REG - Cohort PLC - Preliminary Results
28/07/2022 07:00
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RNS Number : 9843T Cohort PLC 28 July 2022
28 July 2022
COHORT PLC
UNAUDITED PRELIMINARY RESULTS
FOR THE YEAR ENDED 30 APRIL 2022
Cohort plc today announces its unaudited results for the year ended 30 April
2022.
Highlights include: 2022 2021 %
· Revenue £137.8m £143.3m (4)
· Adjusted operating profit(1) £15.5m £18.6m (17)
· Adjusted earnings per share(1) 31.08p 33.63p (8)
· Net funds £11.0m £2.5m
· Order intake £186.4m £180.3m 3
· Order book (closing) £291.0m £242.4m 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 £10.2m £7.1m 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 £11m, as previously disclosed. Robust cash
generation
• Strong order intake of £186.4m (2021: £180.3m)
• 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 £291.0m:
o underpins nearly £128m 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
(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 (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. A majority stake was acquired by Cohort plc in
December 2018. www.chess-dynamics.com (http://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 (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
"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 £15.5m (2021: £18.6m) on
revenue of £137.8m (2021: £143.3m). 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 £186.4m (2021:
£180.3m) of orders, driving us to a record closing order book of £291.0m
(2021: £242.4m). 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, £11.0m compared with £2.5m.
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 £365m 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 £11.1m (2021: £7.8m) is stated after
recognising amortisation of intangible assets of £6.9m (2021: £10.1m),
exceptional income of £0.7m (2021: £1.3m charge) and research and
development expenditure credits of £1.0m (2021: £1.0m). Profit before tax
was £10.2m (2021: £7.1m) and profit after tax was £8.7m (2021: £5.5m).
The closing net funds of £11.0m (2021: £2.5m), 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 £0.4m. 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 £1.4m (2021: £2.8m), 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 £291.0m.
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 £128m (2021: £100m) 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 £20m,
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 £186.4m of new work
contracted compared with £180.3m in 2021. That resulted in a record closing
order book of £291.0m, 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 £11.0m (2021: £2.5m). 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
£1.1m 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 £0.5m 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 £291m gives us
order cover of just under £128m for 2022/23. Over the last two years, despite
the effects of COVID-19, the Group secured orders of over £365m, 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 £15.5m (2021: £18.6m) on revenue of £137.8m (2021:
£143.3m), 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 £11.1m (2021: £7.8m) reflects the amortisation of other
intangible assets, a £6.9m non-cash charge in 2022 (2021: £10.1m 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 €49m 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 (£15m)
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 £0.4m. 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 £20.0m. 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 £1.4m (2021: £2.8m) 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 (https://www.vision4ce.com/)
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 (https://www.cohortplc.com/)
acquired a majority share in Chess in 2018. It is led by Managing Director
David Tuddenham.
2022 2021
£m £m
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 £6m 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 £41m provides cover for £22m 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
£m £m
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 £23m underpins over £11m 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 months)
£m £m
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 £42m 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 £2.1m if the opportunity is not secured by 1 December
2022. The current year trading performance of ELAC includes £1.1m in respect
of this mechanism, which will contribute up to a further £0.5m 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™ Electronic Warfare (EW) database, SHEPHERD (the provision of a
system embodying THURBON™ to the UK MOD) and MASS's EW managed service
offerings in the UK and elsewhere.
The 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
£m £m
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 £73m 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
£m £m
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
£15m 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 £12.4m (April 2021) to
£22.5m (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
£m £m
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
£m £m £m £m £m
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 £100m 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 £75m underpins just over
£27m 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
£m £m £m £m £m £m £m £m £m £m £m £m £m % £m %
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
£m £m £m £m £m £m £m £m £m £m £m £m £m % £m %
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
£m % £m %
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
£m % £m %
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
£m £m £m £m
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 £23.2m 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 £15.2m 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 £4m 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 £40.7m included £22.0m 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 £11.4m (2021: £4.3m),
including a long-awaited order from the Portuguese Army. EID's order book of
£23.1m provides £11.3m 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
£40m 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 £7m of various spares and support orders,
reflecting its widely installed product base, especially for underwater
communication systems. ELAC's order book of £56.8m includes £19.9m 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 £34.1m included the exercise of an option by the
customer of over £11m 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 £72.8m includes nearly £27m 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 £31.8m was much higher than last year (2021: £21.8m)
and included over £15m 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 £7m. MCL's closing
order book of £22.5m includes £20.4m 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 £36.8m was, as expected, not as strong as last year
(£63.7m) which included a ten-year support contract to the UK Royal Navy's
minor sonars at nearly £25m. Significant orders secured in 2021/22 included
continued work on ECS and other systems for the UK's submarine fleet of over
£4m, 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 £1m of orders in the period from August 2021. SEA's Transport division
had a better year with order intake of nearly £8m (2021: £7m), reflecting an
easing of COVID-19 restrictions. SEA's closing order book of £75.1m
underpins over £27m 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 £33.6m this year (2021:
£40.8m). 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 £16bn 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 £55bn 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 £51.1m
(2021: £42.6m). 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 £35m to be drawn and an
option (accordion) to draw a further £15m. 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 £40m of which £29.3m is currently drawn,
leaving £10.7m 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 €2.5m 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 £11.0m (30 April 2021: £2.5m),
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
(£) or subsidiary reporting currency where different (currently € 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:
Dividend Growth over Earnings cover Cash cover
Pence previous year (based upon (based upon
% adjusted net cash
earnings inflow from
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
£m £m
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 £2.6m, £2.0m 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 £1,541,000 (2021:
charge of £1,554,000) was at a rate of 15.1% (2021: 22.00%) of profit before
tax. This includes a current year corporation tax charge of £2,577,000 (2021:
£4,254,000), a prior year corporation tax credit of £300,000 (2021:
£310,000) and a deferred tax credit of £736,000 (2021: £2,390,000).
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 £1,004,000 (2021:
£1,029,000) 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 £0.7m of net income (2021: £1.3m 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
£m 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
Notes 2022 2021
£'000 £'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 1,004 1,029
sales)
Credit/(charge) on marking forward exchange contracts to market value at the 716 (410)
yearend (included in cost of sales)
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
Notes 2022 2021
£'000 £'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
Group 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 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 - - - 3 - - 3 - 3
of share-based payments
Transfer of share option reserve on vesting - - - (332) - 332
of options
- - -
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 - - - (204) - - (204) - (204)
of share-based payments
Transfer of share option reserve on vesting - - - (291) - 291 - - -
of options
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
Notes 2022 2021
£'000 £'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
At Effect of Cash flow At
30 April 2021 foreign £'000 30 April 2022
£'000 exchange rate £'000
changes
£'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 £51.1m
(2021: £42.6m). 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 £40m to £50m 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 (http://www.cohortplc.com) ) from that
date.
2. SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT
Year ended Year ended
30 April 2022 30 April 2021
£000 £000
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 716
year end
(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
£000
£000
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 £nil (2021:
£142,000 credit) in respect of exceptional items and the current year
deferred tax credit includes a credit of £1,541,000 (2021: credit of
£2,374,000) in respect of the amortisation of other intangible assets and a
current year charge of £136,000 (2021: £78,000 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
£000 £000
Earnings
Basic and diluted earnings 9,202 5,463
Amortisation of other intangible assets (net of tax of £1,541,000; 2021: 4,772
£2,374,000)
6,763
(Credit)/charge on non-trading foreign exchange movements (net of tax charge (580)
of £136,000 (2021: credit of £78,000)
332
Cost of acquisition of ELAC (2021: net of tax credit of £6,000) - 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 £12,000) -
510
Cost of restructuring at SEA (net of tax credit of £124,000) - 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. DIVIDENDS
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 £5,001,000 (2021: 11.10 pence per
ordinary share; cost of £4,538,000).
The charge for the year ended 30 April 2022 of £4,684,000 is the final
dividend for the year ended 30 April 2021 paid (£3,106,000) and the interim
dividend for the year ended 30 April 2022 paid (£1,578,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 2022 30 April 2021
£000 £000
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 £251,000 (2021: £237,000).
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 £20.0m. 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 £1.4m (2021: £2.8m).
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 £2.6m has been
increased by £5.8m to £8.4m 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
£0.5m has been increased by £2.2m to £2.7m to reflect the actual tax
liability of the ELAC business prior to its acquisition.
· A deferred tax asset of £1.5m 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 £3.8m
arising on the other intangible assets recognised. This deferred tax asset has
been increased to £3.3m by recognition of a deferred tax asset of £1.8m on
the additional provision recognised above of £5.8m. 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 £6.2m to £7.7m.
9. ACQUISITION OF JSK
SEA acquired the remaining 50% of its joint venture in JSK, based in Canada
for a net £0.4m and recognised a goodwill balance of £0.3m.
10. CHANGES IN ACCOUNTING POLICIES
There were no significant changes in accounting policies for the year ended 30
April 2022.
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