Cohort Regulatory News (CHRT)

9 Dec 2009 07:00



9 December 2009

COHORT PLC

UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED

31 OCTOBER 2009

Cohort plc, a leading independent technology group, today announces unaudited interim results for the half year to 31 October 2009. Highlights include:

Commenting on the result, Nick Prest CBE, Chairman of Cohort plc said:

"Two of Cohort's subsidiaries, MASS and SEA have continued to trade well. MASS is well ahead of expectations having made good progress on both UK MOD projects and overseas deliveries in the first half. SCS has had a very poor first half and as a result our overall Group expectations for this year have been lowered. A full review is underway to identify and correct the causes of the problems which have arisen at SCS. Taking a longer view the Board believes that the prospects for all of the Group's businesses are sound and that this will feed into shareholder value after the problems at SCS have been rectified. Our decision to maintain our progressive dividend policy reflects this belief."

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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:

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.

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.

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

OVERVIEW

Cohort has continued to make progress during the first six months of this year in two of its three subsidiaries, MASS and SEA, both achieving good revenue growth over the equivalent period last year. MASS continued to show good profit growth whilst SEA's profit was slightly lower than for the corresponding period last year, in line with expectations. This performance reflects SEA's current position in a number of key programmes, with stronger second half delivery expected. As announced on 3 December 2009, SCS has had a poor first half. An income overstatement for prior periods has also been identified and the comparative figures restated accordingly. An urgent investigation to identify the causes of the difficulties at SCS and resolve them is underway. As a consequence of the position at SCS the trading profit for the Group was down compared with the first six months for last year and the Group now anticipates a result for the full year significantly lower than the result for the year to 30 April 2009.

FINANCIALS

In the six months ended 31 October 2009, Cohort achieved revenue of £37.3m (2008: £33.9m), a 10% increase. The Group's revenue for the first half included £10.9m from MASS, an increase of 14% and £13.6m from SEA, an increase of 28%. SCS revenue was down on the first half of last year by £0.9m from £13.7m to £12.8m, a fall of 7%. 

The Group's adjusted operating profit was £1.4m (2008: £3.2m). This included contributions from MASS of £1.9m (2008: £1.3m) and from SEA £1.1m (2008: £1.2m). The loss from SCS of £0.9m (2008: profit of £1.2m) reduced the Group's overall trading performance.  The Group's operating profit was £1.3m (2008: £2.9m).

During the period, the business of the Group's joint venture undertaking, AGS, was sold, realising an exceptional profit to the Group of £0.2m. The Group had previously withdrawn from this joint venture undertaking and written down its investment.

As announced on 3 December 2009, as part of the review leading up to the interim results the Group identified an overstatement of income at SCS of £1.85m. Of this amount, £0.6m has been identified as relating to the value of work in progress at 30 April 2009 and as the Board consider this to be a material amount the figures reported for the year ending on this date have been correspondingly restated.

The adjusted earnings per share (before exceptional items and amortisation of other intangible assets) for the six months ended 31 October 2009 are 2.42 pence per ordinary share (2008: 6.25 pence).

Net cash outflow from operating activities was £0.1m (2008: inflow of £1.2m). Working capital increased in the first half but we expect it to reduce in the second half as deliveries are made. The net outflow in the first half compared with the net inflow in 2008/9 was primarily due to higher tax payments on account, with elements of R&D tax credits not yet reflected in these. The period ended with the Group holding £3.0m of net funds (£3.7m at 30 April 2009 and £1.8m net debt at 31 October 2008).

MASS

MASS has continued to perform very well, producing a 43% increase in operating profit from a 14% increase in revenue over the same period last year. Good progress on the MoD secure communications project as well as increased overseas deliveries contributed to a good performance, exceeding our expectations. MASS secured its role as IT provider for North Lincolnshire Building Schools for the Future programme as well as being part of one of the two teams down selected to the next stage of the UK's Defence Electronic Warfare Improvement Programme, worth up to £50m to the winning consortium. Down selection to one contractor is expected in the second half of next year. The order book of MASS at 31 October 2009 was £27.9m, underpinning £8.2m of second half revenue.

During the early part of November, MASS completed the acquisition for £2.3m of a freehold property in St Neots, close to its current operations. This acquisition has been made to enable MASS to continue to expand its operations. Refurbishment costing up to £1.4m will take place over the next six months with MASS due to occupy its new facility in the summer of 2010. This purchase has been funded from the Group's own cash resources.

SEA

SEA performed in line with expectations. An increase in revenue of 28% was accompanied by a slight deterioration in net profit compared with the first half of 2008/9. The lower net profit, which was in line with expectations, reflected a change in mix with higher volumes in the period of lower margin revenue, primarily from current stages on space programmes and the research framework agreement for Future Soldier Systems. SEA also increased manning for delivery of some programmes which have slipped into the second half. As is typical for SEA, the delivery of revenue will be much more weighted to the second half. SEA order book at 31 October 2009 was £22.8m, underpinning £10.5m of the second half revenue.

SCS

SCS has had a very poor first half to 2009/10 producing a net loss of £0.9m (2008: £1.2m profit) on revenue of £12.8m (2008: £13.7m). This very disappointing result has arisen from a tightening in the market leading to reduced revenue, a poor mix of work leading to lower margins and lower utilisation of core staff. The reported operating loss of £0.9m includes £0.4m of costs in respect of contracts completed in the year ended 30 April 2009 which do not fall to be classified as a prior year adjustment under accounting standards. The balance of the announced income overstatement, £0.8m, arose during the six months ended 31 October 2009 and is included in the reported operating loss.

Since the announcement on 3 December 2009 the Group has been carrying out an urgent investigation, in conjunction with its auditor, into the causes of the income overstatement, which relates mainly to work in progress on a small number of fixed price contracts. Preliminary conclusions are that causes were: errors in migrating data from the previous management information system to the present one; shortcomings in operation of the system; poor interaction between the finance and project management functions; and accounting errors. As a result of a lack of adequate balance sheet review at SCS these errors accumulated until identified by the company in the process of preparing the Interim result.

Prior to identification of the income overstatement, an initial restructuring programme had already been implemented at SCS which reduced annual costs by £0.7m. Following the recently identified problems, further changes are likely to be required to put SCS back on a satisfactory trading path.  An urgent review of the management, operations and financial control at SCS is underway in order to identify and implement the necessary changes.

The SCS second half performance is expected to be in profit, and the Board presently anticipates that SCS will trade approximately at break even over the whole year. The SCS order book at 31 October 2009 was £9.5m with £8.0m of this deliverable in the second half of the year. 

SCS will relocate in early 2010 from Henley-on-Thames to a new office in Theale, near Reading. SCS, as now, will lease its new facilities.

OUTLOOK AND DIVIDENDS

The Group's order book at 31 October 2009 stood at £60.2m. £26.7m of this order book is deliverable in the second half.

Despite the expected good performance from MASS and SEA, the breakeven trading outlook for SCS for the year means that the profit before tax for the current financial year will be significantly below that for the year ended 30 April 2009.

Taking a longer view, the Board believes that the prospects for all of the Group's businesses are sound and that this will feed into shareholder value after the problems at SCS have been rectified. Reflecting this belief, the Board is maintaining its progressive dividend policy. The Group plans to pay an interim dividend of 0.65 pence (2008: 0.55 pence) per ordinary share on 6 March 2010 to shareholders on the register at 27 February 2010.

CONSOLIDATED INCOME STATEMENT

For the six months ended 31 October 2009

All profit for the period is derived from continuing operations. The business of the joint venture was sold during the period.

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

The consolidated income statement for the year ended 30 April 2009 has been restated for the income overstatement described in note 8.

STATEMENT OF OTHER COMPREHENSIVE INCOME

For the six months ended 31 October 2009

The statement of other comprehensive income for the year ended 30 April 2009 has been restated for the income overstatement described in note 8.

  CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 October 2009

The consolidated statement of financial position for the year ended 30 April 2009 has been restated for the income overstatement described in note 8.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 October 2009

CONSOLIDATED STATEMENT OF CASH FLOWS 

For the six months ended 31 October 2009

NOTES TO THE INTERIM REPORT

1. BASIS OF PREPARATION

The financial information contained within this interim report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) as adopted by the EU and expected to apply at 30 April 2010. This interim report is condensed with respect to IFRS requirements. As permitted, this interim report has been prepared in accordance with AIM Rules for companies and not in accordance with IAS34 'Interim Financial Reporting' and is therefore not fully compliant with IFRS. This interim report is presented in sterling and all values are rounded to the nearest thousand pounds (£000) except where otherwise indicated.

The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 May 2009. 

IAS 1 (revised), "Presentation of financial statements". The revised standard requires "non-owner changes in equity" to be presented separately from owner changes in equity. All "non-owner changes in equity" are required to be shown in a performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present two statements: an income statement and a statement of comprehensive income. The interim financial statements have been prepared under the revised disclosure requirements. 

IFRS 8, "Operating segments". IFRS 8 replaces IAS 14, "Segment reporting". It requires a "management approach" under which segment information is presented on the same basis as that used for internal reporting purposes. This will not result in a change in the reportable segments presented. 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Board that makes strategic decisions. 

In accordance with s434 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.

The comparative figures for the year ended 30 April 2009 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies. Those accounts received an unqualified audit report which did not include statements under section 498(2) or (3) of the Companies Act 2006. The figures for the year ended 30 April 2009 have been restated for the income overstatement at SCS (see note 8).

The interim report was approved by the Board and authorised for issue on 8 December 2009. Copies of the interim report will be sent to shareholders on 21 December 2009.

2. SEGMENTAL ANALYSIS OF REVENUE AND ADJUSTED OPERATING PROFIT

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 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 period to period.

The adjusted operating profit is stated after charging £90,000 in respect of share-based payments (six months ended 31 October 2008: £60,000, year ended 30 April 2009: £184,000)

As announced on 3 December 2009 the Group identified an overstatement of income of £1,850,000. Of this, £620,000 has been accounted as prior year adjustment (see note 8). Of the remainder £434,000 relates to costs incurred on contracts completed in the year ended 30 April 2009 which do not fall to be classified as prior year adjustments under accounting standards and £796,000 relates to costs overruns on contracts in progress. The underlying performance of SCS in the period is therefore a loss of £468,000 (2008: profit of £1,171,000).

REVENUE ANALYSIS BY SECTOR AND TYPE OF WORK

3. EXCEPTIONAL ITEMS

4. INCOME TAX EXPENSE

The income tax expense for the six months ended 31 October 2009 is based upon the anticipated charge for the full year. The income tax expense for the year ended 30 April 2009 has been restated for the income overstatement at SCS (see note 8).

5. EARNINGS PER SHARE

The earnings per share are calculated as follows:

6. DIVIDENDS

The interim dividend for the six months ended 31 October 2009 is 0.65p (six months ended 31 October 2008: 0.55p) per ordinary share. This dividend will be payable 6 March 2010 for shareholders on the register at 27 February 2010.

The final dividend charged to the income statement for the year ended 30 April 2009 was 1.55p per ordinary share.

7. NET CASH FROM OPERATING ACTIVITIES

The net cash from operating activities for the year ended 30 April 2009 has been restated for the income overstatement at SCS (see note 8).

8. RESTATEMENT OF PRIOR YEAR RESULTS

The figures reported for the year ended 30 April 2009 have been restated for part of the income overstatement at SCS announced on 3 December 2009. The impact of this restatement is to reduce revenue and profit before tax by £620,000 and the tax charge by £130,000. At 30 April 2009, the trade debtors and other receivables have been reduced by £620,000 and the tax liability by £130,000.

The balance of the income overstatement (£1,230,000) has been shown as a reduction in revenue and profit before tax for the six months ended 31 October 2009.

The figures reported for the six months ended 31 October 2008 have not been restated, as the impact on this period was not material.  

INDEPENDENT REVIEW REPORT TO COHORT PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 31 October 2009, which comprises the Consolidated Income Statement, Statement of Other Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Cash Flow, Consolidated Statement of Changes in Equity and the related explanatory notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report, including the conclusion, has been prepared for and only for the Company for the purpose of meeting the requirements of the AIM Rules for Companies and for no other purpose. We do not, therefore, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Directors' Responsibilities

The interim report, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing and presenting the interim report in accordance with the AIM Rules for Companies.

As disclosed, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements, as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.

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 United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 31 October 2009 is not prepared, in all material respects, in accordance with the measurement and recognition criteria of International Financial Reporting Standards and International Financial Reporting Interpretations Committee ("IFRIC") pronouncements as adopted by the European Union, and the AIM Rules for Companies.

Baker Tilly UK Audit LLP

Chartered Accountants

12 Gleneagles Court

Brighton Road

Crawley

West Sussex

RH10 6AD

8 December 2009