TIDMCHRT
RNS Number : 4994J
Cohort PLC
29 June 2017
2 Waterside Drive
Arlington Business Park Cohort plc
Reading
Berks
RG7 4SW
29 June 2017
COHORT PLC
FINAL RESULTS
FOR THE YEARED 30 APRIL 2017
Solid overall progress in a year of significant change and
contrasts
Cohort plc today announces its final results for the year ended
30 April 2017. Highlights include:
2017 2016 %
GBP112.7m GBP112.6m -
* Revenue
* Adjusted operating profit* GBP14.5m GBP11.9m 22
* Adjusted profit before tax* GBP14.5m GBP12.0m 21
* Statutory profit before tax GBP1.0m GBP5.3m (81)
* Basic earnings per share 9.09p 19.14p (53)
* Adjusted earnings per share* 27.93p 27.18p 3
* Net funds GBP8.5m GBP19.8m (57)
* Order book (closing) GBP136.5m GBP116.0m 18
* Proposed final dividend per share 4.9p 4.1p 20
* Total dividend per share 7.1p 6.0p 18
* Performance benefited from the expanded portfolio of
the Group
o Strong initial contribution from EIS and
growth at MCL
o Flat performance at MASS and SEA
o Poor performance at SCS prior to its successful
reorganisation at half year
* Strong order intake for the year of GBP108.6m (2016:
GBP94.8m)
* Adjusted earnings per share increased 3%
* Dividend progression maintained, at 18% for the year
* Minority of MCL acquired, taking holding to 100% from
31 January 2017
* Net funds, as expected, down on last year
* Excludes exceptional items, amortisation of other intangible
assets and non-trading exchange differences, including marking
forward exchange contracts to market.
Looking forward:
-- Larger order book provides a strong underpinning for revenue in the coming year
-- Net funds and bank facility provide resources for investment and acquisitions
-- Acquisition of further 23% of EID expected
Commenting on the results, Nick Prest CBE, Chairman of Cohort
plc said: "Cohort again improved its performance in the year,
achieving record adjusted operating profit. A strong initial
contribution from EID and growth at MCL offset flat performances at
MASS and SEA. The poor performance at SCS was partly mitigated by
the reorganisation at the half year with a positive contribution
from the transferred operating businesses of SCS in the second
half.
"Recent contract wins have given a positive start for the year
and the Board considers that Cohort's order book and near-term
prospects provide a good base for future progress."
A presentation for analysts is being hosted today 29 June 2017
at 9.15am for 9.30am at MHP Communications's offices, 6 Agar
Street, London, WC2N 4HN
For further information please contact:
Cohort plc 0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance
Director
Investec Bank Plc 020 7597 5970
Keith Anderson, Daniel
Adams
MHP Communications Limited 020 3128 8100
Reg Hoare, Ollie Hoare
NOTES TO EDITORS
Cohort plc (www.cohortplc.com) is the parent company for four
innovative, agile and responsive businesses working primarily for
defence, wider government and industry clients.
-- EID (www.eid.pt) - a Portugal based supplier of advance
electronics, communication, and command and control products and
systems for the global defence market. Cohort acquired a majority
stake in June 2016.
-- MASS (www.mass.co.uk) - a specialist defence and technology
business, focused mainly on electronic warfare, information systems
and cyber security. Acquired by Cohort in August 2006.
-- MCL (www.marlboroughcomms.com) - an expert in sourcing,
design and integration of communications and surveillance
technology, as well as support and training for UK end users
including the MOD and other government agencies. MCL has been part
of the Group since July 2014.
-- SEA (www.sea.co.uk) - an advanced electronic systems and
software house operating in the defence, transport and offshore
energy markets. Acquired by Cohort in October 2007.
Cohort (AIM: CHRT) was admitted to London's Alternative
Investment Market in March 2006. It has its headquarters in
Berkshire and employs in total around 800 core staff there and at
its other operating company sites in Bristol, Cambridgeshire,
Devon, Lincolnshire, Somerset, Surrey, Scotland and Portugal.
CHAIRMAN'S STATEMENT
Cohort achieved a record adjusted operating profit of GBP14.5m
in 2017 (2016: GBP11.9m). This result was driven primarily by a
strong maiden contribution from EID and improved performance at
MCL.
In the course of the year, we acquired a controlling stake in
EID, took our ownership of MCL to 100% and restructured SCS by
transferring its operating divisions to MASS and SEA. This was made
necessary by a steep decline in demand from UK MoD for some of
SCS's services. The tighter UK market conditions also affected MASS
and SEA, both of which saw a slight reduction in profit compared to
2015/16.
Order intake in the year was strong, particularly in the second
half. The improved closing order book position, taken together with
orders received since the year end and a good pipeline of further
prospects at all four businesses, provide a solid base for 2017/18
and beyond.
Key financials
In the year ended 30 April 2017, Cohort achieved revenue of
GBP112.7m (2016: GBP112.6m), including GBP32.5m (2016: GBP32.0m)
from MASS Consultants Limited (MASS), GBP44.4m (2016: GBP48.8m)
from SEA (Group) Limited (SEA), GBP14.8m from Marlborough
Communications Limited (MCL) (2016: GBP13.7m) and an initial
contribution from EID of GBP16.0m for 10 months. SCS's closing
revenue was significantly down on last year's, reflecting the
weaker trading performance which catalysed the decision to transfer
its operating divisions to MASS and SEA with effect from 1 November
2016.
The Group's adjusted operating profit was GBP14.5m (2016:
GBP11.9m). This included contributions from MASS of GBP5.9m (2016:
GBP6.0m), SEA GBP5.3m (2016: GBP5.4m), MCL GBP2.1m (2016: GBP1.4m)
and an initial contribution from EID of GBP4.2m for 10 months. SCS
reported a loss of just under GBP0.5m for the year on revenue of
GBP5.0m (2016: GBP1.2m profit on revenue of GBP18.1m), following
the effective termination of its trading at the half year
point.
The MASS and SEA adjusted operating profits for the year
included a contribution from the former SCS divisions of GBP0.5m
and GBP0.3m respectively. This GBP0.8m of SCS-derived operating
profit on GBP4.1m of revenue in the second half represented a
marked improvement on the first half, much of it due to the
restructuring programme. This has realised an annual saving of
GBP1.6m from a total one-off restructuring cost of GBP2.6m, the
latter including GBP1.0m in respect of an onerous lease on SCS's
former operating site in Theale.
Cohort Group overheads were GBP2.5m (2016: GBP2.1m).
MASS, which remains the Group's largest contributor to profit,
recorded a small reduction in profit on a slight increase in
revenue. This result came from a combination of improved second
half gross margin and the second half contribution of the SCS
divisions, offset by increased overheads, including some one-off
costs. SEA also fell slightly short of its 2016 performance, after
taking account of the contribution from former SCS activities.
MCL had a much stronger year on the back of delivery of Tactical
Hearing Protection Systems for the British Army and good support
activity. The hearing protection work will continue in the coming
year and the order book in this area has been enhanced by further
orders for hearing protection systems for other UK military
users.
The strong initial contribution from EID exceeded our
expectations. A relatively high gross margin was the result of a
rich mix of work, with higher than usual levels of naval system
support work and deliveries of vehicle intercom and related systems
to export customers. The fall in Sterling against the Euro
following the Brexit referendum last June has further enhanced the
value of EID's contribution.
The Group operating profit of GBP1.0m (2016: GBP5.2m) is stated
after recognising amortisation of intangible assets of GBP11.3m
(2016: GBP6.4m) and exceptional items of GBP2.7m. This latter
figure includes the cost of the reorganisation of SCS (GBP2.6m),
and acquisition costs associated with EID and completing the
purchase of 100% of MCL (GBP0.1m combined). Net foreign exchange
gains of GBP0.4m (2016: GBP0.5m) were also recognised. Profit
before tax was GBP1.0m (2016: GBP5.3m) and profit after tax was
GBP2.1m (2016: GBP5.4m).
Adjusted earnings per share (EPS) were 27.93 pence (2016: 27.18
pence). The adjusted EPS were based upon profit after tax,
excluding amortisation of other intangible assets, net foreign
exchange gains and exceptional items. Basic EPS were 9.09 pence
(2016: 19.14 pence). The adjusted EPS included the benefit of
releasing some tax contingency in respect of prior years, those tax
years having been closed out. A similar tax impact was seen last
year. When comparing the adjusted EPS with the one off tax effects
removed, the figure is 26.63 pence against 24.98 pence in 2016, an
increase of 7%.
Order intake for the year at GBP108.6m (2016: GBP94.8m), was, as
expected, higher than last year and combined with the acquired
order book of EID, GBP23.1m, accounts for the higher closing order
book of GBP136.5m. The net funds at the year end were, as expected,
significantly down on 2016 at GBP8.5m (2016: GBP19.8m).
Dividends
The Board is recommending a final dividend of 4.9 pence per
ordinary share (2016: 4.1 pence), making a total dividend of 7.1
pence per ordinary share (2016: 6.0 pence) for the year, an 18%
increase. This will be payable on 13 September 2017 to shareholders
on the register at 18 August 2017, subject to approval at the
Annual General Meeting on 7 September 2017.
EID
EID made a strong initial contribution for its first 10 months
in the Cohort Group. An adjusted operating profit of GBP4.2m on
GBP16.0m of revenue, a net margin of over 26% was above our
expectations.
This was a result of higher level of support activity in its
Naval division, attracting higher margins due to the level of EID
labour content, and successful delivery of vehicle intercom and
related products to various export customers.
The EID contribution was further boosted on translation by the
weaker Sterling to Euro exchange rate following the Brexit
referendum result of last June.
Looking ahead, we expect the mix of work at EID to return closer
to its historical norm, with net margins expected to be below
20%.
EID's order intake since acquisition has been close to GBP19m
and its order book has grown from the GBP23.1m acquired to a
closing GBP27.6m. This provides strong underpinning for the coming
year and with good prospects in both domestic and export markets,
EID should grow its revenue in the coming year.
Although it has been slow, we have made progress on completing
the next stage of the EID acquisition, with the aim for the Group
to hold 80% of EID and the Portuguese Government the other 20%. The
Group having acquired 56.89% in June 2016.
A shareholder agreement giving the Portuguese Government certain
rights, most of which are typical for a minority shareholding,
whilst ensuring Cohort has day-to-day management control over EID,
has been agreed in principle between the two parties.
The transaction requires a formal notification to, and approval
by, the Portuguese Competition Authority. This is in process and we
expect to be able to announce the second stage of the EID
acquisition in the coming months.
MASS
MASS's adjusted operating profit of GBP5.9m (2016: GBP6.0m) was
slightly behind last year. Its net margin decreased from 18.7% to
18.2% reflecting the inclusion of SCS's Training Support division
in the second half and investment in building its secure IT and
cyber work.
MASS's underlying performance, excluding the impact of SCS, was
down on last year. This was due to slower order intake in export
EWOS and a delay to the kick off of the Metropolitan Police
Service's (MPS) Digital Forensics Service, a contract secured
towards the end of the end of the year and for which MASS will
provide a managed service to the MPS for the next nine years. There
were also some additional one-off costs incurred during the
year.
MASS's order book increased during the year. Order intake of
GBP32.6m included significant order wins from the MPS (GBP8.6m) and
a long term support contract for the RAF's Sentry Platform
(GBP12.5m). MASS's closing order book also includes GBP6.1m of
orders transferred from SCS in respect of its Training Support
division. Its closing order book of GBP49.3m (2016: GBP41.7m)
provides a good underpinning for 2017.
MCL
MCL improved its adjusted operating profit to just under GBP2.1m
(2016: GBP1.4m) on revenue of GBP14.8m (2016: GBP13.7m). The
improved performance was a result of both higher revenue and
improved mix with increased support activity, particularly in the
second half of the year. The net margin increased from 10.7% to
13.9%. We expect the net margin to fall back to a historically
lower percentage level in the coming year as revenue is boosted by
delivery of a range of Hearing Protection Systems, which have a
higher proportion of bought in product.
The Group acquired the remaining non-controlling interest
(49.999%) of MCL on 31 January 2017 for a consideration of just
under GBP5.1m. A further GBP0.5m is payable as earn out in respect
of MCL's closing order book at 30 April 2017 and just over GBP1.9m
as the non-controlling shareholders' share of the surplus cash in
the business as at 30 April 2017. These amounts are expected to be
paid on or before 31 July 2017.
The further consideration paid, and to be paid, is in accordance
with the original sale and purchase agreement of 9 July 2014.
MCL's contribution to the Group in the final quarter, when 100%
owned, was just under GBP1.4m of adjusted operating profit on
GBP5.0m of revenue, reflecting its typical strong second half
performance, especially in providing support and spares to its
deployed product base with the UK MoD.
MCL's order intake of over GBP23m included nearly GBP15m of
hearing protection orders. Its closing order book of GBP15.5m along
with around GBP6m of orders secured since the year end provide very
good visibility for the coming year.
SEA
SEA's underlying performance in the year varied considerably
across its divisions.
SEA's adjusted operating profit of GBP5.3m (2016: GBP5.4m),
which included a small contribution from the former SCS businesses
in the second half, was on lower revenue of GBP44.4m (2016:
GBP48.8m), delivering a net margin of 11.9% (2016: 11.2%).
There was a strong net contribution from its Maritime Division,
especially in relation to submarine communications and launcher
systems for export customers, which together more than offset a
difficult development project which is now nearing completion.
SEA's range of Roadflow products also had a strong year with
unit sales of 108 in 2016/17 bringing the total deployed to date to
well over 400. However, SEA's Research division suffered from a
serious delay to the renewal of its soldier systems research
programme, much of this due to budgetary issues at its customer,
DSTL. The impact of this was a fall in revenue from just over GBP8m
in 2016 to less than GBP2m, accounting for the decrease in SEA's
revenue overall.
The oil and gas business also suffered from a tight market
although it saw improved margins as the balance of its work
switched from replacement to repair.
Despite the fall in revenue, the net margin of SEA increased as
a result of improved mix. The proportion of relatively high margin
product sales increased and the business was able to retire some
risk contingency on its major maritime projects, as the external
communications and torpedo launcher systems both entered their
production phases.
SEA secured just under GBP32m (2016: GBP36m) of orders in the
year, the drop off being particularly noticeable in the Research
division. SEA's order intake did include nearly GBP9m of orders for
its transport products and services. The increased activity in
SEA's transport business has brought an improvement in net margin.
The SEA order book of GBP44.0m (2016: GBP55.6m) underpins almost
half of SEA's expected revenue for 2017/18, and along with good
order prospects gives us reasonable confidence that SEA will return
to growth in the coming year.
Cash
As expected, the net funds of the Group decreased by GBP11.3m
from GBP19.8m to GBP8.5m. The GBP14.5m (2016: GBP11.9m) of adjusted
operating profit, after an expected net working capital outflow and
the cost of reorganisation at SCS, delivered GBP3.3m of operating
cash inflow (2016: GBP8.5m inflow). This weaker cash performance
was in part due to the reversal of the stronger than expected
inflow in the final quarter of last year.
The operating cash inflow was utilised in paying tax, dividends
and capital investment, a total outflow of GBP6.0m (2016: GBP4.9m)
as well as acquiring 56.89% of EID (GBP4.0m, net of cash acquired)
and the non-controlling interest in MCL (GBP5.1m).
The closing net funds were slightly below our expectations as
some significant receipts (GBP3.5m) were received just after the
year end.
Looking forward, we expect to pay out just over GBP2.5m on or
before 31 July 2017 to complete the earn-out condition in respect
of acquiring the non-controlling interest of MCL.
As already mentioned, we also expect to acquire a further 23% of
EID taking our holding to 80%. This cost of EUR4.4m will be funded
using the Group's debt facility, providing a natural hedge of Euro
debt against our Euro-based assets in Portugal.
Despite these further committed acquisition outflows, the Group
still expects to grow its net funds in the coming year
Board, management and staff
As always, my thanks go to all staff within the businesses.
Their hard work, skill and ability to deliver what the customer
needs are what continues to drive the performance of our Group.
I welcomed the staff of EID into the Group last year, the
initial acquisition completing on the day of announcing our 2015/16
results. I would like to take this opportunity to thank them and
their Managing Director António Marcos Lopes for a strong
contribution to the Group in their first year, and for the positive
way they have adapted to life in a UK listed entity.
Andy Thomis and his senior executive colleagues have continued
the dedicated and skilful work which has helped the Group to
progress in the face of challenging trading conditions in parts of
the Defence market.
Outlook
The closing order book of GBP136.5m (2016: GBP116.0m) provides a
solid underpinning for the coming year. Although the UK defence
market remains tight, the Cohort businesses have strong and
relevant capabilities, established positions on some key long-term
UK MOD programmes, and a good pipeline of new opportunities. Export
prospects continue to strengthen although their timing is always
unpredictable. Outside defence, MASS continues to make progress
with its cyber capability as underlined by its recent securing of a
contract to deliver the Metropolitan Police's digital forensic
service for the next nine years, a service we are working on
extending to other police forces both in the UK and overseas. We
are also encouraged by the progress in SEA's transport offering
which achieved record sales of Roadflow units in the last year. We
have already made progress on improving access to the new markets
introduced to the Group by EID and expect, in due course, to
convert some of these introductions into orders for the rest of the
Group.
The political and economic context within which Cohort operates
has not changed appreciably since last year. On the one hand the
international and domestic security environment calls for greater
resources to be devoted to Defence and Counter Terrorism in the UK
and many other countries. On the other hand the pressures on public
expenditure in the UK are strong and this applies in varying
degrees in many other markets, including Portugal.
As regards Brexit, Defence trade has not been part of the single
market and, in any case, our business from the UK into EU countries
is currently small (GBP3.1m in 2017; GBP1.0m in 2016). We do not
therefore anticipate any direct effects upon Cohort from the Brexit
process. In the longer term there could be indirect effects,
resulting from the broad economic and political consequences of
Brexit. Whether these will be favourable or unfavourable is not
possible to say. The job of the Cohort Board is to manage our
affairs so that our businesses prosper whatever the political and
economic backdrop.
Our collective experience of Defence business, our size and
decentralised management structure, which together enable us to
make quick decisions, and our focus on niche product and service
offering, for which demand is increasing both domestically and
internationally, are the keys to this.
We continue to look for opportunities to augment organic growth
through targeted acquisitions. Recent contract wins have given us a
positive start to the year, and the Board considers that Cohort's
order book and near-term prospects provide a good base for future
progress.
Nick Prest CBE
Chairman
BUSINESS REVIEW
Operating review
2016/17 has been another year of progress for Cohort, with a
record level of adjusted operating profit. Revenue was at a similar
level to last year, reflecting tight market conditions for MASS,
SCS and SEA offset by strong performances at MCL and EID. The
closing order book of GBP136.5m, along with a good pipeline of
prospects, provide a basis for further progress in the coming
financial year.
The Group's adjusted operating profit of GBP14.5m (2016:
GBP11.9m) on revenue of GBP112.7m (2016: GBP112.6m) was a net
return of 12.9% (2016: 10.5%).
Adjusted operating profit by subsidiary:
Adjusted operating Operating
profit margin
2017 2016 Change 2017 2016
GBPm GBPm % % %
------ ------ ------- ----- -----
EID 4.2 - n/a 26.4 -
MASS 5.9 6.0 (2) 18.2 18.7
MCL 2.1 1.4 50 13.9 10.2
SCS (0.5) 1.2 n/a - 6.6
SEA 5.3 5.4 (2) 11.9 11.1
Central costs (2.5) (2.1) (19) - -
------ ------ ------- ----- -----
14.5 11.9 22 12.9 10.6
------ ------ ------- ----- -----
The 2016/17 result includes an initial contribution from EID for
ten months.
MASS and SEA reported results include a contribution from the
former operating divisions of SCS which transferred to these
businesses on 1 November 2016 when the SCS business was reorganised
and its headquarters and support functions closed.
Taking into account the transfers from SCS and the impact of
EID, the Group performance on a like for like basis was as
follows:
2017 2017 2017 2016
Revenue Adjustment Like Revenue Change
as for the for
reported reorganisation like
of SCS revenue %
GBPm GBPm GBPm
GBPm
---------- ---------------- --------- -------- -------
MASS 32.5 (2.6) 29.9 32.0 (7)
MCL 14.8 - 14.8 13.7 8
SCS 5.0 4.1 9.1 18.1 (50)
SEA 44.4 (1.5) 42.9 48.8 (12)
---------- ---------------- --------- -------- -------
Group as at the start
of the year 96.7 - 96.7 112.6 (14)
EID 16.0 - 16.0 - -
---------- ---------------- --------- -------- -------
112.7 - 112.7 112.6 -
---------- ---------------- --------- -------- -------
2017 2017 2017 2016
Adjusted Adjustment Like Adjusted Change
operating for the for operating
profit/(loss) reorganisation like profit
as reported of SCS adjusted
operating
profit %
GBPm GBPm GBPm
GBPm
--------------- ---------------- ----------- ----------- -------
MASS 5.9 (0.5) 5.4 6.0 (10)
MCL 2.1 - 2.1 1.4 50
SCS (0.5) 0.8 0.3 1.2 (75)
SEA 5.3 (0.3) 5.0 5.4 (7)
Central costs (2.5) - (2.5) (2.1) (19)
--------------- ---------------- ----------- ----------- -------
Group as at the start
of the year 10.3 - 10.3 11.9 (13)
--------------- ---------------- ----------- ----------- -------
EID 4.2 - 4.2 - -
--------------- ---------------- ----------- ----------- -------
14.5 - 14.5 11.9 22
--------------- ---------------- ----------- ----------- -------
Elsewhere in this report, we comment on the reported result of
each of the Group's businesses.
The above table highlights the initial contribution from EID,
which was acquired earlier in the financial year as well as the
impact of the reorganisation of SCS.
As previously reported, SCS was reorganised at the end of the
first half of this financial year, with its Training Support
division transferring to MASS, and its Air Systems and Capability
Development divisions to SEA.
The cost of this reorganisation was just under GBP2.6m which
included just over GBP1.0m in respect of an onerous lease on SCS's
former operating facility at Theale, which expires in September
2021. The reorganisation involved the closure of SCS's headquarters
and support functions and the annual saving to the Group is
expected to be GBP1.6m.
The positive impact of this reorganisation on the Group's
adjusted operating profit is shown in the above tables, with SCS's
former businesses contributing GBP0.8m of adjusted operating profit
on GBP4.1m of revenue in the second half compared with a loss of
nearly GBP0.5m on GBP5.0m of revenue in the first half of the
year.
Removing the SCS contribution from MASS and SEA, the like for
like adjusted operating profits and revenue of these businesses
were both down compared to 2016.
MASS remains the strongest contributor to the Group's adjusted
operating profit. However, excluding the contribution from the
businesses transferred from SCS, MASS saw a 7% drop in revenue,
accompanied by a 10% drop in adjusted operating profit, the latter
after one-off costs of GBP0.3m.
The cessation of some low margin activity accounted for most of
the revenue drop at MASS. Despite this, the overall gross margin
was maintained, but the bottom line was impacted by higher
overheads. These were partly one-off in nature but also reflected
investment in growing its cyber offering.
Similarly, excluding the contribution of the former SCS
businesses, SEA's revenue fell by nearly GBP6m. Almost all of this
was due to the contraction in its Research division following an
extended delay to the renewal of its soldier system research
programme by the customer, DSTL.
The impact of this revenue shortfall on net margin was partly
offset by higher margin sales in other areas of SEA, particularly
launcher systems for overseas customers, and increased activity
within our transport market.
In contrast, MCL delivered strong adjusted operating profit
growth of 50% on an 8% increase in revenue. This was mostly due to
favourable mix with higher margin support work being delivered in
the final quarter, which is historically the strongest period for
MCL.
The Group acquired the minority interest in MCL at the end of
January 2017, and MCL's contribution after this date was very
strong with GBP1.4m of adjusted operating profit on GBP5.0m of
revenue.
EID's initial contribution to the Group, which was only for 10
months, materially exceeded our expectations. The GBP4.2m of
adjusted operating profit on GBP16.0m of revenue, a net return of
over 26% was unusually high. This was the result of a strong mix,
including naval support work and the delivery of intercom and
related products to export markets.
We do not expect to see such strong margins at EID in the future
and although we are optimistic of achieving revenue growth in the
coming year, the mix of work will change. This will reduce net
margin percentages back to the level we would regard as normal for
this business.
The increase in central costs was as expected and reflects the
growth of the Group over the past year, particularly after
absorbing its new overseas subsidiary EID.
Overall, excluding EID's contribution, the Group saw a 13% fall
in adjusted operating profit on a 14% fall in revenue. This was
mostly a result of the contraction seen at SEA and the difficulties
experienced by SCS, especially in the first half.
Operating strategy
Cohort currently operates as a group of four medium-sized
businesses, operating primarily in defence and security markets,
and with a strong emphasis on technology, innovation and specialist
expertise:
-- EID is a hi-tech company with more than 30 years' experience
in the design, manufacture and support of advanced, high
performance command, control and communications equipment for the
global defence and security market. The Royal Navy is amongst the
customers for its naval communications systems, as are the navies
of Portugal, the Netherlands, Spain and Belgium. It has also
supplied a number of other export customers; in total its products
equip over 120 warships worldwide, and its army products have also
enjoyed wide domestic and export success.
EID operates through two market-facing divisions:
-- Naval Communications: integrated command, control and
communications systems for warships and submarines; and
-- Tactical Communications: radio, field and vehicle
communication equipment and networking equipment
These divisions are supported by an internal production and
logistics unit. EID operates from an engineering facility near
Lisbon, and has a regional office in Indonesia. It is led by its
Managing Director, António Marcos Lopes.
-- MASS is a business which enables customers to better protect,
analyse and interpret data to provide valuable information. It is a
leading international provider in the fields of electronic warfare
(EW) and secure communications, including cyber security. Its
products include the THURBON(TM) EW database and it provides EW
operational support services to a number of customers in the UK and
overseas. MASS has some unique capabilities that have enabled it to
establish strong niche positions in these important areas of
defence and security, as well as gaining an increasing reputation
as a leading provider of secure networks, cyber protection and
analysis to defence and other security services. Most recently it
has been awarded a contract to provide digital forensics service to
London's Metropolitan Police. MASS is also now the provider of
training support and simulation to the UK's Joint Forces Command, a
service the Group has provided for over 15 years. MASS was founded
in 1983.
-- MCL is a supplier of advanced electronic warfare,
surveillance technologies and hearing protection systems to defence
and security customers, mostly in the UK. It sources technologies
from a global supplier network as well as developing and supplying
its own solutions. MCL has a reputation for being flexible and
agile in creating effective, mission deployable solutions for
customers in the most challenging timeframes. MCL was founded in
1980 and is led by its Managing Director Darren Allery.
-- SEA specialises in providing systems engineering and
specialist design solutions to government and industry. Its
External Communications System is being provided for all of the
Royal Navy's Astute Class submarines, and will ultimately be fitted
to all of the RN's underwater fleet. It is also a supplier of
systems and in-service support for the defence and offshore energy
markets in the UK and overseas. Its products include sonar systems,
torpedo launchers and other naval equipment. It provides a range of
simulation-based training solutions and middleware to provide
realistic training for complex environments. It also provides
software and systems for the transport market, including the
successful Roadflow traffic enforcement system. SEA is now the
provider of military airworthiness and other technical support
previously provided through SCS. SEA was founded in 1988 and is led
by Managing Director Steve Hill.
Cohort's management approach is to allow its subsidiary
businesses a significant degree of operational autonomy in order to
develop their potential fully, while providing light-touch but
rigorous financial and strategic controls at Group level. Our
experience is that our customers prefer to work with businesses
where decision-making is streamlined and focused on solving their
immediate problems. This model provides us with a degree of
competitive advantage over some larger rivals where the
decision-making process can be more extended. It is also
cost-effective as it avoids the need for additional layers of
management involved in coordination activities and for a large
headquarters team. And it is attractive to high calibre employees
who find it more rewarding 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 to supply systems and services to our customers where these
attributes are highly valued.
Although the degree of autonomy our subsidiary businesses enjoy
is high, and we believe that this is an effective operational
strategy, we take a practical view of the best way forward when
circumstances change. When the operational situation is such that a
merger, restructuring or even sale is necessitated, we will act and
have acted in the best interests of the wider Group and its
shareholders. During the year, the reorganisation of SCS was such a
case. Its operational divisions were performing profitable work but
struggling to grow to a sufficient size to merit the retention of
SCS's separate support functions. The closure of these support
functions and the transfer of SCS's profitable operational
divisions elsewhere in the Group was a necessary step which
generated a much stronger second half performance from the
reorganised business.
Within our markets we have sought to use our agility and
innovation to identify niches where future prospects are attractive
and where we have some sustainable competitive advantage. These can
be for products, services or high value one-off projects to design
bespoke equipment or software. Examples include MASS's electronic
warfare operational support offerings, SEA's External Communication
System (ECS) for submarines and MCL's range of hearing protection
systems. We have also been active in finding new customers for the
capabilities we have developed, both in export markets, and for
non-defence purposes. During the recent year we have continued to
widen the customer base for our network security offering and
extended the application of our Roadflow product to address moving
traffic offences, in particular yellow box junctions and banned
right turns.
Being part of the Cohort Group brings advantages to our
businesses compared with operating independently. The Group's
strong balance sheet gives customers the confidence to award large
or long-term contracts that we are technically well-able to execute
but which might otherwise be perceived as risky. Examples include
MASS's GBP50m in-service support contract awarded in 2010, its
recent win to support the Metropolitan Police Services' Digital
Forensics provision for the next nine years, over GBP70m of
contracts awarded to SEA so far for ECS across the UK's submarine
platforms and MCL winning over GBP20m of orders to date for supply
and support of hearing protection systems across a range of UK
military users. The Group's Directors have long experience of
operating in the defence sector and have contacts and working
relationships with senior customers in the UK and internationally
which it would be hard for independent smaller businesses to
establish. Our current three UK operating businesses, while
remaining operationally independent, have close working
relationships and are able to benefit from each other's technical
capabilities, customer relationships and market knowledge. We have
made progress in the year on ensuring that EID fully participates
in this collaborative approach and will continue to try and ensure
access is widened to all of the Group's markets for all our
services and products.
These strategies have allowed us to grow our profit at a time
when UK defence expenditure, our largest source of revenue, has
been tightly constrained. They have also generated long term
customer relationships and good opportunities that give us
confidence that we can continue to prosper despite the difficult
and unpredictable market conditions.
Acquisitions
Alongside our organic growth strategy we continue to see
opportunities to accelerate our growth by making further targeted
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. The J+S
acquisition by SEA in 2014/15 is a good example of this.
For stand-alone acquisitions we are looking for agile,
innovative businesses that have reached a stage of development
where there will be mutual benefit in joining Cohort. It is likely
that candidates will be operating in the defence and security
markets either in the UK or internationally as that is where the
Group can add most value. Growth prospects, sustainable competitive
advantage and the ability to operate as part of a publicly quoted
UK group will all be important. The acquisition of just over 50% of
MCL in 2014/15 met these criteria, with the remainder of MCL (just
under 50%) acquired for a further consideration of GBP5.1m on 31
January 2017, with a further GBP0.5m payable as an earn out on or
before 31 July 2017.
As mentioned last year, the Group has added a fourth member of
Cohort by acquiring just under 57% of EID. The total consideration
paid for this was just under EUR11m (GBP8.9m). Subject to final
approval of the Portuguese Government, the Group expects to acquire
a further 23% of EID from the Government on the same terms and
price as the initial 57% with the Portuguese Government retaining a
20% stake in EID. The second part of the acquisition of EID was
originally expected to complete in the financial year ended 30
April 2017. Negotiation of a Shareholders' Agreement, satisfactory
to a number of separate ministries and agencies of the Portuguese
Government has taken some time. A Portuguese Competition Authority
clearance is also required. A formal notification to this
independent authority is in the advanced stages of preparation and
we expect to complete the second stage of the acquisition of EID,
subject to approval, within the coming months.
Following the the acquisition of its 57% stake, Cohort took
effective control and consolidated 100% of EID from 28 June 2016,
recognising the minority interest in EID as appropriate.
Divisional Review
EID
2017 2016
GBPm GBPm
-------------------------- ------ ------
Revenue 16.0 -
Adjusted operating profit 4.2 -
Operating cash flow 4.1 -
-------------------------- ------ ------
Above figures are for 100% of EID and for the 10 months ended 30
April 2017
EID provided a very strong initial contribution to the Group
result for 2016/17. This exceeded our expectations in Euro terms
and was further enhanced by the actual exchange rate to convert the
EID EUR based earnings to GBP sterling being lower than budgeted,
the acquisition completing just after the Brexit referendum of last
June. The average weighted exchange rate for 2016/17 was
EUR1.1745:GBP1.
The EID performance saw a significant level of higher margin
naval support activity, for both domestic (Portuguese) and export
customers. The Tactical division, where it delivers mostly off the
shelf EID designed and manufactured product, delivered on a
significant contract for the Egyptian Army.
The combination of this support activity and higher volumes of
export product deliveries drove an unusually high net margin of
over 26%.
EID has secured nearly GBP19m of orders since joining the Group
which included over GBP8m from the Portuguese MoD and follow on
orders from Egypt of nearly GBP1.5m.
The closing order book of EID of GBP27.6m provides a good
underpinning to the coming financial year and some very good
prospects, especially in naval systems, are expected to add to
this. We expect EID's revenue to grow in the coming year.
However, the mix of work at EID is expected to change in the
coming year with lower levels of support activity. As a result the
net margin is expected to return to more historically normal
levels.
Divisional Review
MASS
2017 2016
GBPm GBPm
--------------------------- ------ ------
Revenue 32.5 32.0
Adjusted operating profit 5.9 6.0
Operating cash flow 4.5 4.9
--------------------------- ------ ------
MASS had a mixed year with a slight decrease (2%) in adjusted
operating profit on slightly higher revenue.
The MASS figures in 2017 included GBP0.5m of adjusted operating
profit on GBP2.6m of revenue from SCS's former Training Support
division, which transferred to MASS on 1 November 2016.
MASS's revenue was up slightly (2%) on last year with the
transfer from SCS offsetting a reduction in MASS's existing
business where a low margin, non-core service it had provided for
many years was halted.
The adjusted operating profit of MASS was slightly down on last
year with improved gross margin offset by an increase in overhead.
This was partly a result of one-off costs, the balance being
investment in business development and project support,
particularly in the Cyber division.
As we indicated was likely last year, MASS's net margin
decreased to 18.2% (2016: 18.7%). This was primarily due to the
overhead increase.
During the year, MASS secured a number of significant contracts
in the growth areas of secure information systems and cyber. This
included the Metropolitan Police Services (MPS) Digital Forensic
managed service for nine years (GBP8.6m) and a ten year secure
information management service for the RAF's Sentry platform
(GBP12.5m), the latter being an extension of existing work. MASS's
order intake included over GBP8m of other renewals and extensions
of existing work and we expect more of this in the coming year.
The MPS win is particularly pleasing and opens up a significant
new market for both similar and new offerings to other UK police
forces as well as overseas customers.
MASS's operating cash flow this year was slightly weaker than
last year with a build-up of working capital at the end of the
financial year linked to higher activity. MASS, as part of its
cyber strategy, is currently investing in facility upgrades to
enable it to offer a more comprehensive cyber service. This work
completed at the end of 2016/17 and the resulting new facility will
become operational in 2017.
MASS operated through the year with four divisions, adding the
Training Support division as a fifth at the half year. For the
coming 2017/18 financial year it expects to continue to operate
through these five profit centres. The EWOS division provides
MASS's EW capability, including the THURBON(TM) EW database,
SHEPHERD (the provision of a system embodying THURBON(TM) to the UK
MOD) and its EW managed service offerings in the UK and elsewhere.
The Cyber Security division includes MASS's offerings of solutions
and training to government security customers, including now the
Metropolitan Police. The Secure Networks division includes MASS's
secure network design, delivery and support, including 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.
MASS enters the current year with a strong order book and
pipeline of opportunities, including exports, though the latter are
always unpredictable in terms of timing.
Divisional Review
MCL
2017 2016
GBPm GBPm
--------------------------- ------ ------
Revenue 14.8 13.7
Adjusted operating profit 2.1 1.4
Operating cash flow 0.5 0.5
--------------------------- ------ ------
The above figures are for 100% of MCL in both years
MCL's increased revenue (8%) on last year was mostly from
increased support services for the UK MoD, primarily in the land
environment. Typically for MCL, much of this activity arose in the
final quarter.
This support work, much of which involves utilising MCL's own
people, is typically at higher margins than MCL's product sales
where the bought-in content is much higher.
The increased revenue and especially favourable mix drove MCL's
adjusted operating profit up by 50% compared to last year, GBP1.4m
of it being delivered after Cohort's acquisition of the minority
shareholding on 31 January 2017.
MCL secured a number of key orders in the year including a
further GBP15m of hearing protection systems and other equipment
development, production and support for specialist military
users.
When we acquired MCL, back in July 2014, one of the primary
objectives was to support MCL in building an order book and
business with greater longevity and visibility. The 2017 closing
order book of GBP15.5m (2016: GBP7.0m), along with further recent
wins of around GBP6m, shows this objective of improved visibility
and predictability is making progress. This gives us confidence
that MCL will continue to grow in the coming year, although we
expect margin percentages to be lower due to the level of bought-in
content.
The positive, albeit small, operating cash flow was expected and
reflects MCL's peak of activity at the end of the financial
year.
Darren Allery, MCL's Managing Director, has led his team through
the integration with Cohort. We are looking forward to continuing
to work with the existing MCL team following the acquisition of the
remaining management shareholders' stakes on 31 January 2017.
Divisional Review
SEA
2017 2016
GBPm GBPm
--------------------------- ------ ------
Revenue 44.4 48.8
Adjusted operating profit 5.3 5.4
Operating cash flow (5.5) 2.7
--------------------------- ------ ------
SEA, led by Managing Director Steve Hill, has had a mixed year
with growth in its transport business offset by a significant
contraction in its research activities.
Continuing the trend of recent years, despite the reduced
revenue the net margin of SEA increased from 11.1% to 11.9%. This
is a result of the trend of the business towards more product sale,
particularly in export markets, and a proportionate reduction in
customer-funded development work.
This trend has been accompanied by a reduced predictability of
the revenue stream, especially in the SEA's software solutions and
product division where the timeframe from order win to delivery is
usually a few weeks to months. We expect to see this continue in
the medium term whilst we await the next major stages of the UK
submarine fleet's external communications system, the Vanguard
Class upgrade and the new Dreadnought Class. In the meantime, SEA
is actively seeking to expand its export business, especially in
maritime markets.
SEA's maritime business remained steady with the expected
decline in its UK submarine communications activity offset by
increased delivery of torpedo launcher systems for export
customers.
In SEA's Maritime division the UK submarine communications work
has moved from design and testing of systems to delivery. We
continue to have good levels of re-design and upgrade work whilst
the engineering team await the next major activity on the Vanguard
Class in the near future.
The moving of the communications system from design to
production has de-risked the programme allowing previously held
risk contingency to be released.
The level of torpedo launcher activity, as expected, increased
as we completed design and moved to the first production systems
for two export customers. The level of this activity will be
sustained for the coming year. The business is tracking
opportunities to win further export orders with the potential to
provide growth in 2018/19 and beyond.
Within the Maritime division, SEA suffered project losses on a
one-off development project for a specialist sonar array, a
contract inherited with the J+S business acquired in 2014. This
programme is expected to conclude in 2017/18 and no further losses
are envisaged.
SEA's Software, Simulation and Product division (SSP), which is
dominated by our offering to the transport market, increased its
revenue from just under GBP7m in 2015/16 to nearly GBP9m this
year.
This growth was mostly from increased orders for enforcement
systems in the UK and overseas, as well as an important follow on
order for Digital Traffic Enforcement Systems (DTES) at Transport
for London. The initial upgrade work on DTES commenced in
2016/17.
The improved margins in the Maritime division and volume
increase in SSP offset a marked deterioration in SEA's Research and
Technical Services (RTS) division.
For some years, SEA has been a leading provider of research to
the UK MoD in the areas of sonar, maritime and especially land. The
former two areas continue to provide revenue streams for SEA, as
well as providing expertise for its development of low profile
sonar array systems, now being sold as the Krait Array to a number
of customers around the world.
In the land domain, SEA has led a team of suppliers over a
period of 8 years on two major research programmes into Dismounted
Soldier Systems. The last of those research programmes, Delivering
Dismounted Effect (DDE) completed last year. A follow on programme,
known as the Dismounted Engine Room (DER), was expected but various
internal and budget issues on the side of the customer, DSTL, have
delayed it. The timing of DER remains uncertain and initial work is
now likely to be delayed into 2018/19.
The impact of this delay resulted in revenue in SEA's Research
division dropping significantly, from over GBP8m in 2015/16 to
around GBP2m in 2016/17. This contraction accounts for most of the
revenue fall seen at SEA.
SEA's subsea division also had a tough year with revenue
dropping by a third to GBP2m as the low oil price continued to hold
back spending by oil producers in the North Sea. Despite this, the
division largely maintained its profitability by a combination of
some cost reduction, including redeploying staff to support SEA's
Maritime division, and improved gross margin. The latter arose from
an increase in the proportion of refurbishment and repair activity,
reflecting the cost conscious approach in the oil and gas sector.
Much of this work is done by SEA's staff, with lower bought-in
content.
SEA absorbed the former SCS divisions of Capability Development
and Air Systems. Together these made a positive contribution to
SEA's second half performance, with GBP0.3m adjusted operating
profit on GBP1.5m of revenue.
SEA's closing order book of GBP44.0m includes nearly GBP24m of
revenue to be delivered in the coming financial year.
SEA continued to conduct its business through four market facing
divisions:
-- Maritime division, including design, development, production
and support of its naval communication systems, sonar, torpedo
launch and other naval systems.
-- Research and Technical Support division, including its
capabilities in the land and research markets of defence. This
absorbed the Capability Development division of SCS from 1 November
2016.
-- Software Solutions and Product division, including SEA's
transport work in the UK and overseas as well as other civil and
non-maritime products, its training and simulation capabilities and
other information systems. This absorbed the Air Systems division
of SCS from 1 November 2016. During the coming year (2017/18) the
Research & Technical Support division will be combined with the
Software Solutions and Product division from 1 September 2017.
-- Subsea Engineering Division, developing and delivering SEA's
activities in the offshore energy market, primarily oil and
gas.
These four business development and delivery divisions have been
supported by a single production facility at its Barnstaple
site.
Revenue by market and business
EID MASS MCL SCS SEA Group
------------ -------------- -------------- -------------- -------------- --------------------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 %
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm
------------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---- ------ ----
Defence
& Security 16.0 - 30.7 30.1 14.7 13.6 4.9 17.9 35.6 41.4 101.9 90 103.0 91
Transport - - - - - - - - 5.9 3.5 5.9 5 3.5 3
Offshore
energy - - - - - - - - 2.0 3.0 2.0 2 3.0 3
Other
commercial - - 1.8 1.9 0.1 0.1 0.1 0.2 0.9 0.9 2.9 3 3.1 3
------------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---- ------ ----
16.0 - 32.5 32.0 14.8 13.7 5.0 18.1 44.4 48.8 112.7 100 112.6 100
------------ ----- ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ---- ------ ----
The defence and security revenue is further broken down as
follows:
EID MASS MCL SCS SEA Group
---------------- -------------- -------------- -------------- ---------------- ------------------------------
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 %
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm % GBPm
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Direct
to UK
MOD - - 14.4 13.1 12.5 11.1 2.4 10.7 5.8 11.6 35.1 31 46.5 41
Indirect
to UK
MOD
where
the
Group
acts
as a
sub-contractor
or partner - - 5.5 6.7 0.5 0.4 1.1 2.7 23.7 26.9 30.8 27 36.7 32
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Total
to UK
MOD - - 19.9 19.8 13.0 11.5 3.5 13.4 29.5 38.5 65.9 58 83.2 73
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Portuguese
MOD 2.4 - - - - - - - - - 2.4 2 - -
Export
and
other 13.6 - 10.8 10.3 1.7 2.1 1.4 4.5 6.1 2.9 33.6 30 19.8 18
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
16.0 - 10.8 10.3 1.7 2.1 1.4 4.5 6.1 2.9 36.0 32 19.8 18
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
16.0 - 30.7 30.1 14.7 13.6 4.9 17.9 35.6 41.4 101.9 90 103.0 91
---------------- ----- ----- ------ ------ ------ ------ ------ ------ ------- ------- ------- ----- ------- -----
Revenue breakdown by capability
2017 2016
GBPm % GBPm %
------------------ -------------------------------- ------ ---- ------ ----
Defence products: the
design, supply and support
of such equipment and
its associated embedded
software, as well as
the integration of commercial
"off the shelf" equipment
for specialist applications
primarily by SEA, EID
Defence products and MCL. 63.6 56 47.0 42
------------------ -------------------------------- ------ ---- ------ ----
Application software:
the design and supply
of specialist software
systems such as MASS's
work on Project SHEPHERD
and SEA's work for its
Application transport and defence
software customers. 11.1 10 8.7 8
------------------ -------------------------------- ------ ---- ------ ----
Secure networks: the
provision of advice
and system implementation
to protect against cyber
attack and other threats.
MASS provides these
services for a range
Secure networks of clients. 9.7 9 7.9 7
------------------ -------------------------------- ------ ---- ------ ----
Operational support:
the provision of direct
support to active operations
which takes place at
MASS through its Electronic
Warfare Operational
Support activities,
Operational and at SEA in defence
support and offshore energy. 9.0 8 11.3 10
------------------ -------------------------------- ------ ---- ------ ----
Specialist expertise:
the provision of expert
individuals as part
of a customer's team.
Two of our businesses
Specialist are active in this area,
expertise SEA and MASS. 6.8 6 12.0 11
------------------ -------------------------------- ------ ---- ------ ----
Training: this includes
formal, on-the-job and
scenario-based training
services. An example
is MASS's provision
of exercise-based training
for the UK's Joint Forces
Training Command. 6.4 6 10.7 9
------------------ -------------------------------- ------ ---- ------ ----
Studies and analysis:
other self-contained
studies, consultancy
and analytical work
Studies and such as SEA's work on
analysis the Protector UAV 4.7 4 8.9 8
------------------ -------------------------------- ------ ---- ------ ----
Applied research: the
management and execution
of scientific investigation
work aimed at specific
objectives, mostly at
Applied research SEA. 1.4 1 6.1 5
------------------ -------------------------------- ------ ---- ------ ----
112.7 100 112.6 100
------ ---- ------ ----
Notable changes between 2016 and 2017 were:
-- A significant growth in defence products, in absolute and
percentage terms. A major factor in this was the acquisition of
EID, whose output is almost 100% product. Other contributing
factors included growth at MCL and SEA's naval product and support
business and enforcement systems in transport.
-- A fall in specialist expertise provision. This has been
steadily declining over the last few years and the reorganisation
of SCS and the cessation of some of this activity at MASS during
the year contributed to a further significant drop.
-- A fall in studies and analysis activity. Again, following the
reorganisation of SCS, which was prompted by the loss of a
significant piece of work in this capability area.
-- A fall in applied research as the DDE project, which
completed in 2015/16 has not yet been renewed.
We have maintained our capability breakdown analysis as for last
year but with the Group's focus moving towards more product,
software, secure information systems and cyber we are likely to
revisit the capability analysis in 2017/18.
Our people
At the year end the Group had 811 (2016: 648) permanent
employees as well as a number of people on fixed-term or
task-specific contracts. Many of these are highly qualified
engineers, mathematicians and scientists and along with our
management and support people, all make important
contributions.
In the 2017 financial year in our Business Excellence Award
scheme, the Gold Award went to the team from SEA for designing,
testing and manufacturing a low profile sonar array, known as the
Krait Array. This array, which is only 16mm in diameter is much
lighter than the usual towed arrays deployed by navies around the
world. We have already seen some significant sales of this product
and prospects for further deployments, especially in combination
with unmanned surface vehicles, are good.
Other team winners included MCL for expanding its hearing
protection offering to other key military users.
The awards also gave an opportunity to celebrate some relatively
unsung but important achievements by the Group's support staff.
Having completed the Group's first Leadership Development Scheme
last year, the second Leadership Development Scheme commenced in
2016/17. The scheme is intended to hone the skills of the next
generation of our senior leaders and is supported by the top
management of both the operating businesses and the headquarters
team. As well as developing individual skills and encouraging
people to achieve their full potential we see this as being a way
to encourage the growth of informal networks across the Group,
improving our ability to share information and work together more
effectively. In addition, a scheme to broaden the skills of some of
our able technical people was also launched in the year.
Cohort's largest customers are the UK armed forces, and the work
we do helps them to carry out their vital task more effectively.
This is a significant motivating factor for our people, many of
whom are current reservists or former members of the armed forces
themselves. Cohort is proud to have been an early signatory of the
UK Armed Forces Corporate Covenant and as a Group we currently hold
two Silver Awards under the Defence Employer Recognition
Scheme.
Our people are frequently involved in fund-raising for armed
forces charities, activities which we are pleased to support, in a
modest way, corporately, either directly or through matching
employee efforts the Group donated nearly GBP34,000 in 2016/17
(2015/16: GBP36,000), the majority to military charities including
SSAFA, and charities local to our businesses.
All of the Group's capabilities and customer relationships
ultimately derive from our people, and such success as we have
enjoyed is a result of their efforts. We would like to take this
opportunity to express our thanks to all employees of Cohort and
its businesses.
Operational Outlook
Order intake and order book
Order intake Order book
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
------- ------ ------ ------
EID 18.9 - 27.6 -
MASS 32.0 20.3 49.4 41.7
MCL 23.3 18.0 15.5 7.0
SCS 3.0 20.1 - 11.7
SEA 31.4 36.4 44.0 55.6
------- ------ ------ ------
108.6 94.8 136.5 116.0
------- ------ ------ ------
Note: The closing order books of MASS and SEA as at 30 April
2017 include GBP8.2m and GBP1.5m respectively of order book
transferred from SCS on its reorganisation on 1 November 2016.
The increase in the Group's order intake was due to the improved
order intake at MASS and MCL as well as the introduction of
EID.
As indicated at the interim report stage last December, SCS's
order intake was significantly down on 2015/16 and when including
the intake in its former divisions (now within MASS and SEA) was
only around GBP4.0m in total for the year, considerably down on
last year, although 2015/16 did include over GBP9m in respect of a
two year renewal of the JWC contract, the extension of which, for a
further two years, is expected in 2017/18.
The Group's closing order book includes GBP23.1m of acquired
order book with EID and GBP1.5m increase in its value on revaluing
the underlying EID Euro order book at the closing exchange rate at
30 April 2017.
To view the table which shows the underpinning of future revenue
from the current order book, please click on, or paste the
following link into your web browser:
http://www.rns-pdf.londonstockexchange.com/rns/4994J_1-2017-6-28.pdf
EID's order intake since acquisition last June was nearly GBP19m
and included over GBP8m of orders from its domestic customer, the
Portuguese MoD. The most important single element of this was an
order of just over GBP6m for the next generation of communication
equipment for the Portuguese Army.
The balance of order intake (GBP11m) was export, underlining
EID's very good export record.
EID's underpinning for the coming year is good and prospects for
its domestic customer and export opportunities support our view
that its revenue will grow in the coming year.
MASS's order intake of GBP32.0m included some key wins in
markets that MASS has been working to grow over the last few
years.
A ten year secure information management service for the RAF's
Sentry platform was secured at GBP12.5m, building on MASS's
existing support work for this customer. Late in the year, a nine
year managed service to run and support the Metropolitan Police
Services' Digital Forensic programme at GBP8.6m was secured. This
latter order, a significant win for MASS with a new customer in a
growing market, utilises MASS's experience in running long term
technical managed service programmes. We are looking to expand this
offering to other police and related security services in the UK
and overseas.
MASS's closing order book of over GBP49m provides good
underpinning for the coming year giving us optimism that MASS's
revenue, including the former SCS division of Training Support,
will grow.
MCL had a very good year for order intake securing just over
GBP23m to which a further GBP6m has been added since the start of
the new financial year.
One of our objectives, when acquiring MCL was to increase its
order book visibility. The closing order book and recent wins give
us confidence that it will continue to grow in the coming year.
SEA's order intake was down on last year and like its
performance in 2016/17, was one of contrasts. Its SSP division,
including transport products and services, had a very strong year,
securing orders for over GBP13m. Defence, the core of SEA's
business, was a mixed picture. Orders of nearly GBP12m were secured
for maritime products and services, in contrast to research where
order intake was only GBP3.0m, well below half the level of revenue
in 2015/16 and with almost no orders secured in the area of Soldier
Systems. We hope to see a pick-up in this area in 2017/18 but our
expectation at present is that this will not return to the level of
2015/16.
The Subsea Engineering division of SEA continued to suffer from
a tight market in 2016/17 although in the second half we did begin
to see an improvement in monthly volumes of order wins.
SEA's closing order book of GBP44.0m provides reasonable
underpinning for the coming year and along with some good prospects
provides us with a reasonable expectation that SEA should show some
growth compared to the current year.
In the near term, the majority of Cohort's business will
continue to derive from the UK MOD, either directly or indirectly.
The Government's Strategic Defence Review published in November
2015 gave high priority to a number of areas where the Group's
capabilities are strong, including submarines, Special Forces,
cyber and secure communications. It also brought a welcome increase
in planned defence equipment spending originally set to begin in
2017/18. We do expect to see opportunities arising from this
increase, but it is also clear that delays and cost growth are
limiting the freedom of movement of the MOD and armed forces in
acquiring new equipment. This tightness, coupled to a shortage of
commercial staff and some problems with IT implementation, has
resulted in unpredictable fluctuations between purchase commitments
and cash controls in 2016/17. We expect this to continue into
2017/18.
We have continued to focus on growing our export business.
Excluding EID, export sales in 2016/17 were GBP19m, some 4% higher
than last year. Including EID, defence export sales (excluding
EID's domestic market of Portugal) were nearly GBP32m, almost 30%
of Group revenue, significantly higher than the 16% achieved in
2015/16. Correspondingly, our sales to UK MoD, direct and indirect,
reduced from 73% of revenue in 2016 to 58% in 2017.
The Group's non-defence revenue streams were also up by 10%
compared to last year, with all of the growth coming from transport
and in particular SEA's traffic enforcement products and
services.
The oil and gas market continued to be difficult. Nevertheless,
despite a fall in revenue from GBP3m to just under GBP2m, the
Group's oil and gas business remained profitable with improved
margins as a result of its mix of work.
The Group's defence and security business remains the
significant majority of our business with 90% (2016: 91%) and will
remain so going forward.
Looking forward, our order book and pipeline of prospects give
us confidence that we will grow our revenue in the coming year.
Funding resource and policy
The Group retains a robust financial position and continues to
be cash generative enabling it to continue to invest in internal
R&D and other value adding projects on a carefully considered
basis as well as maintaining its progressive dividend policy.
The Group's cash position and its banking facility provide it
with the resources to conduct its acquisition strategy.
RBS remain the Group's primary bank, especially for clearing
purposes and day to day transactions.
In November 2015 the Group completed a tri-bank facility with
Barclays, Lloyds and RBS.
The facility is a revolving credit facility for three years with
an option to extend for up to a further two years. The amount is
GBP25m with an option to extend by a further GBP10m to GBP35m.
The facility itself provides the Group with a flexible
arrangement to draw down on for acquisitions and trading activities
and as at 30 April 2017 the facility was drawn as follows:
Facility Drawn
GBPm GBPm
M&A loan 10-15 3.5
Overdraft 3 -
FX, bonding and other trade
instruments 7-12 0.9
--------- ------
25 4.4
--------- ------
The above segmenting of the facility is approximate and there is
scope to reallocate elements of the undrawn facility as
necessary.
The three banks participate equally in the facility and it is
the role of the Group Treasury function to ensure that at any time
the Group has available to it sufficient facilities to enable it to
meet its requirements flexibly and efficiently.
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 Baa2. 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 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.
MCL's cash balances were held with Barclays and were outside the
above facility and offset arrangements. MCL's cash balances were
absorbed into the Group's offset arrangement with RBS early in
2017/18.
The Group has retained its inherited bank relationship with
Clydesdale in order for customer payments to be received where
contractual terms or relationships make bank changes impractical.
These accounts will be closed once they are no longer receiving
deposits.
EID's bank facilities are managed locally with banks in
Portugal. The cash is spread across a number of institutions to
mitigate risk to the capital.
EID provides no security over its assets and its wide range of
banks enable it to be well supported in executing export
business.
The Group regularly reviews the ratings of the institutions with
which it holds cash and always considers this when placing a new
deposit.
The Group's return on net funds during the period was 0.0% to
0.75% (2016: 0.20% to 0.75%).
In addition to its cash resources, the Group has in issue 41.0m
ordinary shares of 10 pence each. Of these shares 0.3m (2016: 0.7m)
are owned by the Cohort plc Employee Benefit Trust (EBT), which
waives its rights to dividends. In addition the Group has issued
options over ordinary shares through Key Employee Share Option and
SAYE schemes to the level of 1.7m at 30 April 2017 (2016:
1.8m).
The Group's exposure to foreign exchange risk arises from two
sources:
1. the reporting of overseas subsidiaries' earnings and net assets in GBP sterling, and
2. transactions in currencies other than our Group reporting
currency (GBP) or subsidiary reporting currency where different
(currently EUR at EID).
The first risk is a reporting rather than cash risk and we do
not hedge the reporting of earnings.
In terms of reporting the assets, we have in place a natural
hedge of borrowing in Euros to acquire a Euro asset (EID) but over
time as the asset grows and the loan diminishes, this hedge will
naturally wane.
We take a prudent approach to transactional foreign exchange
risk requiring all significant sales and purchases to be hedged at
the point in time when we consider the likelihood of the
transaction to be certain, usually on contract award. We do not
hedge account and mark these forward contracts to market at each
reporting date, recognising any gain or loss in the income
statement.
The Group, as in the past, has maintained its progressive
dividend policy, increasing its dividend this year by 18% to a
total dividend paid and payable of 7.1 pence per share.
The last five years' annual dividends, growth rate, earnings and
cash cover are as follows:
Dividend Growth Earnings Cash cover
paid over cover (based
and previous (based upon net
proposed year upon adjusted cash generated
earnings from operations
Year ended 30 April per share)
%
Pence
----------------------- ---------- ---------- --------------- -----------------
2017 7.1 18 3.9 0.2
2016 6.0 20 4.5 2.8
2015 5.0 19 4.1 9.2
2014 4.2 20 4.6 1.5
2013 3.5 21 5.1 2.9
----------------------- ---------- ---------- --------------- -----------------
The growth over recent years has moved the dividend from a
relatively low base to a more normal level for an established cash
generative business.
Looking forward the Group plans to maintain a policy of growing
its dividend each year but we expect the rate of growth to reduce
over the coming years to align more closely with the earnings
growth of the Group.
The Group's cash generation in 2016/17 was, as had been
expected, weaker than last year. In summary, the Group's cash
performance was as follows:
2017 2016
GBPm GBPm
-------------------------------------- ------- ------
Adjusted operating profit 14.5 11.9
Depreciation and other non-cash
operating movements 1.4 1.5
Working capital movement (11.2) (4.4)
-------------------------------------- ------- ------
4.7 9.0
Acquisition of EID (net of
cash required) (4.0) (0.7)
Acquisition of the minority (5.1) -
of MCL (49.999%)
Reorganisation of SCS (1.3) -
Tax, dividends, capital expenditure,
interest, loans and investments (5.6) (8.2)
-------------------------------------- ------- ------
(Decrease)/increase in net
funds (11.3) 0.1
-------------------------------------- ------- ------
As signalled last year, we experienced a significant decrease in
net funds in 2016/17. This outflow was mostly due to the
acquisition of MCL and EID but also an increase in working capital
following a very strong inflow in the final quarter of 2015/16.
This outflow was slightly worse than expected due to the delay to
some significant receipts, GBP3.5m of which were received shortly
after the year end.
The lower cash outflow in tax, dividends etc., was due to lower
investment in Cohort's own shares by the EBT, a net inflow of
GBP0.5m (2016: outflow of GBP3.2m). Looking forward, we retain the
flexibility to use newly issued shares as well as EBT shares to
satisfy employee share options.
The Group's customer base of Governments, major prime
contractors and international agencies make its debtor risk low.
The year end debtor days in sales were 42 days (2016: 31 days).
This calculation is based upon dividing the revenue by month,
working backwards from April, into the trade debtor's balance
(excluding unbilled income and work in progress) at the year end.
This is a more appropriate measure than calculating based upon the
annual revenue as it takes into account the heavy weighting of the
Group's revenue in the last quarter of each year. The increase in
debtor days is a reflection of the high level of trading in the
final quarter across the Group, especially at MASS, MCL and SEA and
the inclusion of EID which typically has longer credit periods
granted to its customers.
Tax
The Group's tax credit for the year ended 30 April 2017 of
GBP1,144,000 (2016: credit of GBP54,000) was at an effective credit
rate of 119% (2016: credit rate of 1.0%) of profit before tax. This
includes a current year corporation tax charge of GBP2,445,000
(2016: GBP1,935,000), a prior year corporation tax credit of
GBP845,000 (2016: credit of GBP368,000) and a deferred tax credit
of GBP2,744,000 (2016: GBP1,621,000).
The current tax rate (including deferred tax) on profit before
tax is lower than the standard rate (calculated at 19.92%; 2016:
20.00%), primarily due to recognition of Research & Development
(R&D) credits in the current year (GBP0.4m) and statutory
deductions on the exercise of share options by employees (GBP0.2m).
The Group will continue to recognise its R&D tax credit in the
tax line, in accordance with IAS 12, whilst its subsidiary
statutory accounts now make use of the R&D expenditure credit
(RDEC), recognising the tax credit in their operating costs.
The Group's overall tax rate was below the standard corporation
tax rate of 19.92% (2016: 20.00%). The reduction is due to the
reasons given above for the current year's rate and in addition, a
prior year tax credit in respect of the release of earlier year
R&D tax credit provisions where tax years have now closed, and
further tax allowable expenditure in respect of J+S prior to its
acquisition by the Group. Both of these are regarded as one-off tax
items. Looking forward, the Group's effective current tax rate for
both 2017/18 and 2018/19 is estimated at 15%, taking account of the
reduction in headline tax rates and assuming that the R&D tax
credit regime remains unchanged from its current level and scope.
The Group maintains a cautious approach to previous R&D tax
credit claims for tax periods that are still open, currently
2015/16 and 2016/17.
Exceptional items
The majority of the GBP2.7m exceptional cost in the year (just
under GBP2.6m) was in respect of the reorganisation of SCS. The
major elements were an onerous lease at SCS's former operating
facility at Theale (GBP1.0m), redundancy and related costs
(GBP1.0m) and fixed asset write offs and transition costs to
integrate the former operating divisions of SCS into MASS and SEA.
The exceptional items also included further costs of the
acquisition of EID (GBP80,000) and completion of the acquisition of
the minority of MCL (GBP47,000).
Adjusted earnings per share
The adjusted earnings per share (EPS) of 27.93 pence (2016:
27.18 pence) is reported in addition to the basic earnings per
share and excludes the effect of amortisation of intangible assets,
exchange movement on marking forward exchange contracts to market,
revaluing the cash set aside to acquire EID and exceptional items,
all net of tax.
The adjusted earnings per share excludes the non-controlling
interest of both EID and MCL, the latter up to 31 January 2017.
This accounts for the difference between the 22% growth in adjusted
operating profit and the 3% growth in the adjusted earnings per
share. The reconciliation is as follows:
Adjusted Adjusted
operating earnings
profit per share
GBPm pence
---------------------------------- ----------- -----------
Year ended 30 April 2016 11.9 27.18
EID adjusted operating profit
and earnings impact (57% owned
for period from 28 June 2016
to 30 April 2017) 4.2 4.60
Growth in MCL adjusted operating
profit and earnings impact
(50% owned until 31 January
2017 and then 100% from then
onwards) 0.7 0.70
100% owned businesses throughout
the year ended 30 April 2017 (2.3) (4.55)
---------------------------------- ----------- -----------
Year ended 30 April 2017 14.5 27.93
---------------------------------- ----------- -----------
Increase from 2016 to 2017 22% 3%
---------------------------------- ----------- -----------
The adjustments to the basic EPS in respect of the exchange
movements and other intangible asset amortisation of EID and MCL
only reflect that proportion of the adjustment that is applicable
to the equity holders of the parent, analysed as follows:
Adjustment Applicable Adjustment
to adjusted Tax to adjusted
operating adjustment earnings
profit per share
(net of
tax)
GBP000 GBP000 GBP000
------------- ------------ ------------- -----
Exceptional items 2,697 (512) 2,185
Exchange gain on
marking forward
contracts to market
value and revaluing
EID cash held for
acquisition to market
value at acquisition
date (2016: year
end) (430) 86 (344)
Amortisation of
other intangible
assets:
J+S 1,686 (337) 1,349
note
MCL 2,126 (425) 1,701 1
note
EID 3,511 (788) 2,723 2
------------- ------------ ------------- -----
9,590 (1,976) 7,614
------------- ------------ ------------- -----
Note 1: This adjustment is at 50% of the adjustment to adjusted
operating profit, reflecting the share appropriate to the equity
holdings of the parent up to 31 January 2017 when the
non-controlling interest was acquired in full.
Note 2: This adjustment is at 56.7% of the adjustment to the
adjusted operating profit, reflecting the share appropriate to the
equity holding of the parent.
As reported in the Chairman's statement, the adjusted earnings
per share includes some one-off tax credits of GBP0.5m (2016:
GBP0.9m) which when taken into account reduces the adjusted
earnings per share by 1.30 pence to 26.63 pence (2016: 24.98
pence), 7% higher than last year's equivalent figure.
Financial estimates and judgements
In preparing the Annual Report and Accounts of Cohort plc for
2017, a number of financial estimates and judgements have been made
including:
Revenue recognition on fixed-price contracts
The judgement applied in recognising revenue on a fixed-price
contract is made by reference to the cost incurred, including
contingency for risk and the demonstrable progress made on
delivering key stages (often referred to as milestones) of the
contract. The Group uses best estimates in applying this judgement
and where uncertainty of progress on a stage exists, revenue is not
recognised for that stage.
Cost contingency on fixed-price contracts
In addition to the judgement applied to revenue recognition, the
cost of delivering a contract to a particular stage represents the
actual costs incurred and committed plus an estimate of cost
contingency for risk still present in the contract at that stage.
This cost contingency takes account of the stage that the contract
has reached and any judgement and uncertainty remaining to deliver
the remainder of the contract. It is usual for these cost
contingencies to reduce as the contract progresses and risk and
uncertainty reduces.
Goodwill and other intangible assets
The Group has recognised goodwill and other intangible assets in
respect of the acquisition of EID, MASS (including Abacus EW), MCL
and SEA (including J+S). The other intangible assets are in respect
of contracts acquired, intellectual property rights and specific
opportunities and in each case are amortised over the expected life
of the earnings associated with the other intangible asset
acquired. The goodwill, which is not subject to amortisation but to
annual impairment testing, arises from the intangible elements of
the acquired businesses for which either the value or life is not
readily derived. This includes, but is not limited to, reputation,
contacts and market synergies with existing Group members. The
goodwill relating to the acquisitions of EID, MASS (including
Abacus EW), MCL and SEA (including J+S) has been tested for
impairment as at 30 April 2017. In all four cases there was no
impairment.
The Group performs significant research and development work for
third parties for which tax credits are claimed. As this is
performed for third parties no intangible asset is recognised.
Where the Group performs its own research and development an
intangible asset is only recognised where it meets the criteria of
IAS38 'Intangible Assets'.
Provisions
The Group makes estimates of provisions for existing commitments
arising from past events. In estimating these provisions, the Group
makes judgements as to the quantity and likelihood of the liability
arising. Certain provisions require more judgement than others. In
particular warranty provisions and contract loss provisions have to
take account of future outcomes arising from past deliveries of
products and services. In estimating these provisions, the Group
makes use of management experience, precedents and specific
contract and customer issues.
Accounting policies
There were no significant changes in accounting policies
applying to the Group for the year ended 30 April 2017.
Additional financial reporting disclosure
As in the past, the Group makes reference to additional
financial reporting over and above that required by IFRS,
specifically:
Adjusted operating profit
The adjusted operating profit is presented to reflect the
trading profit of the Group and excludes amortisation of other
intangible assets, exchange differences on marking forward exchange
contracts to market and on revaluing cash set aside for acquiring
EID and exceptional items. This enables the Group to present its
trading performance in a consistent manner year on year. The
adjusted operating profit is stated after charging the cost of
share-based payments of GBP221,000 (2016: GBP197,000) which is
allocated to each business in proportion to its employee
participation in the Group's share option schemes. The segmental
analysis (see note 1) is disclosed for each business after
deducting the cost of share-based payments.
The exchange adjustment on marking forward exchange contracts to
market at the yearend is a requirement of IFRS and has no economic
impact upon the Group's performance or assets and liabilities.
Andy Thomis Simon Walther
Chief Executive Officer Finance Director
CONSOLIDATED INCOME STATEMENT
For the year ended 30 April 2017
Year ended Year ended
30 April 30 April
Notes 2017 2016
GBP000 GBP000
Revenue 2 112,651 112,577
Cost of sales (73,676) (79,061)
Gross profit 38,975 33,516
Administrative expenses (38,012) (28,270)
----------- -----------
Operating profit 2 963 5,246
Comprising:
Adjusted operating profit 2 14,489 11,902
Amortisation of other intangible
assets (included in administrative
expenses) (11,259) (6,379)
Credit on marking forward
exchange contracts to market
value at the year end (included
in cost of sales) 171 7
Exchange gain on revaluing
cash held for acquisition
consideration of EID to
market value at the acquisition
date (28 June 2016; 2016:
year end) (included in
administrative expenses) 259 537
Exceptional items:
Costs of acquisition of
EID (included in administration
expenses) (80) (821)
Costs of acquisition of
MCL (included in administrative (47) -
expenses)
Reorganisation of SCS (included
in administrative expenses) (2,570) -
Operating profit 2 963 5,246
------------------------------------- -------- ----------- -----------
Finance income 47 68
Finance costs (46) (4)
Profit before tax 964 5,310
Income tax credit 3 1,144 54
Profit for the year 2,108 5,364
----------- -----------
Attributable to:
Equity holders of the parent 3,672 7,775
Non-controlling interests (1,564) (2,411)
2,108 5,364
-------- --------
All profit for the year is derived from continuing
operations.
Year ended Year ended
30 April 30 April
2017 2016
Pence Pence
Earnings per share 4
Basic 9.09 19.14
Diluted 8.97 18.78
Adjusted earnings per share 4
Basic 27.93 27.18
Diluted 27.56 26.67
Dividends per share paid
and proposed in respect
of the year 5
Interim 2.20 1.90
Final 4.90 4.10
----------- -----------
7.10 6.00
----------- -----------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 April 2017
Year ended Year ended
30 April 30 April
2017 2016
GBP000 GBP000
------------------------------------ ---------- ----------
Profit for the year 2,108 5,364
Foreign currency translation
differences on net assets of
EID, net of loan used to finance
acquisition 95 -
------------------------------------ ---------- ----------
Other comprehensive income for
the year, net of tax 95 -
------------------------------------ ---------- ----------
Total comprehensive income for
the year 2,203 5,364
------------------------------------ ---------- ----------
Attributable to:
Equity shareholders of the parent 3,959 7,775
Non-controlling interests (1,756) (2,411)
------------------------------------ ---------- ----------
2,203 5,364
------------------------------------ ---------- ----------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 April 2017
At At
30 April 30 April
Notes 2017 2016
GBP000 GBP000
ASSETS
Non-current assets
Goodwill 39,156 36,961
Other intangible assets 11,480 12,492
Property, plant and equipment 9,938 10,227
Deferred tax asset 833 818
61,407 60,498
---------- ----------
Current assets
Inventories 5,296 2,036
Trade and other receivables 38,010 28,000
Derivative financial instruments 148 -
Cash and cash equivalents 12,017 23,109
55,471 53,145
Total assets 116,878 113,643
LIABILITIES
Current liabilities
Trade and other payables (34,285) (30,223)
Current tax liabilities - (570)
Derivative financial instruments - (31)
Bank loans and overdrafts (3,540) (3,297)
Other creditors 7 (465) (5,500)
Provisions (1,377) (499)
(39,667) (40,120)
---------- ----------
Non-current liabilities
Bank loans and overdrafts (5) (7)
Deferred tax liability (2,483) (2,727)
Provisions 7 (735) -
(3,223) (2,734)
---------- ----------
Total liabilities (42,890) (42,854)
---------- ----------
Net Assets 73,988 70,789
---------- ----------
Equity
Share capital 4,096 4,096
Share premium account 29,657 29,657
Own shares (1,142) (2,735)
Share option reserve 783 1,067
Other reserve: option for
acquiring non-controlling
interest in MCL 7 (465) (5,500)
Retained earnings 36,901 38,394
Total equity attributable
to the equity shareholders
of the parent 69,830 64,979
---------- ----------
Non-controlling interests 4,158 5,810
---------- ----------
Total equity 73,988 70,789
---------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 APRIL 2017
Attributable to the equity shareholders
of the parent
Share Share Non-
Share premium Own option Other Retained controlling Total
capital account shares reserve reserves earnings Total interests equity
Group GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 May 2015 4,096 29,657 (835) 403 (12,500) 33,805 54,626 8,221 62,847
Profit for the
year - - - - - 7,775 7,775 (2,411) 5,364
Transactions
with
owners of Group
and
non-controlling
interests,
recognised
directly in
equity:
Equity dividends - - - - - (2,158) (2,158) - (2,158)
Vesting of
restricted
shares - - - - - 76 76 - 76
Own shares
acquired - - (4,162) - - - (4,162) - (4,162)
Own shares sold - - 914 - - - 914 - 914
Loss on own
shares
sold - - 1,348 - - (1,348) - - -
Share-based
payments - - - 197 - - 197 - 197
Deferred tax
adjustment
in respect of
share
based payments - - - 711 - - 711 - 711
Transfer of
share
option reserve
on
vesting of
options - - - (244) - 244 - - -
Change in value
of option for
acquiring
non-controlling
interest in MCL - - - - 7,000 - 7000 - 7000
At 30 April 2016 4,096 29,657 (2,735) 1,067 (5,500) 38,394 64,979 5,810 70,789
Profit for the
year - - - - - 3,672 3,672 (1,564) 2,108
Other
comprehensive
income for the
year - - - - - 287 287 (192) 95
---------------- --------- --------- -------- --------- ----------- ---------- ------- ------------ ---------
Total
comprehensive
income for the
year - - - - - 3,959 3,959 (1,756) 2,203
---------------- --------- --------- -------- --------- ----------- ---------- ------- ------------ ---------
Transactions
with
owners of Group
and
non-controlling
interests,
recognised
directly in
equity:
Equity dividends - - - - - (2,544) (2,544) - (2,544)
Vesting of
restricted
shares - - - - - 117 117 - 117
Own shares
acquired - - (109) - - - (109) - (109)
Own shares sold - - 583 - - - 583 - 583
Loss on own
shares
sold - - 1,119 - - (1,119) - - -
Share-based
payments - - - 221 - - 221 - 221
Deferred tax
adjustment
in respect of
share
based payments - - - (336) - - (336) - (336)
Transfer of
share
option reserve
on
vesting of
options - - - (169) - 169 - - -
Non-controlling
interest
introduced
on acquisition
of
EID - - - - - - - 5,115 5,115
Effect of
acquisition
of
non-controlling
interest in MCL - - - - 5,035 (2,075) 2,960 (5,011) (2,051)
At 30 April 2017 4,096 29,657 (1,142) 783 (465) 36,901 69,830 4,158 73,988
---------------- --------- --------- -------- --------- ----------- ---------- ------- ------------ ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 April 2017
Year ended
30 April Year ended
Notes 2017 30 April
GBP000 2016
GBP000
Net cash generated from
operating activities 6 659 6,718
------------- -------------
Investing activities
Interest received 47 68
Purchases of property,
plant and equipment (875) (980)
Acquisition of EID, net
of cash acquired 8 (4,045) (744)
Acquisition of MCL 7 (5,080) -
Net cash used in investing
activities (9,953) (1,656)
------------- -------------
Financing activities
Dividends paid (2,544) (2,158)
Repayment of borrowings (3) (3)
Drawdown of borrowings - 3,302
Purchase of own shares (109) (4,162)
Sale of own shares 583 914
------------- -------------
Net cash out flow from
financing activities (2,073) (2,107)
------------- -------------
Net (decrease)/increase
in cash and cash equivalents (11,367) 2,955
------------- -------------
At 1 May Acquired Effect Cash At 30
2016 of foreign Flow April
exchange 2017
rate
changes
GBP000
GBP000 GBP000 GBP000 GBP000
Funds reconciliation
Cash and bank 23,109 - 275 (11,367) 12,017
Short term deposits - - - - -
Cash and cash
equivalents 23,109 - 275 (11,367) 12,017
--------- --------- ------------ --------- --------
Loan (3,293) - (243) - (3,536)
Finance lease (11) (1) - 3 (9)
Debt (3,304) (1) (243) 3 (3,545)
--------- --------- ------------ --------- --------
Net funds 19,805 (1) 32 (11,364) 8,472
--------- --------- ------------ --------- --------
NOTES TO THE PRELIMINARY RESULTS ANNOUNCEMENT
1. BASIS OF PREPARATION
The financial information contained within this preliminary
report has been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRS) as adopted by
the EU and applying at
30 April 2017. The information in this preliminary statement has
been extracted from the financial statements for the year ended 30
April 2017 and as such, does not contain all the information
required to be disclosed in the financial statements prepared in
accordance with IFRS.
The non-controlling interest (49.999%) of MCL was acquired 31
January 2017. As the Group had effective control from the original
acquisition date, 9 July 2014, 100% of MCL's result and balances
have been consolidated from that date with the non-controlling
interest identified up to 31 January 2017.
57% of EID was acquired 27 June 2016 and as the Group has
effective control, 100% of EID's result and balances has been
consolidated from that date with the non-controlling interest
identified.
The Group's Annual Report for the year ended 30 April 2017 has
yet to be delivered to the Registrar of Companies. The auditors
have reported on these accounts. Their report was not qualified and
did not contain a statement under Section 498 of the Companies Act
2006. The figures for the year ended 30 April 2017 and 2016 do not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006.
The comparative figures for the financial year ended 30 April
2016 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was:
i. unqualified,
ii. did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their
report, and
iii. did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The preliminary announcement was approved by the Board and
authorised for issue on 29 June 2017.
Copies of the Annual Report and accounts for the year ended 30
April 2017 will be posted to shareholders on 28 July 2017 and
available on the Company's website (www.cohortplc.com) from that
date.
2. SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT
Year ended Year ended
30 April 30 April
2017 2016
GBP000 GBP000
Revenue
EID 16,023 -
MASS 32,476 31,998
MCL 14,761 13,709
SCS 5,001 18,097
SEA 44,390 48,773
----------- -----------
112,651 112,577
----------- -----------
Adjusted Operating Profit
EID 4,234 -
MASS 5,908 5,956
MCL 2,053 1,404
SCS (455) 1,250
SEA 5,294 5,442
Central costs (2,545) (2,150)
14,489 11,902
----------- -----------
Amortisation of other intangible
assets (11,259) (6,379)
Credit on marking forward
exchange contracts to market
value at the year end 171 7
Exchange gains on revaluing
cash held for acquisition
consideration for EID 259 537
Exceptional items:
Costs of acquisition of EID (80) (821)
Costs of acquisition of MCL (47) -
Reorganisation of SCS (2,570) -
Operating Profit 963 5,246
----------- -----------
The above segmental analysis is the primary segmental analysis
of the Group.
All revenue and adjusted operating profit is 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, change on marking forward
exchange contracts to market value at the year end, the exchange
gain on revaluing cash held (in Euros) for the acquisition
consideration for EID 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 adjusted operating profit is stated after charging
GBP221,000 in respect of share-based payments (2016:
GBP197,000).
The SCS business was reorganised with effect from 1 November
2016 with the closure of its support functions and the transfer of
its operating divisions to MASS and SEA. The revenue and adjusted
operating profit of SCS is reported within MASS and SEA from 1
November 2016 onwards.
3. TAX (CREDIT)/CHARGE
Year ended Year ended
30 April 30 April
2017 2016
GBP000 GBP000
UK Corporation tax:
Current year 1,466 1,935
Prior year (845) (368)
Portugal corporation tax; current 965 -
year
Other foreign corporation tax; 13 -
current year
1,599 1,567
----------- -----------
Deferred taxation:
Prior year 55 -
Current year (2,798) (1,621)
----------- -----------
(2,743) (1,621)
----------- -----------
(1,144) (54)
----------- -----------
The current year corporation tax charge (2016: charge) includes
a credit of GBP512,000 (2016: GBPnil) in respect of exceptional
items and the current year deferred tax credit includes a credit of
GBP2,402,000 (2016: credit of GBP1,505,000) in respect of the
amortisation of other intangible assets and a charge of GBP86,000
(2016: GBP109,000) in respect of marking forward exchange contracts
to market value at the year end and revaluing the cash held (in
Euros) for the purchase of EID at acquisition date (2016: 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 30 April
2017 2016
GBP000 GBP000
Earnings
Basic and diluted earnings 3,672 7,775
Amortisation of other intangible
assets (net of tax of GBP1,550,000;
2016: GBP904,000) 5,773 2,879
Credit on non-trading foreign
exchange movements (net of tax
charge of GBP86,000 (2016: charge
of GBP109,000) (344) (435)
Costs of acquisition of EID
(nil tax) 80 821
Costs of acquisition of MCL 47 -
(nil tax)
Reorganisation of SCS (net of 2,058 -
tax credit of GBP512,000)
Adjusted basic and diluted earnings 11,286 11,040
----------- -----------
The adjustments for the amortisation of intangible assets in
respect of EID and MCL and the credit on marking forward exchange
contracts to market for the year ended 30 April 2017 and the year
ended 30 April 2016 reflect the interests of the equity holders of
the parent only and exclude the proportion allocated to the
non-controlling interest.
Number Number
Weighted average number
of shares
For the purposes of basic
earnings per share 40,400,179 40,622,496
Share options 553,515 767,501
For the purposes of diluted
earnings per share 40,953,694 41,389,997
----------- -----------
Year ended Year ended
30 April 30 April
2017 2016
Pence Pence
Earnings per share
Basic 9.09 19.14
Diluted 8.97 18.78
Adjusted earnings per share
Basic 27.93 27.18
Diluted 27.56 26.67
5. DIVIDS
The proposed final dividend for the year ended 30 April 2017 is
4.9 pence (2016: 4.1 pence) per ordinary share. This dividend will
be payable on 13 September 2017 to shareholders on the register at
18 August 2017 subject to approval by shareholders at the AGM on 7
September 2017.
The total paid and proposed dividend for the year ended 30 April
2017 is 7.1 pence per ordinary share; a cost of GBP2,914,000 (2016:
6.0 pence per ordinary share; cost of GBP2,423,000).
The charge for the year ended 30 April 2017 of GBP2,544,000 is
the final dividend for the year ended 30 April 2016 paid
(GBP1,652,000) and the interim dividend for the year ended 30 April
2017 paid (GBP892,000).
6. NET CASH GENERATED FROM OPERATING ACTIVITIES
Year ended Year ended
30 April 30 April
2017 2016
GBP000 GBP000
Profit for the year 2,108 5,364
Adjustments for:
Tax credit (1,144) (54)
Depreciation of property, plant
and equipment 1,207 1,090
Amortisation of goodwill and
other intangible assets 11,259 6,379
Net finance income (1) (64)
Share-based payment 221 197
Derivative financial instruments
and other non-trading exchange
movements (430) (7)
Increase/(decrease) in provisions 297 (59)
Operating cash inflows before
movements in working capital 13,517 12,846
------------- ---------------------
Increase in inventories (1,386) (958)
Increase in receivables (3,002) (8,585)
(Decrease)/increase in payables (5,815) 5,203
------------- ---------------------
(10,203) (4,340)
------------- ---------------------
Cash generated by operations 3,314 8,506
------------- ---------------------
Tax paid (2,609) (1,784)
Interest paid (46) (4)
------------- ---------------------
Net cash generated from operating
activities 659 6,718
------------- ---------------------
7. ACQUISITION OF THE NON-CONTROLLING INTEREST OF MARLBOROUGH COMMUNICATIONS LIMITED (MCL)
On 31 January 2017, Cohort plc acquired the entire
non-controlling interest of Marlborough Communications (Holdings)
Limited (49.999%), which in turns owns 100% of Marlborough
Communications Limited (MCL), for GBP5,080,000.
This was in accordance with the original sale and purchase
agreement (SPA) of 9 July 2014.
In addition, and in accordance with the SPA, Cohort plc is
expected to pay GBP465,000 earn out in respect of MCL's closing
order book at 30 April 2017.
The non-controlling interest is also entitled under the SPA to
its share of the surplus cash in MCL at 30 April 2017, estimated at
GBP1,961,000.
These additional amounts (estimated at GBP2,426,000) are
expected to be paid on or before 31 July 2017.
In acquiring the non-controlling interest of MCL, GBP5,011,000
was eliminated from non-controlling interests and a charge to
equity of GBP2,075,000 made. This was funded by GBP5,080,000 cash
payment, GBP1,961,000 creditor in respect of surplus cash payable
to the non-controlling interest and GBP45,000 additional creditor
in respect of the order book based earn out, the latter now being a
total of GBP465,000 at 30 April 2017.
MCL contributed GBP2.1m of adjusted operating profit on GBP14.8m
of revenue for the year ended 30 April 2017, of which GBP1.4m and
GBP5.0m respectively was for the period from 1 February 2017 to 30
April 2017.
8. ACQUISITION OF Empresa de Investigação e Desenvolvimento de
Electrónica, S.A. (EID)
As mentioned last year, the Group acquired 56.89% of EID on 27
June 2016 for a consideration of GBP8.9m (EUR10.3m).
The Group acquired a further 0.02% in the period up to 30 April
2017 under the same terms as the sale and purchase agreement signed
5 August 2015.
As at 30 April 2017 the Group held 56.91% of EID and has
agreement with the Portuguese Government (the holder of the
remaining 43.09% of EID) to acquire a further 23.09% to take the
Group's holding to 80%.
As the Group has effective control, the Group recognised 100% of
EID's result and net assets from 27 June 2016.
The acquisition of EID is summarised as follows:
Fair value
GBP000
Fixed assets acquired 295
Other intangible assets 10,247
Net current liabilities (237)
Deferred tax (2,149)
Net cash 3,708
-----------
11,864
-----------
56.89% acquired 6,749
Goodwill 2,195
-----------
8,944
-----------
Funded by cash of 8,944
===========
The net cash outflow of GBP4,789,000 is cash consideration paid
of GBP8,944,000 less net cash acquired (GBP3,708,000).
The other intangible asset arising on acquisition is in respect
of contracts (the EID order book) acquired and will be amortised
over nine years.
EID contributed GBP4.2m of adjusted operating profit on GBP16.0m
of revenue for the period from 28 June 2016 to 30 April 2017.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SESFWAFWSEFM
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June 29, 2017 02:00 ET (06:00 GMT)
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