TIDMCHRT
RNS Number : 5281G
Cohort PLC
27 July 2021
One Waterside Drive
Arlington Business Park
Reading
Berks
RG7 4SW
27 July 2021
COHORT PLC
PRELIMINARY RESULTS
FOR THE YEARED 30 APRIL 2021
Cohort plc today announces its audited results for the year
ended 30 April 2021.
Highlights include: 2021 2020 %
* Revenue GBP143.3m GBP131.1m 9
* Adjusted operating profit(1) GBP18.6m GBP18.2m 2
* Adjusted earnings per share(1) 33.63p 37.10p (9)
GBP2.5m (GBP4.7m)
* Net funds/(debt)
* Order intake(2) GBP180.3m GBP124.4m 45
* Order book (closing) GBP242.4m GBP183.3m 32
* Proposed final dividend per share 7.60p 6.90p 10
* Total dividend per share 11.10p 10.10p 10
Statutory 2021 2020 %
* Statutory profit before tax GBP7.1m GBP10.0m (29)
* Basic earnings per share 13.38p 23.47p (43)
-- Results in line with 26 May 2021 trading statement
-- Record revenue and adjusted operating profit despite COVID
impact estimated as GBP6m on Group revenue and GBP0.2m on adjusted
operating profit
-- Better than expected cash performance
-- Lower adjusted EPS due to an expected higher tax charge
-- Order intake increased to GBP180.3m (2020: GBP124.2m) with an
additional GBP50m of orders won since the year end
-- Dividend increased by 10%
-- Divisional overview:
o MASS was main profit contributor, although slightly down from
record high last year
o Strong performance improvement at EID
o MCL returned to growth
o Initial five-month contribution from ELAC ahead of
expectations
o Weaker results at Chess and SEA.
-- Defence revenue from non-UK MOD exceeded UK MOD for the first
time, reflecting both the higher sales at EID and Chess, where a
much greater proportion of sales are to export markets, and the
initial contribution of ELAC.
-- Acquisition of ELAC completed in December 2020. Adds a
profitable and growing sixth stand-alone business to the Cohort
Group.
(1) Excludes exceptional items, amortisation of other intangible
assets, research and development expenditure credits and
non-trading exchange differences, including marking forward
exchange contracts to market.
(2) Excludes acquired order book of GBP23.2m (2020: nil).
Looking forward:
-- Strong order book and pipeline of prospects for the coming year
-- GBP242.4m year end order book underpins nearly GBP100m of
current year revenue, representing 64% (2020: 62%) of current
consensus forecast for the year
-- Coverage has risen to 70% in mid-July 2021 following recently announced contract wins
-- Performance for 2021/22 expected to show good revenue growth
but a lower rate of profit growth, with weaker trading at EID
offset by stronger results elsewhere
-- Expect zero net debt on 30 April 2022
Commenting on the results, Nick Prest CBE, Chairman of Cohort
plc said:
Cohort continued to make progress in 2021, achieving a record
adjusted operating profit and revenue. MCL and EID both posted an
increase in profit and we benefited from an initial five-month
contribution from ELAC. These positive movements were partly offset
by weaker performances at SEA, Chess and, to a small extent,
MASS.
As always, my thanks go to all employees within the Cohort
businesses. Our employees have shown remarkable agility and
resilience and have remained focused on the needs of our customers
as well as the welfare of all our colleagues.
The Group has entered the new financial year with a substantial
long-term order book. The 30 April 2021 order book of GBP242.4m
underpins nearly GBP100m of in-year revenue, representing 64% of
the consensus forecast. Following further contract awards of over
GBP50m since the start of the financial year, that cover now stands
at 70%.
Looking forward we expect that strong performance across most of
the Group in 2021/22 will be partly offset by a weaker year at EID.
Overall, we expect to achieve continued growth in 2021/22, albeit
at a modest level, and to have zero net debt at the year end.
Prospects for 2022/23 depend on order progress in the current
year. We are optimistic that the Group will return to a higher rate
of growth in 2023/24, based on current orders for long term
delivery and our strong pipeline of opportunities.
A presentation for analysts is being hosted today 27 July 2021
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/60f80d0505da7a5c2646fc86
TELECONFERENCE CALL LINE: +44 (0)330 336 9434
Confirmation Code: 6712075
Event Conference Title: Cohort plc - Preliminary results for
the year ended 30 April 2021
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Tuesday 27 July 2021
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 six
innovative, agile and responsive businesses based in the UK,
Germany 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 surveillance, tracking and
fire-control systems to the defence and security markets. A
majority stake was acquired by Cohort plc in December 2018.
www.chess-dynamics.com & www.vision4ce.com
EID designs and manufactures advanced communications systems for
naval and military customers. Cohort acquired a
majority stake in June 2016. www.eid.pt
ELAC SONAR supplies advanced sonar systems and underwater
communications to global customers in the naval
marketplace. Acquired by Cohort in December 2020. www.elac-sonar.de
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 and supports technology-based products for the
defence and transport markets alongside specialist research and
training services. 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 1,000 core staff there and at
its other operating company sites across the UK, Germany and
Portugal.
Chairman's statement
Performance
Cohort continued to make progress in 2021, achieving a record
adjusted operating profit of GBP18.6m (2020: GBP18.2m) on revenue
of GBP143.3m (2020: GBP131.1m). MCL and EID both posted an increase
in profit and we benefited from an initial five-month contribution
from ELAC.
These positive movements were partially offset by weaker
performances at Chess, SEA and, to a small extent, MASS. Despite
increased revenue, Chess's profit performance was down, in part due
to an operationally challenging project in support of a
multinational military deployment. SEA, despite a restructuring
exercise that completed in quarter two, had another disappointing
year. Its revenue was down 13% and its trading profit down just
over 30%. The fall in revenue was mainly in research and technical
support areas for the UK MOD but there was also a drop in transport
activity, due to the impact of COVID on local authorities' focus
and spend, with lower levels of vehicle traffic in the UK
throughout much of last year. SEA however completed the sale of its
non-core subsea business to management in August 2020. MASS was
slightly weaker after a record 2020 with a lull in activity on a
long-term support project.
The need for the Group to manage the issues around COVID and the
various restrictions on travel, work and social interaction
continued throughout the financial year. At the start, we were
still in the first wave of COVID, with restrictions in place and
uncertainty about the duration and impact of the pandemic.
Subsequently, we saw an easing of restrictions and some resumption
of travel, but this was significantly curtailed again late in 2020.
Lockdowns, in various guises, in the UK, Portugal and Germany, and
our wider markets, extended into 2021 and past this financial year
end. Despite this, the Group has continued to deliver to its
customers and to grow its revenue. We also secured a good level of
orders, the second highest annual total in our history, and
improved our funding position from opening net debt of GBP4.7m to
closing net funds of GBP2.5m.
As a result of COVID-19 we have experienced delay to certain
aspects of our work. Some tasks requiring access to customer sites,
such as the completion of integration and test activities, have
been delayed. We have been unable to perform some training, service
and support activities due to travel restrictions affecting either
us or our customers. Offsetting this, we have made a significant
saving in travel and marketing spend, the latter due to
cancellation or postponement of many exhibitions.
We estimate the direct impact on the year ended 30 April 2021 as
GBP6m lower revenue (2020: GBP3m lower) and GBP0.2m lower trading
profit (2020: GBP1m lower), with reduced margin partly offset by
overhead savings.
We do not yet know the impact of the travel and marketing
restrictions on future order flow. Although 2020/21 was strong for
order intake, much of that was from opportunities that were already
in the pipeline. We have certainly seen some delays, including to
expected orders from the Portuguese Government, due to COVID.
Looking forward, we hope to see a return to some pre-COVID
normality in the second half of this financial year.
The Group's operating profit of GBP7.8m (2020: GBP10.7m) is
stated after recognising amortisation of intangible assets of
GBP10.1m (2020: GBP7.3m), exceptional items of GBP1.3m (2020:
GBP0.8m) and research and development expenditure credits of
GBP1.0m (2020: GBP0.8m). Profit before tax was GBP7.1m (2020:
GBP10.0m) and profit after tax was GBP5.5m (2020: GBP9.7m).
The closing net funds of GBP2.5m (2020: net debt of GBP4.7m) was
better than our expectation, due to an improved operating cash
flow, particularly at EID, MCL and SEA.
Strategic initiatives
Cohort acquired Wärtsilä ELAC Nautik GmbH in early December
2020, following approval by the German Federal Government, a
process that took longer than we had expected, in part due to
COVID-19. This approval required certain undertakings from Cohort
to safeguard German technical capability and military information.
We completed the acquisition of the business, now renamed ELAC
Sonar (ELAC), on 2 December 2020. The final price paid was EUR16.2m
and the business included EUR14.4m of cash on completion. The net
cash outflow was EUR1.8m (GBP1.3m). There are no further payments
to be made.
ELAC joined the Group as Cohort's sixth standalone business and
the transaction accorded with our strategy of acquiring businesses,
primarily in the defence and security sector, with a strong niche
capability and market position. ELAC, which is a market leader in
sonar systems technology for naval surface ships and submarines,
increases the Group's reach and potential internationally and adds
Germany as a new home market. ELAC's potential was demonstrated by
its win of an order for EUR49m from the Italian Navy in early July
2021.
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 best
estimate is that the additional consideration payable, including
earn-out, to take control of the whole of Chess in 2021 will now be
GBP2.8m (2020: GBP4.0m), and will be due on or before 31 October
2021.
Shareholder returns
Adjusted earnings per share (EPS) were 33.63 pence (2020: 37.10
pence). The adjusted EPS figure was based upon profit after tax,
excluding amortisation of other intangible assets, net foreign
exchange movements and exceptional items. Basic EPS were 13.38
pence (2020: 23.47 pence). The adjusted EPS were lower primarily
due to the higher tax charge of 17.4% (2020: 6.6%), in part
reflecting the change in mix of tax jurisdictions from which the
Group's profits were derived.
The Board is recommending a final dividend of 7.60 pence per
ordinary share (2020: 6.90 pence), making a total dividend of 11.10
pence per ordinary share (2020: 10.10 pence) for the year, a 10%
increase. The dividend has been increased every year since the
Group's IPO in 2006. It will be payable on 27 September 2021 to
shareholders on the register at 20 August 2021, subject to approval
at the Annual General Meeting on 20 September 2021.
Our people
As always, my thanks go to all employees within the Cohort
businesses. Their hard work, skill and ability to satisfy our
customers' needs are what continue to drive the performance of our
Group. It is a pleasure to welcome our new employees in Kiel,
Germany to the Group.
As already highlighted, COVID has continued to be a challenge
throughout the year. Our employees have shown remarkable agility
and resilience and have remained focused on the needs of our
customers as well as the welfare of all our colleagues. Where
possible, customer visits have taken place and, in some cases
employees have undertaken essential travel to support overseas
customers, enduring arduous testing and quarantine regimes in both
directions. We have continued to enforce COVID safe practices at
our places of work and operate shift patterns to ensure safety and
delivery to key customers, including the British, Portuguese, and
German armed forces as well as export customers and partners.
We continue to see a return of colleagues to work on site and
now have around 50% of our employees back on site on a part-time or
regular basis. We currently expect 75% of our workforce to be
primarily site-based by October 2021and thereafter to see a mix of
home and office-based working continue for at least some time.
Andy Thomis, Simon Walther and their senior executive colleagues
have continued their dedicated and skilful work which has helped
the Group to progress in the face of challenging conditions.
Governance and Board
As previously announced, Sir Robert Walmsley retired from our
Board on 31 December 2020. Sir Robert has continued to provide
consultancy services to the Group, deploying his skills and
experience in project management and knowledge of the naval
market.
As separately announced today, Beatrice Nicholas will join the
Board as a non-executive director on 1 September 2021. Beatrice had
a long and successful career in the defence industry with GEC, BAE
Systems and Leonardo and brings a wealth of experience in
engineering, project management and general management, much of it
in products and technologies closely aligned to Cohort. We look
forward to welcoming her to the Board and to her contribution.
I also take this opportunity to welcome new Managing Directors
to the Group. Frederico Lemos joined EID in late November 2020,
succeeding António Marcos Lopes who retired after 37 years of
service. At SEA, Richard Flitton joined us in January 2021
replacing Steve Hill. I also welcome the joint Managing Directors
of ELAC, Bernd Szukay and Ole Schneider, who joined the Group in
December having both been with ELAC for over ten years.
Outlook
Prior to the COVID-19 pandemic governmental expenditure on
defence and security was growing in many parts of the world, as a
response to perceived increases in threats of various kinds. So
far, we have not seen any notable examples of decreases as a result
of public expenditure pressures following fiscal expansions in
response to COVID-19, but we are conscious this is a risk.
Our business from the UK into EU countries and vice versa
remains small (GBP4.7m in 2021; GBP3.0m in 2020), and consequently
we do not expect any direct effects upon Cohort from Brexit. In the
longer term there could be indirect effects, resulting from the
broad economic and political consequences, and the future defence
and security relationship that develops between the UK and the
EU.
In the UK, we welcomed the recent strategic review and the
four-year spending plan for the UK MOD. Both of these improve
visibility and provide momentum, some of which we have already seen
at MCL. 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 SEA's
recent contract win to support the UK's in-service sonar equipment.
Export prospects for the Group continue to develop, as exemplified
by Chess's successes in the year and the recent large win at ELAC.
For the first time in Cohort's history, revenue derived from the UK
MOD is in a minority.
Our order intake for the year was GBP180.3m (2020: GBP124.4m).
As we indicated last year, a number of key export orders were
secured in the year, on most of which work has started. Renewals of
important orders from the UK MOD were secured by SEA and MASS.
These are for services and support we have successfully delivered
for many years and winning these is an endorsement of our service
focus to our major customers. One of these orders provides
visibility of revenue out to 2031.
The Group has entered the new financial year with a substantial
long-term order book. The 30 April 2021 order book of GBP242.4m
underpins nearly GBP100m (2020: GBP84m) of current financial year
revenue, representing 64% 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 70%.
As we indicated in our trading statement of 26 May 2021, EID's
order intake in the year just finished was poor and as a result its
expected performance for 2021/22 will be much weaker than its
strong 2020/21 performance, revenue being down by around a third.
The remainder of the Group continues to make progress and we expect
revenue to grow in 2021/22 but the change in revenue and margin
mix, especially the decline at EID, will see the Group's trading
performance grow more slowly in 2021/22.
Overall, we continue to expect that our trading performance for
2021/22 will be slightly ahead of that achieved for the year ended
30 April 2021 and to have zero net debt at the year end.
Prospects for 2022/23 depend on order progress in the current
year. We are optimistic that the Group will return to a higher rate
of growth in 2023/24, based on current orders for long term
delivery and on our pipeline of opportunities.
Nick Prest CBE
Chairman
Operations Review
Operating review
"2021 has been a year of modest but positive progress for
Cohort, with the impact of COVID added into the usual mix of
factors affecting business. It has been a pleasing year for order
intake, and cash performance was also good. In terms of revenue and
profit, strong performance at EID and Marlborough Communications
(MCL), together with a maiden contribution from ELAC Sonar (ELAC),
have been partly offset by reduced profits at Chess and SEA.
Overall, performance has been in line with our expectations for the
year".
2021 highlights
The Group's adjusted operating profit of GBP18.6m (2020:
GBP18.2m) on revenue of GBP143.3m (2020: GBP131.1m) represented a
net return of 13.0% (2020: 13.9%).
MASS remained the strongest contributor to the Group's adjusted
operating profit, despite a slightly reduced level of revenue and
profit.
ELAC made an initial contribution to revenue and profit
following completion of the acquisition in December 2020.
EID had a much stronger year, as did MCL.
Chess saw a reduction on profit despite strong revenue
growth.
SEA's performance was lower than in 2020 in terms of revenue and
profit.
Operating review
2021 has been, overall, another year of progress for Cohort,
with the Group reaching a record level of revenue and adjusted
operating profit but with mixed results from the underlying
businesses. Revenue grew by 9.3% and adjusted operating profit by
2.2%. Both revenue and adjusted operating profit benefited from a
maiden contribution from ELAC, which joined the Group in December
2020.
EID improved its performance again as a result of increased
export sales, including some deliveries that had been delayed from
the previous year. MCL returned strongly after a disappointing year
in 2020 with some good wins and successful deliveries. These
improvements were offset by weaker performances at Chess and SEA.
Chess achieved good revenue growth, but margins were affected by
the need for competitive pricing and a small number of problem
projects. SEA was hit by delays to expected order intake, resulting
in lower revenue and profit despite the cost base reduction
implemented during the year.
The COVID pandemic and resultant lockdowns continued to have an
impact on many of our markets, with international travel
restrictions still in place in many regions. The resulting barriers
to interaction with customers have not had a short-term impact on
our ability to win new business. The Group achieved an order intake
of over GBP180m, resulting in a closing order book of GBP242m and
order cover of just under GBP100m for 2022. Nevertheless, we have
continued to see deliveries of products and services impacted by
customer site closures and restrictions. With vehicle traffic
volumes falling drastically over the pandemic period and plenty of
competing priorities, local authority spending on SEA's traffic
enforcement systems has reduced and is only just now showing signs
of recovery. Overall, for 2021 we estimate that the impact of COVID
has been a reduction in revenue of around GBP6m across the Group
but that savings in overhead, especially on travel and business
development, including exhibitions, has offset most of the margin
slippage with a net impact on adjusted operating profit of
GBP0.2m.
The Group's adjusted operating profit grew by 2.2% to GBP18.6m
(2020: GBP18.2m) on revenue of GBP143.3m (2020: GBP131.1m), a net
operating return of 13.0% (2020: 13.9%). The Group's statutory
operating profit of GBP7.8m (2020: GBP10.7m) reflects the
significant effect of the amortisation of other intangible assets,
a GBP10.1m non-cash charge in 2021 (2020: GBP7.4m 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 1.
Adjusted operating profit by subsidiary
Adjusted operating Adjusted operating
profit margin
---------------------- --------------------
2021 2020 Change 2021 2020
GBPm GBPm GBPm % %
-------------- ------ ------ ------ --------- ---------
Chess 3.0 3.9 (0.9) 10.5 15.6
EID 4.8 3.1 1.7 23.1 17.2
ELAC 1.2 - 1.2 14.1 -
MASS 8.7 8.9 (0.2) 22.1 21.7
MCL 2.1 1.7 0.4 11.5 11.0
SEA 2.4 3.5 (1.1) 8.4 11.1
Central costs (3.6) (2.9) (0.7) - -
-------------- ------ ------ ------ --------- ---------
18.6 18.2 0.4 13.0 13.9
-------------- ------ ------ ------ --------- ---------
EID's performance improved markedly compared to 2019/20 with a
significant increase in export revenue, partly the result of a
substantial delivery being delayed from the end of the previous
year. Its operating margin was enhanced by improved production
efficiency.
ELAC made a welcome initial contribution to revenue and profit
from its five months in the Group in 2020/21. Its revenue was
derived from a combination of specialist sonar products and a
surface ship sonar suite.
MCL delivered increased revenue and profit after a disappointing
2020. Strong demand for hearing protection systems from the British
Army made a major contribution to performance.
Following a record year in 2020, as expected MASS delivered a
slightly weaker trading performance in 2021 with a reduction in
revenue (mostly in its Digital Services and Electronic Warfare
Operational Support divisions) and the corresponding gross margin.
MASS's service deliveries faced a considerable headwind from
COVID-19, and we were pleased that it nevertheless managed to
deliver a satisfactory result.
After a good result in 2020 Chess delivered increased revenue,
following strong order intake. Disappointingly, profit and
consequently operating margin were significantly reduced, a result
of tighter margins on some larger contracts and cost overruns on a
small number of problem projects.
SEA's result was disappointingly behind our expectations and
last year's performance. Order intake during the year was very
strong, but contract awards were in many cases later than expected
and it was not possible to realise the planned revenue from them.
The Transport business also suffered as COVID-19 diverted local
authority expenditure and priorities elsewhere.
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. Their adaptability and perseverance
in the face of the challenges of the pandemic have been exemplary.
I would like to take this opportunity to express my sincere thanks
to all employees of Cohort and its businesses.
Over the year we have made several changes to our subsidiary
senior management. Steve Hill stepped down as Managing Director of
SEA in July 2020. Martin Kelly, SEA's Head of Complex Systems took
over on a temporary basis, with Richard Flitton appointed as
permanent Managing Director in January 2021. My thanks go to Steve
for his contribution to SEA and to Martin for his willingness to
step up at short notice. At EID, António Marcos Lopes retired after
over 37 years of service and was replaced as Managing Director by
Frederico Lemos. I thank António for his contribution to EID's
development, and I am delighted to welcome both Richard and
Frederico to the Cohort Group. Just after the financial year end,
Graham Beall who founded Chess and has led the business since 1993
stepped back from the role of Managing Director to lead the
business's US market development. His deputy, David Tuddenham has
taken over as Managing Director from 1 June 2021 following a
competitive selection process.
As the COVID pandemic has waxed and waned across Europe, our
infection control measures have remained effective and we have not
witnessed any confirmed transmission of COVID-19 in the workplace.
That has not prevented the disease affecting many of our
colleagues, either directly or through family connections. We
experienced one tragic loss of life of an employee at EID, and many
more have lost close family members to the disease. It has been a
sad time for many of our workforce, but their resilience and
commitment has been remarkable.
Our policy towards the UK's furlough scheme has developed as the
pandemic and the Government response has evolved. We made some use
of the scheme initially where lockdown restrictions had a direct
impact on employees' ability to carry out their roles, as the
alternative would have been to make the individuals concerned
redundant. Avoiding redundancy and unemployment in these
circumstances was exactly what the scheme was intended to do, and
the net saving to Cohort compared to the redundancy option was
small or even negative. However, we elected not to make use of the
furlough scheme simply to match resources to demand, even when
demand has been affected by COVID, an option we could have taken
advantage of. We took the view that such resource management, and
the associated costs, are for us and not the UK Government. We
subsequently ceased use of the scheme completely in October 2020.
Receipts from the scheme for the Group over 2019/20 and 2020/21
were GBP0.3m in total.
As governments and health services begin to bring the pandemic
under control, we expect gradually to increase the numbers of
people working regularly on-site at our facilities in the UK,
Portugal and Germany. The experience of remote working has had some
very positive aspects, and our businesses all intend to make use of
the flexibility and efficiency it can offer in future.
Nevertheless, as we have begun to resume face-to-face meetings with
colleagues, suppliers, partners and customers, the importance and
value of these interactions has become clearer than ever. Currently
our workforce is split roughly 50:50 between those who are
primarily home-based and those who are site-based. If the current
lockdown measures continue to be eased, we expect that balance to
be around 25:75 between home and site-based by October of this
year.
Operating strategy
Organic growth
Despite the difficulties in customer communications thrown up by
the COVID pandemic, we have had a good year for new orders, and we
end it with a significantly increased order book. That is a
positive indicator for future organic growth. However, although we
did see some organic revenue growth in 2021, the modest level of
net profit growth was driven by the acquisition of ELAC.
Cohort currently operates as a group of six small and
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 identify niches where prospects are attractive and where
we have some sustainable competitive advantage. Growth strategies
and opportunities vary around the Group:
-- MASS uses its extremely high reputation, its rare or unique
technical capabilities and its experience at building long-lasting
customer relationships to win long-term service contracts,
gradually adding new building-blocks to its long-term revenue
stream.
-- EID combines a low cost-base by international standards with
access to Portugal's extremely strong technical education system to
create high-performance low-cost communications products that can
win in a highly competitive marketplace.
-- Chess makes use of its innovative engineers, customer-focused
culture and ability to source sensors from the best international
providers to win against more vertically integrated larger
competitors.
-- SEA has used its close long-term relationship with the Royal
Navy to build confidence with that important customer, which in
turn creates a strong platform for export orders. It is also
investing in new technologies where there is an opportunity to
build a strong competitive position, for instance in lightweight
towed-array sonars.
-- MCL has a unique business model, combining a small but
innovative engineering team with a wide range of international
partnerships to provide highly specialised equipment and services
to the UK armed forces and security services.
-- ELAC, the newest member of the Group, has built on almost a
century of hydro-acoustic knowledge to create a new architecture
for sonar systems on a scale that only a few international
providers can match. Their systems combine world-class performance
with an ability for customers to tailor analysis techniques and
data libraries to their own specific needs.
Our businesses have continued to be active in finding new
customers, and 2021 has seen some notable successes for Chess, MCL
and SEA in particular. Discussions with potential customers have
opened up some major longer-term opportunities for all of our
businesses.
Being part of the Cohort Group brings some material advantages
to small and medium sized defence technology businesses. 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. Recent
examples include the award of the EUR49m order to ELAC for sonar
systems for the Italian Navy's new class of submarine, the GBP25m
support contract recently awarded to SEA for the Royal Navy and the
GBP16m of orders awarded to Chess, announced in October 2020.
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 that would be hard
for independent smaller businesses to establish. Our six operating
businesses, while remaining operationally independent, have formed
close working relationships and benefit from sharing technical
capabilities, customer relationships and market knowledge within
the bounds imposed by our various confidentiality obligations. We
will continue to work to promote the Group's services and products
in wider markets, including through business development visits as
and when government restrictions allow.
These strategies have generated long-term customer relationships
and good opportunities that give us confidence that we can continue
to win substantial new business in the year ahead. Overall, the
organic profit performance of the business in the year (i.e.
excluding the effect of ELAC's initial contribution) was slightly
behind that achieved in 2020 with improved results at MCL and EID
being offset by weaker performance at Chess 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 stand-alone 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 stand-alone 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 3 December 2020, we announced the completion of our agreement
to acquire 100% of Wärtsilä ELAC Nautik GmbH (now renamed ELAC
Sonar GmbH) for a consideration of EUR16.2m on a debt free, cash
free basis. ELAC, a leader in sonar systems technology for naval
surface ships and submarines, has joined the Group as Cohort's
sixth standalone business. The agreement was first announced in
December 2019, completion taking longer than expected as a result
of COVID restrictions and the need for German Federal Government
approval.
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. This has already begun, with SEA offering its
towed-array sonar into customers being supplied with ELAC's
complementary sonar products. The acquisition will increase the
Group's reach and potential in new international markets and adds
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. The performance period for determining the
value of the earn-out and option ended on 30 April 2021, and we now
expect to pay GBP2.8m (2020: GBP4.0m) in total on or before 31
October 2021.
Maintain confidence
Cohort's management approach is to allow its subsidiary
businesses a significant degree of operational autonomy to develop
their potential fully. At the same time, we provide light-touch but
rigorous financial and strategic controls at Group level to manage
and control risks and ensure legislative and regulatory compliance.
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.
Andrew Thomis
Chief Executive
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 worldwide supplier of counter-UAV
(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, a wholly-owned subsidiary of Chess is a leading electronics
and real-time software house based in Wokingham. It designs, develops
and supplies high-performance digital video trackers and the associated
software for Chess Dynamics and other customers.
Founded in 1993, Chess is led by its Managing Director David Tuddenham.
Chess is 82% owned by Cohort and joined the Cohort group in 2018.
2021 2020
GBPm GBPm
--------------------- ------ ------
Revenue 28.6 25.2
Adjusted operating
profit 3.0 3.9
Operating cash flow (1.0) (2.8)
--------------------- ------ ------
Chess grew its revenue again in 2021, up by 13%. However, a
combination of the need for competitive pricing and some poorly
performing projects reduced its margin and the result was a fall in
adjusted operating profit by 23%.
Chess's revenue is dominated by export customers. This year they
have included an important European Army for target identification
and the Belgian and Dutch navies for an optical fire control system
for their new class of Mine Countermeasures Vessels.
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 and its naval centre in Plymouth with little disruption,
whilst observing all the necessary safety requirements for its
employees, customers and suppliers. It currently has 70% of its
people working mostly on site and expects this number to be at 95%
by October this year.
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 again in its weak
cash performance this year. Cohort began work with Chess's
management last year to strengthen its processes to ensure it can
successfully grow whilst still maintaining its agility and
innovative approach. This work continues to focus on improving its
project delivery, commercial approach and ultimately its cash
performance, with the aim of ensuring it will be fully able to
deliver on its order success from last year.
Some of these growing pains have resulted in the weaker than
expected performance in 2021. It has seen some project margin
deterioration where technical specification has proved a challenge
for Chess resulting in cost increases. We believe that these issues
have now been bottomed out.
Chess's order book at April 2021 of just over GBP42m provides
cover for nearly GBP20m of 2021/22 revenue and our expectation is
that Chess should return to growth in the coming year.
SUBSIDIARY REVIEW
EID
EID is a Portuguese high-tech company with over 35 years' experience
and deep know-how in the increasingly critical fields of tactical
and naval C3 (command, control and communications). The company's
focus is the design, manufacture, delivery and support of advanced
high-performance command C3 equipment for the global defence and security
markets.
EID changed its operational structure in May 2021, creating single
engineering and business development teams to enable a more co-ordinated
focus on product development and to addressing its markets. Its other
key units are the internal production and logistics units. Its markets
remain primarily navy and army customers, both in Portugal and overseas.
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, Frederico Lemos. EID is 80% owned
by Cohort, with the remaining 20% of its shares held by the Portuguese
Government though its defence investment arm, idD. It joined the Group
in 2016.
2021 2020
GBPm GBPm
--------------------- ------ ------
Revenue 20.9 18.0
Adjusted operating
profit 4.8 3.1
Operating cash flow 5.4 3.6
--------------------- ------ ------
EID grew on a good performance last year, with a very strong net
return.
The increase in revenue of over 16% improved the gross margin,
which also benefitted from some operational efficiencies, while the
overhead for the business remained flat. As a result, the net
margin of EID rose from 17.2% to 23.1%. This is a very strong
return and above historical levels for the business.
This improvement derived from a near doubling of intercom system
deliveries to an overseas customer, the production of which was
more efficient than EID had achieved previously. This customer
alone was nearly 50% of EID's revenue for the year. EID's revenue
from its domestic customer, the Portuguese Armed forces declined
after a strong year last year. This was partly expected but was
also down due to a delayed order from the Portuguese Army. Sales to
naval customers were virtually flat and remained relatively low
(16% of total revenue) for the business. This was in part due to a
delayed naval upgrade programme from the Portuguese Navy which is
now not expected until 2022.
EID managed the COVID impact well during the year, delivering
most of what was scheduled to be delivered. Minor margin loss was
offset by reduced travel.
EID had another strong cash performance for the year, collecting
receipts on deliveries at the end of the year which was better than
our expectations.
As we stated in May, the delay to some key orders at EID,
especially from naval customers has resulted in the coming year
having a lower level of revenue on order (44%; 2020/21: 90%) and
our expectations for 2021/22 being scaled back from where we saw
things this time last year. EID's revenue for the coming year is
expected to be around two thirds of this year and the resultant
operational gearing means the adjusted operating profit is likely
to be much lower. The mix of work at EID is expected to remain
dominated by deliveries of intercom and radio products, especially
to overseas customers over the next few years and this brings a
level of unpredictability with it. We are expecting longer-term
naval orders to progress this year, although the timing of the
contract awards is also unpredictable.
SUBSIDIARY REVIEW
ELAC
ELAC serves global customers in the naval marketplace. Working with
navies, system integrators and shipyards, ELAC supplies mission critical
hydro-acoustic naval sensors. These range from complete submarine
and surface ship sonar suites to submarine rescue sonars to digital
underwater communications and measurement systems. The company specialises
in developing innovative hydro-acoustics, working together with customers
to meet their specific needs, offering flexibility through open architecture.
The market-leading digital underwater communication system UT3000
and the open-architecture based KaleidoScope system, developed over
the past 20 years, have laid the foundations for the current second-generation
open sonar processing platform and fully digitised hydrophones.
The company was founded in 1926 and is located in Kiel, Germany, where
it benefits from being close to the German Navy and NATO Centre of
Excellence for Confined and Shallow Waters. With several global players
in naval shipbuilding and the naval systems industry nearby, ELAC
has access to excellent resources and networks. ELAC is led by Bernd
Szukay and Ole Schneider and joined the Cohort Group in December 2020.
2021 (five 2020
months) GBPm
GBPm
-------------------- ----------- ------
Revenue 8.3 -
Adjusted operating 1.2 -
profit
Operating cash flow 0.4 -
-------------------- ----------- ------
ELAC's initial contribution, over five months of Cohort
ownership, was GBP1.2m of adjusted operating profit on GBP8.3m of
revenue.
ELAC joined the Group in early December 2020 after approval by
the German Federal Government, a process that took longer than
expected in part due to COVID. ELAC's initial contribution was in
line with our expectations and the business saw only minor COVID
impacts.
In early July, ELAC secured a contract for over GBP42m to
provide sonar systems for two new U212 Near Future Submarines being
supplied by Fincantieri for the Italian Navy. The contract also
includes delivery of a special test and crew training system and
associated technical services. This is expected to create a
capability for the Italian Navy that is unmatched on a submarine of
this class.
Work has begun already, and the contract stretches out to 2030
with the customer having the option for a further two submarines to
be supplied with the same system. This is great endorsement of
ELAC's capabilities and provides ELAC with 90% coverage of its
2021/22 revenue expectations. This project, which is the largest
technical delivery contract the Group has ever won will be overseen
by a Programme Advisory Committee set up by Cohort and chaired by
Sir Robert Walmsley, whose members have extensive knowledge and
experience of operating, developing, and delivering submarine
systems.
At the time of acquiring ELAC, the business had an opportunity
to supply another customer with submarine sonar systems. This
opportunity remains but has not been secured. An agreed mechanism
was put in place with the seller to alleviate some of the
operational costs the business would have to bear if this
opportunity was delayed or not secured. The cost recovery is
payable over two years, with a maximum value of GBP2.1m if the
opportunity is not secured by 1 December 2022. The current year
trading performance of ELAC includes GBP0.5m in respect of
this.
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. It
provides electronic warfare operational support, digital services
and other 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 raw
data into actionable 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 wider
government, including security customers. 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
is based in Cambridgeshire, and it also operates an Electronic Warfare
Training Academy in Lincolnshire. MASS is led by Managing Director
Chris Stanley.
2021 2020
GBPm GBPm
--------------------- ------ ------
Revenue 39.5 41.1
Adjusted operating
profit 8.7 8.9
Operating cash flow 4.6 11.6
--------------------- ------ ------
MASS as expected, after a record 2019/20, had a slightly weaker
year but remains the group's strongest profit contributor. Sales
and adjusted operating profit were down 4% and 2% respectively.
Despite some impact from COVID, MASS had a good year and its
final result was ahead of our expectations. COVID impacted its
ability to deliver EW training, especially to overseas customers,
and also limited the level of exercise work carried out by the
Joint Forces Command (JFC). MASS assisted the JFC in its support to
the Government's pandemic planning.
The EWOS business, which is mostly export, saw a slight
reduction in training and overseas support activity, much of it
slipping into 2022 and in some cases later. Digital Forensics
activity was also down, as was secure IT provision for schools,
although this is lower margin activity. In the other parts of the
business, especially its technical support to key parts of the UK
defence domain, MASS continued to deliver a high level of service
despite considerable practical difficulties arising from lockdown
restrictions at times. MASS currently has around one third of its
staff based primarily at its own or customer sites and expects this
proportion to double by October.
MASS's net margin increased to 22.1% (2020: 21.7%). This was due
to improved mix, especially in Digital Forensics, and flat
overheads.
MASS's operating cash flow this year was positive but, as
expected, did not replicate last year when it saw accelerated
receipts from the UK MOD as the COVID pandemic first struck.
MASS continues to demonstrate its strength in its core markets
of EWOS and niche technical support to key government capabilities.
Its order book of GBP77m 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 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 C4 and ISTAR capabilities that transform the effectiveness of its
customers' operations.
The company's specialist C4 portfolio includes hearing protection,
communication headsets and radios, while its ISTAR capabilities include
signals intelligence, electronic warfare and UAV and UGV technologies.
The company supplies customers including the UK MOD, other UK Government
departments and defence prime contractors. With a small, expert workforce
of just 36 employees, 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, MCL is led by Managing Director
Shane Knight and has been part of the Cohort group since 2014.
2021 2020
GBPm GBPm
--------------------- ------ ------
Revenue 18.0 15.1
Adjusted operating
profit 2.1 1.7
Operating cash flow 4.3 (2.3)
--------------------- ------ ------
After a disappointing 2020, MCL bounced back in 2021 with
revenue and adjusted operating profit up by 19% and 23%
respectively. It also delivered a very strong cash performance and
had a good year for order intake.
MCL saw some impact from COVID-19 with some milestones for
system calibration slipping into 2021/22 but its overall
performance was very good and exceeded our expectations. The small
team at MCL is flexible and at present around two thirds are mostly
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
increase from GBP8.6m (April 2020) to GBP12.4m (April 2021)
although the visibility of MCL's revenue still remains, on average,
in the three to six-month range. As we said last year, MCL sees
some substantial opportunities in long-term UK naval support
programmes, some of which have slipped due to COVID but now are
being moved forward by the UK MOD. Success in these would enable
MCL to improve its revenue visibility significantly. More
immediately, MCL starts 2021/22 with improved visibility and some
good prospects for the coming year.
MCL completed delivery of a small number of autonomous vehicles
for initial trials with the British Army and its success in this
programme enabled it to secure a follow-on order for delivery in
2022. It was also involved in supplying new camera systems for the
UK's military dogs, exemplifying MCL's flexibility and importance
to the UK military, especially its Special Forces.
As already highlighted, the recent UK defence review and
spending plans have given MCL some forward momentum, especially
with opportunities to support the new Ranger regiment.
SUBSIDIARY REVIEW
SEA
SEA delivers products and services into the defence and transport
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, towed-array sonar systems, infrastructure
and training. As well as providing products and services for UK and
export customers in these areas, it carries out technology research
on behalf of the UK MOD into future maritime and soldier systems.
SEA also delivers complex data management solutions alongside automated
traffic enforcement systems to UK Government and export customers
in the transport domain, utilising its award-winning expertise in
signal processing and software engineering,
SEA manages its business through two divisions: Complex Systems, based
at Beckington, and Integrated Electronic Systems, based at Barnstaple.
The technology and innovation activities of the organisation are underpinned
by strong project management and 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 and Devon and is led by Managing
Director Richard Flitton.
2021 2020
GBPm GBPm
--------------------- ------ ------
Revenue 28.0 31.7
Adjusted operating
profit 2.4 3.5
Operating cash flow 9.8 3.6
--------------------- ------ ------
SEA had a disappointing year with revenue falling by 12% and
adjusted operating profit by 31%. The drop was mostly driven by
delays to export orders and weaker research and transport activity,
the latter in part due to COVID.
The change in SEA's revenue over the last five years is analysed
by activity as follows:
2017 2018 2019 2020 2021
GBPm GBPm GBPm GBPm GBPm
------------------ ----- ----- ----- ----- -----
Submarine systems 16.9 7.3 4.7 2.7 4.2
Research 2.1 2.3 4.5 5.2 3.0
Export defence 6.0 7.1 8.2 1.6 2.3
Other defence
products and
support 11.9 13.2 9.6 11.7 11.1
Transport 5.9 5.3 9.2 7.6 6.4
Subsea 1.9 2.1 2.1 2.9 1.0
------------------ ----- ----- ----- ----- -----
SEA total revenue 44.7 37.3 38.3 31.7 28.0
------------------ ----- ----- ----- ----- -----
Submarine systems activity at SEA grew slightly in 2021. Some of
this was related to the UK Royal Navy's Dreadnought programme, now
starting to get underway, but most of the growth was from an export
customer.
SEA's research activity has been patchy. Its naval research
activity continues to be an important part of its overall offering
but a land research programme which has provided a substantial
proportion of this revenue stream in recent years completed in
early 2020/21 and has not been extended.
Export revenue at SEA was up slightly following some significant
wins in the final quarter of the financial year. These however were
too late to enable SEA to achieve its expected performance for the
whole year.
SEA's transport business saw a 16% fall in revenue with lower
export and UK sales of its RoadFlow product range. COVID was an
important factor in this, particularly in the first half of
2020/21, with reduced vehicle traffic and local authority attention
being focused on the pandemic. We expect this market to recover in
2022 as we see a catch up on system deployments in the UK and look
for new applications, including the enforcement of Clean Air
Zones.
Of all of our businesses, SEA saw the greatest impact from COVID
with lower sales in transport and delayed export activity.
Over the past few years, 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. As we signalled last year, SEA, especially in
the final quarter of 2020/21 had a very strong order intake,
securing orders of over GBP63m and ending the year with an order
book of nearly GBP70m, underpinning over GBP20m of SEA's revenue to
be delivered in 2021/22. This provides us with some confidence that
SEA will see growth in 2021/22 and return to a better level of
performance over the coming few years.
SEA's order book has also increased in length with the
in-service sonar support order for the UK Royal Navy (GBP25m)
stretching out to 2031.
SEA encountered some technical difficulties with its
narrow-diameter towed sonar array (Krait) which held up some
deliveries and prevented further trials with potential customers,
with the latter also impacted by COVID restrictions. These
difficulties were resolved towards the end of the financial year,
and we are looking forward to getting underway with customer
trials.
A restructuring exercise was completed in July 2020 realising an
annual saving of GBP1.3m at a cost of GBP0.7m. These changes were
made to shape SEA's cost base to its expected level of activity in
2020/21 and beyond, while ensuring it was ready to deliver when
longer-term orders were secured. The inflow of orders in 2020/21,
especially for export customers, was later than we had anticipated
and as a result the cost reduction, although necessary, did not
have the desired impact in 2020/21. Going forward, with the order
book now in place we expect an improving return from SEA.
As we indicated last year, SEA's Subsea activity was not core to
our business strategy and its future position in the business was
under review. In August 2020, SEA completed the sale of its Subsea
business to its management.
FINANCIAL REVIEW
"Defence revenue from other customers exceeded that from the UK
MOD for the first time, reflecting both the increased sales at EID
and Chess, where a much greater proportion of sales are to export
markets, and the initial contribution of ELAC."
Revenue analysis
The segmental breakdown of sales in 2020/21 continued the trend
we have seen in recent years with rising C4ISTAR revenue, driven by
increased intercom deliveries from EID and higher MCL sales. The
growth in combat systems was the initial contribution from ELAC and
growth at both SEA and Chess. Our research work, which is mostly at
SEA, after some years of growth saw a reduction this year,
following completion of a three-year project for the UK MOD, which
was not extended. Other research activity and technical support was
also lower, partly due to some inertia in the UK MOD prior to the
publication of the Defence review. We expect our activity in
research and technical support to decline in absolute terms in the
coming years as we focus on research and development in support of
our product and service offerings.
The Group saw a small increase in revenue from the UK MOD in
absolute terms, although as a proportion of the total it continued
to decline as our export activity increased. The absolute increase
was primarily a result of higher sales of hearing protection and
other equipment at MCL.
Sales to the Portuguese MOD decreased, a result of delayed
orders for both land and naval systems, which we now expect to
secure in the 2022 calendar year.
Security sales were lower with less sales of counter drone
systems to commercial airports, COVID a contributing factor.
Export defence sales were much higher, now representing almost
as much of the Group's revenue as the UK MOD. This was higher due
to deliveries into Europe by Chess, Middle East from EID, higher
sales of external communication systems at SEA and the introduction
of ELAC.
The Group's defence and security business is, and is expected to
remain, the largest part of our business, supplying 94% of revenue
this year (2020: 90%). The Group's non-defence revenue was down
nearly 30% compared to last year, with SEA's transport business
seeing reduced revenue due to lower UK and export sales, mostly a
result of COVID. Underlying UK RoadFlow sales fell for the first
time in five years. SEA's offshore energy business was sold in
August 2020.
Revenue by sector and business
Chess EID ELAC MASS MCL SEA Group
------------ ------------- ------------ ------------ ------------ ------------ ------------ --------------------------
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
Defence
and
security 28.6 25.2 20.9 18.0 8.3 - 37.6 38.7 18.0 15.1 20.6 21.1 134.0 94 118.1 90
Transport - - - - - - - - - - 6.4 7.6 6.4 4 7.6 6
Offshore
energy - - - - - - - - - - 1.0 2.9 1.0 1 2.9 2
Other
commercial - - - - - - 1.9 2.4 - - - 0.1 1.9 1 2.5 2
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
28.6 25.2 20.9 18.0 8.3 - 39.5 41.1 18.0 15.1 28.0 31.7 143.3 100 131.1 100
------------ ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ ---- ------ ----
The defence and security revenues are further broken down as
follows:
Chess EID ELAC MASS MCL SEA Group
---------------- ------------- ------------ ------------ ------------ ------------ ------------ -------------------------
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
Direct
to UK MOD - - - - - - 19.3 19.8 16.6 12.9 8.0 8.5 43.9 31 41.2 32
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
Indirect
to UK MOD
where the
Group acts
as a
sub-contractor
or partner 2.1 2.2 0.1 0.1 - - 4.8 4.3 0.4 1.1 8.9 11.0 16.3 11 18.7 14
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
Total to
UK MOD 2.1 2.2 0.1 0.1 - - 24.1 24.1 17.0 14.0 16.9 19.5 60.2 42 59.9 46
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
Portuguese
MOD - - 5.9 8.3 - - - - - - - - 5.9 4 8.3 6
German
MOD - - - - 1.0 - - - - - - - 1.0 1 - -
Security 2.4 4.8 - - - - 4.5 4.2 1.0 1.1 - - 7.9 6 10.1 8
Export
defence 24.1 18.2 14.9 9.6 7.3 - 9.0 10.4 - - 3.7 1.6 59.0 41 39.8 30
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
26.5 23.0 20.8 17.9 8.3 - 13.5 14.6 1.0 1.1 3.7 1.6 73.8 52 58.2 44
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
28.6 25.2 20.9 18.0 8.3 - 37.6 38.7 18.0 15.1 20.6 21.1 134.0 94 118.1 90
---------------- ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------ --- ------ ----
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 Year ended
30 April 2021 30 April 2020
---------------- ----------------
GBPm % GBPm %
----------------------------------- ---------- ---- ---------- ----
By market segment
Combat systems 30.2 22 18.0 14
C4ISTAR 70.8 49 63.1 48
Cyber security and secure networks 14.5 10 15.0 11
Training and simulation 9.5 7 9.4 7
Research, advice and support 7.4 5 12.0 9
Other 1.6 1 0.6 1
----------------------------------- ---------- ---- ---------- ----
Total defence and security revenue 134.0 94 118.1 90
----------------------------------- ---------- ---- ---------- ----
The Group's total revenue, broken down by type of deliverable is
as follows:
Year ended Year ended
30 April 2021 30 April 2020
---------------- ----------------
GBPm % GBPm %
-------------- --------- ----- --------- -----
Product 90.7 63 74.8 57
Services 52.6 37 56.3 43
-------------- --------- ----- --------- -----
Total revenue 143.3 100 131.1 100
-------------- --------- ----- --------- -----
Operational outlook
Order intake and order book
Order intake Order book
-------------- ------------
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------ ------ ------ ----- -----
Chess 57.7 17.8 42.3 13.4
EID 4.3 29.3 20.0 36.5
ELAC 7.2 - 21.2 -
MASS 25.6 33.5 77.2 91.2
MCL 21.8 9.1 12.4 8.6
SEA 63.7 34.7 69.3 33.6
------ ------ ------ ----- -----
180.3 124.4 242.4 183.3
------ ------ ------ ----- -----
The 2021 order book includes GBP23.2m of order book acquired
with ELAC in December 2020.
The increase in the Group's order book reflects the strong order
intake at Chess and SEA and the acquisition of ELAC offsetting the
unwind of some our longer-term orders, especially at MASS. These
are typically renewed on a multi-year cycle, and we expect a
negative effect on our order book as deliveries take place.
The 2020/21 order intake was 126% (2020: 95%) of the Group's
revenue for the year ended 30 April 2021. This was, as expected,
higher than last year, with substantial export orders being secured
at Chess and SEA.
The revenue on order (order cover) for the coming year was 64%
(2020: 62%) as at 30 April 2021, based on external revenue
forecasts. This had risen to 70% in July.
The table below 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 GBP57.7m included significant orders for
European land and naval forces. Chess's closing order book of
GBP42.3m included GBP19.8m for delivery in 2021/22. Chess is also
well positioned for further naval and land programmes which we hope
will convert to orders in the coming year. Chess performed less
well than expected in 2020/21 due to weaker margin on some projects
where delays, customer deployment changes and technical challenges
all resulted in a weaker margin than expected. We expect a stronger
performance for the coming year as it continues to lay down a
longer-term order book.
EID's order intake for this year was very weak at GBP4.3m (2020:
GBP29.3m), but its order book of GBP20.0m gives reasonable
underpinning for the year ahead. As we stated last year, the need
for EID to secure orders, especially in its naval markets remains
important for its medium to long-term order book and growth. The
poor order intake in 2020/21, mostly due to delays to Portuguese
Defence programmes, has resulted in the expected EID performance
for the coming year being now much weaker than we thought this time
last year, with revenue likely to be one third down on 2020/21 in
2021/22.
At the time of its acquisition, ELAC had an order book of over
GBP23m, with some delivery out to 2025. In the five months since
joining the Group, ELAC's order intake was GBP7.2m of which the
majority was export, including Japan. ELAC's closing order book of
GBP21.2m underpins GBP12.3m of revenue for delivery in 2021/22 to
which the recently secured Italian sonar order adds around GBP5m of
revenue for the coming year, giving us confidence that ELAC should
grow on a like for like basis in 2021/22.
Delivery of the Group's order book into revenue
MASS's order intake of GBP25.6m included an GBP11m renewal of
its support to the UK's Joint Forces Command out to March 2022, a
service MASS has been providing for over 15 years. The contract,
awarded under the UK MOD's Single Source Regime, includes an option
to extend the service to March 2025. MASS's closing order book of
over GBP77m includes over GBP27m of revenue to be delivered in
2021/22. We expect MASS to return to growth in the coming year.
At MCL, order intake of GBP21.8m was much higher than last year
and included over GBP7m of hearing protection related orders and an
extension to its work on autonomous vehicles for the British Army.
MCL's closing order book of GBP12.4m includes GBP11.5m to be
delivered in 2021/22. Our long-term aim remains to 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 see modest growth in the coming year.
SEA's order intake of nearly GBP64m was very strong and well
above last years' GBP35m. Orders secured included a ten-year
support contract to the UK Royal Navy's minor sonars at nearly
GBP25m, as well as export orders for Torpedo Launcher Systems and
External Communications Systems of around GBP17m. SEA's Transport
division had a weaker year with order intake of only GBP7m (2020:
GBP8m), in part due to COVID impacts on traffic volumes and local
authority spend and focus. In the coming year we expect SEA to
secure further export orders and on the back of its stronger order
book, return to growth and a net margin back above 10%.
A significant proportion of Cohort's business will continue to
be derived from the UK MOD, either directly or indirectly. The UK
Government presented its latest Strategic Defence and Security
Review in early 2021. 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 GBP40.8m this
year (2020: GBP37.5m). Following the Review, the UK Government
followed this up with a unique four-year spending commitment for UK
defence which included an additional GBP16 billion of spending up
to March 2025, an increase of over 10% over the previous defence
spending plans for the same period. We have already seen some
positive momentum from this at MCL, which tends to be the first of
our businesses to see the impact of UK MOD spend adjustments.
One major dependency for 2021/22 performance, ELAC's submarine
sonar system for Italy, has now been secured. With the exception of
EID, the Group's other businesses are not dependent upon any
significant single order, but all require a varying level of infill
to achieve their performance expectations. The level of infill
required varies from 45% at MCL (typically the lowest level of
cover of our businesses) to just over 30% at MASS with an average
across the Group of 36%. The order cover has increased to 70%
following order wins of over GBP50m from May through to mid-July,
including the Italian submarine sonar.
Funding resource and policy
At the time of approval of this statement (27 July 2021), the
Group has lived with the impact of COVID and resultant lockdown
measures for well over a year. This has given rise to additional
risk and uncertainty. The Cohort Board has considered these risks
and taken appropriate steps and actions to manage them. At 30 April
2021, the Group's cash and readily available credit was GBP42.6m. 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. As already
mentioned, over 64% of our revenue for 2021/22 was on contract at
30 April 2021 providing further assurance and this has since
increased. 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 banking facility also 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 2021 was
GBP40m.
The facility itself provides the Group with a flexible
arrangement to draw down for acquisitions and overdraft. As at 30
April 2021, GBP29.7m of the facility was drawn, leaving GBP10.3m
available to be drawn down. The Group's banking covenants were all
passed for the year ended 30 April 2021. Looking forward, we expect
this to continue out to 31 July 2022 and beyond.
The facility is available to the UK members of the Group and is
fully secured over the Group's assets, including those of Chess and
ELAC 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 in Portugal. The cash
is spread across a number of institutions to minimise capital
risk.
EID provides no security over its assets and its wide range of
banks enable it to be well supported in executing export business,
specifically in respect of foreign exchange contracts, guarantees
and letters of credit.
EID has a local overdraft facility of EUR2.5m with Santander.
This was undrawn at 30 April 2021.
ELAC manages its own banking arrangements locally in Germany.
ELAC uses Commerzbank for its day to day clearing and export
requirements, including foreign exchange contracts, guarantees and
letters of credit.
ELAC currently has no overdraft facility with Commerzbank or any
other bank.
ELAC's assets (including its cash and deposits) are part of the
Group's security undertakings with Lloyds and NatWest. Future Group
facility discussions will look to include a German bank in the
Group facility enabling ELAC to have a wider local facility,
including, if necessary, an overdraft facility.
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 net funds at 30 April 2021 were GBP2.5m, better than
expected due to timing of receipts. Looking forward, we expect the
Group's net debt at 30 April 2022 to be close to zero, as the
timing advantage is expected to unwind. The Group is expected to
move back into net funds by 30 April 2023, if there is no further
corporate activity.
In addition to its cash resources, the Group has in issue 41.0m
ordinary shares of 10 pence each. Of these shares 0.2m (2020: 0.2m)
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 1.7m at 30 April 2021 (2020:
1.5m).
The Group's exposure to foreign exchange risk arises from two
sources:
1. the reporting of overseas subsidiaries' earnings (currently
EID and ELAC) 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 and ELAC).
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 (ELAC) 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 transaction to be certain,
usually on contract award. We mark these forward contracts to
market at each reporting date, recognising any gain or loss in the
income statement.
The Group has maintained its progressive dividend policy,
increasing its dividend this year by 10% to a total dividend paid
and payable of 11.10 pence per share (2020: 10.10 pence).
The last five years' annual dividends, growth rate, earnings and
cash cover are as follows:
Cash
Earnings cover
cover (based
Growth (based upon
over upon net cash
previous adjusted inflow
Year ended Dividend year earnings from
30 April Pence % per share) operations)
----------- -------- --------- ----------- ------------
2021 11.1 10 3.0 3.6
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
----------- -------- --------- ----------- ------------
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 with the earnings growth of the
Group.
The Group's cash generation in 2021 was stronger than the
expected flat performance for the year. In summary, the Group's
cash performance was as follows:
2021 2020
GBPm GBPm
------------------------------ ------ ------
Adjusted operating profit 18.6 18.2
Depreciation and other
non-cash operating movements 2.4 1.8
Working capital movement (0.1) (7.0)
------------------------------ ------ ------
20.9 13.0
------------------------------ ------ ------
Acquisition of ELAC (1.3) -
Costs paid in respect
of acquiring ELAC (0.6) (0.5)
Costs paid in respect
of MASS relocation - (0.3)
Restructuring and subsea
disposal at SEA (0.7) -
Tax, dividends, capital
expenditure, interest,
loans and other investments (11.1) (10.5)
------------------------------ ------ ------
Increase in funds 7.2 1.7
------------------------------ ------ ------
The slightly higher cash outflow in tax, and dividends, etc. was
mostly due to higher tax payments, partly offset by lower capital
expenditure and net investment in own shares. 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 makes its debtor risk low.
The year-end debtor days in sales were 38 days (2020: 37 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 small change
in debtor days reflected the UK MOD's accelerated payments at the
end of 2019/20 being slowed to normal practices in 2020/21, as
expected.
Tax
The Group's tax charge for the year ended 30 April 2021 of
GBP1,554,000 (2020: charge of GBP295,000) was at a rate of 22.0%
(2020: rate of 3.0%) of profit before tax. This includes a current
year corporation tax charge of GBP4,254,000 (2020: GBP2,325,000), a
prior year corporation tax credit of GBP310,000 (2020: credit of
GBP770,000) and a deferred tax credit of GBP2,390,000 (2020:
GBP1,260,000).
The Group's overall tax rate was above the standard corporation
tax rate of 19.00% (2020: 19.00%). The increase is due to the
higher contribution of taxable profits from Portugal (at 23.0%) and
also an initial contribution from Germany (at 31.0%). Additionally,
R&D credits recognised last year by EID in Portugal were, due
to timing, not recognised this year. The Group has also taken a
prudent approach to the potential outcomes of a tax audit in
Portugal and a R&D credit review in the UK.
The Group has reported research and development expenditure
credits (RDEC) for the UK in accordance with IAS 20 and shown the
credit of GBP1,029,000 (2020: GBP784,000) 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 2021/22 is estimated
at 18.0% compared with 17.4% of the pre-RDEC adjusted operating
profit less interest for 2020/21. This rate going forward reflects
a combination of an expected decrease in Portuguese derived profits
and higher German profits. The Group maintains a cautious approach
to previous R&D tax credit claims for tax periods that are
still open, currently 2019/20 and 2020/21.
Exceptional items
The exceptional items this year are just over GBP1.3m in total.
This includes a restructuring charge at SEA of just over GBP0.6m
completed in the summer of 2020. The disposal of SEA's subsea
business to the management of that division in August 2020 realised
a loss of GBP0.5m, including a prudent stance on a vendor loan.
Adjusted earnings per share
The adjusted earnings per share (EPS) of 33.63 pence (2020:
37.10 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 2020 18.2 37.10
Chess (81.84% owned) (0.9) (1.56)
100% owned businesses
throughout the year ended
30 April 2021 (1.6) (4.06)
EID (80% owned) 1.7 3.38
ELAC (five months in
2021) 1.2 3.00
Change in tax rate 17.4%
(2020: 6.6%) - (4.14)
Dilution from higher
weighted average number
of shares (due to option
exercises) - (0.09)
--------------------------- ---------- ----------
Year ended 30 April 2021 18.6 33.63
--------------------------- ---------- ----------
Increase/(decrease) from
2020 to 2021 2% (9)%
--------------------------- ---------- ----------
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
Following the adoption of IFRS 16 'Leases' last year, there were
no significant accounting policy changes in 2020/21.
Andrew Thomis and Simon Walther
CONSOLIDATED INCOME STATEMENT
For the year ended 30 April 2021
2021 2020
Notes GBP'000 GBP'000
-------------------------------------------------------- ----- -------- --------
Revenue 2 143,308 131,059
Cost of sales (89,951) (80,016)
-------------------------------------------------------- ----- -------- --------
Gross profit 53,357 51,043
Administrative expenses (45,549) (40,312)
-------------------------------------------------------- ----- -------- --------
Operating profit 2 7,808 10,731
-------------------------------------------------------- ----- -------- --------
Comprising:
Adjusted operating profit 2 18,609 18,223
Amortisation of other intangible assets (included
in administrative expenses) (10,103) (7,354)
Research and development expenditure credits (RDEC)
(included in cost of sales) 1,029 784
Charge on marking forward exchange contracts to
market value at the yearend (included in cost of
sales) (410) (132)
Exceptional items (included in administrative expenses)
Cost of acquisition of ELAC 8 (106) (950)
Cost of relocation of MASS's Lincoln facility - (590)
Adjustment to earn-out on acquisition of Chess 7 (38) 750
Cost of restructuring at SEA (651) -
Loss on disposal of SEA's subsea business (522) -
-------------------------------------------------------- ----- -------- --------
7,808 10,731
-------------------------------------------------------- ----- -------- --------
Finance income 17 27
Finance costs (768) (779)
-------------------------------------------------------- ----- -------- --------
Profit before tax 7,057 9,979
Income tax charge 3 (1,554) (295)
-------------------------------------------------------- ----- -------- --------
Profit for the year 5,503 9,684
-------------------------------------------------------- ----- -------- --------
Attributable to:
Equity shareholders of the parent 5,463 9,559
Non-controlling interests 40 125
-------------------------------------------------------- ----- -------- --------
5,503 9,684
-------------------------------------------------------- ----- -------- --------
All profit for the year is derived from continuing
operations.
Notes Pence Pence
Earnings per share 4
Basic 13.38 23.47
Diluted 13.24 23.24
Adjusted earnings per share 4
Basic 33.63 37.10
Diluted 33.29 36.73
Dividends per share paid and
proposed in respect of the
year 5
Interim 3.50 3.20
Final 7.60 6.90
------------------------------ ------ -------- ------
11.10 10.10
------------------------------ ------ -------- ------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 April 2021
2021 2020
GBP'000 GBP'000
------------------------------------------------------- -------- --------
Profit for the year 5,503 9,684
------------------------------------------------------- -------- --------
Items which may be subsequently reclassified to profit
or loss:
Foreign currency translation differences on net assets
of oversea subsidiaries, net of loans used to acquire
oversea subsidiaries 4 32
Changes in retirement benefit obligations 355 -
------------------------------------------------------- -------- --------
Other comprehensive income for the period, net of tax 359 32
------------------------------------------------------- -------- --------
Total comprehensive income for the year 5,862 9,716
------------------------------------------------------- -------- --------
Attributable to:
Equity shareholders of the parent 5,616 9,586
Non-controlling interests 246 130
------------------------------------------------------- -------- --------
5,862 9,716
------------------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 April 2021
Group
-----------------
2021 2020
Notes GBP'000 GBP'000
---------------------------------------- ---------- ------------ ----------
Assets
Non-current assets
Goodwill 43,663 42,091
Other intangible assets 15,093 13,234
Right of use asset 7,076 6,900
Property, plant and equipment 12,536 12,121
Investment in subsidiaries - -
Deferred tax asset 600 598
---------------------------------------- ---------- ------------ ----------
78,968 74,944
---------------------------------------- ---------- ------------ ----------
Current assets
Inventories 12,892 11,478
Trade and other receivables 66,692 47,423
Derivative financial instruments 38 -
Cash and cash equivalents 32,294 20,567
---------------------------------------- ---------- ------------ ----------
111,916 79,468
---------------------------------------- ---------- ------------ ----------
Total assets 190,884 154,412
---------------------------------------- ---------- ------------ ----------
Liabilities
Current liabilities
Trade and other payables (50,326) (30,985)
Derivative financial instruments (679) (231)
Lease liability (1,571) (1,257)
Bank borrowings (50) (85)
Provisions (2,786) (1,546)
Other payables 7 (2,800) -
---------------------------------------- ---------- ------------ ----------
(58,212) (34,104)
---------------------------------------- ---------- ------------ ----------
Non-current liabilities
Deferred tax liability (2,735) (2,820)
Lease liability (5,984) (6,240)
Bank borrowings (29,780) (25,189)
Provisions (1,140) (270)
Retirement benefit obligations (7,982) -
Other payables 7 - (4,000)
---------------------------------------- ---------- ------------ ----------
(47,621) (38,519)
---------------------------------------- ---------- ------------ ----------
Total liabilities (105,833) (72,623)
---------------------------------------- ---------- ------------ ----------
Net assets 85,051 81,789
---------------------------------------- ---------- ------------ ----------
Equity
Share capital 4,104 4,096
Share premium account 29,956 29,657
Own shares (1,068) (1,564)
Share option reserve 923 846
Other reserves (2,362) (3,600)
Retained earnings 47,760 46,108
---------------------------------------- ---------- ------------ ----------
Total equity attributable to the equity
shareholders of the parent 79,313 75,543
Non-controlling interests 5,738 6,246
---------------------------------------- ---------- ------------ ----------
Total equity 85,051 81,789
---------------------------------------- ---------- ------------ ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 April 2021
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 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
[29]) - - - - - - - (163) (163)
Change in option for
acquiring
non-controlling
interest
in Chess - - - - 750 - 750 - 750
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2020 4,096 29,657 (1,564) 846 (3,600) 46,108 75,543 6,246 81,789
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Profit for the year - - - - - 5,463 5,463 40 5,503
Other comprehensive
income
for the year - - - - - 153 153 206 359
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income
for the year - - - - - 5,616 5,616 246 5,862
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners
of Group and
non-controlling
interests, recognised
directly
in equity
Issue of new shares 8 299 - - - - 307 - 307
Equity dividends - - - - - (4,247) (4,247) - (4,247)
Dividend from
subsidiary
with non-controlling
interest - - - - - 754 754 (754) -
Vesting of Restricted
Shares - - - - - 290 290 - 290
Own shares purchased - - (1,418) - - - (1,418) - (1,418)
Own shares sold - - 821 - - - 821 - 821
Net loss on selling
own shares - - 1,093 - - (1,093) - - -
Share-based payments - - - 406 - - 406 - 406
Deferred tax
adjustment in
respect
of share-based
payments - - - 3 - - 3 - 3
Transfer of share
option
reserve on vesting
of options - - - (332) - 332 - - -
Change in option for
acquiring
non-controlling
interest
in Chess - - - - 1,238 - 1,238 - 1,238
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2021 4,104 29,956 (1,068) 923 (2,362) 47,760 79,313 5,738 85,051
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 April 2021
Group
------------------
2021 2020
Notes GBP'000 GBP'000
-------------------------------------------- ----- -------- --------
Net cash from operating activities 6 16,216 11,597
-------------------------------------------- ----- -------- --------
Cash flow from investing activities
Interest received 17 27
Purchases of property, plant and equipment (1,247) (2,662)
Acquisition of ELAC Sonar (net of cash
acquired) 8 (1,311) -
-------------------------------------------- ----- -------- --------
Net cash (used in)/generated from investing
activities (2,541) (2,635)
-------------------------------------------- ----- -------- --------
Cash flow from financing activities
Issue of new shares 307 -
Dividends paid (4,247) (3,853)
Purchase of own shares (1,418) (3,677)
Sale of own shares 821 1,472
Drawdown of borrowings 12,110 98
Repayment of borrowings (7,180) (78)
Repayment of lease liabilities (1,948) (1,114)
-------------------------------------------- ----- -------- --------
Net cash used in financing activities (1,555) (7,152)
-------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 12,120 1,810
-------------------------------------------- ----- -------- --------
Represented by:
Cash and cash equivalents and short-term
borrowings brought forward 20,567 18,763
Cash flow 12,120 1,810
Exchange (393) (6)
-------------------------------------------- ----- -------- --------
Cash and cash equivalents and short-term
borrowings carried forward 32,294 20,567
-------------------------------------------- ----- -------- --------
Effect
of
foreign
At 1 exchange At 30
May rate Cash April
2020 changes flow 2021
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- --------- -------- --------
Net (debt)/funds reconciliation
Group
Cash and bank 20,567 (393) 12,120 32,294
Short-term deposits - - - -
-------------------------------- -------- --------- -------- --------
Cash and cash equivalents 20,567 (393) 12,120 32,294
-------------------------------- -------- --------- -------- --------
Loan (25,095) 374 (5,021) (29,742)
Finance lease (179) - 91 (88)
-------------------------------- -------- --------- -------- --------
Debt (25,274) 374 (4,930) (29,830)
-------------------------------- -------- --------- -------- --------
Net (debt)/funds (4,707) (19) 7,190 2,464
-------------------------------- -------- --------- -------- --------
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) in conformity
with the requirements of the Companies Act 2006. The financial
information contained in this announcement does not constitute
statutory accounts as defined in Section 434 of the Companies Act
2006. The financial information has been extracted from the
financial statements for the year ended 30 April 2021, which have
been approved by the Board of Directors and on which the auditors
have reported without qualification. The financial statements will
be delivered to the Registrar of Companies after the Annual General
Meeting.
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 have been consolidated with
the non-controlling interest identified.
The comparative figures for the financial year ended 30 April
2020 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
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 27 July 2021.
Copies of the Annual Report and accounts for the year ended 30
April 2021 will be posted to shareholders on 26 August 2021 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 2021 30 April 2020
GBP000 GBP000
Revenue
Chess 28,641 25,155
EID 20,952 18,020
ELAC 8,290 -
MASS 39,487 41,115
MCL 17,980 15,064
SEA 27,958 31,705
---------------- ----------------
143,308 131,059
---------------- ----------------
Adjusted Operating Profit
Chess 3,018 3,923
EID 4,834 3,108
ELAC 1,173 -
MASS 8,742 8,914
MCL 2,071 1,660
SEA 2,353 3,532
Central costs (3,582) (2,914)
18,609 18,223
---------------- ----------------
Amortisation of other intangible
assets (10,103) (7,354)
Research and development expenditure
credit (RDEC) 1,029 784
Charge on marking forward exchange
contracts to market value at the
year end (410) (132)
Exceptional items:
Cost of acquisition of ELAC (106) (950)
Cost of relocation of MASS's Lincoln
facility - (590)
Adjustment to earn-out on acquisition
of Chess (38) 750
Disposal of SEA's Subsea business (522) -
Cost of restructuring at SEA (651) -
Operating Profit 7,808 10,731
---------------- ----------------
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.
The ELAC reported results are for the five months ended 30 April
2021.
3. TAX CHARGE
Year ended Year ended
30 April 2021 30 April 2020
GBP000 GBP000
------------------------------------------ -------------- --------------
UK corporation tax: in respect of this
year 2,833 2,227
UK corporation tax: in respect of prior
years (550) (785)
German corporation tax: in respect of
this year 304 -
Portugal corporation tax: in respect
of this year 1,117 130
Portugal corporation tax: in respect
of prior years 240 15
Other foreign corporation tax: in respect
of this year - -
Other foreign corporation tax: in respect
of prior years - (31)
------------------------------------------ -------------- --------------
3,944 1,556
------------------------------------------ -------------- --------------
Deferred tax: in respect of this year (2,498) (1,297)
Deferred tax: in respect of prior years 108 36
------------------------------------------ -------------- --------------
(2,390) (1,261)
------------------------------------------ -------------- --------------
1,554 295
------------------------------------------ -------------- --------------
The current year corporation tax charge (2020: charge) includes
GBP142,000 credit (2020: GBP188,000 credit) in respect of
exceptional items and the current year deferred tax credit includes
a credit of GBP2,374,000 (2020: credit of GBP1,425,000) in respect
of the amortisation of other intangible assets and a current year
credit of GBP78,000 (2020: GBP25,000 credit) in respect of marking
forward exchange contracts to market value at the year end.
4. EARNINGS PER SHARE
The earnings per share are calculated by dividing the earnings
for the year by the weighted average number of ordinary shares in
issue as follows:
Year ended Year ended
30 April 2021 30 April 2020
GBP000 GBP000
Earnings
Basic and diluted earnings 5,463 9,559
Amortisation of other intangible assets
(net of tax of GBP2,374,000; 2020:
GBP1,425,000) 6,763 4,840
Charge on non-trading foreign exchange
movements (net of tax credit of GBP78,000
(2020: credit of GBP25,000) 332 107
Cost of acquisition of ELAC (net of
tax credit of GBP6,000; 2002: tax credit
of GBP76,000) 100 874
Cost of relocation of MASS's Lincoln
facility (net of tax of GBP112,00) - 478
Adjustment to earn-out on acquisition
of Chess (nil tax) 38 (750)
Loss on disposal of SEA's Subsea business
(net of tax credit of GBP12,000) 510 -
Cost of restructuring at SEA (net of 527 -
tax credit of GBP124,000)
Adjusted basic and diluted earnings 13,733 15,108
---------------- ----------------
The adjustment for the amortisation of intangible assets in
respect of EID and Chess for the year ended 30 April 2021 and 2020
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 2021 30 April 2020
Number Number
Weighted average number of
shares
For the purposes of basic
earnings per share 40,841,923 40,728,149
Share options 413,249 409,484
For the purposes of diluted
earnings per share 41,255,172 41,137,633
--------------- ---------------
Year ended Year ended
30 April 2021 30 April 2020
Pence Penc e
Earnings per share
Basic 13.38 23.47
Diluted 13.24 23.24
Adjusted earnings per share
Basic 33.63 37.10
Diluted 33.29 36.73
5. DIVIDS
The proposed final dividend for the year ended 30 April 2021 is
7.60 pence (2020: 6.90 pence) per ordinary share. This dividend
will be payable on 27 September 2021 to shareholders on the
register at 20 August 2021 subject to approval by shareholders at
the AGM on 20 September 2021.
The total paid and proposed dividend for the year ended 30 April
2021 is 11.10 pence per ordinary share; a cost of GBP4,538,000
(2020: 10.10 pence per ordinary share; cost of GBP4,149,000).
The charge for the year ended 30 April 2021 of GBP4,247,000 is
the final dividend for the year ended 30 April 2020 paid
(GBP2,815,000) and the interim dividend for the year ended 30 April
2021 paid (GBP1,432,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 2021 30 April 2020
GBP000 GBP000
Profit for the year 5,503 9,684
Adjustments for:
Tax charge 1,554 295
Depreciation of property, plant and
equipment 1,957 1,472
Depreciation of right of use assets 1,510 1,168
Amortisation of goodwill and other intangible
assets 10,103 7,354
Net finance expense 751 752
Share-based payment 406 318
Derivative financial instruments and
other non-trading exchange movements 410 132
Decrease in provisions (1,269) (511)
Operating cash inflows before movements
in working capital 20,925 20,664
---------------- ----------------
Decrease in inventories 576 1,974
Increase in receivables (13,138) (4,597)
Increase/(decrease) in payables 12,565 (5,059)
---------------- ----------------
3 (7,682)
---------------- ----------------
Cash generated by operations 20,928 12,982
---------------- ----------------
Tax paid (3,944) (606)
Interest paid (768) (779)
---------------- ----------------
Net cash generated from operating activities 16,216 11,597
---------------- ----------------
Interest paid includes the interest element of lease liabilities
under IFRS 16 of GBP237,000 (2020: GBP246,000).
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 was added to the goodwill
arising from the acquisition. The balance of GBP163,000 was added
to the non-controlling interest.
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 2021, this earn out
is estimated at just over GBP0.4m as at 30 April 2021 (2020:
GBP0.4m).
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 and
adjusted for working capital and net debt/cash in the business on
exercise of the option.
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 GBP2.4m (2020: GBP3.6m) and the option is shown as a 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. ACQUISTION OF WÄRTSILÄ ELAC NAUTIK GmbH (ELAC)
As announced on 3 December 2020, the Group completed the
acquisition of 100% of ELAC Sonar (ELAC). The consideration paid on
completion was EUR10.5m (GBP9.4m) and a further EUR5.662m (GBP4.8m)
was paid on 1 April 2021 following agreement of the completion
accounts. No further payments are due.
The net cash outflow was GBP1.3m, the business including cash of
GBP12.9m on completion. The goodwill on the acquisition, after fair
value exercise was GBP1.6m.
The acquisition costs of GBP1.05m in respect of ELAC were
charged as an exceptional item in the Consolidated income
statement. GBP0.95m was charged in the year ended 30 April 2020 and
a further GBP0.10m in the year ended 30 April 2021, the acquisition
taking longer to complete due to the prolonged German Government
approval process, in part due to COVID.
ELAC contributed GBP8.3m of revenue and just under GBP1.2m of
adjusted operating profit for the period from 2 December 2020 to 30
April 2021.
9. CHANGES IN ACCOUNTING POLICIES
There were no significant changes in accounting policies for the
year ended 30 April 2021 following the implementation of IFRS 16
'Leases' in 2019/20.
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