TIDMCHRT
RNS Number : 9843T
Cohort PLC
28 July 2022
28 July 2022
COHORT PLC
UNAUDITED PRELIMINARY RESULTS
FOR THE YEARED 30 APRIL 2022
Cohort plc today announces its unaudited results for the year
ended 30 April 2022.
Highlights include: 2022 2021 %
* Revenue GBP137.8m GBP143.3m (4)
* Adjusted operating profit(1) GBP15.5m GBP18.6m (17)
* Adjusted earnings per share(1) 31.08p 33.63p (8)
GBP11.0m GBP2.5m
* Net funds
* Order intake GBP186.4m GBP180.3m 3
* Order book (closing) GBP291.0m GBP242.4m 20
* Proposed final dividend per share 8.35p 7.60p 10
* Total dividend per share 12.20p 11.10p 10
Statutory 2022 2021 %
* Statutory profit before tax GBP10.2m GBP7.1m 44
* Basic earnings per share 22.55p 13.38p 69
-- Trading performance in line with previous guidance
-- Divisional overview:
o MASS was the largest profit contributor and improved on last
year
o Another year of growth at MCL
o Stronger result at SEA
o Strong first full year contribution from ELAC, ahead of
expectations
o As expected, weaker result at EID
o Disappointing performance at Chess, but 2022/23 has started
better
-- Net funds at GBP11m, as previously disclosed. Robust cash generation
-- Strong order intake of GBP186.4m (2021: GBP180.3m)
-- Total dividend increased by 10%
(1) Excludes exceptional items, amortisation of other intangible
assets, research and development expenditure credits and
non-trading exchange differences, including marking forward
exchange contracts to market.
Looking forward:
-- Record year end order book of GBP291.0m:
o underpins nearly GBP128m of current year revenue, representing
78% (2021: 64%) of current consensus forecast for the year
o Coverage has risen to 90% in early July 2022 following
contract wins in first two months
-- Performance for 2022/23 expected to be ahead of 2021/22
-- Expect lower (but positive) net funds at 30 April 2023 as a
result of planned capital expenditure and expansion of working
capital
Commenting on the results, Nick Prest CBE, Chairman of Cohort
plc said:
"Performance for 2021/22 was in line with our revised
expectations, with robust cash generation, and a record closing
order book with strong cover for the coming financial year.
"It is hard to predict the duration of the conflict in Ukraine
and any direct benefit to the Group's short-term trading. In the
longer term we believe a more sustained growth in defence budgets
is likely, both in NATO and in other parts of the world where
security threats remain.
"Overall, we continue to expect that our trading performance for
2022/23 will be ahead of that achieved for the year ended 30 April
2022.
"Our order book is not only growing in value, but its longevity
continues to increase. We now have orders across the Group
stretching out to 2030. We are optimistic that the Group will make
further progress in 2023/24, based on current orders for long-term
delivery and on our pipeline of opportunities."
A presentation for analysts is being hosted today 28 July 2022
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.
Event Title: Cohort Results
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Thursday July 28, 2022
Duration: 60 minutes
Confirmation Code: 1829705
WEBCAST: https://stream.brrmedia.co.uk/broadcast/62d008d30485375c36e3de8c
Conference Call Line: UK Participant (Tollfree/Freephone) 0800 279 6877
UK, Local Participant +44 (0)330 165 4012
For further information please contact:
Cohort plc 0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Raquel McGrath, Company Secretary
Investec Bank Plc (NOMAD and Broker) 020 7597 5970
Daniel Adams, Christopher Baird
MHP Communications 020 3128 8276
Reg Hoare, Ollie 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
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 over 1,000 core staff there and at
its other operating company sites across the UK, Germany and
Portugal.
Chairman's statement
"Performance in line with revised expectations, robust cash, and
a record closing order book with strong cover for the coming
financial year."
Performance
The Group's adjusted operating profit was in line with our
revised expectations at the time we announced our half-year results
on 14 December 2021, achieving an adjusted operating profit of
GBP15.5m (2021: GBP18.6m) on revenue of GBP137.8m (2021:
GBP143.3m). The reduction in performance compared to last year was
primarily the result of a disappointing performance at Chess, along
with an expected drop in profit from EID. MASS, MCL and SEA all
posted increases in profit, and we benefited from a full year
contribution from ELAC.
The Group had another strong year of order intake, winning
GBP186.4m (2021: GBP180.3m) of orders, driving us to a record
closing order book of GBP291.0m (2021: GBP242.4m). This order book
gives us a strong start to 2022/23. The Group's net funds also
finished at a higher level than we expected at the start of the
year, GBP11.0m compared with GBP2.5m.
Following strong order intake in 2020/21, SEA had an improved
year, driven by export deliveries, including a first contract with
the Royal New Zealand Navy. MCL delivered another year of growth
and, importantly, ended the year with an unusually strong order
book, providing good underpinning for 2022/23. MASS, despite
slightly lower revenue and continued challenges in its EWOS and
Training divisions from COVID-19 restrictions, delivered an
improved net margin, with better mix and flat overhead. ELAC,
having secured a large Italian sonar order early in the year,
delivered a better than expected result. In line with our
expectations, EID's performance was much weaker, having benefited
from a large export delivery in 2020/21 that was not repeated this
year. Chess's performance was disappointing. Order intake was lower
than expected, as were customer deliveries, and a small number of
problem contracts had a negative impact on margin. We have made
progress in resolving these problems, and we saw an uptick in
performance at Chess towards the end of the year.
We continued to see some negative impact from COVID-19 in the
first half of our financial year, particularly at MASS. This
started to alleviate in the second half and at the same time, as
some normality returned to our business activities, we saw a return
to more face-to-face business engagement, especially trade shows
and exhibitions across the world. Despite two years of challenging
business conditions the Group won over GBP365m of orders during
that period. Our order book now stretches out to 2030 and we expect
to extend that further in the coming year.
The Group's operating profit of GBP11.1m (2021: GBP7.8m) is
stated after recognising amortisation of intangible assets of
GBP6.9m (2021: GBP10.1m), exceptional income of GBP0.7m (2021:
GBP1.3m charge) and research and development expenditure credits of
GBP1.0m (2021: GBP1.0m). Profit before tax was GBP10.2m (2021:
GBP7.1m) and profit after tax was GBP8.7m (2021: GBP5.5m).
The closing net funds of GBP11.0m (2021: GBP2.5m), was better
than our expectation, due to an improved operating cash flow,
particularly at ELAC, MASS, and SEA. The cash flow also benefited
from slippage of some items of capital expenditure and the final
Chess acquisition payment into 2022/23.
International conflict
The Russian invasion of Ukraine has had a notable impact on
public and Government perceptions worldwide of the importance of an
effective defence capability. Media reporting has reflected a sense
of shock that a nascent European democracy can be the target of
state-on-state violence of an intensity not seen on the continent
since 1945. Many have had to re-learn that the stability of
democracy and maintenance of our freedoms and values requires
strong defence to deter, and if necessary, repel an aggressive
invader. It is also clearer than ever that strong defence means a
strong defence industry as well as capable armed forces. That is
something that Cohort's leadership and employees understand well,
and for many of us it is a large part of our motivation at work. We
therefore believe that an activity that generates social value as
well as business success such as the UK's defence sector, including
Cohort, is worthy of investor consideration.
Our customers' response to the situation in Ukraine had some
positive business impact in 2021/22 and we expect this to increase
in 2022/23. There is also the potential for a negative effect as
increased operational readiness makes it harder for us to provide
maintenance services, upgrades and training. On balance, we believe
that the long-term change in defence stance that has been catalysed
by these events, especially among NATO countries, will be of
benefit to the Group.
Strategic initiatives
Cohort's subsidiary, SEA, acquired the remaining 50% of its
joint venture JSK in August 2021 for a net consideration of
GBP0.4m. JSK is based in Montreal, Canada and provides SEA, and the
Group, with a local presence to provide the Royal Canadian Navy
with ongoing support to existing and new naval platforms. The
latter include the new Canadian frigate programme for which SEA is
providing certain important systems.
When we acquired Chess in December 2018, we agreed to pay
further consideration depending on the performance of the business
over the three years ended 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 2022 will now be GBP1.4m
(2021: GBP2.8m), and we expect to pay this on or before 31 October
2022.
The Group continues to review acquisition opportunities as they
arise, in line with our criteria.
Shareholder returns
Adjusted earnings per share (EPS) were 31.08 pence (2021: 33.63
pence). The adjusted EPS figure was based on profit after tax,
excluding amortisation of other intangible assets, net foreign
exchange movements and exceptional items. Basic EPS were 22.55
pence (2021: 13.38 pence). The adjusted EPS were 8% lower primarily
due to the weaker adjusted operating profit (down 17%), partly
offset by a lower tax charge of 13.5% (2021: 17.4%) and a change in
mix from which the Group's profits were derived, with the 100%
owned businesses (ELAC, MCL and SEA) performing most strongly.
The Board is recommending a final dividend of 8.35 pence per
ordinary share (2021: 7.60 pence), making a total dividend of 12.20
pence per ordinary share (2021: 11.10 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 4 October 2022 to
shareholders on the register at 26 August 2022, subject to approval
at the Annual General Meeting on 27 September 2022.
Over the medium term, the Group plans to maintain a policy of
growing its dividend each year broadly consistent with the growth
in adjusted earnings per share growth.
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.
As already highlighted, the direct impact of COVID-19 has
diminished over the year, and we have in most instances returned to
normal work and travel practices. Where appropriate we continue to
offer flexibility to our employees as to their location of work,
including hybrid working in some cases. As of June 2022, 75% of our
employees are mostly based on our or our customers' sites, which
compares with 50% at this time last year.
We have seen a return to face-to-face customer meetings and in
the last few months alone we have attended trade shows in
Australia, Europe, Asia and the United States. We could not easily
assess the direct impact of the various COVID-19 lockdowns on our
long-term business prospects but the strong order intake in the
last two years suggests this may not be as deep as we first feared.
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 continuing challenging
conditions.
Governance and Board
As separately announced, Stanley Carter has decided not to stand
for re-election as a non-executive Director at Cohort's forthcoming
Annual General Meeting to be held in September 2022. Stanley has
made an immense contribution to the development and success of
Cohort since co-founding it with me in 2006, initially as Chief
Executive, then as Co-Chairman and since 2015 as a Non-executive
Director. The Board and all Cohort staff are grateful to him for
his leadership and support during different phases of the company's
development, and we look forward to continuing the relationship
with him as a major shareholder.
We formally welcomed Beatrice Nicholas onto the Board as a
Non-executive Director on 1 September 2021. Beatrice has had a long
and successful career in the defence industry and brings a wealth
of experience in engineering, project management and general
management to Cohort.
I also take this opportunity to welcome David Tuddenham as the
new Managing Director of Chess. David had worked for Chess for over
ten years in senior positions before stepping up to this role in
June 2021. David replaces Graham Beall who will lead Chess's
business development in the USA. At ELAC, we have adjusted the
senior roles, with Bernd Szukay appointed Managing Director and Ole
Schneider as Finance Director.
Outlook
The new year has started in line with our expectations and with
an encouraging outlook for Cohort, despite the challenging external
environment.
Geo-political and macro-economic trends
The recent sad events in Ukraine have impacted on a world
economy still recovering from the COVID pandemic. The invasion has
seen a higher level of focus amongst governments, particularly
European NATO members, on their defence stance. In some instances,
notably the UK and Germany, this has already led to an increase in
defence spending.
It is hard to predict the duration of the conflict in Ukraine
and its direct impact upon the Group's trading. In the longer term,
after the taboo over armed invasion of peaceful neighbours has so
clearly been broken, we expect to see a more sustained growth in
defence budgets, both in NATO but also in other parts of the world
where security threats remain.
To set against this, we expect to see economic fallout from the
war in Ukraine as well as the lingering impacts of COVID-19. These
include higher inflation and rising interest rates and therefore
pressure on governments to mitigate these effects on their
populations.
The Group is not currently facing any direct restrictions on
business activity arising from COVID-19, though we cannot rule out
some re-introduction of restrictions if a new variant should cause
severe health problems. We still face indirect fall-out in the form
of cost increases and delays to supplies. These are not currently
having any significant impact on performance, but we are seeing
delivery schedules for certain components lengthen markedly and may
see some impacts in the short term.
Encouraging outlook for Cohort
Our order intake for the year was strong and as a result of this
success, the Group has entered the new financial year with a record
order book of GBP291.0m. As we have indicated in the last few
years, our order book is not only growing in value, but its
longevity continues to increase. We now have orders across the
Group stretching out to 2030. We have good prospects in the coming
year to secure further long-term orders for our naval systems and
support work, including from the UK MOD, Portugal and in export
markets.
The order book underpins nearly GBP128m (2021: GBP100m) of
current financial year revenue, representing 78% of expected
consensus revenue for the year. Following order wins since the
start of the financial year of just over GBP20m, that cover now
stands at 90%.
Overall, we continue to expect that our trading performance for
2022/23 will be ahead of that achieved for the year ended 30 April
2022. As a result of planned capital expenditure and expansion in
working capital we expect that our net cash balance will decrease,
but that we will maintain positive net funds at the year end.
We are optimistic that the Group will make further progress in
2023/24, based on current orders for long-term delivery and on our
pipeline of opportunities.
Nick Prest CBE
Chairman
Operations Review
"The Group's profit performance for the year was in line with
our expectations at the time of our half-year results announcement
on 14 December 2021. Pleasing improvements in performance at ELAC,
MCL and SEA were offset by reduced profits at EID and, especially,
Chess. Cash performance was better than expected, resulting in a
strong positive net cash position at the year end. Order intake was
also strong, and the resulting record order book gives us a solid
base for 2022/23. We see good prospects for further significant new
orders in the year ahead."
Operating review
2022 saw another strong year for order intake, with GBP186.4m of
new work contracted compared with GBP180.3m in 2021. That resulted
in a record closing order book of GBP291.0m, an historic high for
the Group, underpinning 78% of the consensus forecast revenue for
2023. Cash flow was robust, the Group closing the year with net
funds of GBP11.0m (2021: GBP2.5m). In line with our expectations at
the time of the half-year results announcement in December 2021,
revenue was down despite a full year contribution from ELAC, and
trading profit down 17%.
We saw a welcome return to growth at SEA, with an increase in
export deliveries following order wins in 2020/21. MCL grew its
revenue and trading profit with higher deliveries of autonomous
vehicle systems to the UK MOD. Despite slightly reduced revenue,
mostly from cessation of its lower margin support to the
Metropolitan Police Service, MASS delivered a record high net
margin. As expected, EID's contribution was lower this year, with
deliveries on a large export order in 2020/21 not being repeated.
The main disappointment of the year was at Chess, where
significantly reduced revenue and profit resulted from order
slippage, delayed deliveries on key programmes and continuing cost
increases on certain legacy projects.
ELAC performed well in its first full year in the Group
(compared with its five-month contribution in 2020/21). Its revenue
and profit included a GBP1.1m contribution from the mechanism
agreed with Wärtsilä, ELAC's former owner, in respect of an export
contract that has not yet been made effective. This mechanism may
provide up to a further GBP0.5m in 2022/23. ELAC has begun to
recognise revenue on the major Italian submarine sonar contract won
last July and has continued to deliver against a pleasing level of
product, spares and repair orders.
Travel and operational restrictions arising from the COVID-19
pandemic continued in the first half of the financial year, with
international travel restrictions still in place in many regions,
and this has affected some customer contact, and with that some
order closure and pipeline building opportunities, but despite this
the Group overall has performed well in winning new business. The
Group's record closing order book of GBP291m gives us order cover
of just under GBP128m for 2022/23. Over the last two years, despite
the effects of COVID-19, the Group secured orders of over GBP365m,
materially growing and extending the duration of its order
book.
We have seen an impact on deliveries of products and services
resulting from pandemic-related customer site closures and
restrictions. This has been especially true of MASS's training
work, some of which has slipped into 2022/23. Although COVID-19
restrictions have now generally lifted, we continue to see price
increases and extended lead times for certain materials and
components, especially semiconductors. We also see upwards pressure
on salaries in certain specialist areas of expertise. We are taking
action to maintain deliveries and protect our margins through
increasing stock levels, seeking alternative sources of supply, and
ensuring that our commercial arrangements enable us to pass on
higher costs.
Towards the end of the financial year, we began to see an
increase in activity as certain of our customers responded to
Russia's invasion of Ukraine. This had minimal financial impact on
2021/22 but we anticipate some of this activity converting to
tangible orders and deliveries during 2022/23.
As we signalled in December 2021, the Group's adjusted operating
profit fell by nearly 17% to GBP15.5m (2021: GBP18.6m) on revenue
of GBP137.8m (2021: GBP143.3m), a net operating return of 11.2%
(2021: 13.0%). This was primarily a result of the disappointing
performance at Chess. The Group's statutory operating profit of
GBP11.1m (2021: GBP7.8m) reflects the amortisation of other
intangible assets, a GBP6.9m non-cash charge in 2022 (2021:
GBP10.1m 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.
ELAC made a strong full year contribution after its initial
five-month contribution in 2020/21. Its revenue included an initial
contribution from the major Italian submarine sonar programme won
in July 2021. It also delivered specialist sonar products for
various export customers, including its widely used underwater
communication system, and spares and support for both its current
product range and legacy hydrographic products.
MASS returned to growing its trading profit despite a slight
(3%) fall in revenue. MASS continued to see some headwinds from
COVID-19 restrictions, especially in the first half of the year,
but these began to ease in the second half with a pick-up in its
various training services and support to the UK's Joint Forces
Command.
MCL delivered increased revenue and profit with provision of
autonomous land vehicles and hearing protection more than
offsetting a reduction in deliveries of systems for the UK
submarine fleet last year.
SEA saw a welcome return to growth with higher export and
support sales offsetting lower submarine activity. Transport sales
also returned to growth following a hiatus in activity during
COVID-19 restrictions in the early part of 2020/21.
As expected, EID's performance was much weaker than last year
which included a large export order of intercom systems. EID had a
stronger order intake for the year compared with 2020/21 but the
business still awaits some key orders, particularly for long term
naval programmes which are anticipated in the coming financial
year.
Chess had a poor year, delivering only a marginal trading profit
on much lower revenue compared to 2020/21. This resulted from order
intake that was lower than expected, delivery delays and cost
overruns on a small number of problem projects. Over the year we
have strengthened Chess's senior management team and made
organisational changes intended to improve performance and reduce
risk. These changes have begun to have an impact, and we have seen
an improved performance at the beginning of 2022/23.
The growth in central costs reflects the enhanced commercial,
legal and financial resources we have brought in to support
subsidiary growth, especially in export markets, together with the
increasing compliance requirements faced by the Group.
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
through 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 as we hopefully now return
to more normal working practices.
We have made a small number of changes to the senior management
of our subsidiary businesses. David Tuddenham took over as Managing
Director of Chess in June 2021. After a period when they shared the
role, Bernd Szukay has been appointed as sole Managing Director of
ELAC with Ole Schneider taking on the role of Finance Director, the
latter including responsibility for certain operational matters.
Both retain the German legal status of Geschäftsführer.
Like many high-skill businesses, we are facing challenges in
recruiting qualified and experienced people to meet our customer
demands and our own investment strategies. As our order book has
grown, so have our employee numbers and the Group now has nearly
1,050 staff compared with just over 1,000 this time last year. We
will continue to add more resources in the coming year, especially
at Chess, ELAC and SEA.
Operating strategy
Organic growth
The Group's adjusted operating profit was in line with our
expectations at the time of the half year results in December 2021.
Despite some good performances across the Group, overall, this
meant a lower level of revenue and profit than in 2020/21.
Nevertheless, the strong order intake achieved in 2021/22, and the
further prospects we can see in the short and medium term, provide
confidence that the group will make progress in the year ahead.
Despite the difficulties thrown up by the COVID-19 pandemic in
the first half of the year, we have had a good year for new orders,
and we ended it with a record order book. The return to some
normality in the second half of our financial year saw a welcome
return to face-to-face business shows, with members of the Group
attending defence events in the USA, Australia, Malaysia,
Philippines and across Europe. These are positive indicators for
future organic growth, and we enter 2022/23 with a record level of
order cover for external revenue expectations for the year.
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 benefits from an extremely high customer reputation,
rare or unique technical capabilities and experience at building
long-lasting customer relationships. Much of its revenue derives
from long-term service contracts, and it aims gradually to add more
of these building-blocks to its revenue stream.
-- EID combines a low cost-base by international standards with
access to Portugal's extremely strong technical education system.
This has allowed it to develop high-performance low-cost defence
communications products that can win business in a highly
competitive marketplace.
-- Chess makes use of its innovative engineers, customer-focused
culture and freedom to source sensors from the best international
providers to win business 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 and, alongside Chess, trainable decoy
launchers.
-- 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. Its 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 2022 has seen some notable successes for ELAC, MCL
and, in particular SEA. Discussions with potential customers have
opened up some major longer-term opportunities for all of our
businesses.
Being part of the Cohort Group brings material advantages to our
operating 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. Examples in the last year included the award
of a EUR49m order to ELAC for sonar systems for the Italian Navy's
new class of submarine and an initial development order for the
Royal New Zealand Navy at SEA.
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 with each other 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. Recent examples
include a renewal of MASS's support to the Joint Forces Command out
to July 2024 and significant (GBP15m) orders for hearing protection
systems at MCL. We also expect to conclude some key long-term
supply and support orders for the Royal Navy and systems orders for
export naval customers in the coming year.
Acquisitions
Alongside our organic growth strategy, we continue to see
opportunities to accelerate our growth by making further targeted
value enhancing acquisitions. We believe that there are good
businesses in the UK and overseas that would thrive under Cohort
ownership, whether as standalone members of the Group or as
"bolt-in" acquisitions to our existing subsidiaries.
The most likely candidates for bolt-in acquisitions are
businesses with capabilities and/or customer relationships that are
closely linked to one of our existing subsidiaries. We would expect
to integrate an acquired business of this nature fully within the
relevant subsidiary. This could lead to both cost savings and
benefits from shared access to markets and technologies.
For standalone acquisitions we are looking for agile, innovative
businesses that have reached a stage of development where there
will be mutual benefit in joining Cohort. It is likely that
candidates will be operating in the defence and security markets
either in the UK or internationally, as that is where the Group can
add most value. Growth prospects, sustainable competitive
advantage, and the ability to operate as part of a publicly quoted
UK group will all be important.
We have reviewed a significant number of possible acquisitions
over the last year, in some cases leading to active discussions.
Our experienced executive team is conscious of the various
potential risks that arise from acquisitions and takes a careful
approach, with only a small proportion of the opportunities we see
being brought to fruition. When we do identify an opportunity that
we believe to be value-creating, the close involvement of our
senior team means we can be very flexible in terms of transaction
structure, and quick in decision-making. That gives us some
advantage compared to competitors who may have larger resources
available.
On 20 August 2021 SEA acquired the reminder of its joint
venture, JSK, which is based in Canada for a net consideration of
GBP0.4m. This was part of SEA's plan to develop and grow its
business in Canada, primarily to support the new Canadian Frigate
programme.
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
ended 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 GBP1.4m (2021: GBP2.8m) in total on or before 31
October 2022.
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.
We have invested in our Head Office function over the last two
years, introducing commercial support to the subsidiaries,
particularly for export business. We have also invested in the
financial, legal and company secretarial functions, partly to
support the subsidiaries but also to deal with the ever-growing
tide of compliance requirements. This includes increasingly wide
and onerous external audit requirements, which is reflected in
rising audit fees, and the need for external support for
environmental reporting.
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 Dynamics is an innovative, well-respected surveillance, tracking
and gunfire control specialist for military and commercial customers.
Chess' military customers include defence forces and prime contractors
in the UK and overseas for the naval and land sectors.
Based in Horsham, Plymouth and Wokingham, 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, tracking, and targeting
systems, and a wide range of high-performance cameras and special
sensors.
The Chess portfolio includes the Vision4ce branded real time video
and image processing solutions for electro-optic systems. This covers
the supply of rugged hardware (PCs that utilise the latest Intel mobile
processors) for harsh environments on land, at sea and in the air,
along with integrated software solutions (such as GRIP View video
management software and DART video tracking software) incorporating
sophisticated image processing algorithms for object detection and
tracking.
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 also a major developer and world-wide supplier of counter-sUAV
(drone) protection systems including rapid deployment systems for
military and security use. It provides a complete service including
survey, installation, training, and maintenance across its entire
product range, including bespoke engineering solutions.
Chess has been supplying equipment, sub-systems and systems to defence
forces and prime contractors since 2005. Cohort acquired a majority
share in Chess in 2018. It is led by Managing Director David Tuddenham.
2022 2021
GBPm GBPm
--------------------- ------ ------
Revenue 16.9 28.6
Adjusted operating
profit 0.3 3.0
Operating cash flow (5.8) (1.0)
--------------------- ------ ------
Chess had a very poor 2021/22. Order delays, technical and
delivery delays, and continued project issues all negatively
impacted on both revenue and trading profit. It has made a better
start to 2022/23.
Chess previously operated through two distinct businesses, Chess
Dynamics and Vision4ce, both owned by Chess Technologies. During
2021/22, Vision4ce was integrated with Chess Dynamics to ensure
that the process improvements at Chess were replicated there, and
that the full resources of the business, including its software
arm, could be focused on the highest priority tasks.
Chess's revenue is dominated by export customers. Deliveries
during 2021/22 for some major contracts that were secured in the
previous few years saw delays due to technical issues, including in
one instance a customer requested deferral whilst a technical
upgrade was developed and tested. Chess also suffered margin
deterioration from continuing issues on legacy projects. We have
made significant progress on these, and we expect them to be fully
resolved in the coming year.
Chess and its customer reached a mutual agreement to terminate
one contract in 2021/22. Approximately GBP6m of revenue had been
recognised previously on the project and this was reversed in
2021/22. The profit impact in 2021/22 was minimal and the system
has been subsequently sold to a new customer in 2022/23.
Despite the dip in performance in 2021/22, 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. For instance, it is working closely
with SEA on developing a new generation of decoy launcher.
Chess's operations were only marginally impacted by the COVID-19
pandemic and lockdown with a few in-country activities being
postponed. However, its business winning methods rely significantly
on demonstrating its product, often at trade shows and exhibitions
which Chess was unable to do during the various COVID-19
restrictions. In the last few months, as restrictions have eased,
Chess has been able to renew its activities including demonstrating
new products to the US Navy.
Chess's rapid evolution over the last few years has caused it
some growing pains, especially in project control and delivery.
This, along with an increase in working capital, has resulted in a
weak cash performance this year. Cohort has been working with
Chess's management 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, its commercial approach and ultimately its cash
performance, with the aim of ensuring it will be fully able to
deliver on its order winning success over the last two years.
We made changes to the senior management and organisation of
Chess in 2021/22 following the appointment of David Tuddenham as
Managing Director last June. These have led in turn to improvements
in processes and controls, which have begun to show a tangible
positive impact. Most of Chess's problem projects are now either
fully resolved or on a clear path to improvement.
Chess's order book at April 2022 of nearly GBP41m provides cover
for GBP22m of 2022/23 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 C3 equipment for the global defence and security
markets. Its customers are primarily national naval and military forces
in Portugal and overseas.
EID changed its operational structure in May 2021, creating single
engineering and business development teams to enable a more coordinated
focus on product development and to addressing its markets. These
changes have already seen progress in developing both its next generation
naval communication system and a new soldier system, the latter resulting
in the award of a major contract by the Portuguese Army during 2021/22.
The 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, and innovation
agency IAPMEI. EID joined the Group in 2016.
2022 2021
GBPm GBPm
--------------------- ------ ------
Revenue 8.2 20.9
Adjusted operating
profit 0.9 4.8
Operating cash flow 1.7 5.4
--------------------- ------ ------
As expected, EID's revenue and profit were lower than in
2020/21, which saw the completion of a large export contract.
EID's reliance on some significant export orders does bring a
risk of year-to-year fluctuations in performance. In 2021/22 nearly
50% of EID's revenue was from its domestic customer, the Portuguese
MOD. We expect this situation to continue into 2022/23 with key
orders for the Portuguese Army and Navy being important to EID's
trading performance over the next few years. One significant Army
order, on which delivery has already begun, was secured in 2021/22.
We expect to see a key naval order in 2023. EID is also actively
working with both ELAC and SEA to promote their respective products
and solutions for the Portuguese Navy, using EID as a local
integrator and support partner.
EID had a solid cash performance for the year. Some significant
deliveries were made late in the year and the receipts from these
will be received in early 2022/23. EID is increasing its stock
holding to enable it more readily to meet customer needs.
EID's closing order book of GBP23m underpins over GBP11m of
revenue for 2022/23, already greater than that achieved in 2021/22.
At over 70% of revenue expectation for the year this order cover is
much greater than at the same time last year, when it was below
50%.
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 for underwater surveillance, object avoidance
and ranging. These include complete submarine and surface ship sonar
suites, submarine rescue sonars, digital underwater communications
and echo-sounders for manned and unmanned platforms. The company specialises
in developing innovative hydro-acoustics, working in partnership with
customers to meet their specific needs, offering flexibility through
open architectures.
The market-leading digital underwater communication system UT3000
and the open-architecture based KaleidoScope system, developed and
successfully delivered throughout 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, the naval systems industry and the University
of Kiel nearby, ELAC has access to excellent resources and networks.
ELAC is led by Bernd Szukay and joined the Cohort Group in December
2020.
2022 2021 (five
GBPm months)
GBPm
--------------------- ------ -----------
Revenue 21.5 8.3
Adjusted operating
profit 3.8 1.2
Operating cash flow 6.6 0.4
--------------------- ------ -----------
ELAC's full year contribution was stronger than the annualised
2020/21 equivalent. Much of this growth was due to the Italian
sonar contract.
In early July 2021, 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.
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 project, which is the largest technical delivery
contract the Group has ever won, has been overseen by a Programme
Advisory Committee set up by Cohort and whose members have
extensive knowledge and experience of operating, developing, and
delivering submarine systems.
We continue to closely review the project and how it is
monitored going forward.
In addition to the significant contribution of this project to
ELAC's 2021/22 performance, it also saw a number of good orders for
its market leading underwater communication systems, both new,
upgrades and spares. ELAC also had a good contribution from higher
margin spares, repairs and legacy hydrographic equipment. ELAC
continues to add key resources, both people and capital to enable
it to deliver its order book and secure further important naval
sonar programmes with other navies.
As for 2021/22, ELAC has nearly 90% coverage of its 2022/23
revenue expectations.
At the time of the acquisition ELAC had agreed in principle to
supply another customer with submarine sonar systems, but this has
not yet resulted in a finalised contract. A mechanism was agreed
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 GBP1.1m in respect of this mechanism, which will
contribute up to a further GBP0.5m in 2022/23.
In the coming few years, ELAC will invest in a new facility in
the Kiel area to further enhance its offering. Its current facility
is now old and is planned to be redeveloped by its landlord for the
University of Kiel.
SUBSIDIARY REVIEW
MASS
MASS is a global technology company, trusted by the most secure organisations
to provide advanced, cyber hardened digital services centred around
data, information and knowledge. MASS has built its reputation through
decades in defence, providing training, electronic warfare and cyber
security services for governments to keep their confidential information
safe. It now offers its data management and protection solutions to
other sectors where data security expertise is crucial.
MASS works in partnership with customers to fit solutions to their
needs, using highly-skilled, technical experts. The company innovates
through new technology and thinking that enables swift adaptation
to the changing data environment. MASS also supports opportunities
and local initiatives for talented young people in STEM.
MASS operates through four divisions.
The EWOS (Electronic Warfare Operational Support) 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.
2022 2021
GBPm GBPm
--------------------- ------ ------
Revenue 38.5 39.5
Adjusted operating
profit 9.1 8.7
Operating cash flow 9.9 4.6
--------------------- ------ ------
MASS had a stronger year despite a small fall in its revenue.
The mix of work and flat overheads improved its trading profit.
MASS continued to see the impact of COVID-19 restrictions,
particularly in the first half of the financial year on its EWOS
training provision. The same issues impacted exercise work at the
Joint Forces Command. The nature of MASS's work reflects its
long-term investment in defence capability and threat analysis.
Short term changes in operational circumstances can delay MASS's
delivery, even when under contract, as we have seen recently with
Joint Forces Command support. We now expect that to return a normal
level of activity in 2022/23.
The EWOS (Electronic Warfare Operational Support) business,
which is mostly export, saw a further reduction in training and
overseas support activity, some slipping into 2023. Digital
Services activity was up slightly but the mix drove a stronger
trading profit. In the other parts of the business, especially its
technical support to key parts of UK defence, MASS was able to
increase its activity as COVID restrictions eased.
MASS's net margin increased again to 23.7% (2021: 22.1%). This
was due to improved mix, especially in Digital Services, cost
savings in delivering some of its long-term work and flat
overheads. Together these offset the lower revenue and margin in
the EWOS division.
MASS's operating cash flow this year was very strong, catching
up on some delayed receipts in 2020/21. We do not expect such a
strong cash flow in 2022/23.
MASS continues to demonstrate its strength in its core markets
of EWOS and niche technical support to key government capabilities.
Its order book of nearly GBP73m gives good visibility beyond 2023
although its coverage for 2022/23 of 60% is slightly lower than we
have seen in recent years.
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 C4IS portfolio includes a full suite of hearing
protection equipment for vehicle mounted and dis-mounted operations,
communication ancillaries including Antennas, 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 an expanding, expert
workforce of nearly 40 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 has been part of the Cohort
Group since 2014 and is led by Managing Director Shane Knight.
2022 2021
GBPm GBPm
--------------------- ------ ------
Revenue 21.7 18.0
Adjusted operating
profit 2.2 2.1
Operating cash flow 0.6 4.3
--------------------- ------ ------
MCL grew in 2021/22 with revenue and adjusted operating profit
up by 21% and 5% respectively. MCL had a very strong year of order
intake, including over GBP15m of hearing protection orders.
MCL's deliveries in 2021/22 included the autonomous ground
vehicles ordered in 2020/21, as well as hearing protection systems
for the army offsetting lower systems deliveries for Royal Navy
submarines, the latter now entering a period of long-term
support.
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 GBP12.4m (April 2021) to GBP22.5m (April 2022) which
underpins 80% of its revenue expectations for the coming year. The
visibility of MCL's revenue still remains, on average, in the three
to six-month range, MCL does see some substantial opportunities in
long-term UK naval support programmes, particularly on the new
planned frigates for the Royal Navy. Success in these would enable
MCL to improve its revenue visibility significantly.
MCL, of all of our businesses, is very much at the forefront of
changes in operational tempo at the UK MOD. It has in the last few
months seen a significant uplift in activity from the UK MOD, and
we anticipate some of this translating to orders in the coming
financial year.
MCL moved its operations to a new site, close to its former site
in Horley in January of 2022. The new facility provides much
improved facilities for developing and trialling its products.
SUBSIDIARY REVIEW
SEA
SEA delivers systems, 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 combat systems requirements, including communications,
ship and fleet protection via torpedo and decoy launching systems,
and anti-submarine warfare systems, including 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 three divisions:
-- Complex Systems, based at Beckington;
-- Maritime Solutions, based at Barnstaple; and
-- Transport Management, based in Bristol.
The technology and innovation activities of the organisation are underpinned
by strong project management and dedicated production and support
teams. In the last year SEA has enhanced its senior management team
with several new recruits and has adjusted its strategy to align its
research and training activities to support its product offerings,
rather than being independent business lines.
In the final quarter of the year, SEA combined all of its engineering
capability into a single function under one director, to ensure that
the engineering resource is effectively managed and prioritised, and
that development and skill gaps are addressed.
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.
2022 2021
GBPm GBPm
--------------------- ------ ------
Revenue 31.0 28.0
Adjusted operating
profit 3.4 2.4
Operating cash flow 5.7 9.8
--------------------- ------ ------
After a strong order intake in 2020/21, SEA had a solid year
with revenue growing by over 10% and trading profit by over
40%.
The change in SEA's revenue over the last five years is analysed
by activity as follows:
2018 2019 2020 2021 2022
GBPm GBPm GBPm GBPm GBPm
------------------ ----- ----- ----- ----- -----
Submarine systems 7.3 4.7 2.7 4.2 2.4
Research 2.3 4.5 5.2 3.0 4.9
Export defence 7.1 8.2 1.6 2.3 4.9
Other defence
products and
support 13.2 9.6 11.7 11.1 12.1
Transport 5.3 9.2 7.6 6.4 6.7
Subsea 2.1 2.1 2.9 1.0 -
------------------ ----- ----- ----- ----- -----
SEA total revenue 37.3 38.3 31.7 28.0 31.0
------------------ ----- ----- ----- ----- -----
Submarine systems activity at SEA declined following the
cancellation of a major contract in early 2021/22. This contract
was terminated by the Australian government following a change to
its strategic stance. Its intention is move away from a
conventional (diesel) powered submarine to a nuclear-powered vessel
in alliance with the UK and USA (AUKUS). We are optimistic that,
when this programme re-launches, SEA's external communication
system, as used on the UK's nuclear submarine, will be the
preferred solution.
SEA's research activity saw growth in its naval research. SEA's
research, training and simulation activities will in future have a
greater focus on supporting its main product and service
offerings.
Export revenue at SEA was up significantly with orders won in
the final quarter of the previous financial year being delivered in
2021/22. Export revenue included development work on an order for
the Royal New Zealand Navy. This was to upgrade the external
communication system on the ANZAC class of frigates. SEA secured a
further follow-on export order from a previous customer for its
Torpedo Launch System.
Revenue from other defence products also increased, a result of
higher levels of support activity and the inclusion of revenue from
JSK, SEA's Canadian subsidiary.
SEA's transport business saw a 5% rise in revenue with a return
to pre-COVID19 activity levels. The new Clean Air Zone for Bristol
provided both order intake and revenue in year.
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. SEA has won nearly GBP100m of orders in the
last two years. This has provided SEA with improved short and
long-term visibility, including a number of export contracts for
its Torpedo Launch systems. The closing order book of over GBP75m
underpins just over GBP27m of revenue expectations for 2022/23.
SEA's position for UK submarine communication systems and key
defence systems for the Royal Navy's surface fleet provide very
good prospects for the coming and future years in securing
long-term support and delivery orders, some of which will stretch
into the early 2030s. SEA secured its first significant orders for
the new Dreadnought class of submarine in 2021/22. We also expect
follow on orders for some of its key export contracts.
SEA acquired the other half of its joint venture, JSK, which is
based in Canada. This has allowed SEA to fully control the delivery
of its Torpedo Launcher Systems to the Canadian frigate programme
and to reinvigorate its efforts to support existing Royal Canadian
Navy vessels including the Victoria Class submarines.
FINANCIAL REVIEW
Revenue analysis
The segmental breakdown of sales in 2021/22 was similar in
proportions to 2020/21. In absolute terms we saw a fall in C4ISTAR
revenue, driven by lower intercom deliveries from EID, partly
offset by higher MCL sales. The slight drop in combat systems
revenue was due to lower revenue at Chess where a project was
terminated in 2021/22, offset by higher Torpedo Launch systems
revenue at SEA to export customers. The other segment areas were in
line with last year.
The Group saw an increase in revenue with the UK MOD, although
it remains below 50% of the Group total revenue. The increase was
at MCL and MASS.
Sales to the Portuguese MOD decreased, a result of continued
delays to orders for both land and naval systems. A key land system
order for the Portuguese Army was secured in 2021/22, albeit later
than expected, and this and some delivery delays, resulted in
revenue below our expectations. Important naval orders are now
expected in 2023 and should start to deliver revenue in 2023/24.
The higher German sales reflected a full year contribution from
ELAC and some refresh programmes starting for German surface
ships.
Security sales were lower as MASS completed its contract with
the Metropolitan Police Service in July 2021.
Export defence sales were lower due completion of a large Middle
East order at EID last year. Chess saw declines in revenue as one
contract was terminated and deliveries on other contracts were
delayed into 2022/23 due to changes in customer requirements. These
were partly offset by stronger export sales at SEA following good
order intake in 2020/21. MASS's export revenue was lower as
training provision to export customers continued to be impaired by
COVID-19 restrictions, especially in the first half of the year and
these could not be made up in the second half.
The Group's defence and security business is the largest part of
our business, accounting for 92% of our revenue this year (2021:
94%). The Group's non-defence revenue was up over 30% compared to
last year, with SEA's transport business seeing a slight increase
as COVID-19 restrictions eased. MASS education revenue was higher
and ELAC saw increased deliveries of legacy commercial echosounder
spares.
Revenue by sector and business
Chess EID ELAC MASS MCL SEA Group
----------- ---------- ---------- ---------- ---------- ---------- ----------------------
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
----------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- --- ----- ---
Defence and
security 16.8 28.6 8.2 20.9 20.3 8.3 35.3 37.6 21.7 18.0 24.3 20.6 126.6 92 134.0 94
Transport - - - - - - - - - - 6.7 6.4 6.7 5 6.4 4
Offshore
energy - - - - - - - - - - - 1.0 - - 1.0 1
Other
commercial 0.1 - - - 1.2 - 3.2 1.9 - - - - 4.5 3 1.9 1
----------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- --- ----- ---
16.9 28.6 8.2 20.9 21.5 8.3 38.5 39.5 21.7 18.0 31.0 28.0 137.8 100 143.3 100
----------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- --- ----- ---
The defence and security revenues are further broken down as
follows:
Chess EID ELAC MASS MCL SEA Group
----------- ---------- ---------- ---------- ---------- ---------- ---------------------
2022 2021 2022 2021 2022 2021 2022 2021 2021 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm %
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
Direct to
UK MOD 0.1 - - - - - 21.0 19.3 19.3 16.6 5.9 8.0 46.3 34 43.9 31
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
Indirect
to UK MOD
where the
Group acts
as a
sub-contractor
or partner 2.6 2.1 0.1 0.1 - - 4.9 4.8 0.8 0.4 10.2 8.9 18.6 13 16.3 11
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
Total to
UK MOD 2.7 2.1 0.1 0.1 - - 25.9 24.1 20.1 17.0 16.1 16.9 64.9 47 60.2 42
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
Portuguese
MOD - - 3.9 5.9 - - - - - - - - 3.9 3 5.9 4
German MOD - - - - 4.0 1.0 - - - - - - 4.0 3 1.0 1
Security 2.0 2.4 - - - - 3.1 4.5 1.6 1.0 - - 6.7 5 7.9 6
Export defence 12.1 24.1 4.2 14.9 16.3 7.3 6.3 9.0 - - 8.2 3.7 47.1 34 59.0 41
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
14.1 26.5 8.1 20.8 20.3 8.3 9.4 13.5 1.6 1.0 8.2 3.7 61.7 45 73.8 52
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
16.8 28.6 8.2 20.9 20.3 8.3 35.3 37.6 21.7 18.0 24.3 20.6 126.6 92 134.0 94
--------------- ---- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- ---
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 2022 30 April 2021
---------------- ----------------
GBPm % GBPm %
----------------------------------- ---------- ---- ---------- ----
By market segment
Combat systems 19.0 14 22.0 16
C4ISTAR 75.0 54 79.0 55
Digital Services 14.0 10 14.5 10
Training and simulation 9.6 7 9.5 7
Research, advice and support 7.5 6 7.4 5
Other 1.5 1 1.6 1
----------------------------------- ---------- ---- ---------- ----
Total defence and security revenue 126.6 92 134.0 94
----------------------------------- ---------- ---- ---------- ----
The Group's total revenue, broken down by type of deliverable is
as follows:
Year ended Year ended
30 April 2022 30 April 2021
---------------- ----------------
GBPm % GBPm %
-------------- --------- ----- --------- -----
Product 82.7 60 90.7 63
Services 55.1 40 52.6 37
-------------- --------- ----- --------- -----
Total revenue 137.8 100 143.3 100
-------------- --------- ----- --------- -----
Operational outlook
Order intake and order book
Order intake Order book
-------------- ------------
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
------ ------ ----- -----
Chess 15.2 57.7 40.7 42.3
EID 11.4 4.3 23.1 20.0
ELAC 57.1 7.2 56.8 21.2
MASS 34.1 25.6 72.8 77.2
MCL 31.8 21.8 22.5 12.4
SEA 36.8 63.7 75.1 69.3
------ ------ ------ ----- -----
186.4 180.3 291.0 242.4
------ ------ ------ ----- -----
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 ELAC and increased order intake at EID, MASS and MCL
offsetting the unwinding of some of 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 from these
contracts as deliveries take place.
The 2021/22 order intake was 135% (2021: 126%) of the Group's
revenue for that year.
The revenue on order (order cover) for the coming year is 78%
(2021: 64%) as at 30 April 2022, based on consensus external
revenue forecasts. This had risen to 90% 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 GBP15.2m was mainly orders for European
land forces, including extensions to a larger order received in
2020/21. Chess's order intake is net of an order cancelled by
mutual agreement for which the equipment developed has now been
supplied to a new customer in 2022/23. Chess's order intake
included over GBP4m of spares and repairs and we have recently
invested in its logistics and support team to grow this important
revenue stream. Chess's closing order book of GBP40.7m included
GBP22.0m for delivery in 2022/23. Chess is well positioned for
further naval and land programmes which we hope will convert to
orders in the coming year. As expected, Chess's order intake was
lower than 2020/21, which was dominated by two large orders from
European customers. The actual order intake was weaker than we had
expected in the year and this in part contributed to the weaker
performance. As we saw last year, weaker margins on some projects
due to delays, customer deployment changes and technical challenges
continued. These challenging projects have mostly been closed out.
The now established new management team at Chess, and stronger
underpinning of revenue expectations for 2022/23, give us
confidence that Chess will deliver a stronger performance for the
coming year, more akin to 2020/21.
EID's order intake for this year was higher at GBP11.4m (2021:
GBP4.3m), including a long-awaited order from the Portuguese Army.
EID's order book of GBP23.1m provides GBP11.3m of underpinning for
2022/23, which is already ahead of 2021/22. 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
and we expect a significant naval order for the Portuguese Navy to
be secured in 2023. The stronger start point and some good
prospects should see EID improve its performance in 2022/23 but it
will still be short of the levels achieved historically.
ELAC, as expected had a very strong order intake for 2021/22,
including over GBP40m for sonar development and delivery on two new
Italian submarines. ELAC secured orders for other navies including
the German, UK's Royal Navy and Japan. ELAC also received nearly
GBP7m of various spares and support orders, reflecting its widely
installed product base, especially for underwater communication
systems. ELAC's order book of GBP56.8m includes GBP19.9m to be
delivered in 2022/23. We expect ELAC to perform in line with
2021/22, before including the income from the agreed mechanism with
Wärtsilä, which will be lower as this mechanism concludes in
November 2022.
Delivery of the Group's order book into revenue
MASS's order intake of GBP34.1m included the exercise of an
option by the customer of over GBP11m to extend MASS's support to
the UK's Joint Forces Command out to July 2024, a service MASS has
been providing for nearly 20 years. MASS's closing order book of
GBP72.8m includes nearly GBP27m of revenue to be delivered in
2022/23. Following a good year in 2021/22, we expect MASS to only
show modest growth in the coming year. With the easing of COVID
restrictions, we are seeing MASS's level of operational activity,
particularly in training, returning to pre-COVID levels.
At MCL, order intake of GBP31.8m was much higher than last year
(2021: GBP21.8m) and included over GBP15m of hearing protection
related orders, including for the first time, Armoured Fighting
Vehicle crews and further extensions to its work on autonomous
vehicles for the British Army of nearly GBP7m. MCL's closing order
book of GBP22.5m includes GBP20.4m to be delivered in 2022/23, an
historically high level of cover for MCL. Our long-term aim remains
to strengthen MCL's order book and prospects to give it more
visibility of future workflows and we have made some progress in
respect of this in the current year. MCL, by its nature, sees
changes in UK MOD (by far its major customer) activity quicker than
our other businesses and the current international situation gives
MCL some positive momentum. We expect MCL to grow again in the
coming year.
SEA's order intake of GBP36.8m was, as expected, not as strong
as last year (GBP63.7m) which included a ten-year support contract
to the UK Royal Navy's minor sonars at nearly GBP25m. Significant
orders secured in 2021/22 included continued work on ECS and other
systems for the UK's submarine fleet of over GBP4m, including the
first significant orders for the new Dreadnought class. SEA also
secured a follow-on order from the Philippines for its Torpedo
Launch System and an initial development order for deploying its
external communication system onto a surface ship for the Royal New
Zealand Navy's ANZAC frigate class. SEA's recently acquired
Canadian business, JSK secured over GBP1m of orders in the period
from August 2021. SEA's Transport division had a better year with
order intake of nearly GBP8m (2021: GBP7m), reflecting an easing of
COVID-19 restrictions. SEA's closing order book of GBP75.1m
underpins over GBP27m of revenue for 2022/23 and we expect it to
continue to grow in the coming year and achieve a net margin
approaching 12%. We are optimistic that SEA will secure further
export orders as well as long term Royal Navy support orders in the
coming year.
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. The 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 GBP33.6m this
year (2021: GBP40.8m). The decrease was due to a hiatus in some of
MCL's deliveries for Hearing Protection, orders for which
significantly picked up in 2021/22. The UK Government followed up
the review with a unique four-year spending commitment for UK
defence which included an additional GBP16bn of spending up to
March 2025, an increase of over 10% over the previous defence
spending plans for the same period. The invasion of Ukraine by
Russia and the concerted response by NATO has resulted in a
reinforced focus on defence and may drive NATO members' defence
spending levels to achieve the agreed minimum level of 2.0% of GDP.
The UK has set its objective of achieving 2.5% by 2030 which would
add around
GBP55bn to UK defence spending over the next eight years.
Unlike last year, the Group's businesses are not dependent upon
a single critical order to achieve their respective revenue targets
for 2022/23. The Group infill for the coming year of around 22% is
an historically low level. The level of infill required varies from
39% at MASS to around 10% at ELAC.
Funding resource and policy
At 30 April 2022, the Group's cash and readily available credit
was GBP51.1m (2021: 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, especially in the light of recent events in Ukraine. As
already mentioned, 78% of our revenue (based on consensus analyst
forecasts) for 2022/23 was on contract at 30 April 2022 providing
further assurance, and this has since increased to 90%. 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.
The Group completed a renewal of its banking facility on 18 July
2022. The new facility is for three years to July 2025 with options
to extend it for a further two years to July 2027. The revolving
credit facility (RCF) has been agreed on broadly similar terms to
the previous facility (which was due to expire in November 2022).
The RCF is for an initial GBP35m to be drawn and an option
(accordion) to draw a further GBP15m. The facility has been
extended from two to three banks with the addition of Commerzbank
to NatWest and Lloyds.
The Group's bank borrowings have been reported as due within one
year as the facility in place as at 30 April 2022 expires in
November 2022.
NatWest is the Group's primary bank in the UK, especially for
clearing purposes and day-to-day transactions. Commerzbank
undertakes a similar role in Germany for ELAC.
The Group's current facility is for GBP40m of which GBP29.3m is
currently drawn, leaving GBP10.7m available to be drawn down. The
facility itself provides the Group with a flexible arrangement to
draw down for acquisitions and overdraft. The Group's banking
covenants were all passed for the year ended 30 April 2022. Looking
forward, we expect this to continue out to 31 July 2023 and beyond
within the new facility, the covenants for which are the same as
the facility in place at 30 April 2022.
The facility is available to the UK and German members of the
Group and is fully secured over the Group's assets, including those
of Chess. EID's assets are excluded but the shares that the Group
owns in EID are included as part of the Group's security package
with the banks.
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 has a bilateral
facility in place with Commerzbank for provision of similar banking
instruments to ELAC in Germany.
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 as at 30 April 2022.
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 2022 were GBP11.0m (30 April
2021: GBP2.5m), better than expected due to timing of receipts,
delayed capital expenditure and the slipping of the Chess
acquisition, which is now expected to complete in the first half of
2022/23. Looking forward, we expect the Group's net funds at 30
April 2023 to be lower, as the currently seen timing advantage is
expected to unwind. The Group is expected to see an increase in net
funds by 30 April 2024 from 2023, if there is no further corporate
activity. Looking forward into 2023 through to 2025, the Group
expects to invest in a new facility for its ELAC business in
Kiel.
In addition to its cash resources, the Group has in issue 41.2m
ordinary shares of 10 pence each. Of these shares 0.7m (2021: 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 1.8m at 30 April 2022 (2021:
1.7m).
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 12.20 pence per share (2021: 11.10 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
Dividend year earnings from
Pence % per share) operations)
----- -------- ---------- ----------- ------------
2022 12.2 10 2.6 3.9
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
Looking forward the Group plans to maintain a policy of growing
its dividend each year and we expect the rate of growth over time
to be consistent with the expected adjusted earnings per share
growth of the Group
The Group's cash generation in 2022 was stronger than the
expected flat performance for the year. In summary, the Group's
cash performance was as follows:
2022 2021
GBPm GBPm
------------------------------ ------ ------
Adjusted operating profit 15.5 18.6
Depreciation and other
non-cash operating movements 2.8 2.4
Working capital movement 4.2 (0.1)
------------------------------ ------ ------
22.5 20.9
------------------------------ ------ ------
Acquisition of ELAC - (1.3)
Costs paid in respect
of acquiring ELAC - (0.6)
Acquisition of JSK joint
venture (0.4) -
Restructuring and subsea
disposal at SEA - (0.7)
Tax, dividends, capital
expenditure, interest,
loans and other investments (13.6) (11.1)
------------------------------ ------ ------
Increase in funds 8.5 7.2
------------------------------ ------ ------
The higher cash outflow in tax, and dividends, etc. was mostly
due to a net investment in own shares of GBP2.6m, GBP2.0m higher
than last year. 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 44 days (2021: 38 days).
This calculation is based upon dividing the revenue by month,
working backwards from April, into the trade debtors balance
(excluding revenue recognised not invoiced) at the year end. This
is a more appropriate measure than calculating based upon the
annual revenue as it takes into account the heavy weighting of the
Group's revenue in the last quarter of each year. The increase has
been mostly at Chess and is a result of very high revenue in the
final quarter and not receiving payments until the early part of
2022/23.
Tax
The Group's tax charge for the year ended 30 April 2022 of
GBP1,541,000 (2021: charge of GBP1,554,000) was at a rate of 15.1%
(2021: 22.00%) of profit before tax. This includes a current year
corporation tax charge of GBP2,577,000 (2021: GBP4,254,000), a
prior year corporation tax credit of GBP300,000 (2021: GBP310,000)
and a deferred tax credit of GBP736,000 (2021: GBP2,390,000).
The Group's overall tax rate was below the standard corporation
tax rate of 19.00% (2021: 19.00%). The decrease is due to the lower
contribution of taxable profits from Portugal (at 22.0%) and an
R&D credit recognised in Portugal (2021: no R&D credit)
partly offset by a higher contribution from Germany (at 31.7%). The
Group continues to take a prudent approach to the potential
outcomes of a tax audit in Portugal and R&D credits recognised
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 GBP1,004,000 (2021: GBP1,029,000) 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 2022/23 is estimated
at 18.0% compared with 13.5% of the pre-RDEC adjusted operating
profit less interest for 2021/22. This rate going forward reflects
a combination of lower Portuguese derived profits and higher German
profits as well as rising UK rates (to 25%) in late 2022/23. The
Group maintains a cautious approach to previous R&D tax credit
claims for tax periods that are still open, currently 2020/21 and
2021/22.
Exceptional items
The exceptional items this year are GBP0.7m of net income (2021:
GBP1.3m net cost). This includes the costs of acquiring all the
shares in SEA's joint venture operation in Canada, JSK, and a
profit recognised on the Group's existing investment in this joint
venture on acquiring the remaining shares. The remainder of the
exceptional income arose from the Group no longer having any earn
out payment obligation on the acquisition of Chess.
Adjusted earnings per share
The adjusted earnings per share (EPS) of 31.08 pence (2021:
33.63 pence) are 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 2021 18.6 33.63
Chess (81.84% owned) (2.7) (5.38)
100% owned businesses
throughout the year ended
30 April 2022 1.0 2.99
EID (80% owned) (4.0) (7.78)
ELAC (twelve months in
2022 compared with five
months in 2021) 2.6 6.37
Change in tax rate (excluding
RDEC): 13.5% (2021: 17.4%) - 1.48
Other movements including
dilution and interest - (0.23)
------------------------------ ---------- ----------
Year ended 30 April 2022 15.5 31.08
------------------------------ ---------- ----------
Decrease from 2021 to
2022 (17%) (8%)
------------------------------ ---------- ----------
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
There were no significant accounting policy changes in
2021/22.
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the year ended 30 April 2022
2022 2021
Notes GBP'000 GBP'000
-------------------------------------------------------- ----- -------- --------
Revenue 2 137,765 143,308
Cost of sales (81,160) (89,951)
-------------------------------------------------------- ----- -------- --------
Gross profit 56,605 53,357
Administrative expenses (45,515) (45,549)
-------------------------------------------------------- ----- -------- --------
Operating profit 11,090 7,808
-------------------------------------------------------- ----- -------- --------
Comprising:
Adjusted operating profit 2 15,525 18,609
Amortisation of other intangible assets (included
in administrative expenses) (6,865) (10,103)
Research and development expenditure credits (RDEC)
(included in cost of sales) 1,004 1,029
Credit/(charge) on marking forward exchange contracts
to market value at the yearend (included in cost
of sales) 716 (410)
Exceptional items (included in administrative expenses)
Cost of acquisition of ELAC - (106)
Cost of acquisition of JSK (70) -
Gain on the acquisition of JSK 342 -
Adjustment to earn-out on acquisition of Chess 438 (38)
Cost of restructuring at SEA - (651)
Loss on disposal of SEA's subsea business - (522)
-------------------------------------------------------- ----- -------- --------
2 11,090 7,808
-------------------------------------------------------- ----- -------- --------
Finance income 6 17
Finance costs (868) (768)
-------------------------------------------------------- ----- -------- --------
Profit before tax 10,228 7,057
Income tax charge 3 (1,541) (1,554)
-------------------------------------------------------- ----- -------- --------
Profit for the year 8,687 5,503
-------------------------------------------------------- ----- -------- --------
Attributable to:
Equity shareholders of the parent 9,202 5,463
Non-controlling interests (515) 40
-------------------------------------------------------- ----- -------- --------
8,687 5,503
-------------------------------------------------------- ----- -------- --------
All profit for the year is derived from continuing
operations.
Notes Pence Pence
----------------------------- ------ -------- ------
Earnings per share
Basic 4 22.55 13.38
Diluted 4 22.42 13.24
Adjusted earnings per share
Basic 4 31.08 33.63
Diluted 4 30.90 33.29
Dividends per share paid
and proposed in respect of
the year
Interim 5 3.85 3.50
Final 5 8.35 7.60
----------------------------- ------ -------- ------
5 12.20 11.10
----------------------------- ------ -------- ------
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 April 2022
2022 2021
Notes GBP'000 GBP'000
---------------------------------------- ----- --------- ---------
Assets
Non-current assets
Goodwill 50,145 43,663
Other intangible assets 9,641 15,093
Right of use asset 9,615 7,076
Property, plant and equipment 12,310 12,536
Deferred tax asset 1,361 600
---------------------------------------- ----- --------- ---------
83,072 78,968
---------------------------------------- ----- --------- ---------
Current assets
Inventories 22,777 12,892
Trade and other receivables 56,161 66,692
Derivative financial instruments 793 38
Cash and cash equivalents 40,367 32,294
---------------------------------------- ----- --------- ---------
120,098 111,916
---------------------------------------- ----- --------- ---------
Total assets 203,170 190,884
---------------------------------------- ----- --------- ---------
Liabilities
Current liabilities
Trade and other payables (53,985) (50,326)
Derivative financial instruments (861) (679)
Lease liability (1,515) (1,571)
Bank borrowings (29,362) (50)
Provisions (8,878) (2,786)
Other payables 7 (1,400) (2,800)
---------------------------------------- ----- --------- ---------
(96,001) (58,212)
---------------------------------------- ----- --------- ---------
Non-current liabilities
Deferred tax liability (1,353) (2,735)
Lease liability (8,631) (5,984)
Bank borrowings (8) (29,780)
Provisions (1,139) (1,140)
Retirement benefit obligations (6,848) (7,982)
(17,979) (47,621)
---------------------------------------- ----- --------- ---------
Total liabilities (113,980) (105,833)
---------------------------------------- ----- --------- ---------
Net assets 89,190 85,051
---------------------------------------- ----- --------- ---------
Equity
Share capital 4,121 4,104
Share premium account 30,527 29,956
Own shares (3,346) (1,068)
Share option reserve 1,000 923
Other reserves (1,400) (2,362)
Retained earnings 53,068 47,760
---------------------------------------- ----- --------- ---------
Total equity attributable to the equity
shareholders of the parent 83,970 79,313
Non-controlling interests 5,220 5,738
---------------------------------------- ----- --------- ---------
Total equity 89,190 85,051
---------------------------------------- ----- --------- ---------
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 April 2022
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 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
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Profit for the year - - - - - 9,202 9,202 (515) 8,687
Other comprehensive
income
for the year - - - - - 583 583 (3) 580
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income
for the year - - - - - 9,785 9,785 (518) 9,267
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners
of Group and
non-controlling
interests, recognised
directly
in equity
Issue of new shares 17 571 - - - - 588 - 588
Equity dividends - - - - - (4,684) (4,684) - (4,684)
Vesting of Restricted
Shares - - - - - 279 279 - 279
Own shares purchased - - (2,923) - - - (2,923) - (2,923)
Own shares sold - - 282 - - - 282 - 282
Net loss on selling
own shares - - 363 - - (363) - - -
Share-based payments - - - 572 - - 572 - 572
Deferred tax
adjustment in
respect
of share-based
payments - - - (204) - - (204) - (204)
Transfer of share
option
reserve on vesting
of options - - - (291) - 291 - - -
Change in option for
acquiring
non-controlling
interest
in Chess - - - - 962 - 962 - 962
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2022 4,121 30,527 (3,346) 1,000 (1,400) 53,068 83,970 5,220 89,190
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 April 2022
Group
------------------
2022 2021
Notes GBP'000 GBP'000
------------------------------------------- ----- -------- --------
Net cash from operating activities 6 19,525 16,216
------------------------------------------- ----- -------- --------
Cash flow from investing activities
Interest received 6 17
Purchases of property, plant and equipment (2,005) (1,247)
Acquisition of ELAC Sonar (net of cash
acquired) - (1,311)
------------------------------------------- ----- -------- --------
Acquisition of JSK (50%) 9 (372) -
------------------------------------------- ----- -------- --------
Net cash used in investing activities (2,371) (2,541)
------------------------------------------- ----- -------- --------
Cash flow from financing activities
Issue of new shares 588 307
Dividends paid 5 (4,684) (4,247)
Purchase of own shares (2,923) (1,418)
Sale of own shares 282 821
Drawdown of borrowings - 12,110
Repayment of borrowings (50) (7,180)
Repayment of lease liabilities (1,916) (1,948)
------------------------------------------- ----- -------- --------
Net cash used in financing activities (8,703) (1,555)
------------------------------------------- ----- -------- --------
Net increase in cash and cash equivalents 8,451 12,120
------------------------------------------- ----- -------- --------
Represented by:
Cash and cash equivalents and short-term
borrowings brought forward 32,294 20,567
Cash flow 8,451 12,120
Exchange (378) (393)
------------------------------------------- ----- -------- --------
Cash and cash equivalents and short-term
borrowings carried forward 40,367 32,294
------------------------------------------- ----- -------- --------
Effect
of
foreign
At exchange At
30 April rate Cash 30 April
2021 changes flow 2022
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- -------- ---------
Net funds reconciliation
Group
Cash and bank 32,294 (378) 8,451 40,367
Short-term deposits - - - -
-------------------------- --------- --------- -------- ---------
Cash and cash equivalents 32,294 (378) 8,451 40,367
-------------------------- --------- --------- -------- ---------
Loan (29,742) 410 - (29,332)
Finance lease (88) - 50 (38)
-------------------------- --------- --------- -------- ---------
Debt (29,830) 410 50 (29,370)
-------------------------- --------- --------- -------- ---------
Net funds 2,464 32 8,501 10,997
-------------------------- --------- --------- -------- ---------
NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT
1. BASIS OF PREPARATION
The unaudited summary financial information contained within
this preliminary report has been prepared using accounting policies
consistent with UK Adopted International Accounting Standards . The
financial information contained in this announcement does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The results for the year ended 30 April 2022
are unaudited. The financial statements for the year ended 30 April
2022 will be finalised on the basis of the financial information
presented by the Board of Directors in this preliminary
announcement and will be delivered to the Registrar of Companies
after the Annual General Meeting. The financial statements are
subject to completion of the audit and may also change should a
significant adjusting event occur before the approval of the
statutory accounts.
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
2021 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.
At 30 April 2022, the Group's cash and readily available credit
was GBP51.1m (2021: 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, especially in the light of recent events in Ukraine. As
already mentioned, 78% of our revenue (based on consensus analyst
forecasts) for 2022/23 was on contract at 30 April 2022 providing
further assurance, and this has since increased to 90%.
As announced on 19 July 2022, the Group has renewed its bank
facility, increasing it from GBP40m to GBP50m and extending it to
July 2025 from November 2022. The new facility has options to
extend it until July 2027.
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 28 July 2022.
Copies of the Annual Report and accounts for the year ended 30
April 2022 will be posted to shareholders on 26 August 2022 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 2022 30 April 2021
GBP000 GBP000
Revenue
Chess 16,905 28,641
EID 8,219 20,952
ELAC 21,518 8,290
MASS 38,405 39,487
MCL 21,745 17,980
SEA 30,973 27,958
---------------- ----------------
137,765 143,308
---------------- ----------------
Adjusted Operating Profit
Chess 314 3,018
EID 860 4,834
ELAC 3,770 1,173
MASS 9,138 8,742
MCL 2,255 2,071
SEA 3,385 2,353
Central costs (4,197) (3,582)
15,525 18,609
---------------- ----------------
Amortisation of other intangible
assets (6,865) (10,103)
Research and development expenditure
credit (RDEC) 1,004 1,029
Credit/(charge) on marking forward
exchange contracts to market value
at the year end 716 (410)
Exceptional items:
Cost of acquisition of ELAC - (106)
Costs of acquisition of JSK (50%) (70) -
Gain on acquisition of JSK (50%) 342 -
Adjustment to earn-out on acquisition
of Chess 438 (38)
Disposal of SEA's Subsea business - (522)
Cost of restructuring at SEA - (651)
Operating Profit 11,090 7,808
---------------- ----------------
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 for the year ended 30 April 2021 are
for five months.
3. TAX CHARGE
Year ended Year ended
30 April 2022 30 April 2021
GBP000 GBP000
------------------------------------------ -------------- --------------
UK corporation tax: in respect of this
year 3,112 2,833
UK corporation tax: in respect of prior
years (373) (550)
German corporation tax: in respect of
this year (40) 304
German corporation tax: in respect of
prior years 82 -
Portugal corporation tax: in respect
of this year (491) 1,117
Portugal corporation tax: in respect
of prior years (9) 240
Other foreign corporation tax: in respect
of this year (4) -
2,277 3,944
------------------------------------------ -------------- --------------
Deferred tax: in respect of this year (733) (2,498)
Deferred tax: in respect of prior years (3) 108
------------------------------------------ -------------- --------------
(736) (2,390)
------------------------------------------ -------------- --------------
1,541 1,554
------------------------------------------ -------------- --------------
The current year corporation tax charge (2021: charge) includes
GBPnil (2021: GBP142,000 credit) in respect of exceptional items
and the current year deferred tax credit includes a credit of
GBP1,541,000 (2021: credit of GBP2,374,000) in respect of the
amortisation of other intangible assets and a current year charge
of GBP136,000 (2021: GBP78,000 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 2022 30 April 2021
GBP000 GBP000
Earnings
Basic and diluted earnings 9,202 5,463
Amortisation of other intangible assets
(net of tax of GBP1,541,000; 2021:
GBP2,374,000) 4,772 6,763
(Credit)/charge on non-trading foreign
exchange movements (net of tax charge
of GBP136,000 (2021: credit of GBP78,000) (580) 332
Cost of acquisition of ELAC (2021:
net of tax credit of GBP6,000) - 100
Cost of acquisition of JSK (nil tax) 70 -
Gain on acquisition of JSK (nil tax) (342) -
Adjustment to earn-out on acquisition
of Chess (nil tax) (438) 38
Loss on disposal of SEA's Subsea business
(net of tax credit of GBP12,000) - 510
Cost of restructuring at SEA (net of
tax credit of GBP124,000) - 527
Adjusted basic and diluted earnings 12,684 13,733
---------------- ----------------
The adjustment for the amortisation of intangible assets in
respect of EID and Chess for the year ended 30 April 2022 and 2021
reflects the interests of the equity holders of the parent only and
excludes the proportion allocated to the non-controlling interest
in each year.
Year ended Year ended
30 April 2022 30 April 2021
Number Number
Weighted average number
of shares
For the purposes of basic
earnings per share 40,813,569 40,841,923
Share options 230,101 413,249
For the purposes of diluted
earnings per share 41,043,670 41,255,172
--------------- ---------------
Year ended Year ended
30 April 2022 30 April 2021
Pence Pence
Earnings per share
Basic 22.55 13.38
Diluted 22.42 13.24
Adjusted earnings per share
Basic 31.08 33.63
Diluted 30.90 33.29
5. DIVIDS
The proposed final dividend for the year ended 30 April 2022 is
8.35 pence (2021: 7.60 pence) per ordinary share. This dividend
will be payable on 4 October 2022 to shareholders on the register
at 26 August 2022 subject to approval by shareholders at the AGM on
27 September 2022.
The total paid and proposed dividend for the year ended 30 April
2022 is 12.20 pence per ordinary share; a cost of GBP5,001,000
(2021: 11.10 pence per ordinary share; cost of GBP4,538,000).
The charge for the year ended 30 April 2022 of GBP4,684,000 is
the final dividend for the year ended 30 April 2021 paid
(GBP3,106,000) and the interim dividend for the year ended 30 April
2022 paid (GBP1,578,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 2022 30 April 2021
GBP000 GBP000
Profit for the year 8,687 5,503
Adjustments for:
Tax charge 1,541 1,554
Depreciation of property, plant and
equipment 2,209 1,957
Depreciation of right of use assets 1,684 1,510
Amortisation of goodwill and other intangible
assets 6,865 10,103
Net finance expense 862 751
Share-based payment 572 406
Derivative financial instruments and
other non-trading exchange movements (716) 410
Increase/(decrease) in provisions 102 (1,269)
Operating cash inflows before movements
in working capital 21,806 20,925
---------------- ----------------
(Increase)/decrease in inventories (9,885) 576
Decrease/(increase) in receivables 10,530 (13,138)
Increase in payables 22 12,565
---------------- ----------------
667 3
---------------- ----------------
Cash generated by operations 22,473 20,928
---------------- ----------------
Tax paid (2,081) (3,944)
Interest paid (867) (768)
---------------- ----------------
Net cash generated from operating activities 19,525 16,216
---------------- ----------------
Interest paid includes the interest element of lease liabilities
under IFRS 16 of GBP251,000 (2021: GBP237,000).
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 Group expects to acquire the remaining shares (18.16%) on or
before 31 October 2022 for a total consideration of GBP1.4m (2021:
GBP2.8m).
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 acquisition, including provisional fair values, was
initially reported in the Annual Report and Accounts 2021. On
reporting at that time, certain provisional fair values were
estimates. These have now been reviewed subsequent to the
acquisition and final fair value figures reflect the following
changes:
-- Provisions: the provisional fair value of GBP2.6m has been
increased by GBP5.8m to GBP8.4m to reflect additional risk
associated with projects and commitments acquired with the business
at 2 December 2020.
-- Corporation tax: the provisional fair value, a liability of
GBP0.5m has been increased by GBP2.2m to GBP2.7m to reflect the
actual tax liability of the ELAC business prior to its
acquisition.
-- A deferred tax asset of GBP1.5m had been previously
recognised as a provisional fair value adjustment in respect of
stock and other trading provision adjustments as at 30 April 2021.
At that time, 30 April 2021, the deferred tax asset was netted
against the deferred tax liability of GBP3.8m arising on the other
intangible assets recognised. This deferred tax asset has been
increased to GBP3.3m by recognition of a deferred tax asset of
GBP1.8m on the additional provision recognised above of GBP5.8m.
The deferred tax asset is considered recoverable.
These additional risks and liabilities, although uncertain at
the time, were considered in determining the consideration paid for
ELAC.
The effect of these three adjustments on the final fair value is
to increase the goodwill arising on acquisition by GBP6.2m to
GBP7.7m.
9. ACQUISITION OF JSK
SEA acquired the remaining 50% of its joint venture in JSK,
based in Canada for a net GBP0.4m and recognised a goodwill balance
of GBP0.3m.
10. CHANGES IN ACCOUNTING POLICIES
There were no significant changes in accounting policies for the
year ended 30 April 2022.
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END
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