Cohort Regulatory News (CHRT)

25 Jun 2009 07:00



COHORT PLC

PRELIMINARY RESULTS ANNOUNCEMENT 

FOR THE YEAR ENDED 30 APRIL 2009

"Continued growth, positive outlook"

Cohort plc, the independent technology group, today announces its preliminary results for the year ended 30 April 2009. Highlights include:

* Excludes exceptional items (net of tax), amortisation of other intangible assets and share of results of joint ventures (net of tax).

Commenting on the results, Nick Prest CBE, Chairman of Cohort plc said: "Cohort has continued to make good progress.  All of our businesses generated strong revenue growth, and achieved record results for the year. We continue to seek complementary acquisitions, whilst organically growing the existing businesses. Overall the Board is positive about the outlook."

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NOTES TO EDITORS

Cohort plc (www.cohortplc.com) is an independent technology group working primarily for defence (air, land and sea), wider government and industry clients, through three market-facing subsidiary companies:

SCS (www.scs-ltd.co.uk) - an independent defence consultancy, combining technical expertise with practical experience and domain knowledge. Owned by Cohort since flotation in March 2006.

MASS (www.mass.co.uk) - a specialist defence and aerospace business focused mainly on electronic warfare, information systems and electronic systems development. Acquired by Cohort in August 2006.

SEA (www.sea.co.uk) - an advanced surveillance systems and software house with hardware development capability operating in the defence, space, transport and offshore market sectors. 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 Oxfordshire and, through its operating companies, employs in total around 500 core staff there and at bases in Bristol, Cambridgeshire, Oxfordshire, Lincolnshire and Somerset.

CHAIRMAN'S STATEMENT

I am pleased to announce that Cohort plc had a strong year with all of our subsidiaries achieving record results. This was the Group's first year of full returns from all three subsidiaries and each continued to grow strongly, reinforcing their presence in key existing markets whilst at the same time breaking into new areas. 

KEY FINANCIALS

In the year ended 30 April 2009, Cohort achieved revenue of £78.6m (2008: £57.1m) representing a 38% increase on 2008. This included revenue of £31.1m (2008: £26.1m) from Systems Consultant Services Ltd (SCS), £20.6m (2008: £18.0m) from MASS Consultants Ltd (MASS) and £26.9m (£13.0m for the six months ended 30 April 2008) from SEA Group Limited (SEA). These represent annual growths of 19%, 15% and 18% respectively.

The Group's adjusted operating profit was £8.1m (2008: £6.1m). This included operating profit from SCS of £3.3m (2008: £2.3m), from MASS of £2.8m (2008: £2.3m) and SEA £3.1m (2008: £2.2m for six months). Cohort group overheads were £1.2m (2008: £0.7m), which included some non-recurring personnel related costs.

The Group operating profit of £6.9m (2008: £5.6m) is after charging as an exceptional item £0.7m (2008: £nil) in respect of withdrawing from the Group's joint venture interest in AGS.

Profit before tax was £6.5m (2008: £5.6m) and profit after tax was £5.1m (2008: £4.5m).

Basic earnings per share were 12.55p (2008: 12.81p). Adjusted earnings per share were 16.10p (2008: 14.58p). The adjusted earnings per share were based upon profit after tax, excluding amortisation of other intangible assets, exceptional items and share of result of joint ventures.

The net funds at year end were £3.7m (2008: £2.1m), reflecting the good operating performance net of the earn out payment for the shareholders of SEA of £4.7m, which was earned in full and paid in July 2008.

DIVIDENDS

The Board is recommending a final dividend of 1.2p per ordinary share (2008: 1.0p) a 20% increase, making the full year dividend in respect of the year ended 30 April 2009 1.75p per ordinary share (2008: 1.45p), a 21% increase. This will be payable on 2 September 2009 to shareholders on the register at 7 August 2009 subject to approval at the annual general meeting on 27 August 2009.

The Board continues to maintain a progressive dividend policy.

BOARD AND PERSONNEL

After successfully taking Cohort to the AIM market in 2006 and three years establishing the Group and overseeing its growth to this point, Stanley Carter decided to step aside from his role as Chief Executive. He has moved to the role of non-executive Co-Chairman, in which capacity I look forward to continuing to work with him in the development of the business. The Board is grateful to Stanley for his immense contribution to the success of Cohort to date.

Andy Thomis rejoined the Board of Cohort plc and succeeded Stanley as Chief Executive in May 2009. Andy, along with Stanley and I, led Cohort to the AIM market before becoming Managing Director of MASS in May 2007. The Board looks forward to working with Andy in developing and expanding Cohort.

Ashley Lane, who previously led the Systems Development division of MASS, has taken over from Andy as Managing Director of MASS. Ashley has considerable experience of MASS's technical offering and business and is well placed to take the business forward. 

As separately announced, Ian Dale-Staples, having joined the Board following the acquisition of SEA in 2007, resigned from the Board for personal reasons on 24 June 2009. On behalf of the Board I would like to thank him for his contribution to the Group and wish him well for the future. 

In the course of the year Paul Phillips was appointed Managing Director of SEA, having previously been responsible for its Defence division. Paul has been with the Company for many years and has a background in technology, project management and business development which equips him well to lead the business.

I would like to thank all our employees for the efforts which have helped to make this year another successful one for the Group.

OUTLOOK

Following a good year for order intake with total orders of £67.5m the Group order book at 1 May 2009 stood at £47.2m. This provides a good platform going into the current year. Success in new markets plus continuing strong performance in our primary markets, position the Group well for achievement of its growth objectives. We continue to look for acquisitions to complement the organic development of the business.

Overall the Board is positive about the outlook for the continued progress of the Group.

Nick Prest CBE

Chairman

  CHIEF EXECUTIVE'S REPORT

Cohort's trading this year has continued the successful trend of last year. All three companies have achieved record annual revenues and profits.

In the year ended 30 April 2009, Cohort achieved Group revenue of £78.6m (2008: £57.1m) and an adjusted operating profit of £8.1m (2008: £6.1m), reflecting a full year of trading for all three subsidiaries.

GROUP OVERVIEW

Cohort is an independent group whose constituent companies provide a wide range of technical advice, support and managed services and certain niche products, characterised by high tech design and low volume manufacture. It provides an environment in which companies can develop and continue to grow whilst retaining a high degree of autonomy and deriving benefit from being part of the wider Group. We continue to seek opportunities to acquire complementary businesses.  These may be either large enough to operate as an additional member within the Group or smaller businesses that can be integrated with one of the existing members.

Cohort's well established businesses have continued to expand successfully through a combination of innovation, responsiveness and agility. Building from their core markets of defence and security, Cohort companies now provide technology and services in such markets as space, transport and offshore technology. In an uncertain financial climate, this diversity both across the Group and within the individual companies, coupled with the ability to keep well abreast of and sometimes lead technology, enables us to respond quickly to market needs. We are confident the Group is well placed to continue to grow both organically, as demonstrated this year and by acquisition.

Cohort has completed its first full year as a group of three companies since its foundation three years ago. It is now firmly established and recognised as a defence and related technologies group, which I see as completing the first stage of its development. I felt this was a sensible time to hand on the reins of Chief Executive and I am confident that Andy Thomis, supported by a strong Board and executive team, will successfully take the business forward. I look forward to continuing to play an active part in this in my new capacity as Co-Chairman.

TRADING SUBSIDIARIES

MASS

MASS Consultants Limited (MASS) is an independent systems house with a strong defence focus including the design and manufacture of niche technology products.

Based in St Neots near Cambridge with an electronic warfare facility in Lincoln, MASS was founded in 1983. It is well known in the field of electronic warfare, secure communications and associated specialist managed services.

Ashley Lane, Managing Director of MASS and the two other directors, including Malcolm Lowes, a founder of MASS, have remained in post since the acquisition in August 2006.

MASS has had a strong year, securing a niche position with a number of prime contracts in being a first choice systems house for outsourced technologically demanding design and development. MASS continued to support its key managed service customers in the UK MOD and overseas.

In Electronic Warfare (EW), MASS continued to develop its own EW database (Thurbon) and secured strategically important support from Saab for developing Thurbon to support the Gripen combat aircraft EW system.

MASS finished the year by being selected as preferred bidder to provide the ICT implementation and managed service for North Lincolnshire's Building School for the Future programme. This programme should be on contract in the late summer. 

MASS enters an important year with the renewal of its UKSF managed service provision and its part in the development of the UK's new EW database as key objectives.

SCS

Systems Consultants Services Limited (SCS) is an independent technical advisory and managed service business operating primarily in the defence and security sectors. Its personnel have the appropriate technical expertise combined with practical experience of its application in the user domain. Over 70% of its employees have served in the Armed Forces.

Based in Henley-on-Thames, SCS was founded in 1992 and has consistently grown year on year. 2008/9 was no exception, with another near 20% growth in revenue.

Notable contract awards during the year included winning the re-competition of the UK Land Command Brigade Mission Rehearsal exercises, training provision to the Royal Saudi Air force, technical and procurement support to the Police National CBRN centre and, along with MASS and SEA, forming part of the team leading a key UK MOD concept study.

Over the last few years SCS has invested in its internal system and business development resource. These investments have now begun to show a return with a 19% revenue growth driving a profit growth of over 40% this year, much of it from higher utilisation of core staff. 

SEA

SEA (Group) Limited (SEA) is an independent systems engineering and software company operating in the defence, space, transport and off-shore markets. Founded in 1988, it is based in Beckington near Frome, Somerset with further offices close to the main UK MOD establishment at Bristol. During the year SEA's sales have grown by 18% over the equivalent period for 2008, producing a record profit for the business.

SEA continued to develop its offering in defence, securing a number of key programmes in its traditional maritime markets, including DART and an underwater detection system for the French Navy. In other defence areas, SEA continued to lead on a number of land based research programmes, which have the potential to pull through our own technology as well as securing a software simulation programme for land based training and simulation. 

In the space market, SEA continued to progress its broad band radiometer instrument for the European Space Agency's Earth Care Mission as well as securing elements of a number of other programmes including the European Sentinel 3 mission.

In transport, SEA successfully launched its Roadflow product with sales to a number of local authorities in the UK. Prospects for the product going forward look promising and SEA continues to develop both the Roadflow product and its wider offering in the area of traffic enforcement.

OUTLOOK

Against an uncertain international and economic background, the Group remains agile and responsive to the needs of its customers. Cohort continues to exploit its position in key niche markets where customer need and focus remains high. The Group is diverse and is in a good business position with a strong order book. We are confident that the wide ranging and complementary expertise and capabilities we have in the Cohort Group make it well positioned to continue to grow, both organically and through acquisition, to meet changing market needs.

Chief Executive to 24 May 2009

  FINANCE DIRECTOR'S REVIEW

The following review explains in further detail the significant financial issues arising during the year ended 30 April 2009 and highlights other matters over and above what is included in the primary financial statements and notes thereto.

REVENUE

The segmental analysis (note 2) presents the Group's revenue by subsidiary. The revenue is further analysed as follows:

The change in the revenue by sector is due to reporting a full year of SEA, which has approximately 40% of its business in non-defence sectors.

ADJUSTED OPERATING PROFIT

The adjusted operating profit is presented to reflect the trading profit of the Group and excludes amortisation of other intangible assets, share of result of joint ventures and exceptional items. This allows the Group to present its trading performance in a comparable format year on year.

The adjusted operating profit is stated after charging the cost of share-based payments of £184,000 (2008: £129,000) which is allocated to each business in proportion to its employee participation in the Group's share option schemes.

The adjusted operating profit of SEA (and the Group) is after a net charge of £57,000 (2008: credit of £131,000) in respect of marking forward foreign exchange contracts to market at 30 April 2009 and revaluing currency monetary assets and liabilities at the year end. The forward foreign exchange contracts are used to hedge the forward sale of currency on Euro denominated trading contracts.

TAX

The Group's tax charge for the year ended 30 April 2009 of £1,372,000 (2008: £1,089,000) was at an effective rate of 21.3% (2008: 19.6%) of profit before tax. This includes a current year corporation tax charge of £1,299,000 (2008: £710,000), a rate of 20.1% (2008: 12.7%) of profit before tax and a deferred tax charge of £73,000 (2008: charge of £379,000).

The Group's overall tax rate was below the standard corporation tax rate of 28%. The majority of the reduction in the effective rate of tax was due to the recognition of research and development (R&D) credits at MASS and SEA for the year ended 30 April 2009.

The Group's businesses are only allowed to claim the lower R&D tax credit allowance available to larger companies, currently 30% and this accounts for the higher current year corporation tax rate compared with 2008 when the Group was able to receive the larger relief available to smaller and medium sized entities.

SCS and the Group's joint venture AGS applied for and received R&D tax credits during 2009 for earlier periods. These credits have not yet been recognised in the tax charge as the matter is still to be finalised. 

Looking forward, the Group's tax charge may fall further over the next year or two subject to outstanding claims being accepted by HMRC and recognised by the Group. Beyond this, the Group's R&D tax credit will be at the lower rate associated with a large Group (30% uplift on qualifying spend) and I would expect the Group tax charge to be at or around the low 20% level and certainly below the standard rate of 28% based upon expected R&D spend and reliefs available.

PROVISIONS

The Group's provisions at 30 April 2009 are as per note 8.

The provision for the MASS earn out was established at the time of acquisition (for £500,000) and was settled in cash for £280,000 (including costs) on 5 June 2009.

TREASURY FACILITIES

At 30 April 2009 the Group had undrawn facilities with its banking provider, RBS as follows:

Of the structured debt facility of £10.0m, £3.0m was drawn to part finance the acquisition of SEA and remains drawn at 30 April 2009.

In addition, the Group has £0.8m of mortgage debt with RBS which was acquired with SEA.

At 30 April 2009, the Group had in place forward foreign exchange contracts to sell Euro 4.1m at a £ Sterling equivalent value of £3.5m.

These forward contracts are used by the Group to manage its risk exposure to foreign currency on trading contracts where it either or both receives and pays currency from customers and suppliers respectively.

These contracts are entered into when contracts are considered effective. The Group does not enter into speculative foreign exchange dealing.

The Group's bank covenants were all satisfied at 30 April 2009.

GOODWILL AND OTHER INTANGIBLE ASSETS

The Group has recognised goodwill and other intangible assets in respect of the acquisition of MASS and SEA (see note 7). The other intangible assets are in respect of contracts acquired in each case and are to be amortised over the life of the earnings associated with the contracts 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, intellectual property within the acquired work force, reputation, customer relations, contacts and market synergies with existing Group members. The goodwill relating to the acquisitions of MASS and SEA has been tested for impairment as at 30 April 2009 and no impairment is to be recognised in either case.

WORKING CAPITAL

The working capital of the Group, excluding provisions and tax liabilities, has risen from £8.0m net assets to £8.6m net assets, an increase of £0.6m (8%), despite a rise in revenue of 38%.

The year-end days debtors in sales have fallen from 65 days in 2008 to 52 days in 2009. This calculation is based upon dividing the revenue by month, working backwards from April into the trade debtors balance (excluding unbilled income and work in progress) at the year end, a more appropriate measure as it takes into account the heavy weighting of the Group's revenue in the last quarter of each year.

The Group has a working capital facility of £2.5m with RBS which was not utilised during the year. The Group had cash at 30 April 2009 of £7.5m, (2008: £6.1m). Advance receipts on contracts at the year-end were £2.5m (2008: £2.2m).

Simon Walther

Finance Director

CONSOLIDATED INCOME STATEMENT

For the year ended 30 April 2009

All profit for the year is attributable to equity shareholders of the parent and derived from continuing operations, with the exception of the exceptional item and share of result of joint ventures which are discontinued.

*Adjusted operating profit is the operating profit before exceptional items and amortisation of other intangible assets. 

CONSOLIDATED BALANCE SHEET

As at 30 April 2009

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 April 2009

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 April 2009

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 2009. The information in this preliminary statement has been extracted from the financial statements for the year ended 30 April 2009 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards.

The Group's Annual Report for the year ended 30 April 2009 has yet to be delivered to the Registrar of Companies and the auditor has yet to issue an opinion in relation to it. The figures for the year ended 30 April 2009 and 2008 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The comparative figures for the year ended 30 April 2008 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies and have been restated for appropriate adjustments in respect of goodwill. Those accounts received an unqualified audit report. The preliminary announcement was approved by the Board and authorised for issue on 24 June 2009.

2.SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT

The above segmental analysis is the primary segmental analysis of the Group.

All revenue and adjusted operating profit is in respect of continuing operations, with the exception of the exceptional items which is in respect of AGS, which is now discontinued.

The operating profit as reported under IFRS is reconciled to the adjusted operating profit as reported above by the exclusion of exceptional items and amortisation of other intangible assets.

The adjusted operating profit is presented in addition to the operating profit to provide the trading performance of the Group, as derived from its constituent elements on a comparable basis from year to year.

The adjusted operating profit is stated after charging £184,000 in respect of share-based payments (year ended 30 April 2008: £129,000) and after charging £57,000 (year ended 30 April 2008: credit of £131,000) of loss in respect of marking forward foreign exchange contracts and revaluing currency monetary assets and liabilities at the year end to market at 30 April 2009.

3.EXCEPTIONAL ITEMS

4.TAX EXPENSE

5.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:

6.DIVIDENDS

The proposed final dividend for the year ended 30 April 2009 is 1.2p (year ended 30 April 2008: 1.0p) per ordinary share. This dividend will be payable 2 September 2009 to shareholders on the register at 7 August 2009.

The total paid and proposed dividend for the year ended 30 April 2009 is 1.75p per ordinary share: a cost of £709,000 (year ended 30 April 2008 1.45p per ordinary share: £587,000).

The charge for the year ended 30 April 2009 (£627,000) is the final dividend for the year ended 30 April 2008 paid (£405,000) and the interim dividend for the year ended 30 April 2009 paid (£222,000).

7.GOODWILL AND OTHER INTANGIBLE ASSETS

The increase in the goodwill of SEA is due to an increase in provisions of £402,000 in respect of loss making contracts, following fair value review plus £1,000 in respect of costs associated with the earn out settlement. The balance sheet for the year ended 30 April 2008 has been restated accordingly.

In accordance with IFRS the goodwill is not amortised but tested annually for impairment, which has shown no impairment to the carrying value of the goodwill at 30 April 2009.

The adjustment to the other intangible assets in respect of MASS reflects the settlement of the earn out (5 June 2009) at £280,000 (including costs) and therefore a reduction in the original deferred consideration of £500,000 by £220,000.

8.PROVISIONS

The earn out in respect of SEA was settled in full in July 2008, in cash. The earn out in respect of MASS was settled 5 June 2009 at £280,000 (including costs) in cash.

The provisions at 1 May 2008 have been restated by the addition of £402,000 in respect of contract provisions established at the time of the acquisition of SEA following fair value review.

The charge to the income statement in respect of AGS is the estimated cost to the Group of withdrawing from this joint venture interest.

9.NET CASH FLOW FROM OPERATING ACTIVITIES

10.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 30 April 2009 or 2008. The financial information for the year ended 30 April 2008 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors reported on those accounts. Their report was unqualified and did not contain a statement under section 489 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2009 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's Annual General Meeting, to be held 27 August 2009.

Copies of the Annual Report and accounts for the year ended 30 April 2009 will be posted to shareholders on 17 July 2009 and available on the Company's website (www.cohortplc.com) from that date.