.7 21.0
MCL 1.7 2.3 (26) 11.0 10.5
SEA 3.5 5.5 (36) 11.1 14.3
Central costs (2.9) (2.8) (4) - -
--------------- --------- -------- --------- --- ---------- ---------
18.2 16.2 12 13.9 13.3
--------------- --------- -------- --------- --- ---------- ---------
Chess's first full year contribution was stronger than we
expected, delivering a performance, on a straight line basis,
equivalent to what was a very good five months in 2018/19. The
business saw strong growth in its naval system deliveries to export
customers.
MASS achieved a record performance, with the growth in revenue
mainly deriving from long-term support contracts to the UK MOD. Its
Electronic Warfare Operational Support (EWOS) business, which is
mostly export, was flat year on year, large multi-year orders
having been secured in 2018/19.
EID had a welcome return to growth and net return more in line
with expectations. This came from delivering part of an export
order secured in late 2018/19 and the initial batch of a large
Portuguese Army order which will continue until 2027.
MCL retreated from what was a good result last year. The timing
of deliveries on its hearing protection work accounted for most of
the revenue and margin drop, although the lower bought-in content
improved its net margin.
SEA had a disappointing result, with contract timing and delays
in expected export orders for torpedo launcher systems resulting in
a decrease in revenue. Some of this slippage was a result of the
impact of COVID-19 and we have continued to see some delay in the
early part of 2020/21. As a result, SEA has undertaken a programme
to align its cost base more closely with its anticipated revenue
sources and levels.
Our people
All the Group's capabilities and customer relationships
ultimately derive from our people, and the success 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.
In the recent COVID-19 pandemic and resultant lock down, our
people, across the Group, demonstrated their agility and
flexibility with over 70% moving to home-based working in less than
24 hours. Thanks to our ability to implement socially distanced
working practices, some 20% of our colleagues remained on site to
continue production and support to our customers, many performing
critical national defence and security roles. We would particularly
thank our IT teams for supporting this sudden marked change in the
working environment, enabling our staff to continue to perform
their roles efficiently and securely. Since the end of June,
following the successful implementation of infection prevention
measures, we have seen a gradual return to site working. We
currently have nearly 50% of our employees back on site and expect
that proportion to rise over the coming months.
Operating strategy :
ORGANIC GROWTH
Cohort currently 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.
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 EWOS
offerings, SEA's External Communication System (ECS) for
submarines, MCL's range of hearing protection systems and Chess's
counter-sUAV systems for military and civilian customers. 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(TM) 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 well able to execute technically
but which might otherwise be perceived as risky. One example is a
GBP50m plus in-service support contract awarded to MASS last year,
a renewal of a contract we have been performing for over 15 years.
Others include approximately GBP85m of contracts awarded to SEA 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 win by Chess of a GBP20m
order to supply observation and targeting systems for a Northern
European customer, its largest ever contract.
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 formed close working relationships and benefit from technical
capabilities, customer relationships and market knowledge. We have
made further progress in the year on ensuring that EID participates
in this collaborative approach. 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
led a combined UK and Portuguese team visit to Australia, and this
bore fruit with SEA, working with EID, securing the contract to
provide a communication system for Australia's new submarine
platform.
Cooperation between the Group businesses has extended to the
sharing of technology. For example, SEA and Chess are also working
together on a possible future decoy launcher solution for the Royal
Navy. Last Summer, SEA and EID collaborated on an important trial
with the Portuguese Navy, demonstrating a new anti-submarine
warfare system, based on the Krait array. Further trials of the
system are expected in the coming year, including with the Royal
Navy.
These strategies have 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. Overall, the organic performance of the business in the
year (i.e. excluding the effect of Chess's full year contribution)
was slightly behind that achieved in 2018/19 with improved results
at MASS and EID being offset by weaker performance at MCL and
SEA.
ACQUISITIONS
Alongside our organic growth strategy, we continue to see
opportunities to accelerate our growth by making further targeted,
value enhancing 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.
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 2019, we announced that we had signed an
agreement to acquire 100% of Wärtsilä ELAC Nautik GmbH (ELAC) for a
consideration of EUR11.25m on a debt free cash free basis. ELAC, a
leader in sonar systems technology for naval surface ships and
submarines will join the Group as Cohort's sixth standalone
subsidiary. The completion of the acquisition is subject to German
Federal Government approval and, though the timing of this is hard
to predict, we currently expect completion to be on or before 30
September 2020.
The acquisition of ELAC fits well with our acquisition strategy.
Importantly, it increases the Group's exposure to scalable product
and systems and export customers, particularly in the naval market.
ELAC shares highly complementary expertise, capabilities and
technologies with SEA, providing a significant cross-selling
opportunity. It will increase the Group's reach and potential in
new international markets and provides Germany as a new home
market.
We acquired 81.84% of Chess in December 2018 for an initial
consideration of just over GBP20.0m. 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
GBP4.0m (2019: 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.
MAINTAIN CONFIDENCE
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.
SUBSIDIARY Review
Chess
Chess Technologies (Chess) operates through two distinct
businesses, Chess Dynamics and Vision4ce.
Chess Dynamics is an innovative, well-respected surveillance,
tracking and gunfire control specialist for military and commercial
customers. Chess's military customers include defence forces and
prime contractors in the UK and overseas for the naval and land
sectors.
Based in Horsham and Plymouth, Chess Dynamics designs, develops
and manufactures precision stabilised and non-stabilised multi-axis
platforms, fire control directors and positioners for
electro-optic, radar, communication, security, surveillance and
targeting systems, and a wide range of high-performance cameras and
special sensors.
The more complex tracking and targeting systems are integrated
into naval fire-control solutions and sophisticated vehicle-based
surveillance, targeting, tracking and force protection systems.
The company is a major developer and world-wide supplier of
counter-sUAV (drone) protection systems including rapid deployment
systems for military and security use. It provides a complete
service including survey, installation, training, and maintenance
across its entire product range, including bespoke engineering
solutions.
Vision4ce is a leading technology software house based in
Wokingham. It designs, develops, and supplies high performance
digital video trackers and operator interface control software for
Chess Dynamics and other customers.
Founded in 1993 by its Group Managing Director Graham Beall,
Chess Technologies, which is c.82% owned by Cohort, joined the
Cohort group in 2018.
2020 2019 (5 months)
GBPm GBPm
--------------------- ------ ----------------
Revenue 25.2 10.7
Adjusted operating
profit 3.9 1.7
Operating cash flow (2.8) 1.3
--------------------- ------ ----------------
Chess has continued its good run of performance since its
acquisition by Cohort. The result for this year was better than we
expected, the five months for 2018/19 having been unusually strong
as a result of deployment of counter-sUAV systems at two major UK
airports in late 2018.
On a like for like basis, Chess showed growth on the full year
ended 30 April 2019 with higher sales of naval systems, both to the
UK and export customers. The contribution to profit from this sales
growth was partly offset by investment in more staff, both direct
and overhead, the latter to ensure Chess is well invested to manage
its current and future growth potential.
Chess's revenue is dominated by export customers. This year they
have included the US DoD and a first sale into Eastern Europe. It
has also begun funded study work with a European prime contractor
for a new fire control system.
Chess has continued to demonstrate what a good strategic fit it
is for the Group. It is a leading supplier within its market and
has a strong ethos of innovation and responsiveness.
Chess was only marginally impacted by the COVID-19 pandemic and
lockdown with a few in-country activities being postponed. It
continued to carry out production and support from its main site in
Horsham with little disruption, whilst observing all the necessary
safety requirements of its employees, customers and suppliers.
Chess's rapid growth over the last few years has caused it some
growing pains, especially in project control and delivery. This
along with growing working capital is reflected in its weaker cash
performance this year. Cohort has begun work with Chess's
management to strengthen its processes to ensure it can
successfully grow whilst still maintaining its agility and
innovative approach. This work will focus on improving the cash
performance of the business and ensuring it is fully able to
deliver on its recent order successes.
Chess's order book, recent wins and prospects, especially on
some significant overseas naval programmes, give us optimism for
Chess's future. For the coming year, our expectation is that Chess
will perform in line with 2018/19 as a result of the timing of
deliveries, but it has given itself better visibility for the years
beyond 2020/21.
SUBSIDIARY REVIEW
EID
EID is a Portuguese based high-tech company with 35 years'
experience and deep know-how in the increasingly critical fields of
electronics, tactical and naval C3 (command, control and
communications). The Company's focus is the design, manufacture,
delivery and support of advanced high-performance C3 equipment for
the global defence and security markets.
EID operates through two market-facing divisions:
Naval Communications: integrated C3 systems for warships and
submarines; and
Tactical Communications: tactical radio, vehicle intercoms,
field communications and networking software and equipment.
These divisions are supported by an internal production and
logistics unit.
The UK Royal Navy is amongst the customers for its naval
communications systems and its products equip over 145 vessels
worldwide including the navies of Portugal, the Netherlands, Spain
and Belgium and many non-NATO export customers. Its tactical
communications products are used extensively in a variety of
personal and vehicular applications for armies worldwide.
EID operates from an engineering and production facility near
Lisbon and is led by its Managing Director, António Marcos Lopes.
EID is 80% owned by Cohort, with the remaining 20% of its shares
held by the Portuguese government. It joined the Group in 2016.
2020 2019
GBPm GBPm
--------------------- ------ ------
Revenue 18.0 11.5
Adjusted operating
profit 3.1 1.3
Operating cash flow 3.6 (1.7)
--------------------- ------ ------
After a disappointing 2018/19, EID has returned to much stronger
performance with a net return in line with our long-term
expectations for the business.
The increase in revenue of over 50% improved the gross margin
whilst the overhead for the business remained flat. As a result,
the net margin of EID rose from 11.8% to 17.2%.
This improvement derived from a near doubling of revenue from
the Portuguese Ministry of National Defence, and deliveries of
intercom systems to an overseas customer. Both revenue streams were
delivered from EID's Tactical division. Its Naval division saw a
decline in revenue following completion of a number of programmes
in 2018/19, in particular work on Portuguese offshore patrol
vessels and Belgian frigates.
EID saw a relatively notable impact from COVID-19 with several
in-country milestones being postponed by the customer and a
delivery delayed into early 2020/21 due to local lockdown
constraints. The overall impact was around GBP1.5m of revenue
slipping into the new financial year. Portugal has seen a quicker
return to pre-COVID conditions and EID has over 90% of its
employees now back on site, again with the safety of staff and
visitors of paramount importance.
As expected, EID had a better cash performance this year,
unwinding some of the working capital arising from delivery delays
at the end of last year.
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. Overall, we
expect the operating margin to remain at around the current level.
We are expecting longer term naval orders to progress this year
although the timing of contract award is unpredictable.
SUBSIDIARY REVIEW
MASS
MASS is a data technology company with over 35 years' heritage
serving the defence and security markets in the UK and around the
world. They provide electronic warfare operational support, digital
services and training support to military operations.
The company delivers tailored, integrated solutions that are
increasingly critical to customers' operational advantage. MASS's
expertise in data management, system engineering and project
management enables delivery of through-life capability in the form
of high technology solutions, training and trusted managed
services. These are underpinned by MASS's strong research and
development capability.
MASS's core skill is enabling its customers to convert their own
data, often of vast quantities, into information for operational
and strategic application.
MASS operates through four divisions.
The EWOS division includes the THURBON(TM) Electronic Warfare
(EW) database, SHEPHERD (the provision of a system embodying
THURBON(TM) to the UK MOD) and MASS's EW managed service offerings
in the UK and elsewhere.
The Digital Services division offers 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.
Established in 1983, MASS joined the Cohort Group in 2006. The
company headquarters is based in Cambridgeshire and it also
operates an Electronic Warfare Training Academy in Lincolnshire.
MASS is led by Managing Director Chris Stanley.
2020 2019
GBPm GBPm
--------------------- ------ ------
Revenue 41.1 39.0
Adjusted operating
profit 8.9 8.2
Operating cash flow 11.6 7.4
--------------------- ------ ------
MASS had another year of good growth with adjusted operating
profit rising 9% on revenue that grew 5% compared to 2018/19.
The main drivers of growth in revenue were from two long-term
support contracts to the UK MOD. One of these was renewed last year
for eight years. The second, its support to the UK Joint Forces
Command, was recently extended for another two years with three
further one-year extension options. The renewal of these contracts
speaks to the continued quality of service provided by the team at
MASS to customers.
The EWOS business, which is mostly export, was flat in revenue
terms but had a slight improvement in margin as a result of the mix
of work.
MASS's net margin increased to 21.7% (2019: 21.0%). Higher
revenue and the improved mix in EWOS increased its gross margins
and more than offset the growth in overheads.
MASS's operating cash flow this year was very strong and was
boosted by its primary customer, the UK MOD, accelerating payments
in the final month of our financial year in response to COVID-19.
We do not expect this timing advantage to be repeated in 2020/21.
Other than this positive cash flow effect, MASS saw minimal impact
on its operations from COVID-19 and now has over 50% of its
employees back on its own or customer sites.
MASS continues to demonstrate its strength in its core markets
of EWOS and niche technical support to key Government capabilities.
Its order book of GBP90m gives good visibility beyond 2023.
SUBSIDIARY REVIEW
MCL
Marlborough Communications Limited (MCL) is a leading supplier
of advanced electronic communications, information systems and
signals intelligence technology to the defence and security
sectors.
MCL utilises an unparalleled and ever-expanding international
network of specialist technology providers, combined with its own
bespoke design, engineering and integration skills, to deliver and
support a diverse portfolio of C4IS and ISTAR capabilities that
transform its customers' ability to deliver effective
operations.
The Company's specialist C4IS portfolio includes hearing
protection, communication headsets and radios, while its ISTAR
capabilities include signals intelligence, electronic warfare and
UAV and UGV technologies. With 35 employees, the company supplies
customers including the UK MOD, other UK government departments,
and defence prime contractors. MCL is adept at identifying the
latest technologies and capabilities to suit the unique demands of
each customer it works with.
Founded in 1980 and based in Surrey, this year sees MCL
celebrate 40 years' experience in supporting the UK's ISTAR
programmes. MCL is led by Managing Director Shane Knight and has
been part of the Cohort group since 2014.
2020 2019
GBPm GBPm
--------------------- ------ ------
Revenue 15.1 21.7
Adjusted operating
profit 1.7 2.3
Operating cash flow (2.3) 4.4
--------------------- ------ ------
After several years of growth, MCL had a disappointing year
following completion of some larger deliveries of hearing
protection systems in 2018/19. These fell back to more normal
levels in 2019/20 and MCL has not yet secured replacement
programmes. The result was a fall in sales by 30% and adjusted
operating profit by 26%.
MCL saw little impact from COVID-19. The small team is flexible
and at present around half are on site with the remainder working
from home.
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
fall back from GBP14.6m (April 2019) to GBP8.6m (April 2020) and
the visibility of MCL's revenue remains, on average, in the three
to six-month range.
However, MCL now sees some substantial opportunities in
long-term UK naval support programmes. Success in these would
enable MCL to improve its revenue visibility significantly. More
immediately, MCL starts 2020/21 with improved visibility and some
good prospects for the coming year.
The cash outflow this year was as expected, with a large
supplier payment having slipped from 2018/19 into 2019/20.
SUBSIDIARY REVIEW
SEA
SEA delivers products and services into the defence, transport
and offshore energy markets alongside performing specialist
research and providing services, including training and product
support.
In the maritime domain, SEA's engineering capabilities cover a
wide range of maritime mission systems requirements, including
communications, torpedo and decoy launching systems, sonar systems,
infrastructure and training. Using its systems engineering skills,
combined with in-depth knowledge and understanding of dismounted
soldier operations, SEA provides independent advice and research
into future dismounted soldier systems and applications.
With award-winning expertise in signal processing and software
engineering, SEA delivers complex data management solutions
alongside automated traffic enforcement systems to UK government
and export customers in the transport domain.
SEA manages its business through three divisions:
Complex Systems, based at Beckington;
Integrated Electronic Systems, based at Barnstaple; and
Subsea, based at Aberdeen.
The activities of the organisation are underpinned by strong
project management and enabled through dedicated production and
support teams.
SEA was founded in 1987 and joined the Cohort group in 2007. SEA
is located in the UK in Somerset, Bristol, Devon and Aberdeen, and
is led by Managing Director Steve Hill.
2020 2019
GBPm GBPm
--------------------- ------ ------
Revenue 31.7 38.3
Adjusted operating
profit 3.5 5.5
Operating cash flow 3.6 0.8
--------------------- ------ ------
SEA had a disappointing year with revenue falling by 17% and its
adjusted operating profit by 36%, the drop mostly driven by the
slippage of export orders.
The change in SEA's revenue over the last four years is analysed
by activity as follows:
2017 2018 2019 2020
GBPm GBPm GBPm GBPm
---------------------------- ------ ------ ------ ------
Submarine systems 16.9 7.3 4.7 2.7
Research 2.1 2.3 4.5 5.2
Export defence 6.0 7.1 8.2 1.6
Other defence products and
support 11.9 13.2 9.6 11.7
Transport 5.9 5.3 9.2 7.6
Subsea 1.9 2.1 2.1 2.9
---------------------------- ------ ------ ------ ------
SEA total revenue 44.7 37.3 38.3 31.7
---------------------------- ------ ------ ------ ------
The submarine systems and research activities have historically
been for the UK MOD.
The above table shows that UK submarine systems activity at SEA
has continued to decline since its peak in 2016. Recent order wins
in this area, both for the UK and Australia should see this grow in
the coming year.
SEA's research activity has also continued to show growth and we
expect the proportion of naval research within this to continue to
progress.
Export revenue at SEA fell significantly. In 2018/19, SEA
completed deliveries of Torpedo Launcher Systems (TLS) to several
overseas customers. Expected order wins from new and existing
customers slipped, and one customer requested a delay on a current
programme, on which work will recommence in 2021/22. We expect some
of the delayed orders to be secured in the coming year although
timing remains unpredictable.
SEA's transport business saw a 17% fall in revenue following
delivery of a large initial batch of Red-Light ROADflow systems to
Network Rail in 2018/19. Underlying UK and export ROADflow sales
increased slightly with the revenue from annual support and
maintenance for the existing installed base of systems now worth
over GBP1.5m of revenue per annum.
The decline in submarine systems work has resulted in a higher
proportion of revenue being derived from less predictable orders.
For instance, SEA's transport contracts are typically on short
timeframes from win to delivery, usually a few weeks to months.
SEA's opening order book as at 1 May 2020 does provide higher cover
for 2020/21 with over GBP18m of revenue on order compared with last
year's cover of just over GBP12m. However, revenue visibility for
SEA is shorter-term than we have seen historically, and we expect
this situation to continue until longer-term naval programmes (UK
and export) are secured for submarine communications and TLS
products.
A recent submarine communications order from Australia, and new
UK orders including more substantial work on the Dreadnought class,
underpin our expectation that this revenue stream will begin to
grow again. For TLS, a number of overseas navies are regenerating
their fleets, and this provides good opportunities for long-term
significant work for SEA. Nevertheless, the timing of export orders
remains unpredictable and slippage of specific opportunities for
TLS negatively impacted SEA's revenue in 2019/20.
During the year SEA trialled its new Anti-Submarine Warfare
(ASW) system based upon its 16mm diameter towed sonar array (Krait)
with the Portuguese Navy. This activity was supported by EID in
country. The system successfully detected and tracked a submarine
in a live environment. Further trials are now required, and we are
working with the Royal Navy to test the system on a Type 23 Frigate
in the coming year.
SEA's Subsea division saw revenue grow by nearly 40% with
increased support activity offshore. As a result of the recent
sharp fall in the oil price, the current market for this division
is challenging and strategic options for the Subsea division are
under review.
A restructuring exercise was completed in late 2018 to integrate
back-office services at SEA at its Barnstaple site and make a small
reduction in direct costs. The weak performance during 2019/20,
including a disproportionate fall in adjusted operating profit when
compared to revenue, and the current shorter-term nature of SEA's
order book indicate that a further cost reduction is required. This
exercise has begun and will be largely complete by the end of July
2020, realising an annual saving of GBP1.3m at a cost of GBP0.7m.
These changes are intended to shape SEA's cost base to its current
level of activity, while ensuring it is ready to deliver when
longer term orders are secured.
During 2019/20, SEA completed the integration of J+S, the latter
now being dormant. A new management and reporting system, the same
as that used by MASS, went live in February 2020.
Revenue by sector and business
Chess EID MASS MCL SEA Group
------------ ------------- ------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
Defence and
security 25.2 10.7 18.0 11.4 38.7 35.8 15.1 21.7 21.1 26.9 118.1 90 106.5 88
Transport - - - - - - - - 7.6 9.2 7.6 6 9.2 7
Offshore
energy - - - - - - - - 2.9 2.1 2.9 2 2.1 2
Other
commercial - - - 0.1 2.4 3.2 - - 0.1 0.1 2.5 2 3.4 3
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
25.2 10.7 18.0 11.5 41.1 39.0 15.1 21.7 31.7 38.3 131.1 100 121.2 100
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
The defence and security revenues are further broken down as
follows:
Chess EID MASS MCL SEA Group
---------------- -------------- -------------- -------------- -------------- ---------------- ------------------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Direct to
UK MOD - - - - 19.8 18.1 12.9 20.2 8.5 7.8 41.2 32 46.1 38
Indirect to
UK MOD where
the Group
acts as a
sub-contractor
or partner 2.2 1.2 0.1 0.2 4.3 3.6 1.1 0.3 11.0 10.9 18.7 14 16.2 13
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Total to UK
MOD 2.2 1.2 0.1 0.2 24.1 21.7 14.0 20.5 19.5 18.7 59.9 46 62.3 51
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Portuguese
MOD - - 8.3 4.4 - - - - - - 8.3 6 4.4 4
Security 4.8 4.8 - - 4.2 3.2 1.1 1.0 - - 10.1 8 9.0 7
Export defence 18.2 4.7 9.6 6.8 10.4 10.9 - 0.2 1.6 8.2 39.8 30 30.8 26
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
23.0 9.5 17.9 11.2 14.6 14.1 1.1 1.2 1.6 8.2 58.2 44 44.2 37
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
25.2 10.7 18.0 11.4 38.7 35.8 15.1 21.7 21.1 26.9 118.1 90 106.5 88
---------------- ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Note: The percentages applied to the defence and security
revenue are based on the total revenue for the Group in each
year.
Defence and security revenues are categorised into market
segments as follows:
Year ended
30 April Year ended
2020 30 April 2019
------------------------------------ ------------- -----------------
GBPm % GBPm %
------------------------------------ -------- --- ---------- -----
By market segment
Combat systems 18.0 14 22.9 19
C4ISTAR 63.1 48 51.1 42
Cyber security and secure networks 15.0 11 15.5 13
Simulation and training 9.4 7 6.5 5
Research, advice and support 12.0 9 9.3 8
Other 0.6 1 1.2 1
------------------------------------ -------- --- ---------- -----
Total defence and security revenue 118.1 90 106.5 88
------------------------------------ -------- --- ---------- -----
Note: The percentages applied to the defence and security
revenue are based on the total revenue for the Group in each
year.
The Group's total revenue, broken down by type of deliverable is
as follows:
Year ended
30 April Year ended
2020 30 April 2019
--------------- -------------
GBPm % GBPm %
--------------- ------- ---- --------- ------
Product 74.8 57 65.2 54
Services 56.3 43 56.0 46
--------------- ------- ---- --------- ------
Total revenue 131.1 100 121.2 100
--------------- ------- ---- --------- ------
Revenue analysis
The segmental breakdown of sales in 2019/20 continued the trend
we have seen in recent years with rising C4ISTAR revenue, driven by
a full year of sales from Chess and increased intercoms and radio
deliveries from EID. Our research work, which is mostly at SEA has
also continued to recover from what was low point back in 2017/18
(GBP4.9m). The increase in simulation and training was a result of
higher exercise activity by the Joint Forces Command. The most
marked reduction was in combat systems where the SEA export
activity for TLS fell following completion of deliveries in 2018/19
and slippage of expected orders.
The Group saw a fall in revenue from the UK MOD, both in
absolute terms and as a proportion of the total. The absolute
reduction was primarily a result of lower sales of hearing
protection and other equipment at MCL. Revenue from MOD has fallen
below 50% of the total for the first time, reflecting both the
reduced sales at MCL and also the increase at EID and Chess, where
a much greater proportion of sales are to export markets.
As expected, sales to the Portuguese MOD increased, a result of
deliveries on land system orders secured last year. We expect sales
to this customer to fall back again in the coming year with EID
increasing its export activity.
Both security and export sales saw growth again. This was mostly
due to a full year contribution of Chess (2019: 5 months) and
increased sales by EID, outweighing lower export sales of TLS at
SEA.
The Group's defence and security business is, and is expected to
remain, the largest part of our business, supplying 90% of revenue
this year (2019: 88%). The Group's non-defence revenue was down by
12% compared to last year, with SEA's transport business seeing
reduced revenue following a large delivery of ROADflow systems to
Network Rail in 2019/20. Underlying ROADflow sales continued to
rise, including export sales. SEA's offshore energy business saw
some growth, but the market has since weakened following the sharp
fall in the oil price in March.
Operational outlook
Order intake and order book
Order intake Order book
------- --------------
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------- ------- ------ ------ ------
Chess 17.8 11.3 13.4 20.8
EID 29.3 18.9 36.5 25.6
MASS 33.5 97.0 91.2 98.8
MCL 9.1 26.0 8.6 14.6
SEA 34.7 36.7 33.6 31.1
------- ------- ------ ------ ------
124.4 189.9 183.3 190.9
------- ------- ------ ------ ------
The 2019 order book includes GBP20.1m of order book acquired
with Chess in December 2018.
The decrease in the Group's order book reflects the unwind of
some our longer-term orders, especially at MASS. These are
typically renewed on a multi-year cycle, and with MASS having
secured a number of these renewals in 2018/19, we expect a negative
effect on our order book as deliveries take place.
The 2019/20 order intake was 95% (2019: 157%) of the Group's
revenue for the year ended 30 April 2020. This was, as expected,
lower than last year which included an eight-year renewal at MASS
of over GBP50m.
The revenue on order (order cover) for the coming year was 62%
(2019: 55%) as at 30 April 2020, based on external revenue
forecasts. This had risen to 75% in early July.
Delivery of the Group's order book into revenue (all figures are
GBPm)
The above table shows the expected delivery of future revenue
from the current order book. 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 GBP17.8m included follow-on orders for
its C-UAV systems for the US DoD and other customers. Chess also
secured a further order for its naval systems from an overseas
customer. Chess's closing order book was GBP13.4m to which has been
added recent orders secured and announced of over GBP26m. The
closing order book included GBP10.8m for delivery in 2020/21. Chess
is also well positioned for further naval and land programmes which
we hope will convert to orders in the coming year. Chess performed
better than we expected in 2019/20 and we expect a similar
performance for the coming year as it lays down a longer-term order
book.
EID's order intake for this year was much stronger at GBP29.3m
(2019: GBP18.9m). The main items of order intake for EID in 2019/20
were in its Tactical division, securing an order of nearly GBP15m
to deliver radios to the Portuguese Army out to 2027 and an
important follow on export order for vehicle intercoms. EID's order
book of GBP36.5m gives very good underpinning for the year ahead,
especially in its Tactical division. It will be important in
2020/21 for EID to secure certain domestic naval programmes and
extend, again, its current export order for vehicle intercoms. Due
to the timing of deliveries on its key export orders, we expect EID
to deliver a slightly weaker performance compared to 2019/20.
MASS's order intake of GBP33.5m was, as expected, markedly lower
than last year's GBP97.0m, which included contract renewals of over
GBP50m as well as long-awaited export EWOS orders. This year saw
around GBP15m of further export EWOS orders secured. MASS's closing
order book of over GBP91m includes nearly GBP28m of revenue to be
delivered in 2020/21. Its provision of support to the UK's Joint
Forces Command, a service the Group has provided for over 15 years,
was recently renewed for a further two years with an option to
extend to five years under the UK MOD's Single Source regime. We
expect MASS to fall back slightly in the coming year from what was
a record performance in 2019/20.
At MCL, order intake of GBP9.1m was lower than last year's
GBP26.0m which included a large multi-year submarine system order.
MCL's closing order book of GBP8.6m includes GBP7.5m to be
delivered in 2020/21. Our long-term strategy remains to try and
strengthen MCL's order book and prospects to give it more
visibility of future workflows. With some key prospects in UK naval
programmes, MCL should return to modest growth in the coming
year.
SEA's order intake at GBP34.7m was slightly below last year's
GBP36.7m and included nearly GBP9m of research and technical
support activity for the UK MOD and just over GBP5m of extension
and change orders for submarine communication systems. Various
support orders for existing SEA equipment on UK naval platforms
totalled GBP4m, lower than last year (2019: GBP12m) where some
multi-year orders were secured. SEA's transport division order
intake was just over GBP8m. SEA also secured a small initial order
for its communication systems for Australia's new submarine
programme. SEA's order book of GBP33.6m includes GBP18.4m (2019:
GBP12.3m) for delivery in 2020/21, a higher level than last year.
This time last year we indicated that SEA had an important year
ahead to secure longer-term positions on domestic and overseas
naval programmes. It made some progress, including in Australia but
some of its export opportunities, especially for TLS and the
low-profile sonar array (Krait) were delayed. We are expecting some
of these to be secured in 2020/21, but timing is always
unpredictable. SEA should perform better in the coming year, in
part as a result of cost reduction measures taken in early
2020/21.
A significant proportion of Cohort's business will continue to
be derived from the UK MOD, either directly or indirectly. The
Government is due to present another Strategic Defence Review in
the coming year, the last version having been published in November
2015. That Review gave high priority to a number of current and
future capabilities where the Group's offerings are strong,
including submarines, special forces, cyber and secure
communications, and from which we derived revenue of GBP37.5m this
year (2019: GBP34.4m). We cannot at this stage predict what the new
review will say, but we do not expect the UK to step back from its
position of strong international influence underpinned by capable
armed forces. The recent UK MOD environment has seen some
tightening of expenditure but during the COVID-19 lockdown we have
seen a continued flow of orders for important services and
capability, and in some cases an acceleration.
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, notably at MCL and SEA.
2020/21 will be important for longer term orders at Chess and
SEA.
Funding resource and policy
At the time of approval of this statement (22 July 2020), the
outbreak of COVID-19 and resultant lockdown measures have given
rise to additional risk and uncertainty. The Cohort Board has
considered these risks and taken appropriate steps and actions to
manage them. These steps have included cost mitigations across the
Group and regular monitoring and forecasting of the Group's liquid
assets and banking covenants. At 30 April 2020, the Group's cash
and readily available credit was GBP25.5m and the extension of the
facility in May has increased this available credit to GBP35.5m. A
very high proportion of our ultimate customers are Governments or
Government agencies, with a clear need to invest in defence and
security. The international and domestic security environment still
calls for greater resources to be devoted to defence and
counterterrorism in the UK and many other countries. The Group's
cash flows are therefore robust. Over 62% of our revenue for
2020/21 is on contract at 30 April 2020 providing further
assurance. The Board considers the Group to be a going concern.
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.
The Group currently benefits from a four-year revolving credit
facility (expiring November 2022) with an option to extend for one
year (to November 2023). The facility is provided by NatWest and
Lloyds. The maximum value of the facility at 30 April 2020 was
GBP30m with an option to extend by a further GBP10m to GBP40m. This
option was exercised on 20 May 2020, the additional facility being
intended for the acquisition of ELAC.
The facility itself provides the Group with a flexible
arrangement to draw down for acquisitions and overdraft. As at 30
April 2020, GBP25.1m of the facility was drawn leaving GBP4.9m
available to be drawn down. With the exercise of the extension
option this had increased to GBP14.9m as at 22 July 2020.
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 for instruments such as forward exchange rates,
bank guarantees and letters of credit. In addition, the Group is
free to arrange 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 2020.
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% (2019: 0.00% to 0.15%).
The Group's net debt as 30 April 2020 was GBP4.7m. Looking
forward, we expect the Group's net debt at 30 April 2021 to be at a
similar level with the Group moving back into net funds by 30 April
2022, if there is no further corporate activity. However, we
currently expect the acquisition of ELAC to complete by 30
September 2020 and based on our estimates this would add around
GBP2m to the Group's net funds.
In addition to its cash resources, the Group has in issue 41.0m
ordinary shares of 10 pence each. Of these shares 0.2m (2019: 0.1m)
are owned by the Cohort plc Employee Benefit Trust (EBT), which
waives its rights to dividends. In addition, the Group has issued
options over ordinary shares through Key Employee Share Option and
SAYE schemes to the level of 1.5m at 30 April 2020 (2019:
1.6m).
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 asset values, 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 10.10 pence per share (2019:
9.10 pence).
The last five years' annual dividends, growth rate, earnings and
cash cover are as follows:
Cash cover
Earnings (based
cover (based upon
Growth over upon adjusted net cash
previous earnings inflow
Dividend year per from
Year ended 30 April Pence % share) operations)
--------------------- --------- ------------ --------------- -------------
2020 10.1 11 3.7 2.8
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
--------------------- --------- ------------ --------------- -------------
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 and we expect
the rate of growth to align more closely with the earnings growth
of the Group.
The Group's cash generation in 2020 was stronger than the
expected flat performance for the year. In summary, the Group's
cash performance was as follows:
2020 2019
GBPm GBPm
------------------------------------------------------ ------- -------
Adjusted operating profit 18.2 16.2
Depreciation and other non-cash operating movements 1.8 1.4
Working capital movement (7.4) (5.0)
------------------------------------------------------ ------- -------
12.6 12.6
------------------------------------------------------ ------- -------
Acquisition of 81.84% of Chess - (22.0)
Costs paid in respect of acquiring ELAC (0.5) -
Costs paid in respect of MASS relocation (0.3) -
Restructuring of SEA - (0.5)
Reorganisation of SCS - (0.5)
Tax, dividends, capital expenditure, interest, loans
and other investments (10.1) (7.3)
------------------------------------------------------ ------- -------
Increase/(decrease) in funds 1.7 (17.7)
------------------------------------------------------ ------- -------
The slightly higher cash outflow in tax, dividends, etc. was
mostly due to a net investment in own shares (EBT) of GBP2.2m
(2019: net receipt of GBP0.1m). 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 37 days (2019: 22 days).
This calculation is based upon dividing the revenue by month,
working backwards from April, into the trade debtors balance
(excluding revenue recognised not invoiced) 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 increase in
debtor days reflects delays to invoicing and receipts in the final
quarter, especially with export customers, much of this due to the
COVID-19 lockdown. This was partly mitigated by accelerated
payments by our largest customer, the UK MOD in response to the
pandemic.
Tax
The Group's tax charge for the year ended 30 April 2020 of
GBP295,000 (2019: charge of GBP584,000) was at a rate of 3.0%
(2019: rate of 10.3%) of profit before tax. This includes a current
year corporation tax charge of GBP2,325,000 (2019: GBP2,350,000), a
prior year corporation tax credit of GBP770,000 (2019: credit of
GBP9,000) and a deferred tax credit of GBP1,260,000 (2019:
GBP1,757,000).
The Group's overall tax rate was below the standard corporation
tax rate of 19.00% (2019: 19.00%). The reduction is due to an
R&D tax credit in Portugal of GBP0.6m in respect of expenditure
incurred in this and prior years in developing an enhanced vehicle
intercoms system by EID and prior year tax credits in our UK
businesses where previously prudent positions in respect of R&D
tax credits and other estimates were unwound as the actual
liabilities were confirmed.
The Group has reported research and development expenditure
credits (RDEC) for the UK in accordance with IAS 20 and shown the
credit GBP784,000 (2019: GBP744,000) in cost of sales and adjusted
the tax charge accordingly. 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 2020/21 is
estimated at 16%. This assumes 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 2018/19 and 2019/20.
Exceptional items
The exceptional items this year are just under GBP0.8m in
respect of acquisition costs of ELAC, which is yet to complete and
GBP0.6m for relocating MASS's Lincoln office during the year, much
of the cost being impairment of a right of use asset, where the
business no longer occupies that facility. This would have
previously been an onerous lease provision under IAS 17. These two
costs were partly offset by an exceptional gain on reducing the
estimated earn out payable to the shareholders of Chess on or
before 31 October 2021 by just over GBP0.7m.
Adjusted earnings per share
The adjusted earnings per share (EPS) of 37.10 pence (2019:
33.60 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%).
The reconciliation is as follows:
Adjusted Adjusted
operating earnings
profit per share
GBPm Pence
-------------------------------------------------------- ------------- -----------
Year ended 30 April 2019 16.2 33.60
Contribution from Chess for a full year (at 81.84%
for adjusted earnings per share), 5 months in 2019 2.2 4.36
100% owned businesses throughout the year ended 30
April 2020 (2.0) (4.87)
EID (80% owned) 1.8 3.44
Impact of higher interest cost - (1.19)
Change in tax rate 11.1% (2019: 15.3%) - 1.74
Dilution from higher weighted average number of shares
(due to option exercises) - 0.02
-------------------------------------------------------- ------------- -----------
Year ended 30 April 2020 18.2 37.10
-------------------------------------------------------- ------------- -----------
Increase from 2019 to 2020 12% 10%
-------------------------------------------------------- ------------- -----------
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 2020 figures include the impact of adopting IFRS 16 'Leases'
from 1 May 2020. The Group has, as permitted by the standard, not
adjusted the reported results for the year ended 30 April 2019. The
impact of adopting IFRS 16 is explained in note 9, but in summary,
it has added GBP0.2m to the adjusted operating profit for 2020 when
compared with 2019 and at the profit before tax level, a slight
reduction (less than GBP0.1m). The addition to the Group's assets
of GBP6.9m, reported as right of use assets and Group liabilities
of GBP7.5m (lease liability) is more marked at 30 April 2020. This
lease liability is not included in the Group's net debt as shown in
the Consolidated statement of cash flows (page 25) or the debt for
the purposes of bank covenant tests.
Andrew Thomis and Simon Walther
CONSOLIDATED INCOME STATEMENT
For the year ended 30 April 2020
2020 2019
Notes GBP'000 GBP'000
-------------------------------------------------------- ----- -------- --------
Revenue 2 131,059 121,182
Cost of sales (80,016) (78,143)
-------------------------------------------------------- ----- -------- --------
Gross profit 51,043 43,039
Administrative expenses (40,312) (37,095)
-------------------------------------------------------- ----- -------- --------
Operating profit 2 10,731 5,944
-------------------------------------------------------- ----- -------- --------
Comprising:
Adjusted operating profit 2 18,223 16,164
Amortisation of other intangible assets (included
in administrative expenses) (7,354) (9,514)
Research and development expenditure credits (RDEC)
(included in cost of sales) 784 744
(Charge)/credit on marking forward exchange contracts
to market value at the yearend (included in cost
of sales) (132) 33
Exceptional items (included in administrative expenses)
Cost of acquisition of ELAC - transaction yet to
complete 8 (950) -
Cost of relocation of MASS's Lincoln facility (590) -
Adjustment to earn-out on acquisition of Chess 7 750 -
Cost of acquisition of EID - 17
Cost of acquisition of Chess - (1,000)
Cost of restructuring at SEA - (500)
-------------------------------------------------------- ----- -------- --------
10,731 5,944
-------------------------------------------------------- ----- -------- --------
Finance income 27 27
Finance costs (779) (296)
-------------------------------------------------------- ----- -------- --------
Profit before tax 9,979 5,675
Income tax charge 3 (295) (584)
-------------------------------------------------------- ----- -------- --------
Profit for the year 9,684 5,091
-------------------------------------------------------- ----- -------- --------
Attributable to:
Equity shareholders of the parent 9,559 5,447
Non-controlling interests 125 (356)
-------------------------------------------------------- ----- -------- --------
9,684 5,091
-------------------------------------------------------- ----- -------- --------
All profit for the year is derived from continuing
operations.
Notes Pence Pence
Earnings per share 4
Basic 23.47 13.37
Diluted 23.24 13.29
Adjusted earnings per share 4
Basic 37.10 33.60
Diluted 36.73 33.42
Dividends per share paid and
proposed in respect of the
year 5
Interim 3.20 2.85
Final 6.90 6.25
------------------------------ ------ -------- ------
10.10 9.10
------------------------------ ------ -------- ------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 April 2020
2020 2019
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Profit for the year 9,684 5,091
------------------------------------------------------- -------- --------
Items which may be subsequently reclassified to profit
or loss
------------------------------------------------------- -------- --------
Foreign currency translation differences on net assets
of EID, net of loan used to acquire EID 32 (21)
------------------------------------------------------- -------- --------
Other comprehensive income for the period, net of tax 32 (21)
------------------------------------------------------- -------- --------
Total comprehensive income for the year 9,716 5,070
------------------------------------------------------- -------- --------
Attributable to:
Equity shareholders of the parent 9,586 5,559
Non-controlling interests 130 (489)
------------------------------------------------------- -------- --------
9,716 5,070
------------------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 April 2020
2020 2019
Notes GBP'000 GBP'000
---------------------------------------- ----- -------- --------
Assets
Non-current assets
Goodwill 42,091 41,354
Other intangible assets 13,234 20,588
Right of use asset 9 6,900 -
Property, plant and equipment 12,121 10,956
Deferred tax asset 598 365
---------------------------------------- ----- -------- --------
74,944 73,263
---------------------------------------- ----- -------- --------
Current assets
Inventories 11,478 13,452
Trade and other receivables 47,423 42,971
Cash and cash equivalents 20,567 18,763
---------------------------------------- ----- -------- --------
79,468 75,186
---------------------------------------- ----- -------- --------
Total assets 154,412 148,449
---------------------------------------- ----- -------- --------
Liabilities
Current liabilities
Trade and other payables (30,985) (35,225)
Derivative financial instruments (231) (99)
Lease liability 9 (1,257) -
Bank borrowings (85) (61)
Provisions (1,546) (818)
---------------------------------------- ----- -------- --------
(34,104) (36,203)
---------------------------------------- ----- -------- --------
Non-current liabilities
Deferred tax liability (2,820) (4,041)
Lease liability 9 (6,240) -
Bank borrowings (25,189) (25,126)
Provisions (270) (608)
Other payable 7 (4,000) (5,500)
---------------------------------------- ----- -------- --------
(38,519) (35,275)
---------------------------------------- ----- -------- --------
Total liabilities (72,623) (71,478)
---------------------------------------- ----- -------- --------
Net assets 81,789 76,971
---------------------------------------- ----- -------- --------
Equity
Share capital 4,096 4,096
Share premium account 29,657 29,657
Own shares (1,564) (348)
Share option reserve 846 603
Other reserves 7 (3,600) (4,350)
Retained earnings 46,108 41,034
---------------------------------------- ----- -------- --------
Total equity attributable to the equity
shareholders of the parent 75,543 70,692
Non-controlling interests 6,246 6,279
---------------------------------------- ----- -------- --------
Total equity 81,789 76,971
---------------------------------------- ----- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 April 2020
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 2018 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
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Impact of IFRS 16
'leases'
as at 1 May 2019 - - - - - (148) (148) - (148)
Restated as at 1 May
2019 4,096 29,657 (348) 603 (4,350) 40,886 70,544 6,279 76,823
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Profit for the year - - - - - 9,559 9,559 125 9,684
Other comprehensive
income
for the year - - - - - 27 27 5 32
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income
for the year - - - - - 9,586 9,586 130 9,716
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners
of Group and
non-controlling
interests, recognised
directly
in equity
Equity dividends - - - - - (3,853) (3,853) - (3,853)
Vesting of Restricted
Shares - - - - - 210 210 - 210
Own shares purchased - - (3,677) - - - (3,677) - (3,677)
Own shares sold - - 1,472 - - - 1,472 - 1,472
Net loss on selling
own shares - - 989 - - (989) - - -
Share-based payments - - - 318 - - 318 - 318
Deferred tax
adjustment in
respect
of share-based
payments - - - 193 - - 193 - 193
Transfer of share
option
reserve on vesting
of options - - - (268) - 268 - - -
Change in fair value
of Chess's
net assets acquired
(note
7) - - - - - - - (163) (163)
Change in option for
acquiring
non-controlling
interest
in Chess (note 7) - - - - 750 - 750 - 750
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2020 4,096 29,657 (1,564) 846 (3,600) 46,108 75,543 6,246 81,789
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 April 2020
2020 2019
Notes GBP'000 GBP'000
--------------------------------------------- ----- -------- --------
Net cash generated from operating activities 6 11,597 8,635
--------------------------------------------- ----- -------- --------
Cash flow from investing activities
Interest received 27 27
Purchases of property, plant and equipment (2,662) (2,058)
Acquisition of Chess (including net debt
acquired) - (20,885)
--------------------------------------------- ----- -------- --------
Net cash used in investing activities (2,635) (22,916)
--------------------------------------------- ----- -------- --------
Cash flow from financing activities
Dividends paid (3,853) (3,464)
Purchase of own shares (3,677) (631)
Sale of own shares 1,472 743
Drawdown of borrowings 98 18,017
Repayment of borrowings (78) (2,027)
Repayment of lease liabilities (1,114) -
--------------------------------------------- ----- -------- --------
Net cash (used in)/generated from financing
activities (7,152) 12,638
--------------------------------------------- ----- -------- --------
Net increase/(decrease) in cash and cash
equivalents 1,810 (1,643)
--------------------------------------------- ----- -------- --------
Represented by:
Cash and cash equivalents and short-term
borrowings brought forward 18,763 20,511
Cash flow 1,810 (1,643)
Exchange (6) (105)
--------------------------------------------- ----- -------- --------
Cash and cash equivalents and short-term
borrowings carried forward 20,567 18,763
--------------------------------------------- ----- -------- --------
Effect
of
foreign
exchange
At 1 May rate At 30 April
2019 changes Cash flow 2020
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- --------- --------- -----------
Net debt reconciliation
Group
Cash and bank 18,763 (6) 1,810 20,567
Short-term deposits - - - -
-------------------------- -------- --------- --------- -----------
Cash and cash equivalents 18,763 (6) 1,810 20,567
-------------------------- -------- --------- --------- -----------
Loan (25,028) (67) - (25,095)
Finance lease (159) - (20) (179)
-------------------------- -------- --------- --------- -----------
Debt (25,187) (67) (20) (25,274)
-------------------------- -------- --------- --------- -----------
Net debt (6,424) (73) 1,790 (4,707)
-------------------------- -------- --------- --------- -----------
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 European Union and applying at 30 April 2020. The information
in this preliminary statement has been extracted from the financial
statements for the year ended 30 April 2020 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 81.84% of
Chess and in both cases had effective control. Therefore, 100% of
EID's and Chess's results and balances has been consolidated with
the non-controlling interest identified.
The Group's Annual Report for the year ended 30 April 2020 has
yet to be delivered to the Registrar of Companies.
The comparative figures for the financial year ended 30 April
2019 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 Group meets its day-to-day working capital requirements
through a facility which is due for renewal in November 2022. Both
the current domestic economic conditions (including the COVID-19
pandemic) and continuing UK Government budget pressures, including
defence, create uncertainty, particularly over the level of demand
for the Group's products.
The Company's forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the
Company should be able to operate within the level of its current
facility.
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Thus, they continue to adopt the going concern
basis in preparing the annual financial statements.
The preliminary announcement was approved by the Board and
authorised for issue on 22 July 2020.
Copies of the Annual Report and accounts for the year ended 30
April 2020 will be posted to shareholders on 11 August 2020 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 2020 30 April 2019
GBP000 GBP000
Revenue
Chess 25,155 10,674
EID 18,020 11,530
MASS 41,115 38,936
MCL 15,064 21,715
SEA 31,705 38,327
---------------- ----------------
131,059 121,182
---------------- ----------------
Adjusted Operating Profit
Chess 3,923 1,682
EID 3,108 1,357
MASS 8,914 8,175
MCL 1,660 2,282
SEA 3,532 5,492
Central costs (2,914) (2,824)
18,223 16,164
---------------- ----------------
Amortisation of other intangible
assets (7,354) (9,514)
Research and development expenditure
credit (RDEC) 784 744
(Charge)/credit on marking forward
exchange contracts to market value
at the year end (132) 33
Exceptional items:
Cost of acquisition of ELAC - yet (950) -
to complete
Cost of relocation of MASS's Lincoln (590) -
facility
Adjustment to earn-out on acquisition 750 -
of Chess
Costs of acquisition of EID - 17
Costs of acquisition of Chess - (1,000)
Restructuring of SEA - (500)
Operating Profit 10,731 5,944
---------------- ----------------
The above segmental analysis is the primary segmental analysis
of the Group.
All revenue and adjusted operating profit are 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.
3. TAX CHARGE
Year ended Year ended
30 April 2020 30 April 2019
GBP000 GBP000
UK Corporation tax:
Current year 2,227 2,729
Prior year (785) (10)
Portugal corporation tax 145 (409)
Other foreign corporation tax (31) 31
1,556 2,341
---------------- ----------------
Deferred taxation:
Prior year 36 (44)
Current year (1,297) (1,713)
---------------- ----------------
(1,261) (1,757)
---------------- ----------------
295 584
---------------- ----------------
The current year corporation tax charge (2019: charge) includes
GBP188,000 credit (2019: GBP169,000 credit) in respect of
exceptional items and the current year deferred tax credit includes
a credit of GBP1,425,000 (2019: credit of GBP1,688,000) in respect
of the amortisation of other intangible assets and a current year
credit of GBP25,000 (2019: GBP6,000 charge) 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 2020 30 April 2019
GBP000 GBP000
Earnings
Basic and diluted earnings 9,559 5,447
Amortisation of other intangible assets
(net of tax of GBP1,425,000; 2019:
GBP1,688,000) 4,840 6,956
Charge/(credit) on non-trading foreign
exchange movements (net of tax credit
of GBP25,000 (2019: charge of GBP6,000) 107 (27)
Cost of acquisition of ELAC (net of 874 -
tax of GBP76,000)
Cost of relocation of MASS's Lincoln 478 -
facility (net of tax of GBP112,00)
Adjustment to earn-out on acquisition (750) -
of Chess (nil tax)
Costs of acquisition of EID (nil tax) - (17)
Costs of acquisition of Chess (net
of tax credit of GBP74,000) - 926
Restructuring of SEA (net of tax credit
of GBP95,000) - 405
Adjusted basic and diluted earnings 15,108 13,690
---------------- ----------------
The adjustment for the amortisation of intangible assets in
respect of EID and Chess for the year ended 30 April 2020 and 2019
reflects the interests of the equity holders of the parent only and
exclude the proportion allocated to the non-controlling interest in
each year.
Year ended Year ended
30 April 2020 30 April 2019
Number Number
Weighted average number of
shares
For the purposes of basic
earnings per share 40,728,149 40,749,551
Share options 409,484 224,086
For the purposes of diluted
earnings per share 41,137,633 40,973,637
--------------- ---------------
Year ended Year ended
30 April 2020 30 April 2019
Pence Penc e
Earnings per share
Basic 23.47 13.37
Diluted 23.24 13.29
Adjusted earnings per share
Basic 37.10 33.60
Diluted 36.73 33.42
5. DIVIDS
The proposed final dividend for the year ended 30 April 2020 is
6.90 pence (2019: 6.25 pence) per ordinary share. This dividend
will be payable on 18 September 2020 to shareholders on the
register at 14 August 2020 subject to approval by shareholders at
the AGM on 15 September 2020.
The total paid and proposed dividend for the year ended 30 April
2020 is 10.10 pence per ordinary share; a cost of GBP4,149,000
(2019: 9.10 pence per ordinary share; cost of GBP3,718,000).
The charge for the year ended 30 April 2020 of GBP3,853,000 is
the final dividend for the year ended 30 April 2019 paid
(GBP2,544,000) and the interim dividend for the year ended 30 April
2020 paid (GBP1,309,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 2020 30 April 2019
GBP000 GBP000
Profit for the year 9,684 5,091
Adjustments for:
Tax charge 295 584
Depreciation of property, plant and
equipment 1,472 1,147
Depreciation of right of use assets 1,168 -
Amortisation of goodwill and other intangible
assets 7,354 9,514
Net finance expense 752 269
Share-based payment 318 291
Derivative financial instruments and
other non-trading exchange movements 132 (33)
Decrease in provisions (511) (1,186)
Operating cash inflows before movements
in working capital 20,664 15,677
---------------- ----------------
Decrease/(increase) in inventories 1,974 (2,812)
Increase in receivables (4,597) (794)
Decrease in payables (5,059) (451)
---------------- ----------------
(7,682) (4,057)
---------------- ----------------
Cash generated by operations 12,982 11,620
---------------- ----------------
Tax paid (606) (2,689)
Interest paid (779) (296)
---------------- ----------------
Net cash generated from operating activities 11,597 8,635
---------------- ----------------
Interest paid includes the interest element of lease liabilities
under IFRS 16 of GBP246,000 (2019: nil).
7. ACQUISITION OF CHESS TECHNOLOGIES LIMITED (CHESS)
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' results and net assets from
that date as it has effective control.
The acquisition accounting for Chess was reviewed prior to the
first anniversary of its acquisition (12 December 2019) and further
provisions were recognised of GBP900,000 in respect of contract
liabilities.
The change to the provisional fair values of net assets acquired
at 81.84% was GBP737,000 and this amount has been added to the
goodwill arising from the acquisition. The balance of GBP163,000
was added to the non-controlling interest.
The goodwill of GBP2.9m (2019: GBP2.2m) arising from the
acquisition represents customer contacts, 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.
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 trading performance over the three years ended 30 April 2021.
Based upon the actual performance to 30 April 2020 and latest
forecasts to 30 April 2021, this earn out is estimated at GBP0.4m
as at 30 April 2020 (2019: GBP1.15m).
The sale and purchase agreement for the acquisition of Chess
includes a put and call 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 GBP3.60m (2019: 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".
8. COSTS IN RESPECT OF THE ACQUISTION OF WÄRTSILÄ ELAC NAUTIK GmbH (ELAC)
The Group has incurred, including estimated costs, GBP950,000 in
respect of acquiring ELAC. These costs have been reported as
exceptional costs.
The acquisition of ELAC has not yet completed and is subject to
German Federal Government approval. The acquisition is currently
expected to complete on or before 30 September 2020.
The acquisition costs include GBP0.3m in respect of extending
the Group's banking facility from GBP30m to GBP40m by activating an
Accordion, the additional GBP10m to be used to acquire ELAC.
9. CHANGES IN ACCOUNTING POLICIES
The Group has adopted IFRS 16 'Leases' from 1 May 2020 and
applied the modified retrospective approach. The 2019 comparative
figures have not been adjusted.
The impact of IFRS 16 on the reported results of the Group for
the year ended 30 April 2020 are an increase in operating profit of
GBP192,000 (2019: nil) and an increase in interest charge of
GBP246,000 (2019: nil). A net decrease in profit before tax of
GBP54,000 (2019: nil).
The Group's assets and liabilities have also been grossed up on
the application of this standard. At 30 April 2020, GBP6.9m (2019:
nil) has been added to the Group's non-current assets, reported as
right of use assets. At the same time, the Group's liabilities have
also been increased by GBP7.5m (2019: nil), split GBP1.3m due less
than one year and GBP6.2m due greater than one year.
These lease liabilities are not included in the Group's net debt
as shown in the Consolidated statement of cash flows (page 25) or
the debt for banking covenant purposes.
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 EADXAAEXEEAA
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