REG - Cohort PLC - Half Year Results
14/12/2022 07:00
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RNS Number : 6100J Cohort PLC 14 December 2022
COHORT PLC
HALF YEAR RESULTS
FOR THE SIX MONTHS ENDED 31 OCTOBER 2022
Cohort plc, the independent technology group, today announces its half year
results for the six months ended 31 October 2022.
A much stronger first half for the Group with a record closing order book.
The increase in the interim dividend reflects the Board's confidence in the
Group's growth prospects and commitment to a progressive dividend policy
Financial highlights
· Revenue up 29% to £77.5m (2021: £60.0m).
· Adjusted* operating profit up significantly to £5.0m (2021:
£1.7m)
· Strong adjusted* earnings per share of 10.12 pence (2021: 3.04
pence).
· Order intake £88.6m (2021: £105.3m), 1.1x the period's revenue.
· Record closing order book of £304.2m (30 April 2022: £291.0m).
· Interim dividend increased by 10% to 4.25 pence per share (2021:
3.85 pence per share).
· Net debt of £0.6m at 31 October 2022 (31 October 2021: £6.1m
net funds). As at 9 December 2022 net funds were £7.6m.
* Adjusted figures exclude the effects of marking forward exchange contracts
to market value, amortisation of other intangible assets (£1.8m; 2021:
£3.4m) and exceptional items (£nil; 2021: £0.3m income).
Operational highlights
· Increased revenue was driven by higher UK MOD sales, particularly
at MCL and export revenue at Chess.
· Adjusted* operating profit improved significantly on last year,
due to higher revenue at Chess and MCL. MASS and SEA also performed slightly
better. ELAC Sonar (ELAC) was weaker due to mix and delayed orders. Slower
deliveries at EID resulted in an operating loss.
· Order intake was over 1.1x the period revenue with strong
performances at Chess, MCL and SEA, the latter including a large support
contract for the UK's Royal Navy
Looking forward
· Record high order book of £304.2m with over £80m of revenue
deliverable in the second half. Taking into account revenue recognised in the
first half, this covers over 95% (2021: 89%) of consensus forecast revenue for
the full financial year. Revenue deliverable in future years from committed
orders continues to grow.
· The current year outlook for the Group is therefore unchanged.
· We continue to see a positive outlook for organic growth in the
medium term.
Commenting on the results, Nick Prest CBE, Chairman of Cohort, said:
"The first half has seen a welcome return to growth by the Group, with our
order book underpinning most of the second half of this financial year. In
line with previous experience we anticipate a stronger Group performance in
the second half and thus remain on track to achieve our expectations for the
full year.
"The Group's order book has steadily increased over the last few years to what
is now a record high. Its longevity has also increased with revenue now
deliverable out to 2032. The pipeline of order opportunities for the remainder
of the year also looks strong. Demand for our solutions and services
continues to be driven by the UK's increased spending on defence and security
and by international tensions in the Asia-Pacific region and Europe. Overall,
we continue to see a positive outlook for organic growth in the years ahead."
Analyst and investor presentation
A presentation for analysts is being hosted today 14 December 2022 at 09:30am
online as follows:
Please join the event 5-10 minutes prior to scheduled start time. When
prompted, provide the confirmation code or event title.
WEBCAST: https://stream.brrmedia.co.uk/broadcast/6384e50773df8630dd6e49cb
(https://www.google.com/url?q=https://stream.brrmedia.co.uk/broadcast/6384e50773df8630dd6e49cb&sa=D&source=calendar&ust=1670172174966730&usg=AOvVaw2acJKOzbX-tI7v3A5qyYry)
Dial-in number:
UK-Wide: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
Password: Quote Cohort when prompted by the operator
Title: Cohort plc - Half Year Results
Time Zone: Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30am, 14 December 2022
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 020 7597 5970
Daniel Adams / Christopher Baird
MHP Communications 020 3128 8276
Reg Hoare / Ollie Hoare / Hugo Harris cohort@mhpc.com
NOTES TO EDITORS
Cohort plc (www.cohortplc.com (http://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. Chess has been part of the Group since December
2018. www.chess-dynamics.com
(https://protect-eu.mimecast.com/s/hm33C76NMiwY2LGU8B0gb?domain=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 (http://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 (http://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 (http://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
(http://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
(http://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
Compared to the same period last year Cohort delivered a much stronger
performance for the six months ended 31 October 2022 with growth in both
revenue and trading profit.
Overall, the Group's adjusted operating profit was significantly higher than
the same period last year at £5.0m (2021: £1.7m) on revenue of £77.5m
(2021: £60.0m).
Events in Europe have seen a significant re-prioritisation of spending by
customers in the region. The increase in Group revenue was a result of
increased UK MOD spend, most marked at MCL and export sales at Chess.
Conversely, some parts of the Group have seen delays to deliveries and revenue
because of customer focus on current events. This is particularly impacting
MASS, despite which it reported an improved adjusted operating profit.
Nevertheless, in the medium term we expect the current security issues to feed
through to a longer-term investment in preparation for future threats,
including training and information security, which will benefit MASS.
Challenges in material supplies and recruitment have continued but are showing
some signs of improvement. EID in particular has suffered from supply chain
delays, which have prevented it from delivering revenue to expectations. The
recruitment of certain specialist professionals with high-level security
clearances remains the most challenging aspect of people resourcing, and
particularly applies at MASS.
The Group's adjusted operating profit was much stronger than last year driven
by improvements in the Group's UK businesses. This was partly offset by a
weaker revenue mix at ELAC and delays to orders and deliveries at EID.
The closing order book of £304.2m was a record high for the Group and
stretches out to 2032. The Group's order intake was slightly lower than last
year's very strong performance for the same period at £88.6m (2021:
£105.3m). We saw particularly strong order intake at SEA (£37.5m) and MCL
(£16.1m). We continue to see good order prospects for the Group in the second
half and beyond. These include naval systems for the Royal Navy, the
Portuguese Navy, and export customers in Southeast Asia and Australasia, as
well as communications and surveillance systems for customers in the UK and
Europe.
The strong operational performance in the first half resulted in a significant
working capital build across the Group, especially at Chess and MCL. EID and
ELAC also saw stock builds for second half deliveries. As this unwinds, we
expect a stronger operating cash performance in the second half and as at 9
December 2022, the Group's net funds were £7.6m.
Governance
As previously announced on 28 July 2022, Stanley Carter formally stepped down
from the Board at our Annual General Meeting on 27 September 2022. Stanley
remains a major and supportive shareholder of the Group and has entered into a
shareholder agreement with the Group. We look forward to continuing our
long-standing relationship with him.
Following the AGM, the Board hosted a presentation of the Group's maritime
capabilities for investors and analysts, which also gave the audience an
opportunity to talk face to face with the managing directors of SEA, ELAC and
EID.
The Board regularly evaluates and reviews the Group's environmental, social
and governance (ESG) activity and is committed to maintaining appropriate
standards. We continue to make good progress with a wide range of initiatives
at subsidiary level with MCL, MASS and Chess working towards ISO 14001
accreditation, and each subsidiary has now published its net zero carbon
plans. The Group's brand values, customer engagement principles and governance
policies are all outlined on Cohort's website and in the Annual Report and
Accounts.
Key financials
For the six months ended 31 October 2022 the Group's revenue was £77.5m
(2021: £60.0m), including £19.1m from Chess, £17.2m from MASS, £13.8m from
MCL, £16.4m from SEA, £8.9m from ELAC and £2.0m from EID.
The Group's adjusted operating profit in the period was £5.0m (2021: £1.7m).
Central costs were £2.6m (2021: £2.1m).
Cohort made an operating profit of £1.6m after recognising amortisation of
intangible assets (£1.8m) and marking forward exchange contracts to market
value (charge of £1.6m) (2021: operating loss of £1.3m, after amortisation
of intangible assets of £3.4m, income on marking forward exchange contracts
to market value of £0.1m and exceptional income of £0.3m).
Adjusted earnings per share for the six months ended 31 October 2022 increased
to 10.12 pence (2021: 3.04 pence). The tax rate in respect of the adjusted
operating profit was 17.0% (2021: 14.0%). Basic earnings per share were 2.73
pence (2021: loss per share of 1.74 pence).
The cash outflow from operations of £4.9m (2021: inflow of £9.1m) is due to
higher receivables, particularly at MCL following a strong first half and the
timing of supplier payments. The Group made payments in respect of dividends
(£3.4m) and capital expenditure (£2.6m) resulting in net debt at 31 October
2022 of £0.6m (30 April 2022: net funds of £11.0m). The capital
expenditure included an initial spend of £1.5m on a new facility for ELAC.
The total spend for this project is expected to be £15m over the three years
from 2022 to 2025.
The Group completed the acquisition of the non-controlling interest of Chess
for £1.0m in cash on 30 November 2022.
Chess
Chess's first half performance was much stronger than last year. It reported
an adjusted operating profit of £0.3m (2021: loss of £2.7m) on revenue of
£19.1m (2021: £5.9m). As expected, the management, organisational and people
changes we made in 2021/22 have delivered significant financial improvements
in 2022/23. The operating cash performance at Chess has greatly improved with
a positive cash flow in the first half, and we expect that to continue in the
second half.
Notwithstanding this improvement, Chess's net margin of just under 2% for the
first half is much lower than we expect to see for the full year. This
reflects a weaker mix of revenue, including delivery of a small number of
older problem projects at low margin. Completion of the latter did,
nevertheless, contribute to the improved cash performance at Chess.
The Group owned 81.84% of Chess throughout the first half of the year (2021:
81.84%). We completed the acquisition of the remaining shares in Chess on 30
November 2022 for £1.0m in line with the terms set out in the acquisition
announcement in December 2018.
Chess's order intake of £14.3m (2021: £6.1m) in the first half was much
improved on last year and accounts for a proportion of the revenue
improvement. Its closing order book of £35.9m (2021: £42.6m) underpins
over £12m of the revenue expected to be delivered in the second half. We
expect Chess to have a stronger second half, driving the business to an
improved profit for the full year.
Chess's medium-term prospects for naval and land systems remain strong, with
an attractive pipeline of opportunities including the Type 26 frigates in the
UK and Australia.
EID
EID had a disappointing first half. On lower revenue, it delivered an
adjusted operating loss of £0.9m (2021: loss of £0.5m). This was a result of
continued order delays, which also resulted in its order intake being lower
than last year at £1.9m (2021: £9.3m). These delayed orders included
important orders for EID from the Portuguese Navy, and we now expect these
during the first half of the 2023 calendar year. EID also saw the greatest
challenge across the Group in respect of supply delays, with some of its
expected deliveries slipping into the second half and some expected in
2023/24.
The Group owned 80% of EID throughout the first half of the year (2021: 80%).
EID's order book of £23.7m at 31 October 2022 (2021: £25.8m) underpins over
£8m of second half revenue and gives us confidence that it will deliver a
stronger performance in the second half. Nevertheless, EID's full year
performance will be weaker than that achieved in 2021/22.
As previously stated, we expect EID to recover in 2023/24.
ELAC Sonar (ELAC)
ELAC had a weaker first half than last year with lower trading profit of
£0.9m (2021: £1.5m). This reflected a weaker mix due to the Italian sonar
programme, which is at lower margin than export sales of legacy products and
spares. Revenue was slightly down due to some delays in German Government
export approval. We believe this is primarily the result of greater scrutiny
and resource limitations in the German Government pending new export control
legislation which is expected in 2023. We expect this delay to begin to ease
during the course of the next year.
This reporting period has seen the conclusion to the adjustment mechanism from
the former owner of ELAC, Wärtsilä Corporation, with £0.4m of the trading
profit arising from this source.
ELAC's order book of £58.7m (2021: £55.9m) underpins over £13m of revenue
to be delivered in the second half. We expect ELAC to deliver a stronger
second half, though its overall performance for the year will be behind that
achieved in 2021/22.
MASS
MASS achieved an adjusted operating profit of £4.0m (2021: £3.7m), an
improvement compared to last year, despite lower revenue. This was a result of
a stronger revenue mix with some lower margin non-defence work ceasing last
year.
MASS has seen a prolonged impact on its business from COVID-19 manifested in
both delivery constraints, with some export work still facing challenges to
deliver, and also in winning new business. The hiatus in business
development for the last two years prevented MASS from converting and growing
its pipeline of opportunities in export markets, but it has begun to rebuild
this in the last six months.
The current geo-political situation has caused some of MASS's domestic
customers' budgets to be redeployed in other areas, pushing scheduled training
exercises back.
In the medium term, we believe the wider geo-political situation, especially
the situation in Ukraine and the continuing Asia-Pacific tensions, will lead
MASS's customers to increase spending on countering threats, including
electronic warfare and security of communications and systems.
MASS's first half net margin was higher than last year at 23% (2021: 19%) due
to improved mix of work. We expect the net margin for the full year to be
slightly lower.
MASS's closing order book of £64.8m (2021: £81.1m) underpins over £14m of
second half revenue. We expect a stronger second half from MASS, with an
overall performance in line with last year. This is dependent on some return
to normality in MASS's training provision, especially in the UK.
MCL
MCL delivered a very strong first half performance with adjusted operating
profit of £2.2m (2021: £0.5m) on increased revenue of £13.8m (2021:
£7.9m). This was a result of greater activity in supplying equipment to the
UK MOD, notably including armoured fighting vehicle hearing protection.
MCL's order book of £24.8m (2021: £13.0m), a good pipeline of opportunities
and the current geo-political tensions, give us confidence that MCL's second
half will remain as strong as its first half. Overall, we expect MCL's full
year performance to be significantly higher than that achieved in 2021/22.
MCL's current level of activity with the UK MOD is expected to continue into
the first half of 2023/24. In the longer term, MCL is working on securing
significant delivery and support contracts from the Royal Navy. We expect the
probability and timing of winning these contracts to become clearer in the
year ahead.
SEA
SEA's adjusted operating profit of £1.2m (2021: £1.2m) was on slightly
higher revenue of £16.4m (2021: £13.9m).
SEA's order intake in the first half was again very strong at £37.6 m (2021:
£12.0m), including a key five-year order from the Royal Navy for systems and
equipment upgrade of anti-submarine warfare and missile countermeasures
systems. Its pipeline of opportunities, particularly in naval systems for the
UK and export markets, remains robust.
SEA's revenue is well underpinned, with a strong closing order book of £96.3m
(2021: £67.5m) including over £16m of revenue to be delivered in the second
half of this financial year. Overall, we expect a stronger second half from
SEA, delivering a full year performance ahead of last year's.
Dividend
The Board has declared an interim dividend of 4.25 pence per share (2021: 3.85
pence per share), 10% higher than last year. This increase reflects the
Board's confidence in the outlook for Cohort and its commitment to a
progressive dividend policy. The interim dividend is payable on 14 February
2023 to shareholders on the register as of 6 January 2023.
Outlook
The first half of 2022/23 has seen a welcome return to growth by the Group.
At 31 October 2022, our order book was a record £304.2m (30 April 2022:
£290.0m), underpinning most of the second half of this financial year. In
line with previous experience we anticipate a stronger Group performance in
the second half and thus remain on track to achieve our expectations for the
full year.
The Group's order book has steadily increased over the last few years to what
is now a record high. Its longevity has also increased with revenue now
deliverable out to 2032. The pipeline of order opportunities for the remainder
of the year also looks strong. Demand for our solutions and services
continues to be driven by the UK's increased spending on defence and security
and by international tensions in the Asia-Pacific region and Europe. Overall,
we continue to see a positive outlook for organic growth in the years ahead.
Nick Prest CBE
Chairman
14 December 2022
Consolidated income statement
for the six months ended 31 October 2022
Notes Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue 2 77,467 60,038 137,765
Cost of sales (53,184) (38,914) (81,160)
Gross profit 24,283 21,124 56,605
Administrative expenses (22,675) (22,442) (45,515)
Operating profit/(loss) 2 1,608 (1,318) 11,090
Operating profit/(loss) comprises:
Adjusted operating profit 2 5,011 1,718 15,525
(Charge)/credit on marking forward exchange contracts to market value at the (1,567) 80 716
period end (included in cost of sales)
Amortisation of other intangible assets (included in administrative expenses) (1,836) (3,389) (6,865)
Research and development expenditure credits (RDEC) (included in cost of - - 1,004
sales)
Exceptional items (included in administrative expenses):
Profit on acquisition of JSK - 273 272
Adjustment to earn-out on acquisition of Chess 7 - - 438
Operating profit/(loss) 1,608 (1,318) 11,090
Finance income 29 5 6
Finance costs (552) (394) (868)
Profit/(loss) before tax 1,085 (1,707) 10,228
Income tax (expense)/credit 3 (184) 287 (1,541)
Profit/(loss) for the period 901 (1,420) 8,687
Attributable to:
Equity shareholders of the parent 1,109 (710) 9,202
Non-controlling interests (208) (710) (515)
901 (1,420) 8,687
Earnings per share Pence Pence Pence
Basic 4 2.73 (1.74) 22.55
Diluted 4 2.72 (1.74) 22.42
All profit for the period is derived from continuing operations.
Consolidated statement of comprehensive income
for the six months ended 31 October 2022
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit/(loss) for the period 901 (1,420) 8,687
Foreign currency translation differences on net assets of overseas 995 (37) (422)
subsidiaries, net of loans used to acquire overseas subsidiaries
Changes in retirement benefit obligations (690) - 1,002
Other comprehensive income/(expense) for the period, net of tax 305 (37) 580
Total comprehensive income/(expense) for the period 1,206 (1,457) 9,267
Attributable to:
Equity shareholders of the parent 1,414 (647) 9,785
Non-controlling interests (208) (810) (518)
1,206 (1,457) 9,267
Consolidated statement of changes in equity
for the six months ended 31 October 2022
Attributable to the equity shareholders of the parent
Share Share Own Share Other Retained Total Non- Total
capital premium shares option reserves earnings £'000 controlling equity
£'000 account £'000 reserve £'000 £'000 interests £'000
£'000 £'000 £'000
At 1 May 2021 4,104 29,956 (1,068) 923 (2,362) 47,760 79,313 5,738 85,051
Loss for the period - - - - - (710) (710) (710) (1,420)
Other comprehensive (expense)/income for the period - - - (6) - 69 63 (100) (37)
Total comprehensive expense for the period - - - (6) - (641) (647) (810) (1,457)
Transactions with owners of the Group and non-
controlling interests recognised directly in equity:
Issue of new shares 10 300 - - - - 310 - 310
Equity dividend - - - - - (3,106) (3,106) - (3,106)
Vesting of Restricted Shares - - - - - 279 279 - 279
Own shares purchased - - (551) - - - (551) - (551)
Own shares sold - - 140 - - - 140 - 140
Net loss on selling own shares - - 337 - - (337) - - -
Share-based payments (including deferred tax and foreign exchange) - - - 276 - - 276 - 276
At 31 October 2021 4,114 30,256 (1,142) 1,193 (2,362) 43,955 76,014 4,928 80,942
At 1 May 2021 4,104 29,956 (1,068) 923 (2,362) 47,760 79,313 5,738 85,051
Profit/(loss) for the year - - - - - 9,202 9,202 (515) 8,687
Other comprehensive income/(expense) for the year - - - - - 583 583 (3) 580
Total comprehensive income/(expense) 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
At 1 May 2022 4,121 30,527 (3,346) 1,000 (1,400) 53,068 83,970 5,220 89,190
Profit/(loss) for the period - - - - - 1,109 1,109 (208) 901
Other comprehensive income for the period - - - - - 305 305 - 305
Total comprehensive income/(expense) for the period - - - - - 1,414 1,414 (208) 1,206
Transactions with owners of the Group and non-
controlling interests recognised directly in equity:
Issue of new shares 16 622 - - - - 638 - 638
Equity dividend - - - - - (3,393) (3,393) - (3,393)
Vesting of Restricted Shares - - - - - 189 189 - 189
Own shares purchased - - - - - - - - -
Own shares sold - - 111 - - - 111 - 111
Net loss on selling own shares - - 198 - - (198) - - -
Share-based payments (including deferred tax and foreign exchange) - - - 312 - - 312 - 312
Change in option for acquiring non-controlling interest in Chess - - - - 384 - 384 - 384
At 31 October 2022 4,137 31,149 (3,037) 1,312 (1,016) 51,080 83,625 5,012 88,637
Consolidated statement of financial position
as at 31 October 2022
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Assets
Non-current assets
Goodwill 50,145 50,368 50,145
Other intangible assets 7,806 13,117 9,641
Right of use asset 8,804 7,727 9,615
Property, plant, and equipment 13,829 11,993 12,310
Deferred tax asset 1,364 3,843 1,361
81,948 87,048 83,072
Current assets
Inventories 22,755 16,212 22,777
Trade and other receivables 59,711 54,221 56,161
Derivative financial instruments 128 40 793
Cash and cash equivalents 29,030 35,537 40,367
111,624 106,010 120,098
Total assets 193,572 193,058 203,170
Liabilities
Current liabilities
Trade and other payables (45,002) (48,461) (53,985)
Derivative financial instruments (1,711) (679) (861)
Lease liabilities (1,264) (1,653) (1,515)
Bank borrowings (19) (32) (29,362)
Provisions (8,835) (9,625) (8,878)
Other current liabilities (1,016) (2,800) (1,400)
(57,847) (63,250) (96,001)
Non-current liabilities
Deferred tax liability (985) (3,776) (1,353)
Lease liabilities (8,131) (6,549) (8,631)
Bank borrowings (29,612) (29,427) (8)
Provisions (1,294) (1,331) (1,139)
Retirement benefit obligations (7,066) (7,783) (6,848)
(47,088) (48,866) (17,979)
Total liabilities (104,935) (112,116) (113,980)
Net assets 88,637 80,942 89,190
Equity
Share capital 4,137 4,114 4,121
Share premium account 31,149 30,256 30,527
Own shares (3,037) (1,142) (3,346)
Share option reserve 1,312 1,193 1,000
Other reserves (1,016) (2,362) (1,400)
Retained earnings 51,080 43,955 53,068
Total equity attributable to the equity shareholders of the parent 83,625 76,014 83,970
Non-controlling interests 5,012 4,928 5,220
Total equity 88,637 80,942 89,190
Consolidated cash flow statement
for the six months ended 31 October 2022
Notes Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Net cash (used by)/generated from operating activities 6 (5,846) 8,847 19,525
Cash flow from investing activities
Interest received 29 5 6
Purchases of property, plant, and equipment (2,612) (642) (2,005)
Acquisition of JSK (net of cash acquired) - (372) (372)
Net cash used in investing activities (2,583) (1,009) (2,371)
Cash flow from financing activities
Issue of new shares 638 310 588
Dividends paid (3,393) (3,106) (4,684)
Purchase of own shares - (551) (2,923)
Sale of own shares 111 140 282
Repayment of borrowings (17) (34) (50)
Repayment of lease liabilities (941) (942) (1,916)
Net cash used in financing activities (3,602) (4,183) (8,703)
Net (decrease)/increase in cash and cash equivalents (12,031) 3,655 8,451
Represented by:
Cash and cash equivalents brought forward 40,367 32,294 32,294
Net (decrease)/increase in cash and cash equivalents (12,031) 3,655 8,451
Exchange gains/(losses) 694 (412) (378)
Cash and cash equivalents carried forward 29,030 35,537 40,367
Net funds/(debt) reconciliation
At 1 May Effect of foreign Cash flow At 31 October
2022 exchange rate £'000 2022
£'000 changes £'000
£'000
Cash and cash equivalents 40,367 694 (12,031) 29,030
Loan (29,332) (278) - (29,610)
Finance leases (38) - 17 (21)
Bank borrowings (29,370) (278) 17 (29,631)
Net funds/(debt) 10,997 416 (12,014) (601)
Notes to the interim report
for the six months ended 31 October 2022
1. Basis of preparation
The financial information contained within this Interim Report has been
prepared applying the recognition and measurement requirements of
International Financial Reporting Standards (IFRS) in conformity with
UK-adopted International Accounting Standards and expected to apply at 30
April 2023. As permitted, this Interim Report has been prepared in accordance
with the AIM Rules for Companies and is not required to comply with IAS 34
'Interim Financial Reporting' to maintain compliance with IFRS. This Interim
Report is presented in Sterling and all values are rounded to the nearest
thousand pounds (£'000) except where otherwise indicated.
For management and reporting purposes, the Group, for the period just ended,
operated through its six trading businesses: Chess, EID, ELAC, MASS, MCL and
SEA. These businesses are the basis on which the Company, Cohort plc,
currently reports its primary segmental information.
The Group's first half trading is in line with historical trends for the Group
where typically we see a first half of a third or less of the full year in
respect of earnings.
Going concern
The Group meets its day-to-day working capital requirements through a facility
which was renewed in July 2022 and runs until July 2025 with options to extend
by a further two years until July 2027. The new facility is for a £35m
revolving credit facility with an accordion (option) to draw another £15m.
Both the current domestic economic conditions and continuing UK Government
budget pressures create uncertainty, particularly over the level of demand for
the Group's products and services, specifically in respect of UK defence
spending (UK MOD represents 47% of the Group's 2022/23 first half revenue).
The current heightened international security situation, especially the
on-going conflict in Ukraine, has increased the focus of governments,
particularly in NATO, on defence capability and how this should be enhanced,
including increased investment. The Group's forecasts and projections,
taking account of reasonably possible changes in trading performance for a
period of at least 12 months from the date of signing this Interim Report show
that the Group should be able to operate within the level of its current
facility.
The Directors have a reasonable expectation that the Company and Group have
adequate resources to continue in operational existence for the foreseeable
future. Thus, they continue to adopt the going concern basis of accounting in
preparing this Interim Report.
(A) Statutory accounts
The financial information set out above does not constitute the Group's
statutory accounts for the year ended 30 April 2022. RSM UK Audit LLP has
reported on these accounts; its report was (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew attention by way
of emphasis, or material uncertainty, without qualifying its report and (iii)
did not contain a statement under Sections 498(2) or (3) of the Companies Act
2006. In accordance with Section 434 of the Companies Act 2006, the unaudited
results do not constitute statutory financial statements of the Company. The
six months results for both years are unaudited.
(B) Statement of compliance
The accounting policies applied by the Group in this Interim Report are
consistent with its consolidated financial statements for the year ended 30
April 2022 and are in accordance with UK-adopted International Accounting
Standards. The accounting policies have been applied consistently to all
periods presented in the consolidated financial statements of this Interim
Report.
Critical accounting estimates and judgements
In the application of the Group's accounting policies, the Directors are
required to make judgements, estimates and assumptions about the carrying
amounts of certain assets and liabilities. The Directors have identified the
following critical judgements and estimates in applying the Group's accounting
policies that have the most significant impact on the amounts recognised in
this Interim Report.
Goodwill
The carrying value of goodwill is not subject to amortisation but is tested
for impairment at each reporting date. This is a judgement based upon the
future cash flows of its cash-generating units (trading subsidiaries), growth
rates and the weighted average cost of capital applied to those future cash
flows. This impairment test as at 31 October 2022 showed no impairment of the
Group's goodwill.
Other payables
On the acquisition of 81.84% of Chess (12 December 2018), the sale and
purchase agreement provided for additional consideration to be paid to the
shareholders of Chess in respect of an earn-out and to acquire the
non-controlling interest. This figure is estimated at £1.0m as at 31 October
2022 (30 April 2022: £1.4m; 31 October 2021: £2.8m) based upon the
performance of Chess for the three years ended 30 April 2021. The acquisition
of the non-controlling interest in Chess was completed on 30 November 2022.
Other estimates and adjustments including revenue recognition, recoverability
of trade and other receivables, provisions and taxation have not materially
changed since the year end.
The Interim Report was approved by the Board on 8 December 2022 and authorised
for issue on 14 December 2022.
2. Segmental analysis of revenue and adjusted operating profit
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Revenue
Chess 19,134 5,925 16,905
EID 2,029 2,630 8,227
ELAC 8,943 10,692 21,518
MASS 17,324 19,064 38,511
MCL 13,823 7,913 21,745
SEA 16,387 13,859 30,973
Inter-segment revenue (173) (45) (114)
77,467 60,038 137,765
Operating profit comprises:
Trading profit/(loss) of:
Chess 329 (2,663) 314
EID (952) (489) 860
ELAC 888 1,515 3,770
MASS 3,983 3,724 9,138
MCL 2,158 547 2,255
SEA 1,234 1,228 3,385
Central costs (2,629) (2,144) (4,197)
Adjusted operating profit 5,011 1,718 15,525
(Charge)/credit on marking forward exchange contracts to market value at the (1,567) 80 716
period end
Amortisation of intangible assets (1,836) (3,389) (6,865)
Exceptional items - 273 710
Research and development expenditure credits (RDEC) - - 1,004
Operating profit/(loss) 1,608 (1,318) 11,090
All revenue and adjusted operating profits are in respect of continuing
operations.
The operating profit/(loss) as reported under IFRS is reconciled to the
adjusted operating profit as reported above by the exclusion of marking
forward exchange contracts to market value at the period end, exceptional
items and the amortisation of other intangible assets.
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 comparable basis from period to period.
The Group's adjusted operating profit includes the cost of share options of
£310,000 for the six months ended 31 October 2022 (six months ended 31
October 2021: £276,000; year ended 30 April 2022: £572,000).
The chief operating decision maker as defined by IFRS 8 has been identified as
the Board.
Revenue analysis by sector and type of deliverable
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£m % £m % £m %
By sector
UK MOD 36.8 47 28.7 48 64.9 47
Portuguese MOD 0.4 1 0.4 1 3.9 3
German MOD 0.8 1 - - 4.0 3
Export defence 29.7 38 21.6 35 47.1 34
Security 4.8 6 4.1 7 6.7 5
Defence and security revenue 72.5 93 54.8 91 126.6 92
Transport 3.7 3.5 6.8
Other commercial 1.3 1.7 4.4
Non-defence revenue 5.0 7 5.2 9 11.2 8
Total revenue 77.5 100 60.0 100 137.8 100
The defence and security revenue is further analysed into the following:
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£m % £m % £m %
By market segment
Combat systems 8.0 10 7.8 13 19.0 14
C4ISTAR 52.4 68 30.7 51 75.0 54
Digital services 4.9 6 7.5 13 14.0 10
Training and simulation 4.8 6 5.0 8 9.6 7
Research, advice and support 0.8 1 3.0 5 7.5 6
Other 1.6 2 0.8 1 1.5 1
Total defence and security revenue 72.5 93 54.8 91 126.6 92
The Group's total revenue in terms of type of deliverable is analysed as
follows:
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£m % £m % £m %
Product 57.4 74 35.1 59 82.7 60
Services 20.1 26 24.9 41 55.1 40
Total revenue 77.5 100 60.0 100 137.8 100
3. Income tax expense/(credit)
The income tax expense/(credit) comprises:
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
UK corporation tax: in respect of this period 556 776 3,112
UK corporation tax: in respect of prior periods - - (373)
German corporation tax: in respect of this period 2 370 (40)
German corporation tax: in respect of prior periods - - 82
Portugal corporation tax: in respect of this period (6) (613) (491)
Portugal corporation tax: in respect of prior periods - - (9)
Other foreign corporation tax: in respect of this period - - (4)
552 533 2,277
Deferred taxation: in respect of this period (368) (820) (733)
Deferred taxation: in respect of prior periods - - (3)
(368) (820) (736)
184 (287) 1,541
The income tax charge for the six months ended 31 October 2022 is based upon
the anticipated charge for the full year ending 30 April 2023. As it is an
estimate, the impact of research and development expenditure credits (RDEC) is
not shown separately.
4. Earnings per share
The earnings per share are calculated as follows:
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Earnings
Basic and diluted earnings/(loss) attributable to owners 1,109 (710) 9,202
Charge/(credit) on marking forward exchange contracts to market at the period 1,660 (80) (580)
end (net of income tax)
Exceptional items (net of income tax) - (273) (710)
Group's share of amortisation of intangible assets (net of income tax) 1,342 2,304 4,772
Adjusted basic and diluted earnings 4,111 1,241 12,684
Number Number Number
Weighted average number of shares
For the purposes of basic earnings per share 40,616,350 40,894,983 40,813,569
Share options 130,673 345,522 230,101
For the purposes of diluted earnings per share 40,747,023 41,240,505 41,043,670
The weighted average number of ordinary shares for the six months ended 31
October 2022 excludes 602,590 ordinary shares held by the Cohort plc Employee
Benefit Trust (which does not receive a dividend) for the purposes of
calculating earnings per share (six months ended 31 October 2021: 172,669;
year ended 30 April 2022: 663,845).
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
Pence Pence Pence
Earnings/(loss) per share
Basic 2.73 (1.74) 22.55
Diluted 2.72 (1.74) 22.42
Adjusted earnings per share
Basic 10.12 3.04 31.08
Diluted 10.09 3.01 30.90
5. Dividends
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
Pence Pence Pence
Dividends per share proposed in respect of the period
Interim 4.25 3.85 3.85
Final - - 8.35
The interim dividend for the six months ended 31 October 2022 is 4.25 pence
(six months ended 31 October 2021: 3.85 pence) per ordinary share. This
dividend will be payable on 14 February 2023 to shareholders on the register
at 6 January 2023.
The final dividend paid during the year ended 30 April 2022 was 11.45 pence
per ordinary share, comprising 3.85 pence of interim dividend for the six
months ended 31 October 2021 and 7.60 pence of final dividend for the year
ended 30 April 2021.
6. Net cash (used by)/generated from operating activities
Six months ended Six months ended Year ended
31 October 2022 31 October 2021 30 April 2022
Unaudited Unaudited Audited
£'000 £'000 £'000
Profit/(loss) for the period 901 (1,420) 8,687
Adjustments for:
Tax expense/(credit) 184 (287) 1,541
Depreciation of property, plant and equipment 1,171 1,095 2,209
Depreciation of right of use assets 898 807 1,684
Amortisation of intangible assets 1,836 3,389 6,865
Net finance expense 523 389 862
Share-based payment 310 276 572
Derivative financial instruments and other non-trading exchange movements 1,567 (80) (716)
Increase in provisions 278 698 102
Operating cash flow before movements in working capital 7,668 4,867 21,806
Decrease/(increase) in inventories 223 (3,320) (9,885)
(Increase)/decrease in receivables (4,090) 13,206 10,530
(Decrease)/increase in payables (8,726) (5,605) 22
(12,593) 4,281 667
Cash (used by)/generated from operations (4,925) 9,148 22,473
Income taxes (paid)/received (500) 93 (2,081)
Interest paid (421) (394) (867)
Net cash (used by)/generated from operating activities (5,846) 8,847 19,525
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 £20.0m. The Group has recognised 100%
of Chess's results and net assets from that date as it has effective control.
Under the sale and purchase agreement, up to a further £12.7m is payable to
the shareholders of Chess as an earn-out based upon its trading performance
over the three years ended 30 April 2021. Based upon the actual performance to
30 April 2021 this earn-out estimate is £nil as at 31 October 2022 (30 April
2022: £nil; 31 October 2021: £438,000).
The sale and purchase agreement for the acquisition of Chess includes a put
and call option for the purchase of the remaining shares (18.16%) in Chess,
the non-controlling interest.
This option is capped at £9.1m. The amount payable is dependent upon the
performance of the Chess business for the three years ended 30 April 2021.
The non-controlling interest was entitled to participate in any dividends
payable by Chess in the period to 30 April 2021.
In accordance with IFRS 3, the Group has ascribed a value to the option to
acquire the non-controlling interest of Chess. At 31 October 2022, this value
is £1,016,000 (30 April 2022: £1,400,000; 31 October 2021: £2,362,000) and
the option is shown as a current liability and, as the non-controlling
interest has a right to dividends, in the other reserves as "option for
acquiring non-controlling interest in Chess".
The Group has applied the present-access method to the acquisition of Chess
and thus the non-controlling interest is deemed not to be part of the
acquisition transaction and the liability arising from the option is not
included in the consideration transferred but is accounted for separately.
The option for the purchase of the minority shares in Chess was completed on
30 November 2022.
Independent review report to Cohort plc
Conclusion
We have been engaged by Cohort plc ('the Company') to review the condensed set
of financial statements of the Company and its subsidiaries (the 'Group') in
the interim financial report for the six months ended 31 October 2022 which
comprises the Consolidated Income Statement, Consolidated Statement of
Comprehensive Income, Consolidated Statement of Changes in Equity,
Consolidated Statement of Financial Position, Consolidated Cash Flow Statement
and accompanying notes. We have read the other information contained in the
interim financial report and considered whether it contains any apparent
material misstatements of fact or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the interim
financial report for the six months ended 31 October 2022 is not prepared, in
all material respects, in accordance with the presentation, recognition and
measurement criteria of UK-adopted International Accounting Standards and the
AIM Rules for Companies.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ('ISRE (UK) 2410') issued for use in
the United Kingdom. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK-adopted International Accounting Standards.
The condensed set of financial statements included in this interim financial
report has been prepared in accordance with the presentation, recognition and
measurement criteria of UK-adopted International Accounting Standards.
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group and
the Company to cease to continue as a going concern.
Responsibilities of Directors
The interim financial report is the responsibility of, and has been approved
by the directors. The directors are responsible for preparing the interim
financial report in accordance with the presentation, recognition and
measurement criteria of UK-adopted International Accounting Standards and the
AIM Rules for Companies.
In preparing the interim financial report, the directors are responsible for
assessing the Group's and the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's Responsibilities for the Review of the Financial Information
In reviewing the interim financial report, we are responsible for expressing
to the Company a conclusion on the condensed set of financial statements in
the interim financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK) 2410 "'Review of Interim Financial
Information performed by the Independent Auditor of the Entity". Our review
work has been undertaken so that we might state to the Company those matters
we are required to state to them in an independent review report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company, for our review work,
for this report, or for the conclusions we have formed.
RSM UK Audit LLP
Chartered Accountants
The Pinnacle
170 Midsummer Boulevard
Milton Keynes
MK9 1BP
14 December 2022
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