Half-year Results

Strong growth in operating profit, revenue and order book; further progress expected

The Group achieved a strong first half, with growth in revenue, profit, and order book compared with 2022. The increase in the interim dividend reflects the Board's confidence in the Group's growth prospects and continued commitment to a progressive dividend policy.

Financial highlights

• Revenue up 22% to £94.3m (2022: £77.5m).
• Adjusted* operating profit up 20% to £6.0m (2022: £5.0m).
• Adjusted* earnings per share of 10.36 pence (2022: 10.12 pence) impacted by a higher tax rate and higher net interest charge.
• Order intake of £119.1m (2022: £88.6m), 1.3x the period's revenue.
• Record closing order book of £353.9m (30 April 2023: £329.1m).
• Interim dividend increased by over 10% to 4.70 pence per share (2022: 4.25 pence per share) continuing the Group's long standing track record of progressive dividend growth.
• Net funds of £13.3m at 31 October 2023 (31 October 2022: £0.6m net debt; 30 April 2023: £15.6m net funds).

Operational highlights

• Increased revenue was driven by higher UK MOD sales within both divisions.
• The strong growth in adjusted* operating profit was driven by the Communications and Intelligence division, with profit performance in the Sensors and Effectors division slightly lower than last year.
• Order intake benefited from strong performances within the Sensors and Effectors division, particularly at SEA which continues to grow its naval business stream.

Looking forward

• The record order book of £353.9m includes over £90m of revenue deliverable in the second half:
• Taking into account revenue recognised in the first half, this covers over 95% of consensus forecast revenue for the full financial year.
• Revenue deliverable in future years from committed orders continues to grow, and the duration of the order book now extends to 2033.
• The current year outlook for the Group remains unchanged:
• In line with previous experience, we anticipate a stronger Group performance in the second half.
• Increased delivery in Sensors and Effectors division expected to drive growth in Group performance.
• We continue to see a positive outlook for organic growth in the medium term.

New non-executive director appointment

• Peter Lynas, formerly Finance Director of BAE Systems, will join the Board as a Non-Executive Director and Audit Chair designate in January 2024.

* Adjusted figures exclude the effects of marking forward exchange contracts to market value (£6k charge; 2022: £1.6m charge), amortisation of other intangible assets (£1.6m; 2022: £1.8m).

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

"Cohort delivered a stronger performance for the first half compared to the same period last year with growth in both revenue and adjusted operating profit. Strong order intake has driven a record closing order book which underpins most of the second half of this financial year. Consequently, in line with previous experience and given the 95% visibility the current order book gives us over current year forecast revenues, we anticipate a stronger performance in the second half and thus remain on track to achieve our expectations for the full year.

"The continued expansion of the order book is a strong indicator that we are offering competitive products in a growing market. On-order revenue is now deliverable out to 2033. The pipeline of order opportunities for the remainder of the year also looks strong. Demand for our solutions and services continues to be driven by international tensions in the Asia-Pacific region and Europe. This backdrop is driving increased spending on defence and security in Europe, including the UK, other NATO countries and the Asia-Pacific region. Overall, we continue to see a positive outlook for organic growth in the years ahead."

Dividend timetable:

Interim dividend announcement date 13 December 2023

Record date 5 January 2024

Dividend payment date 13 February 2024

A Dividend Reinvestment Plan ('DRIP') is provided by Equiniti Financial Services Limited. The DRIP enables the Company's shareholders to elect to have their cash dividend payments used to purchase the Company's shares. The latest election date is 23 January 2024. More information can be found at www.shareview.co.uk/info/drip.

Analyst Presentation

A meeting is being held today, for analysts, hosted by Andy Thomis, Chief Executive, and Simon Walther, Finance Director, at 9.15am for a 09:30am start. Please contact MHP via cohort@mhpgroup.com if you wish to attend.

Investor Presentation

Andy Thomis (Chief Executive) and Simon Walther (Finance Director) will be giving an investor presentation hosted by Equity Development at 4.15pm today. The webinar is open to all existing and potential shareholders. Questions can be submitted during the presentation, or sent beforehand by email to info@equitydevelopment.co.uk

Simon Walther, Finance Director Emily McBride, Group Head of Marketing and Corporate Communications Raquel McGrath, Company Secretary

Communications and Intelligence

Sensors and Effectors

Chairman's statement

Compared to the same period last year Cohort delivered a stronger performance for the six months ended 31 October 2023 with growth in both revenue and adjusted operating profit.

Overall, the Group's adjusted operating profit grew by 20% to £6.0m (2022: £5.0m) on 22% higher revenue of £94.3m (2022: £77.5m).

The re-prioritisation of defence spending within Europe seen last year, following events in Ukraine and persistent tensions in the Asia-Pacific region, has driven continued impetus for defence spending. That has resulted in an increased tempo of order intake across the Group, at 1.3x first half revenue (2022/23: 1.1x). Recent events in the Middle East, while also contributing to an increased regional focus on defence spending, have led to some delays in delivery as a result of diverted customer focus. That has been particularly noticeable in relation to training work in the Communications and Intelligence division.

Although there remain pockets of supply challenges, notably in relation to our Portuguese business, these have lessened over the period. Recruitment pressures have likewise eased considerably, reflecting the positive impact of initiatives such as apprentice and graduate schemes, a focus on employee engagement and the support of STEM initiatives in local schools and communities. Recruitment of certain specialist professionals with high-level security clearances remains the most challenging aspect of people resourcing, and this is particularly relevant to the Communications and Intelligence division. Overall we have seen our employee headcount increase from 1,075 last October to 1,243 this October.

We continue to see some inflationary pressures, particularly affecting specialist materials and expertise. We have been able to mitigate some of this effect through price escalation clauses in longer term contracts. In shorter term contracts the impact is less serious, but our ability to mitigate inflationary pressures depends on our ability to increase our prices, which is sometimes but not always the case.

Geographically, the improvement in the Group's adjusted operating profit was driven by the Group's UK operations. This was partly offset by delays to orders and deliveries within the Group's Portuguese business, EID. We also saw weaker revenue mix at ELAC as the Group continued to take a cautious approach to the margin traded on the Italian sonar project, which is still in development.

The Group's order intake was strong at £119.1m (2022: £88.6m), and the closing order book of £353.9m was a record high for the Group. On-contract revenue now stretches out to 2033. We saw particularly strong order intake within Sensors and Effectors of £93.6m. There are further good order prospects for the Group in the second half and beyond. These include opportunities with the Portuguese Navy, and export customers in Southeast Asia and Australasia, as well as communications and surveillance systems for customers in the UK and Europe. Since the period end the order book has grown to over £365m including the third boat for the Italian sonar project announced on 5 December 2023.

At 31 October 2023, net funds were £13.3m, compared to net funds of £15.6m at 30 April 2023. As at 10 December 2023, the Group's net funds were £10.3m. We expect the Group to see a net cash outflow in the second half the of the year, a result of planned capital investment.

Governance

The Board regularly evaluates and reviews the Group's environmental, social and governance (ESG) activity and is committed to maintaining appropriate standards. We continue to make good progress with a wide range of initiatives at subsidiary level with MCL, MASS and Chess working towards ISO 14001 accreditation. Each UK subsidiary has published its net zero carbon plans. The Group's values, customer engagement principles and governance policies are all outlined on Cohort's website and in the Annual Report and Accounts.

The Board remains committed to open communications with investors. Shortly after the AGM the Board hosted an institutional investor site visit at Chess giving the audience a chance to view some of the work being undertaken within the Group and an opportunity to talk face to face with Chess's management team.

As separately announced today, Peter Lynas will be joining the Cohort Board as a Non-Executive Director on 2 January 2024 and will replace Jeff Perrin as Chairman of the Audit Committee when Jeff retires in September 2024. Peter Lynas has deep experience of the defence industry as the former Finance Director of BAE Systems, and we are pleased to welcome him to the Board.

Key financials

For the six months ended 31 October 2023 the Group's revenue was £94.3m (2022: £77.5m), comprised of £43.9m in Communications and Intelligence (2022: £33.2m) and £51.0m in Sensors and Effectors (2022: £44.5m).

The Group's adjusted operating profit in the period was £6.0m (2022: £5.0m). Central costs were £2.3m (2022: £2.6m). Cohort made an operating profit after recognising amortisation of intangible assets (£1.6m) of £4.4m (2022: operating profit of £1.6m, after amortisation of intangible assets of £1.8m and a charge on marking forward exchange contracts to market value of £1.6m).

Adjusted earnings per share for the six months ended 31 October 2023 increased to 10.36 pence (2022: 10.12 pence). The tax rate in respect of the adjusted operating profit was 20.0% (2022: 17.0%). Basic earnings per share were 7.46 pence (2022: 2.73 pence). The lower growth in adjusted earnings per share when compared with adjusted operating profit was due to the higher tax rate and higher net interest charge.

The cash inflow from operations of £10.5m (2022: outflow of £4.9m) is significantly higher than last year's equivalent period due to timing of working capital movements, with advanced payments received, particularly within Sensors and Effectors, ahead of project work deliverable in the rest of the year. The Group made payments in respect of dividends (£3.7m) and capital expenditure (£2.7m) resulting in net funds at 31 October 2023 of £13.3m (30 April 2022: net funds of £15.6m). The capital expenditure included a further spend of £1.5m on ELAC's new facility. The total spend for this project is expected to be around £17m over the three years from 2022 to 2025.

Communications and Intelligence

Driven largely by increased UK MOD spend, largely at MCL, the Communications and Intelligence division posted an improved trading profit of £6.0m for the six months to 31 October 2023 (2022: £5.2m) on revenue of £43.9m (2002: £33.2m), a net margin of 13.7% (2022: 15.7%). The weaker net margin has been mostly driven by performance at MASS, where some of its higher margin EWOS work has slipped into the second half.

The division's order book reduced to £108.3m (30 April 2023: £126.7m) as much of MCL's outstanding UK MOD order backlog was delivered in the first half. Long-awaited orders from the Portuguese Navy were further delayed, but we expect that the division will deliver a performance for the whole year in line with 2022/23.

Sensors and Effectors

Despite higher revenue of £51.0m (2022: £44.5m) within Sensors and Effectors, the trading profit of £2.3m was slightly lower than that achieved last year (£2.5m) with a net margin of 4.5% (2022: 5.6%). This was a result of revenue mix, with a greater proportion of lower margin sales at SEA and continued low margin trading of the Italian sonar project as it progresses through its development phase. Last year also included a £0.5m contribution from Wärtsilä, the final payment under the scheme agreed at the time of the acquisition of ELAC.

The division's order book increased to £245.6m (30 April 2023: £202.4m) with £93.7m of order intake in the first half of the year. SEA in particular saw several large naval orders placed, including an order with the Royal New Zealand Navy. The pipeline of opportunities for this division is strong with further large orders possible in the second half of the year.

The order book covers over £60m of revenue to be delivered in the second half of the year and we expect this division to deliver a stronger performance in the second half, driving the Group's overall growth compared to 2022/23.

Dividend

The Board has declared an interim dividend increase of over 10% to 4.70 pence per share (2022: 4.25 pence per share). The interim dividend is payable on 13 February 2024 to shareholders on the register as at 5 January 2024.

Outlook

The Group's order book at 31 October 2023 stood at £353.9m (30 April 2023: £329.1m), underpinning most of the second half of this financial year. In line with previous experience, we anticipate a stronger Group performance in the second half and thus remain on track to achieve our expectations for the full year.

The continued expansion of the Group's order book is a strong indicator that we are offering competitive products in a growing market. On-order revenue is now deliverable out to 2033. The pipeline of order opportunities for the remainder of the year also looks strong. Demand for our solutions and services continues to be driven by international tensions in the Asia-Pacific region and Europe. This backdrop is driving increased spending on defence and security in Europe, including the UK, other NATO countries and the Asia-Pacific region. Overall, we continue to see a positive outlook for organic growth in the years ahead.

Nick Prest CBE

Chairman

Consolidated income statement

for the six months ended 31 October 2023

All profit for the period is derived from continuing operations.

Consolidated statement of comprehensive income

for the six months ended 31 October 2023

Transactions with owners of the Group and non-controlling interests recognised directly in equity:

Transactions with owners of the Group and non-controlling interests recognised directly in equity:

Transactions with owners of the Group and non-controlling interests recognised directly in equity:

Notes to the interim report

for the six months ended 31 October 2023

Basis of preparation

For management and reporting purposes, the Group, for the period just ended, operated through two divisions, each containing three of our six small and medium-sized businesses, operating primarily in defence and security markets, and with a strong emphasis on technology, innovation and specialist expertise.

• Communications and Intelligence, comprising EID, MASS and MCL, and;
• Sensors and Effectors, comprising Chess, ELAC and SEA

The Group's first half trading is in line with historical trends for the Group where typically we see a first half of a third or less of the full year in respect of earnings.

Going concern

The Group meets its day-to-day working capital requirements through a facility which was renewed in July 2022 and recently extended to run until July 2026 with an option to extend by a further year until July 2027. The new facility is for a £35m revolving credit facility with an accordion (option) to draw another £15m. Both the current domestic economic conditions and continuing UK Government budget pressures create uncertainty, particularly over the level of demand for the Group's products and services, specifically in respect of UK defence spending (UK MOD represents 52% of the Group's 2023/24 first half revenue). The current heightened international security situation, especially the ongoing conflict in Ukraine, has increased the focus of governments, particularly in NATO, on defence capability and how this should be enhanced, including increased investment. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance for a period of at least 12 months from the date of signing this Interim Report, show that the Group should be able to operate within the level of its current facility.

• Statutory accounts
• Statement of compliance

Critical accounting estimates and judgements

Estimates and judgements as applied to items, including goodwill, revenue recognition, recoverability of trade and other receivables, provisions and taxation have not materially changed since the year end.

The Interim Report was approved by the Board for issue on 13 December 2023.

Segmental analysis of revenue and adjusted operating profit

All revenue and adjusted operating profits are in respect of continuing operations.

The operating profit as reported under IFRS is reconciled to the adjusted operating profit as reported above by the exclusion of marking forward exchange contracts to market value at the period end and the amortisation of other intangible assets.

The Group's adjusted operating profit includes the cost of share options of £393,000 for the six months ended 31 October 2023 (six months ended 31 October 2022: £310,000; year ended 30 April 2023: £1,522,000).

The chief operating decision maker as defined by IFRS 8 has been identified as the Board.

Revenue analysis by sector and type of deliverable

The Group's total revenue in terms of type of deliverable is analysed as follows:

The weighted average number of ordinary shares for the six months ended 31 October 2023 excludes 1,048,353 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 2022: 602,590; year ended 30 April 2023: 718,157).

The interim dividend for the six months ended 31 October 2023 is 4.70 pence (six months ended 31 October 2022: 4.25 pence) per ordinary share. This dividend will be payable on 13 February 2024 to shareholders on the register at 5 January 2024.

The dividend paid during the year ended 30 April 2023 was 12.60 pence per ordinary share, comprising 4.25 pence of interim dividend for the six months ended 31 October 2022 and 8.35 pence of final dividend for the year ended 30 April 2022.

Net cash generated from/(used by) operating activities

Independent review report to Cohort plc

Conclusion

Basis for Conclusion

Conclusions Relating to Going Concern

Responsibilities of Directors

Auditor's Responsibilities for the Review of the Financial Information

Use of our report

RSM UK Audit LLP

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