TIDMCHRT
RNS Number : 1816K
Cohort PLC
12 December 2018
12 December 2018
COHORT PLC
HALF YEAR RESULTS
FOR THE SIX MONTHSED 31 OCTOBER 2018
Cohort plc, the independent technology group, today announces
its half year results for the six months ended 31 October 2018.
Financial and operational highlights
-- Order intake of GBP45.6m (2017: GBP39.2m).
-- Closing order book of GBP108.8m (30 April 2018: GBP102.5m).
-- Revenue of GBP39.5m (2017: GBP44.0m).
-- Adjusted* operating profit of GBP1.0m (2017: GBP3.3m).
-- Adjusted* earnings per share of 1.99 pence (2017: 5.80 pence).
-- Net funds of GBP4.7m (31 October 2017: GBP5.7m; 30 April 2018: GBP11.3m).
-- Interim dividend increased by 12% to 2.85 pence per share (2017: 2.55 pence per share).
-- Seasonally quieter first half in line with last five
financial years mainly due to order timing.
-- As announced today, the Group completed the acquisition of
81.84% of Chess Technologies Ltd ("Chess") for total cash
consideration of up to GBP41.9m.
Looking forward
-- Historic second half weighting expected to be even greater this year.
-- Key orders totalling over GBP100m already secured or down
selected adding to the GBP45m of orders already won in H1.
-- The 30 November order book of GBP135.4m underpins over GBP50m
of revenue deliverable in the second half, which including revenue
delivered to date, is 81% (2017: 83%) of consensus forecast revenue
for the full year.
-- Prospects for further orders in the second half to further
underpin this year and next year are good.
-- Performance for 2018/19, before the impact of Chess, is
expected to be similar to last year.
-- Five months' contribution from 81.84% of Chess in the second
half expected to be earnings enhancing.
Nick Prest, Chairman, commented:
"Cohort's result in the first half was lower than in the first
half of the previous year, due to a combination of delivery
slippage, some at customer request, and order delays.
"We previously referred to a number of key order opportunities
which could have a major impact on our prospects for 2018/19 and
beyond. These orders alone will total over GBP100m, on top of the
GBP45m of orders won in the first half, and we expect 2018/19 to be
a record year for order intake for Cohort.
"At 30 November our order book was GBP135.4m (30 April 2018:
GBP102.5m), providing strong underpinning for the second half. We
therefore expect, as seen in the last few years, a much stronger
performance in the second half.
"Overall, allowing for the fact that we have proportionately
more to do in the second half, the Board's considered view is that
Cohort's overall performance in 2018/19, before taking account of
the acquisition of Chess, will be similar to 2017/18 with the
elements in place to deliver further progress in 2019/20.
"The acquisition of Chess represents a significant expansion,
adding a profitable and growing fifth standalone business to
Cohort's portfolio. It furthers our strategy of expanding in
defence products and export markets. We expect it to be earnings
enhancing in the current year."
* Adjusted figures exclude the effects of marking forward
exchange contracts to market value, other exchange
gains and losses, amortisation of other intangible assets and exceptional items.
* Where appropriate, the comparative figures have been restated
in accordance with IFRS 15 (see note 8).
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 020 3128 8771
Reg Hoare / Ollie Hoare / Luke
Briggs
NOTES TO EDITORS
Cohort plc (www.cohortplc.com) is the parent company of five
innovative, agile and responsive businesses based in the UK and
Portugal, providing a wide range of services and products for
domestic and export customers in defence and related markets.
Chess Technologies provides specialist products and technologies
in the areas of electro-optics, tracking and fire control to
customers world-wide. It was acquired by Cohort in December 2018.
www.chess-dynamics.com & www.vision4ce.com
MASS is a specialist defence and technology business, focused on
electronic warfare, information systems and cyber security.
Acquired by Cohort in August 2006. www.mass.co.uk
MCL - 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.
www.marlboroughcomms.com
SEA is an advanced electronic systems and software house
operating in the defence, transport and offshore energy markets.
Acquired by Cohort in October 2007.
www.sea.co.uk
EID designs and manufactures advanced communications systems for
the defence and security markets. Cohort acquired a majority stake
in June 2016. www.eid.pt
Cohort (AIM: CHRT) was admitted to London's Alternative
Investment Market in March 2006. It has its headquarters in
Reading, Berkshire and employs in total around 950 core staff there
and at its other operating company sites across the UK and in
Portugal.
Chairman's statement
Cohort's result in the first half was lower than in the first
half of the previous year, due to a combination of delivery
slippage, some at customer request, and order delays. Key orders
have now been received and we expect a much stronger second
half.
The Group's 2018/19 first half adjusted operating profit was
GBP1.0m (2017: GBP3.3m) on lower revenue of GBP39.5m (2017:
GBP44.0m). Order intake strengthened at GBP45.6m (2017: GBP39.2m)
and has accelerated since 31 October 2018 with a further GBP32.8m
of orders secured in November. In recent years, the Group's results
have been heavily weighted towards the second half and we expect
this pattern to be even more pronounced this year.
MASS was again the main contributor to the Group's adjusted
operating profit, although its performance was slightly lower than
last year's. As expected, EID's profit performance was also lower
with weaker revenue resulting in a small trading loss. EID is
expected to have a very strong second half following recent
contract wins. MCL broke even on slightly higher revenue than last
year, its margin being lower due to more bought-in content. SEA
also had a weaker first half on lower revenue. This was mostly the
result of further reduction in its submarine activity, partly
offset by improved ROADflow sales.
As announced today, we have acquired 81.84% of Chess
Technologies Ltd ("Chess") for an initial cash consideration of
GBP20.1m. The senior management of Chess (who were among the
sellers) have retained an 18.16% holding in Chess. Cohort will
acquire the minority shareholding after 30 April 2021 at a price
based on Chess' performance in the preceding three years. The
sellers are also entitled to an earn-out based on the performance
of the business for the three years ended 30 April 2021, again
payable in 2021. Cohort has entered into a shareholders' agreement
that provides normal rights to the minority while ensuring Cohort
has day-to-day control over Chess.
Key financials
The Group's revenue totalled GBP39.5m (2017: GBP44.0m),
including GBP16.0m from MASS, GBP14.3m from SEA, GBP3.7m from EID
and GBP5.5m from MCL.
For the six months ended 31 October 2018, the Group's adjusted
operating profit was GBP1.0m (2017: GBP3.3m). This included
contributions from MASS of GBP2.2m (2017: GBP2.5m), SEA of GBP0.4m
(2017: GBP1.0m), break even at MCL (2017: GBP0.2m) and a small loss
of GBP0.3m at EID (2017: trading profit of GBP0.9m). Central costs
were GBP1.3m (2017: GBP1.3m).
Cohort's operating loss, after recognising amortisation of
intangible assets (GBP2.3m) and exceptional items (GBP0.5m), was
GBP2.0m (2017: profit of GBP0.4m).
SEA completed its planned restructuring in the early part of the
first half at a cost of GBP0.5m and is now benefiting from the
annualised saving of GBP1.0m per annum.
Adjusted earnings per share for the six months ended 31 October
2018 decreased to 1.99 pence (2017: 5.80 pence). The tax rate in
respect of the adjusted operating profit was 18.0% (2017: 34.2%).
Basic loss per share was 3.52 pence (2017: earnings per share of
0.92 pence).
We signalled in July that we expected the Group funds to remain
flat over the entire year. The net funds outflow in the first half
has been slightly greater than we expected due to work slipping
into the second half. Before taking into account the acquisition of
Chess, we expect there to be a second half operating cash inflow
but this will be lower than we had anticipated with some work now
expected to be delivered later in the second half and therefore
some customer receipts slipping into 2019/20.
The operating cash outflow of GBP3.4m (2017: inflow of GBP3.1m)
has been added to by dividend payments (GBP2.3m), tax payments
(GBP0.6m) and capital expenditure (GBP0.5m).
The acquisition of Chess for an initial cash consideration of
GBP20.1m has been funded by the Group's cash and newly agreed debt
facility (GBP30m) and post-acquisition we expect the Group's net
debt to be around GBP16m at 30 April 2019 and the Group to return
to net funds in 2021/22, subject to any further acquisition
activity.
Our order intake for the first half was GBP45.6m (2017:
GBP39.2m), excluding foreign exchange movements, resulting in a
closing order book of GBP108.8m (30 April 2018: GBP102.5m).
EID
EID's operating loss for the six months ended 31 October 2018 of
GBP0.3m (2017: profit of GBP0.9m) was due to a decrease in revenue
from GBP6.0m to GBP3.7m.
EID's weaker performance, which was in both its Naval and
Tactical (Land) divisions, resulted from completion of some major
projects in 2017/18 and some delivery slippage and order delays in
2018/19.
The Group owned 80% of EID throughout the first half of the year
(2017: 57% owned).
EID's order book of GBP23.5m at 31 October 2018 (2017:
GBP29.7m), combined with its recent order wins, underpins a high
percentage of its expected second half revenue and gives us
confidence that EID will deliver a stronger performance in the
second half, and be profitable over the full year, though at a
lower level than 2017/18.
The strong order intake in recent weeks and prospects for the
second half provide the base for EID to grow in 2019/20. Portugal,
is seeing a relatively strong level of defence spend with upgrades
to both maritime and land communication systems, much of this work
benefiting EID.
MASS
MASS's adjusted operating profit of GBP2.2m (2017: GBP2.5m) was
down on last year on slightly lower revenue of GBP16.0m (2017:
GBP17.2m). Its net margin was broadly maintained at close to 14%
for the first half.
The lower revenue was a result of completion of some EW
operational support work for one export customer in 2017/18 whilst
awaiting both new and follow-on work from other customers. These
latter items have been secured in the early part of the second half
of the financial year, as recently announced.
MASS continued to see growth in its cyber business. Training
Support and other support work for the UK MOD both saw slight
declines linked to the timing of work.
MASS's October order book of GBP35.0m (2017: GBP42.6m) and
recently secured orders underpin 80% of MASS's expected revenue for
the year and give us confidence that MASS will show growth on last
year.
As announced on 25 October 2018, MASS was selected as preferred
bidder against strong competition to continue to provide technical
support to a key UK MOD operational requirement. This is a service
MASS has provided since 2000 and it is a very positive endorsement
of MASS's capability and service ethos that this has been retained.
This should be on contract early in the new calendar year and will
run from next April until 2027. The final contractual terms are
still to be completed but we do expect, going forward, a slightly
lower net margin at MASS.
MCL
MCL's first half contribution of just above breakeven (2017:
profit of GBP0.2m) on slightly higher revenue of GBP5.5m (2017:
GBP5.1m) was below our expectations. MCL's higher revenue was due
to the increased activity in supplying equipment to the UK MOD
through various frameworks. Although this increased volume is
welcome, it does come at a lower margin than much of MCL's other
work, hence the deterioration in trading performance.
The trading performance was also impacted by the cancellation,
due to changes in customer requirements, of a small contract
secured in late 2017/18 and due for delivery in the first half of
this year.
MCL's order book of just under GBP10.0m (2017: GBP18.4m) and a
good pipeline of opportunities gives us confidence that MCL will
show growth over last year for the full year.
SEA
SEA's adjusted operating profit of GBP0.4m (2017: GBP1.0m) was
on slightly lower revenue of GBP14.3m (2017: GBP15.7m).
SEA had completed a project for Transport for London in 2017/18
and revenue from submarine communications was lower than in the
first half of 2017/18. These were offset by improved activity in
research and continued positive momentum in ROADflow sales. SEA's
oil and gas activity was flat.
The mix of work resulted in a slight margin deterioration and
this was compounded by lower overhead recovery due to the weaker
activity in submarine work and naval support.
Although SEA overheads were down as a result of the
restructuring, the full impact of this (GBP1.0m per annum saving)
will not be seen until the second half.
SEA's closing order book of GBP40.7m (2017: GBP41.4m) includes
GBP17.0m of revenue to be delivered in the second half. SEA's
pipeline of opportunities gives us confidence that it will have a
much stronger second half. Overall, we expect SEA's performance to
be stronger than last year.
Dividend
The Board is declaring an interim dividend increased by 12% to
2.85 pence per share (2017: 2.55 pence). This increase reflects the
Board's confidence in the outlook for Cohort and its commitment to
a progressive dividend policy. The dividend is payable on 27
February 2019 to shareholders on the register at 1 February
2019.
Outlook
In the 2018 Annual Report and Accounts, we referred to a number
of important order opportunities which could have a major impact on
our prospects for 2018/19 and beyond. Two of these are now on
contract and we have been down selected on three more, including
the long term order for MASS announced on 25 October, for which
contract finalisation is expected in the coming weeks. These orders
alone will total over GBP100m, on top of the GBP45m of orders won
in the first half, and we expect 2018/19 to be a record year for
order intake for Cohort.
At 30 November our order book was GBP135.4m (30 April 2018:
GBP102.5m), providing strong underpinning for the second half. We
therefore expect, as seen in the last few years, a much stronger
performance in the second half. We also expect a net operating cash
inflow in the second half.
Overall, allowing for the fact that we have proportionately more
to do in the second half, the Board's considered view is that
Cohort's overall performance in 2018/19, before taking account of
the acquisition of Chess, will be similar to 2017/18 with the
elements in place to deliver further progress in 2019/20.
The acquisition of Chess represents a significant expansion,
adding a profitable and growing fifth standalone business to
Cohort's portfolio. It furthers our strategy of expanding in
defence products and export markets. We expect it to be earnings
enhancing in the current year.
Nick Prest CBE
Chairman
Consolidated income statement
for the six months ended 31 October 2018
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
Notes GBP'000 GBP'000 GBP'000
----------------------------------------- ----- ----------- ----------- -----------
Revenue 2 39,493 44,016 111,009
Cost of sales (26,406) (28,643) (71,983)
----------------------------------------- ----- ----------- ----------- -----------
Gross profit 13,087 15,373 39,026
Administrative expenses (15,005) (14,935) (29,429)
----------------------------------------- ----- ----------- ----------- -----------
Operating (loss)/profit 2 (1,918) 438 9,597
----------------------------------------- ----- ----------- ----------- -----------
Operating (loss)/profit comprises:
Adjusted operating profit 2 968 3,272 15,239
Charge on marking forward exchange
contracts to market value at the period
end (included in cost of sales) (64) (178) (280)
Amortisation of other intangible assets
(included in administrative expenses) (2,322) (2,656) (5,312)
Exceptional items:
Cost of acquiring EID (included in
administrative expenses) - - (50)
Reorganisation of SEA (included in
administrative expenses) 2 (500) - -
----------------------------------------- ----- ----------- ----------- -----------
Operating (loss)/profit (1,918) 438 9,597
Finance income 12 8 14
Finance costs (57) (39) (103)
----------------------------------------- ----- ----------- ----------- -----------
(Loss)/profit before tax (1,963) 407 9,508
Income tax credit/(expense) 3 353 (138) (1,395)
----------------------------------------- ----- ----------- ----------- -----------
(Loss)/profit for the period (1,610) 269 8,113
----------------------------------------- ----- ----------- ----------- -----------
Attributable to:
Equity shareholders of the parent (1,433) 373 7,881
Non-controlling interests (177) (104) 232
----------------------------------------- ----- ----------- ----------- -----------
(1,610) 269 8,113
----------------------------------------- ----- ----------- ----------- -----------
(Loss)/earnings per share Pence Pence Pence
-------------------------- ------ ----- -----
Basic 4(3.52) 0.92 19.37
Diluted 4(3.52) 0.90 19.18
-------------------------- ------ ----- -----
All profit for the period is derived from continuing
operations.
Consolidated statement of comprehensive income
for the six months ended 31 October 2018
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
GBP'000 GBP'000 GBP'000
----------------------------------------- ----------- ----------- -----------
(Loss)/profit for the period (1,610) 269 8,113
----------------------------------------- ----------- ----------- -----------
Foreign currency translation differences
on net assets of EID 113 325 (167)
----------------------------------------- ----------- ----------- -----------
Other comprehensive income/(expense) for
the period, net of tax 113 325 (167)
----------------------------------------- ----------- ----------- -----------
Total comprehensive (expense)/income for
the period (1,497) 594 7,946
----------------------------------------- ----------- ----------- -----------
Attributable to:
Equity shareholders of the parent (1,321) 564 7,581
Non-controlling interests (176) 30 365
----------------------------------------- ----------- ----------- -----------
(1,497) 594 7,946
----------------------------------------- ----------- ----------- -----------
Consolidated statement of changes in equity
for the six months ended 31 October 2018
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
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2017 as
previously
reported 4,096 29,657 (1,142) 783 (465) 36,901 69,830 4,158 73,988
Impact of adopting
IFRS 15 'Revenue
from Contracts with
Customers' - - - - - (199) (199) (151) (350)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2017 as
restated 4,096 29,657 (1,142) 783 (465) 36,702 69,631 4,007 73,638
(Loss)/profit for the
period - - - - - 373 373 (104) 269
Other comprehensive
income for
the period - - - - - 191 191 134 325
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income for
the period - `- - - - 564 564 30 594
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners of
the Group and
non-controlling
interests recognised
directly
in equity:
Equity dividend - - - - - (1,999) (1,999) - (1,999)
Vesting of Restricted
Shares - - - - - 175 175 - 175
Own shares purchased - - (752) - - - (752) - (752)
Own shares sold - - 559 - - - 559 - 559
Net loss on selling
own shares - - 616 - - (616) - - -
Share-based payments - - - 100 - - 100 - 100
Effect of acquisition
of non-controlling
interest in MCL - - - - 465 - 465 - 465
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 31 October 2017 4,096 29,657 (719) 883 - 34,826 68,743 4,037 72,780
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2017 as
previously
reported 4,096 29,657 (1,142) 783 (465) 36,901 69,830 4,158 73,988
Impact of adopting
IFRS 15 'Revenue
from Contracts with
Customers' - - - - - (199) (199) (151) (350)
---------------------- --------- -------- ------------ --------
At 1 May 2017 as
restated 4,096 29,657 (1,142) 783 (465) 36,702 69,631 4,007 73,638
Profit for the year - - - - - 7,881 7,881 232 8,113
Other comprehensive
(expense)/income
for the year - - - - - (300) (300) 133 (167)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
income for
the year - - - - - 7,581 7,581 365 7,946
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners of
the Group and
non-controlling
interests, recognised
directly
in equity
Equity dividends - - - - - (3,035) (3,035) - (3,035)
Vesting of Restricted
Shares - - - - - 175 175 - 175
Own shares purchased - - (1,467) - - - (1,467) - (1,467)
Own shares sold - - 697 - - - 697 - 697
Net loss on selling
own shares - - 722 - - (722) - - -
Share-based payments - - - 273 - - 273 - 273
Deferred tax
adjustment in respect
of share-based
payments - - - (248) - - (248) - (248)
Transfer of share
option reserve
on vesting of options - - - (182) - 182 - - -
Completion of
acquisition of
MCL by settlement
of non-controlling
interests'
earn-out - - - - 465 - 465 - 465
Acquisition of 23.09%
of non-controlling
interest in EID - - - - - (1,388) (1,388) (2,126) (3,514)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 30 April 2018 4,096 29,657 (1,190) 626 - 39,495 72,684 2,246 74,930
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2018 4,096 29,657 (1,190) 626 - 39,900 73,089 2,554 75,643
Impact of adopting
IFRS 15 'Revenue
from Contracts with
Customers' - - - - - (405) (405) (308) (713)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
At 1 May 2018 as
restated 4,096 29,657 (1,190) 626 - 39,495 72,684 2,246 74,930
(Loss)/profit for the
period - - - - - (1,434) (1,434) (176) (1,610)
Other comprehensive
income for
the period - - - - - 113 113 - 113
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Total comprehensive
expense
for the period - - - - - (1,321) (1,321) (176) (1,497)
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Transactions with
owners of
the Group and
non-controlling
interests recognised
directly
in equity:
Equity dividend - - - - - (2,299) (2,299) - (2,299)
Vesting of Restricted
Shares - - - - - 178 178 - 178
Own shares purchased - - (631) - - - (631) - (631)
Own shares sold - - 587 - - - 587 - 587
Net loss on selling
own shares - - 678 - - (678) - - -
Share-based payments - - - 150 - - 150 - 150
At 31 October 2018 4,096 29,657 (556) 776 - 35,375 69,348 2,070 71,418
---------------------- -------- -------- -------- -------- --------- --------- -------- ------------ --------
Consolidated statement of financial position
as at 31 October 2018
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
Notes GBP'000 GBP'000 GBP'000
--------------------------------- ------ ---------- ----------- -----------
Assets
Non-current assets
Goodwill 39,156 39,156 39,156
Other intangible assets 3,846 8,824 6,168
Property, plant and equipment 9,490 9,520 9,597
Deferred tax asset 640 813 406
----------------------------------------- ---------- ----------- -----------
53,132 58,313 55,327
---------------------------------------- ---------- ----------- -----------
Current assets
Inventories 6,316 8,228 7,257
Trade and other receivables 30,785 38,198 32,548
Derivative financial instruments 72 132 51
Cash and cash equivalents 11,935 11,450 20,511
----------------------------------------- ---------- ----------- -----------
49,108 58,008 60,367
---------------------------------------- ---------- ----------- -----------
Total assets 102,240 116,321 115,694
----------------------------------------- ---------- ----------- -----------
Liabilities
Current liabilities
Trade and other payables (21,189) (34,085) (28,137)
Current tax liabilities - (386) (265)
Derivative financial instruments (179) - (183)
Bank borrowings (7,253) (5,698) (9,173)
Provisions (1,018) (753) (1,156)
(29,639) (40,922) (38,914)
---------------------------------------- ---------- ----------- -----------
Non-current liabilities
Deferred tax liability (1,170) (1,933) (1,414)
Bank borrowings (13) (3) -
Provisions - (683) (436)
----------------------------------------- ---------- ----------- -----------
(1,183) (2,619) (1,850)
---------------------------------------- ---------- ----------- -----------
Total liabilities (30,822) (43,541) (40,764)
----------------------------------------- ---------- ----------- -----------
Net assets 71,418 72,780 74,930
----------------------------------------- ---------- ----------- -----------
Equity
Share capital 4,096 4,096 4,096
Share premium account 29,657 29,657 29,657
Own shares (556) (719) (1,190)
Share option reserve 776 883 626
Retained earnings 35,375 34,826 39,495
----------------------------------------- ---------- ----------- -----------
Total equity attributable to
the equity shareholders of the
parent 69,348 68,743 72,684
Non-controlling interests 2,070 4,037 2,246
----------------------------------------- ---------- ----------- -----------
Total equity 71,418 72,780 74,930
----------------------------------------- ---------- ----------- -----------
Consolidated cash flow statement
for the six months ended 31 October 2018
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
Notes GBP'000 GBP'000 GBP'000
-------------------------------------------- ----- ----------- ----------- ----------
Net cash (used in)/generated from operating
activities 6 (3,830) 1,944 13,220
-------------------------------------------- ----- ----------- ----------- ----------
Cash flow from investing activities
Interest received 12 8 14
Purchases of property, plant and equipment (445) (154) (747)
Acquisition of non-controlling interest
in MCL - (2,529) (2,529)
Acquisition of EID, net of cash acquired - - (3,514)
-------------------------------------------- ----- ----------- ----------- ----------
Net cash used in investing activities (433) (2,675) (6,776)
-------------------------------------------- ----- ----------- ----------- ----------
Cash flow from financing activities
Equity dividends paid (2,299) (1,999) (3,035)
Repayment of borrowings (2,000) (2) (3)
Drawdown of borrowings 12 2,000 5,514
Purchase of own shares (631) (752) (1,467)
Sale of own shares 587 559 697
-------------------------------------------- ----- ----------- ----------- ----------
Net cash (used in)/generated from financing
activities (4,331) (194) 1,706
-------------------------------------------- ----- ----------- ----------- ----------
Net (decrease)/increase in cash and
cash equivalents (8,594) (925) 8,150
-------------------------------------------- ----- ----------- ----------- ----------
Represented by:
Cash and cash equivalents brought forward 20,511 12,017 12,017
Cash flow (8,594) (925) 8,150
Exchange 18 358 344
-------------------------------------------- ----- ----------- ----------- ----------
Cash and cash equivalents carried forward 11,935 11,450 20,511
-------------------------------------------- ----- ----------- ----------- ----------
Net funds reconciliation
Effect of
At 1 May foreign exchange At 31 October
2018 rate changes Cash flow 2018
GBP000 GBP000 GBP000 GBP000
Cash and cash equivalents 20,511 18 (8,594) 11,935
-------------------------- -------- ----------------- --------- -------------
Loan (9,167) (81) 2,000 (7,248)
Finance leases (6) - (12) (18)
-------------------------- -------- ----------------- --------- -------------
Bank borrowings (9,173) (81) 1,988 (7,266)
-------------------------- -------- ----------------- --------- -------------
Net funds 11,338 (63) (6,606) 4,669
-------------------------- -------- ----------------- --------- -------------
Notes to the interim report
for the six months ended 31 October 2018
1. Basis of preparation
The financial information contained within this Interim Report
has been prepared applying the recognition and measurement
requirements of International Financial Reporting Standards (IFRS)
as adopted by the EU and expected to apply at 30 April 2019. As
permitted, this Interim Report has been prepared in accordance with
the AIM Rules for Companies and is not required to comply with IAS
34 "Interim Financial Reporting" to maintain compliance with IFRS.
This Interim Report is presented in Sterling and all values are
rounded to the nearest thousand pounds (GBP'000) except where
otherwise indicated.
For management and reporting purposes, the Group, for the period
just ended, operated through its four subsidiaries: EID, MASS, MCL
and SEA. These subsidiaries are the basis on which the Company,
Cohort plc, reports its primary segmental information.
Going concern
The Company has considerable financial resources together with
long-term contracts with a number of customers and suppliers across
different geographic areas and industries. As a consequence, the
Directors believe that the Company is well placed to manage its
business risks successfully.
The Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the
foreseeable future. Thus, they continue to adopt the going concern
basis of accounting in preparing this Interim Report.
The Group's UK bank facility was renewed during November 2018.
The new facility of GBP30m is with Natwest and Lloyds.
The facility is for debt (including overdraft) and is in
addition to separate bilateral facilities with each bank for trade
finance items such as guarantees and foreign exchange
instruments.
The covenants on the new facility are similar to the previous
facility whilst the pricing is slightly lower.
In accordance with Section 434 of the Companies Act 2006, the
unaudited results do not constitute statutory financial statements
of the Company. The six months' results for both years are
unaudited.
(A) Statutory accounts
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 30 April 2018. KPMG
LLP has reported on these accounts; their report 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
Sections 498(2) or (3) of the Companies Act 2006.
(B) Statement of compliance
The accounting policies applied by the Group in its consolidated
financial statements for the year ended 30 April 2018 are in
accordance with IFRS as adopted by the European Union. The
accounting policies have been applied consistently to all periods
presented in the consolidated financial statements with appropriate
adjustment for IFRS 15 (see note 8) applied to comparative figures
where restated.
The Interim Report was approved by the Board and authorised for
issue on 12 December 2018.
2. Segmental analysis of revenue and adjusted operating
profit
Six months
ended Year ended
Six months ended 31 October 30 April
31 October 2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
GBP'000 GBP'000 GBP'000
----------------------------------- ---------------- ----------- -----------
Revenue
EID 3,671 5,970 18,295
MASS 16,055 17,192 37,568
MCL 5,485 5,148 17,381
SEA 14,303 15,706 37,805
Inter-segment revenue (21) - (40)
----------------------------------- ---------------- ----------- -----------
39,493 44,016 111,009
----------------------------------- ---------------- ----------- -----------
Operating profit comprises:
Trading profit/(loss) of:
EID (274) 840 4,314
MASS 2,181 2,549 7,113
MCL 32 167 2,072
SEA 381 1,014 4,433
Central costs (1,352) (1,298) (2,693)
----------------------------------- ---------------- ----------- -----------
Adjusted operating profit 968 3,272 15,239
Charge on marking forward exchange
contracts to market value at
the period end (64) (178) (280)
Amortisation of intangible assets (2,322) (2,656) (5,312)
Exceptional items (500) - (50)
----------------------------------- ---------------- ----------- -----------
Operating (loss)/profit (1,918) 438 9,597
----------------------------------- ---------------- ----------- -----------
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
marking forward exchange contracts to market value at the period
end, other exchange gains and losses, exceptional items and the
amortisation of other intangible assets.
The exceptional item is a charge of GBP0.5m at SEA in respect of
restructuring its operations. This included consolidating most of
its back office functions on a single site.
The adjusted operating profit is presented in addition to the
operating profit to provide the trading performance of the Group as
derived from its constituent elements on a comparable basis from
period to period.
The Group's adjusted operating profit includes the cost of share
options of GBP150,000 for the six months ended 31 October 2018 (six
months ended 31 October 2017: GBP100,000; year ended 30 April 2018:
GBP273,000) and is applied to each reporting segment in proportion
to the number of employees in the Group's various share option
schemes.
The chief operating decision maker as defined by IFRS 8 has been
identified as the Board.
Revenue analysis by sector and type of deliverable
Six months
Six months ended
ended 31 October Year ended
31 October 2017 30 April 2018
2018 Unaudited Audited
Unaudited (restated) (restated)
----------------------------- ------------- ------------- ----------------
GBPm % GBPm % GBPm %
----------------------------- ------- ---- ------- ---- --------- -----
By sector
UK defence 22.3 56 24.1 55 63.7 57
Portugal defence 1.7 4 2.4 6 4.7 5
Export defence customers 6.8 17 9.4 21 25.9 23
Security 1.9 6 1.9 4 4.2 4
----------------------------- ------- ---- ------- ---- --------- -----
Defence and security revenue 32.7 83 37.8 86 98.5 89
----------------------------- ------- ---- ------- ---- --------- -----
Transport 3.9 3.1 5.4
Offshore energy 0.9 0.8 2.1
Other commercial 2.0 2.3 5.0
----------------------------- ------- ---- ------- ---- --------- -----
Non-defence revenue 6.8 17 6.2 14 12.5 11
----------------------------- ------- ---- ------- ---- --------- -----
Total revenue 39.5 100 44.0 100 111.0 100
----------------------------- ------- ---- ------- ---- --------- -----
The defence and security revenue is further analysed into the
following:
Six months
Six months ended
ended 31 October Year ended
31 October 2017 30 April 2018
2018 Unaudited Audited
Unaudited (restated) (restated)
----------------------------------- ------------- ------------- ----------------
GBPm % GBPm % GBPm %
----------------------------------- -------- --- -------- --- ---------- ----
By market segment
Maritime combat systems 9.3 24 11.6 26 30.6 28
C4ISTAR 10.4 26 12.1 28 34.0 30
Cyber security and secure networks 7.2 18 7.4 17 15.6 14
Simulation and training 2.3 6 3.5 8 9.4 9
Research, advice and support 3.3 8 2.3 5 6.7 6
Other 0.2 1 0.9 2 2.2 2
----------------------------------- -------- --- -------- --- ---------- ----
Total defence and security revenue 32.7 83 37.8 86 98.5 89
----------------------------------- -------- --- -------- --- ---------- ----
The Group's total revenue in terms of type of deliverable is
analysed as follows:
Six months
Six months ended
ended 31 October Year ended
31 October 2017 30 April 2018
2018 Unaudited Audited
Unaudited (restated) (restated)
----------------------------------- ------------- ------------- ----------------
GBPm % GBPm % GBPm %
----------------------------------- ------- ---- ------- ---- --------- -----
Product (hardware and/or software) 9.2 23 10.3 23 32.0 29
Customised systems or sub-systems
(hardware and/or software) 7.4 19 12.7 29 29.1 26
Services 22.9 58 21.0 48 49.9 45
----------------------------------- ------- ---- ------- ---- --------- -----
Total revenue 39.5 100 44.0 100 111.0 100
----------------------------------- ------- ---- ------- ---- --------- -----
3. Income tax (credit)/expense
The income tax (credit)/expense comprises:
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
GBP'000 GBP'000 GBP'000
----------------------------------------------- ----------- ----------- ----------
UK corporation tax: in respect of this period 195 371 1,812
UK corporation tax: in respect of prior
periods - - (629)
Portugal corporation tax: in respect of
this period (90) 289 1,106
Portugal corporation tax: in respect of
prior periods - - 11
Other foreign corporation tax: in respect
of prior periods - - (13)
----------------------------------------------- ----------- ----------- ----------
105 660 2,287
----------------------------------------------- ----------- ----------- ----------
Deferred taxation: in respect of this period (458) (522) (1,156)
Deferred taxation: in respect of prior periods - - 264
----------------------------------------------- ----------- ----------- ----------
(458) (522) (892)
----------------------------------------------- ----------- ----------- ----------
(353) 138 1,395
----------------------------------------------- ----------- ----------- ----------
The income tax credit for the six months ended 31 October 2018
is based upon the anticipated charge for the full year ending 30
April 2019.
4. Earnings per share
The earnings per share are calculated as follows:
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
GBP'000 GBP'000 GBP'000
--------------------------------------------- ----------- ----------- -----------
Earnings
Basic and diluted (loss)/earnings (1,433) 373 7,881
Charge on marking forward exchange contracts
to market at the period end (net of income
tax) 52 143 227
Exceptional items (net of income tax):
Reorganisation of SEA 405 - -
Cost on acquisition of EID - - 50
Group's share of amortisation of intangible
assets (net of income tax) 1,787 1,845 3,844
--------------------------------------------- ----------- ----------- -----------
Adjusted basic and diluted earnings 811 2,361 12,002
--------------------------------------------- ----------- ----------- -----------
Number Number Number
--------------------------------------------- ---------- ---------- ----------
Weighted average number of shares
For the purposes of basic earnings per share 40,666,957 40,718,133 40,679,428
Share options 213,513 547,477 413,334
--------------------------------------------- ---------- ---------- ----------
For the purposes of diluted earnings per
share 40,880,470 41,265,610 41,092,762
--------------------------------------------- ---------- ---------- ----------
The weighted average number of ordinary shares for the six
months ended 31 October 2018 excludes 156,411 ordinary shares held
by the Cohort plc Employee Benefit Trust (which do not receive a
dividend) for the purposes of calculating earnings per share (six
months ended 31 October 2017: 193,169; year ended 30 April 2018:
341,128).
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
Pence Pence Pence
---------------------------- ----------- ----------- -----------
(Loss)/earnings per share
Basic (3.52) 0.92 19.37
Diluted (3.52) 0.90 19.18
---------------------------- ----------- ----------- -----------
Adjusted earnings per share
Basic 1.99 5.80 29.50
Diluted 1.98 5.72 29.21
---------------------------- ----------- ----------- -----------
5. Dividends
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
Pence Pence Pence
---------------------------------------- ----------- ----------- ----------
Dividends per share proposed in respect
of the period
Interim 2.85 2.55 2.55
Final - - 5.65
---------------------------------------- ----------- ----------- ----------
The interim dividend for the six months ended 31 October 2018 is
2.85 pence (six months ended 31 October 2017: 2.55 pence) per
ordinary share. This dividend will be payable on 27 February 2019
to shareholders on the register at 1 February 2019. The dividend
reinvestment plan election deadline is 8 February 2019.
The final dividend charged to the income statement for the year
ended 30 April 2018 was 7.45 pence per ordinary share, comprising
2.55 pence of interim dividend for the six months ended 31 October
2017 and 4.90 pence of final dividend for the year ended 30 April
2017.
6. Net cash (used in)/generated from operating activities
Six months Six months
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
Unaudited Unaudited Audited
(restated) (restated)
GBP'000 GBP'000 GBP'000
---------------------------------------------- ----------- ----------- -----------
(Loss)/profit for the period (1,610) 269 8,113
Adjustments for:
Tax (credit)/expense (353) 138 1,395
Depreciation of property, plant and equipment 550 577 1,116
Amortisation of intangible assets 2,322 2,656 5,312
Net finance costs 45 31 89
Share-based payment 150 100 273
Derivative financial instruments and foreign
exchange movements 64 178 280
Decrease in provisions (574) (675) (520)
---------------------------------------------- ----------- ----------- -----------
Operating cash flow before movements in
working capital 594 3,274 16,058
---------------------------------------------- ----------- ----------- -----------
Decrease/(increase) in inventories 111 (2,932) (1,961)
Decrease/(increase) in receivables 2,580 (441) 5,209
(Decrease)/increase in payables (6,418) 3,302 (4,181)
---------------------------------------------- ----------- ----------- -----------
(3,727) (71) (933)
---------------------------------------------- ----------- ----------- -----------
Cash (used in)/generated from operations (3,133) 3,203 15,125
Tax paid (640) (1,220) (1,802)
Interest paid (57) (39) (103)
---------------------------------------------- ----------- ----------- -----------
Net cash (used in)/generated from operating
activities (3,830) 1,944 13,220
---------------------------------------------- ----------- ----------- -----------
7. Post balance sheet event
On 12 December 2018, the Group acquired 81.84% of Chess
Technologies Group for an initial consideration of GBP20.1m. In
addition, an earn out of up to GBP12.7m is payable in the year
ended 30 April 2022 based upon the Chess' performance for the three
years ended 30 April 2021.
Cohort will acquire the minority shareholding after 30 April
2021 at a price based upon Chess' performance for the three years
ended 30 April 2021. This payment is capped at just under
GBP9.1m.
The acquisition was funded from the Group's own cash and debt
resources.
For the year ended 30 April 2018, Chess' revenue was GBP18.2m
and its profit before interest and tax GBP2.4m.
8. IFRS 15 'Revenue from Contracts with Customers'
As highlighted in the Annual Report of July 2018, the Group has
adopted IFRS 15 as from 1 May 2018. The adjustments to the prior
year reported results have been reflected throughout this report
where referred to as 'restated'.
The adjustment in respect of IFRS 15 is to reduce the opening
reserves at 1 May 2017 by GBP350,000.
The adjustment in respect of IFRS 15 for the six months ended 31
October 2017 and the year ended 30 April 2018 is the same, with all
of the adjustment arising in the first half of the financial year
ended 30 April 2018.
Revenue has been reduced by GBP789,000 and cost of sales by
GBP426,000 leading to a reduction in operating profit and adjusted
operating profit of GBP363,000. A similar reduction has been
reported in the profit before tax for the respective period. The
tax effect is immaterial.
A similar adjustment has been flowed through the 'Statement of
Comprehensive Income' and 'Cash Flow Statement', including 'Net
cash (used in)/generated from operating activities' (see note
6).
An appropriate proportion of the adjustment has been applied to
the non-controlling interest.
8. IFRS 15 'Revenue from Contracts with Customers'
(continued)
This adjustment reflects performance obligations achieved on
contracts compared with previous milestone recognition points which
did not match these performance obligations as determined under
IFRS 15.
As a result of the IFRS 15 adjustment the comparative earnings
per share have reduced as follows (see note 4).
The basic earnings per share have been reduced by 0.50 pence for
the six months ended 31 October 2017 and for the year ended 30
April 2018.
The diluted earnings per share have been reduced by 0.51 pence
for the six months ended 31 October 2017 and 0.49 pence for the
year ended 30 April 2018.
The basic adjusted earnings per share have been reduced by 0.51
pence for the six months ended 31 October 2017 and 0.50 pence for
the year ended 30 April 2018.
The diluted adjusted earnings per share have been reduced by
0.50 pence for the six months ended 31 October 2017 and 0.49 pence
for the year ended 30 April 2018.
In respect of the segmental analysis (see note 2), the revenue
has reduced sales to Portugal defence by GBP524,000 and export
defence customers by GBP265,000.
The adjustment is all in 'Maritime Combat Systems' and in
respect of 'Customised Systems or Sub-Systems'.
In the balance sheet, the reduction in net assets at 31 October
2017 and 30 April 2018 is GBP713,000.
The actual adjustments are an increase in stock of GBP831,000, a
reduction in trade and other receivables of GBP110,000 and an
increase in trade and other payables of GBP834,000.
In the reserves, GBP405,000 of the reduction is in respect of
the total equity attributable to the equity shareholders of the
parent and GBP308,000 to the non-controlling interests.
The actual IFRS 15 adjustment of GBP0.7m in total compares with
GBP0.5m estimated in the 2018 Annual Report and Accounts. In both
cases the adjustment was expected to have a positive impact on the
reported results for the year ended 30 April 2019. Of the
adjustment of GBP0.7m, GBP0.5m has been reported in the six months
ended 31 October 2018. At 30 April 2018, the GBP0.5m adjustment was
also expected to impact positively in the six months ended 31
October 2018.
Independent review report to Cohort plc
for the six months ended 31 October 2018
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 31 October 2018 which comprises the consolidated
income statement, the consolidated statement of financial position,
the consolidated statement of changes in equity, the consolidated
cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 31 October 2018
is not prepared, in all material respects, in accordance with the
recognition and measurement requirements of International Financial
Reporting Standards (IFRSs) as adopted by the EU and the AIM
Rules
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
The annual financial statements of the group are prepared in
accordance with IFRSs as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with the
recognition and measurement requirements of IFRSs as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Andrew Campbell-Orde
for and on behalf of KPMG LLP
Chartered Accountants
Arlington Business Park
Theale
Reading RG7 4SD
12 December 2018
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END
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