Final Results

RNS Number : 0045G

Cohort PLC

25 June 2012

 



Arlington House 1025 Arlington Business Park Reading Berks RG7 4SA

Cohort plc

COHORT PLC

PRELIMINARY RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 30 APRIL 2012

Improved performance - good momentum

Cohort plc today announces its preliminary results for the year ended 30 April 2012.  Highlights include:

	2012	2011	%
·      Revenue	£75.4m	£65.1m	16
·      Adjusted operating profit*	£6.5m	£4.4m	48
·      Adjusted profit before tax*	£6.5m	£4.3m	51
·      Adjusted earnings per share*	15.52 pence	9.60 pence	62
·      Profit before tax	£4.2m	£2.7m	56
·      Net funds	£14.1m	£6.7m	110
·      Order book (closing)	£107m	£103m	4
·      Proposed final dividend per share	1.9p	1.6p	19
·      Total dividend per share	2.9p	2.4p	21

* Excludes exceptional items, amortisation of other intangible assets and exchange differences on marking forward exchange contracts to market.

Contract Win - Order book momentum continues post year end

As separately announced today, MASS has been awarded a five-year extension to its managed IT service contract for the Sentry Whole Life Support Programme (WLSP) at RAF Waddington.

Commenting on the results, Nick Prest CBE, Chairman of Cohort plc said: "Cohort continued to improve its performance in the year, achieving a record trading profit and increasing its order book and net funds."

"The Board's policy remains to increase shareholder value through operational improvements and organic growth; and through corporate activity where suitable opportunities arise."

"The combination of good order book, strong net funds and businesses with operational momentum provide a solid foundation for the coming year."

A presentation for analysts is being hosted today at 9.30am at Investec. For further information, please contact MHP Communications.

For further information please contact:

Cohort plc	0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Investec Bank Plc	020 7597 5970
Keith Anderson, Daniel Adams
MHP Communications Limited	020 3128 8100
Reg Hoare

NOTES TO EDITORS

Cohort plc (www.cohortplc.com) is the parent company for three innovative, agile and responsive businesses working primarily for defence (air, land and sea), wider government and industry clients. 

·      SCS (www.scs-ltd.co.uk) - a 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 and transport 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 Berkshire and, through its operating companies, employs in total around 530 core staff there and at bases in Bristol, Cambridgeshire, Lincolnshire and Somerset. 

CHAIRMAN'S STATEMENT

Cohort continued to improve its performance in the year, achieving a record trading profit and increasing its order book and net funds.  All of Cohort's businesses have improved their trading performance with MASS achieving another record result, SCS growing its profitability in a tight market and SEA making good progress, although with more to do.

Key financials

In the year ended 30 April 2012, Cohort posted revenue of £75.4m (2011: £65.1m), the increase being generated by organic growth. This included revenue of £17.5m (2011: £18.4m) from Systems Consultants Services Limited (SCS), £26.1m (2011: £23.5m) from MASS Consultants Limited (MASS) and £31.8m (2011: £23.2m) from SEA (Group) Limited (SEA).

The Group's adjusted operating profit was £6.5m (2011: £4.4m). This included adjusted operating profit from SCS of £1.3m (2011: £1.0m), from MASS of £4.8m (2011: £4.2m) and from SEA of £1.7m (2011: £0.3m). Cohort Group overheads were £1.3m (2011: £1.1m).  The better profitability reflected a combination of improved operational efficiency and revenue growth.

The Group operating profit of £4.2m (2011: £2.8m) was after recognising amortisation of intangible assets, exchange losses on marking forward exchange contracts to market and exceptional items, although none of the latter this year.  Profit before tax was £4.2m (2011: £2.7m) and profit after tax was £4.6m (2011: £2.8m). 

Basic earnings per share were 11.30 pence (2011: 6.79 pence). Adjusted earnings per share were 15.52 pence (2011: 9.60 pence). The adjusted earnings per share were based upon profit after tax, excluding amortisation of other intangible assets, marking forward exchange contracts to market at the year end and exceptional items, all net of tax.  The basic and adjusted earnings per share for the year ended 30 April 2012 include a benefit from a prior year tax credit of 2.48 pence per share.

Order intake for the year was £79.3m (2011: £55.6m).  The net funds at the year-end were £14.1m (2011: £6.7m), the Group having paid down all its debt (£3.4m) in the year.

Dividends

The Board is recommending a final dividend of 1.9 pence per ordinary share (2011: 1.6 pence), making a total dividend of 2.9 pence per ordinary share (2011: 2.4 pence) in respect of the year ended 30 April 2012, a 21% increase. This will be payable on 19 September 2012 to shareholders on the register at 24 August 2012 subject to approval at the Annual General Meeting on 11 September 2012.

MASS

MASS again traded strongly in the year and posted record figures for sales, profit and cash generation, this performance benefiting from the successful completion of a number of projects.  During the year MASS commenced its delivery of the new electronic warfare database to the UK MOD. This is an important foundation for maintaining MASS's unique capability in this area and also provides a springboard for MASS to increase its export opportunities.

SCS

SCS has continued to experience a tight domestic market for its services, evidenced by the 5% fall in revenue year on year.  However, the action SCS has taken to align its cost base with its revenue has resulted in an improved trading profit of £1.3m (2011: £1.0m), growth of 29%.  SCS continues to win new and repeat business with its primary UK customer and has also secured overseas orders, where the strong reputation of UK Forces provides a key selling point.

SEA

SEA improved its profitability following the organisational and management changes made in the second half of 2010/11, although it has continued to be affected by some poorly performing projects. These are expected largely to complete during the current financial year.  SEA's operating performance is expected to improve further as the changes made are fully embedded and projects with poor margins come to completion.  SEA underlined its strong capabilities by securing over £38m of new orders in the year.

Management and staff

The Group's improving performance reflects the impact of the management changes made over the last two years. The senior management teams at Cohort and within the subsidiaries have steered the business through some difficult times and deserve credit for maintaining focus and morale. My thanks also go to all the staff within the businesses, whose hard work and ability to deliver what our customers need, within tight budgets, are what ultimately drive our performance.

Outlook

The closing order book of £107.1m (2011: £103.2m) represents a like-for-like improvement of 12% on the opening position after taking account of the run-off of approximately £8m of multi-year orders in 2012. The UK defence market remains tight, although some visibility appears to be returning after the recent government spending round announcements. The Cohort businesses have strong and relevant capabilities, established positions on some key long term UK MOD programmes, and a good pipeline of new opportunities.

The Group will continue to pursue the expansion of its business outside the UK as well as its non-defence business. The pipeline of export opportunities is strengthening, though the timing of these is always uncertain. 

As I stated last year and reiterated in December's interim report, the Board's policy remains to increase shareholder value through operational improvements and organic growth and through corporate activity where suitable opportunities arise.  Cohort is making progress in all these respects, and the combination of good order book, strong net funds and businesses with operational momentum provide a solid foundation for the coming year.

Nick Prest CBE

Chairman

CHIEF EXECUTIVE'S REVIEW

2011/12 has been a year of continued progress for Cohort in which we have consolidated the improvements made in 2010/11 and laid the foundations for future growth. I am pleased to say that in doing so we have also delivered a much better level of profit and cash. Work still needs to be done to improve performance in some areas, but we have achieved much of what we set out to do at the beginning of the year.

SEA

At the Group level, a lot of our focus has been on restoring profitability at SEA. Simon Walther and I have worked closely with Steve Hill, the Managing Director of the business, to monitor progress on SEA's change programme. I have been very pleased with progress in a number of delivery areas, where SEA has been able to improve its business performance without losing the strong technology focus that its customers rely on. Notably we have seen real positive change on the External Communications System (ECS) that SEA is developing for the UK's Astute Class of nuclear submarines, the scientific research work we have been doing for the Defence Science and Technology Laboratory, and some of our sensor processing products such as the Roadflow traffic enforcement system. In other areas there is still work to do to reach SEA's true potential, and these will continue to see a Group focus in 2012/13.

SCS

SCS has performed well against the background of a challenging market. With the UK MOD making significant civilian and armed forces redundancies, there has been an understandable caution about making use of external support services, and the scrutiny regime that has been introduced has made winning new contracts, or renewing existing ones, increasingly difficult. SCS has taken action to deal with this situation on two fronts. Firstly it has adjusted its management structure to improve effectiveness and reduce costs, improving profitability. Secondly it has systematically sought to widen its customer base. This has already shown positive results, with services provided to the Olympic Delivery Authority and the Defence Airworthiness Team. Our aim is to build on these and add further new customers this year.

MASS

MASS's unique capabilities have been strongly in demand, and it has again delivered a record year.  Strong growth in MASS's work on secure networks, notably in its new Education market, and a good start to the strategically important EW data management system SHEPHERD (where MASS is teamed with Logica), have more than compensated for some delays  to certain export contracts. These are always hard to predict, although the rewards in such markets can be high as there is both a real customer need and the resources to do what is required.

A combination of investment in new technologies, access to unique skills and careful husbanding of resources have once again enabled MASS to deliver a very strong operating margin, enhanced even further this year by some one-off factors. MASS is now well placed to grow its export activities once again, though, as always, this is subject to timing uncertainties.

Operating strategy

Cohort's strategy is to allow its medium-sized subsidiary businesses a significant degree of operational autonomy in order to fully develop their potential, while providing light-touch but rigorous financial and strategic controls at Group level. Our experience is that our customers prefer to work with businesses where decision-making is streamlined and focused on solving their immediate problems. This model provides us with a degree of competitive advantage over some larger rivals where the decision-making process can be more extended.  It is also cost-effective as it avoids the need for additional layers of management involved in coordination activities and for a large headquarters team.  It is also attractive to high calibre employees who find it more rewarding to be involved in decisions affecting the business, even at a relatively junior level, rather than being constrained to a narrow or purely technical role. This approach is not necessarily optimised for very large prime contracts where co-ordination of large teams through repeatable and enforceable processes can be more important than speed or innovation.  But, it positions us well to supply systems and services to our customers where these attributes are highly valued.

The international defence market has seen sweeping technological and organisational change over the last twenty years. Important factors in this have been the geopolitical changes following the end of the Cold War, the emergence of new threats with a very different character and, notably, the proliferation of advanced information technology, both in the form of military systems ("network-enabled capabilities") and in the wider community. In some areas this has led to greater standardisation and the introduction of very large systems - for instance the UK's Defence Information Infrastructure. But there has also been an increasing realisation that modern threats, whether in the form of improvised explosive devices or computer viruses, evolve much too quickly for traditional command and control structures to adapt. There is therefore a continuing need for smaller, innovative organisations that can react quickly to change, and this is a need that Cohort aims to fulfil.  Our strengths include the rapid development of specialist technology, cyber security and operational support, often in demanding and fast-paced environments. All of these capabilities are in strong demand, and increasingly we find that they are valued in markets beyond UK defence.

Segmental analysis by capability

We have provided a new breakdown of the Group's activities this year (see table below) and I believe this provides a clearer picture of the breadth and nature of our capabilities. These include:

·      Electronic systems: the design and supply of such equipment and its associated embedded software, as well as the integration of commercial "off the shelf" equipment for specialist applications.

·      Secure networks: the provision of advice and system implementation to protect against cyber attack and other threats. Both MASS and SCS provide these services for a range of clients.

·      Application software: the design and supply of specialist software systems such as MASS's work on Project SHEPHERD and SEA's work for its transport customers.

·      Operational support: the provision of direct support to active operations which takes place at both MASS (including its Electronic Warfare Operational Support activities) and SCS.

·      Training: this includes formal, on-the-job and scenario-based training services. An example is SCS's provision of exercise-based training for the UK's Permanent Joint Headquarters

·      Specialist expertise: the provision of expert individuals as part of a customer's team. All three of our businesses are active in this area, most notably SCS.

·      Applied research: the management and execution of scientific investigation work aimed at specific objectives, such as SEA's leadership of the Expeditionary Logistic Support research programme for MOD.

·      Studies and analysis: other self-contained studies, consultancy and analytical work such as SCS's Hazard Analysis work on the Joint Combat Aircraft.

The largest area of the Group's activity in 2011/12 was electronic systems, which grew strongly driven by SEA's work on the Astute ECS. Also very important for the Group and growing fast were the secure networks area, where MASS's Education work increased in pace, applied research, where SEA had a very strong year, and application software, driven by MASS's work on SHEPHERD. The studies and analysis area also increased significantly, with both SCS and SEA making good progress. In contrast, the specialist expertise area, although still substantial, showed a sharp drop compared to 2010/11 as the UK MOD's tightened contracting processes affected SCS's ability to win this kind of work. Our operational support activities also saw what we expect to be a temporary reduction as one of MASS's export contracts reached a successful conclusion.

	2012					2011
	MASS	SCS	SEA	Group	%	MASS	SCS	SEA	Group	%
	£m	£m	£m	£m		£m	£m	£m	£m
By market sector
Defence (including security)
Direct to UK MOD	10.0	9.1	11.6	30.7		9.6	12.4	5.7	27.7
Indirect to UK MOD, where the Group acts as a sub-contractor or partner	8.1	5.3	9.1	22.5		5.1	4.5	6.9	16.5
Total to UK MOD	18.1	14.4	20.7	53.2	71	14.7	16.9	12.6	44.2	68
Export and other	4.4	3.1	0.3	7.8	10	6.5	1.5	-	8.0	12
Total defence	22.5	17.5	21.0	61.0	81	21.2	18.4	12.6	52.2	80
Transport	-	-	2.8	2.8		-	-	2.1	2.1
Space	-	-	7.6	7.6		-	-	7.8	7.8
Other commercial	3.6	-	0.4	4.0		2.3	-	0.7	3.0
Total non-defence	3.6	-	10.8	14.4	19	2.3	-	10.6	12.9	20
	26.1	17.5	31.8	75.4	100	23.5	18.4	23.2	65.1	100
				Group	%				Group	%
				£m					£m
By capability
Secure networks				14.1	19				11.3	17
Electronic systems				18.5	24				15.7	24
Application software				5.5	7				3.2	5
Operational support				5.0	7				5.9	10
Training				7.6	10				7.4	11
Specialist expertise				12.2	16				14.9	23
Applied research				9.1	12				4.7	7
Studies and analysis				3.4	5				2.0	3
				75.4	100				65.1	100

Robust financial position

Cohort has been strongly cash generative this year and we have taken the opportunity to retire all of the Group's outstanding debt. This financial strength enables us to invest in internal R&D or other valuable projects on a carefully targeted basis as well as to reward shareholders by continuing to operate our progressive dividend policy.

Acquisition strategy

We need to consider all of the options for employing our cash resources, not least as the current return on cash is very low. One such option is to make further acquisitions, either of small businesses that can be "bolted in" to one of our existing subsidiaries, or of more mature businesses that could become Group members in their own right. The Abacus acquisition in 2010 proved successful both in terms of its immediate financial return and the access it has provided for MASS into new markets. We will continue to investigate these and we will be prepared to act where we believe that an acquisition provides a good opportunity for accelerated growth at an acceptable level of risk.

Our people

I would like to add my thanks to those of Nick Prest to the management and employees of the Cohort Group this year. We are very much a people business and such success as we achieve is entirely due to the technical excellence, managerial skills and business acumen of our people. I am very grateful for the many examples of hard work and dedication I have seen, from the senior management group to individuals and teams delivering what our customers need.

Outlook

The large majority of Cohort's revenue derives, either directly or indirectly, from public sector spending, primarily in the UK. The shape of the UK's planned defence acquisition reforms is not yet clear.  Against a backdrop of sluggish economic growth, instability in the Eurozone and a large public sector deficit, our market undoubtedly faces challenges.

That said, there are indications that the UK defence market is stabilising. The Secretary of State for Defence has announced that the defence equipment programme has now been matched to the resources available, and the reductions in the size of the MOD and the armed forces are well underway. A significant part of Cohort's revenue derives from well-funded defence capabilities that have emerged from the government's Strategic Defence and Security Review, and the subsequent adjustments, with their strategic rationale maintained or enhanced.  Submarines, the nuclear deterrent and combat aircraft are good examples. We are also increasingly active in export markets where the need for defence equipment is much more acute, and the resources available much greater, than in Europe. We have succeeded in growing our order book in 2011/12. That and the immediate pipeline of opportunities give a degree of confidence that we can continue to make progress in 2012/13.

Andy Thomis

Chief Executive

FINANCE DIRECTOR'S REVIEW

This review details the significant financial issues arising during the year ended 30 April 2012.

Aspects of the income statement warranting further explanation

Adjusted operating profit

The adjusted operating profit is presented to reflect the trading profit of the Group and excludes amortisation of other intangible assets, exchange differences on marking forward exchange contracts to market and exceptional items. This enables the Group to present its trading performance in a consistent manner year on year. The adjusted operating profit is stated after charging the cost of share-based payments of £353,000 (2011: £317,000) which is allocated to each business in proportion to its employee participation in the Group's share option schemes. The segmental analysis (see note 2) is disclosed for each business after deducting the cost of share-based payments.

The exchange adjustment on marking forward exchange contracts to market at the year end is a requirement of IFRS and has no economic impact upon the Group's performance or assets and liabilities and is described further below.  

Exceptional items (see note 3)

The Group incurred minor restructuring costs in the year ended 30 April 2012 and in this particular case are considered to be part of the ongoing business of the Group and, as such, have not been disclosed separately.

Tax

The Group's tax credit for the year ended 30 April 2012 of £411,000 (2011: credit of £65,000) was at an effective credit rate of 9.9% (2011: credit rate of 2.4%) of profit before tax. This includes a current year corporation tax charge of £1,268,000 (2011: £459,000), a rate of 30.5% (2011: 17.0%) of profit before tax, a prior year tax credit of £1,001,000 (2011: credit of £1,124,000) and a current year deferred tax credit of £678,000 (2011: charge of £600,000; consisting of £14,000 for the current year and £586,000 for prior years).

Including the current year deferred tax, the effective current tax rate for the year ended 30 April 2012 is 14.2% (2011: 17.5%), lower than the standard rate (calculated at 25.83%; 2011: 27.83%), primarily due to recognition of Research & Development (R&D) tax credits. 

The Group's overall tax rate was significantly below the standard corporation tax rate of 25.83% (2011: 27.83%). The majority of the reduction in the effective rate of tax was due to the recognition of R&D tax credits at MASS and SEA for the year ended 30 April 2012 and a prior year current tax credit reflecting the release of a tax provision in respect of earlier years R&D tax credits following closure of the 2009 and most of the 2010 tax years. The Group's businesses are only allowed to claim the lower R&D tax credit allowance available to larger companies, currently 30%. Looking forward, the Group's effective current tax rate for 2012/13 and 2013/14 is estimated at 16% and 17% respectively, taking account of the reduction in headline tax rates and assuming the R&D tax credit regime remains unchanged from its current level and scope. The Group maintains a cautious approach to previous R&D tax credit claims for tax periods that are still open.

Adjusted earnings per share

The adjusted earnings per share of 15.52 pence (2011: 9.60 pence) is reported in addition to the basic earnings per share and excludes the effect of amortisation of intangible assets, exchange movement on marking forward exchange contracts to market and exceptional items, all net of tax.  The increase in the adjusted earnings per share of 5.92p from 2011 to 2012 includes a 2.48p effect of prior year tax credit (£1,001,000) resulting from the release of contingency in respect of closed tax years.  The adjusted earnings per share, excluding the prior year tax credit, of 13.04 pence, is 36% above 2011.

Capital structure of the Group and funding

The Group's access to capital comprises the following:

Share capital

The Group has in issue 40.8m ordinary shares of 10 pence each. Of these shares just under 0.4m are owned by the Cohort plc Employee Benefit Trust and waive their rights to dividends. In addition the Group has issued options over ordinary shares through Key Employee Share Option and SAYE schemes to the level of 2.9m at 30 April 2012.

The Group maintains a progressive dividend policy with dividends having increased by approximately 20% per annum over the last three years and dividend cover being maintained in the current year at over five times (2011: four times cover) based upon the adjusted earnings per share.

Treasury

At 30 April 2012 the Group had facilities with its banking provider, RBS, as follows:

	£m	Term at commencement of facility
Overdraft facility for working capital requirements	7.5	364 days

During the year ended and at 30 April 2012 none of the above facility had been drawn by the Group.

The structured debt of £3.0m and mortgages (£0.4m) were paid off in full in October 2011.  At the same time the Group's overdraft facility was changed at 1 October 2011 when £2.5m was added to increase the overdraft facility to £7.5m to provide the Group with greater capacity to manage its working capital requirements whilst the structured debt facility of £7.5m was cancelled by the Group. The overdraft facility is renewable each year.

The Group's facilities are due for renewal in October 2012 and the Board expects these to be renewed on broadly similar terms.

The Group's foreign exchange exposure is mainly at SEA and primarily relates to receivables from the European Space Agency; this exposure is hedged using forward contracts. At 30 April 2012, the Group had in place forward foreign exchange contracts as follows:

	Sell	Buy
Euro to GBP	€11.6m	£9.8m

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 forward exchange contracts are entered into when customer contracts are considered highly probable. The Group does not enter into speculative foreign exchange dealing. The marking of forward exchange contracts to market at the spot rate on 30 April 2012 resulted in the recognition of a derivative financial liability of £413,000 (2011: asset of £542,000) and a charge to the income statement of £955,000 (2011: credit of £595,000). In both years, the change in the derivative financial instrument has been recognised separately within operating profit and is not disclosed as part of the adjusted operating profit of the Group.

The Group takes a prudent approach to treasury policy with its overriding objective being protection of capital. In implementing this policy, deposits are held with institutions with credit ratings of at least A3.  Deposits are generally held on short (less than three months) duration to maturity on commencement. This matches the Group's cash resources with its internal 13 week cash forecasts, retaining flexibility whilst trying to ensure an acceptable return on its cash. All of the Group's cash (that is not on short term deposit) is managed through a set-off arrangement, enabling the most efficient use of the Group's cash from day to day, under the supervision of the Group's finance function.

The Group has changed the credit rating required from the institutions with which it places deposits from an A in 2011 to an A3 rating in 2012 in order to maintain its flexibility in the choice of banks it can use in the current economic climate.  The Group regularly reviews the ratings of the institutions with which it holds cash and always considers this when placing a new deposit and does not consider the change to the lower rating a material increase in the Group's financial risk.

As noted last year, the Group's interest on deposits was low (typically below 1%), whilst its weighted interest on its debt was nearer 4%.  The Group repaid its debt in full in October 2011.  Since then the Group has used more short term deposits obtaining interest rates of 0.5% to 2.1%.

The Group's liquidity remains good with profit conversion to cash remaining well above 100% (see KPIs on page 12). The Group has historically had low levels of working capital with many of its contracts being less than one year in duration and the reliability of its customer base making debt risk low. During 2012, working capital levels have fallen, as described below. The Group's reliance on its own cash and facility resources requires it to take a proactive approach with its primary bank, Royal Bank of Scotland plc, with whom it maintains a regular relationship.

Working capital

The working capital of the Group, defined as inventory plus trade and other receivables less trade and other payables, has fallen from £5.5m net assets to £4.2m net assets, a decrease of £1.3m (24%) despite an increase in revenue of nearly 16%.  This improvement reflects the continued good efforts at SCS in managing its working capital, MASS reducing its working capital despite increased revenue and, although SEA's working capital did increase, it was less than the increase in revenue.  The year-end debtor days (in sales) have decreased from 57 days in 2011 to 51 days in 2012. 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 than calculating based upon the annual revenue as it takes into account the heavy weighting of the Group's revenue in the last quarter of each year. The decrease in debtor days is a reflection of the tighter control over working capital across the Group.

The Group has a working capital facility of £7.5m with RBS which was not utilised during the year. The Group had cash at 30 April 2012 of £14.1m (2011: £10.2m). Advance receipts on contracts at the year-end were £3.1m (2011: £3.2m). The Group generated £8.4m of cash from operating activities (operating profit was £6.5m before amortisation of intangible assets and marking forward exchange contracts to market) which was offset by an investment of £0.1m on fixed assets and £1.1m of dividends paid.

Areas of judgement

Revenue recognition on fixed-price contracts

The judgement applied in recognising revenue on a fixed-price contract is made by reference to the cost incurred, including contingency for risk and the demonstrable progress made on delivering key stages (often referred to as milestones) of the contract. The Group uses best estimates in applying this judgement and where uncertainty of progress on a stage exists, revenue is not recognised for that stage.

Cost contingency on fixed-price contracts

In addition to the judgement applied to revenue recognition, the cost of delivering a contract to a particular stage represents the actual costs incurred and committed plus an estimate of cost contingency for risk still present in the contract at that stage. This cost contingency takes account of the stage that the contract has reached and any judgement and uncertainty remaining to deliver the remainder of the contract. It is usual for these cost contingencies to reduce as the contract progresses and risk and uncertainty reduces.

Goodwill and other intangible assets

The Group has recognised goodwill and other intangible assets in respect of the acquisition of MASS (including Abacus EW) and SEA. The other intangible assets are in respect of contracts acquired, intellectual property rights and specific opportunities and in each case are amortised over the expected life of the earnings associated with the other intangible asset acquired. The goodwill, which is not subject to amortisation but to annual impairment testing, arises from the intangible elements of the acquired businesses for which either the value or life is not readily derived. This includes, but is not limited to, reputation, customer relations, contacts and market synergies with existing Group members. The goodwill relating to the acquisitions of MASS (including Abacus EW) and SEA has been tested for impairment as at 30 April 2012. In both cases there was no impairment.  The impairment test for the goodwill in respect of SEA is more sensitive, with no impairment at the Group's pre-tax WACC of 12.6% but impaired if the Group's WACC increases to 20.9%.  The Group's 2012 pre-tax WACC of 12.6% is lower than the 2011 equivalent of 15.5%. This decrease reflects a lower risk free interest rate partly offset by higher equity risk.

The sensitivity of the SEA goodwill to impairment has reduced since last year due to the improved forecast cash flows of SEA.

Provisions

The Group makes estimates of provisions for existing commitments arising from past events. In estimating these provisions, the Group makes judgements as to the quantity and likelihood of the liability arising. Certain provisions require more judgement than others.  In particular warranty provisions and contract loss provisions have to take account of future outcomes arising from past deliveries of products and services. In estimating these provisions, the Group makes use of management experience, precedents and specific contract and customer issues.

The vendor earn out in respect of Abacus EW should be concluded in the year ended 30 April 2013.  The situation at 30 April 2012 is uncertain and, as such, the Group has retained the earn out provision in full.

Tax

The Group makes judgements in respect of the recoverability of deferred tax assets.  Where the recoverability through sufficient future taxable profits is considered remote, no deferred tax asset is recognised.

Accounting policies

There were no significant changes in accounting policies applying to the Group for the year ended 30 April 2012.

Performance indicator	Description	2012	2011
Change in revenue	Change in total Group revenue compared to the prior year.	16%	(17%)
Change in adjusted operating profit	Change in Group profit before tax, amortisation of other intangible assets, marking forward exchange contracts to market and exceptional items.	47%	8%
Order book visibility	Orders for next financial year expected to be delivered as revenue, presented as a percentage of consensus market revenue forecasts for the year.	67% cover on forecast 2013 revenue of £73.5m	58% cover on forecast 2012 revenue of £73.8m
Change in adjusted earnings per share	Annual change in earnings per share, before amortisation of other intangible assets, marking forward exchange contracts to market and exceptional items.	62%	19%
Operating cash conversion	Net cash generated from operations before tax as compared to the profit before tax.	210%	254%

The indicators shown above have been identified by the Directors as giving the best overall indication of the Group's long-term success. Revenue growth gives a quantified indication of the rate at which the Group's business activity is expanding. The adjusted profit trend provides an indication of whether additional revenue is being gained without profit margins being compromised and whether any acquisitions are value enhancing. Order book visibility, based upon expected revenue during the year to come, provides a measure of confidence in the likelihood of achievement of future forecasts. Change in adjusted earnings per share is an absolute measure of the Board's management of the Group's return to shareholders including tax and interest. Operating cash conversion measures the ability of the Group to convert profit into cash.

The Group's KPIs demonstrate clearly the improvement in revenue, adjusted operating profit and adjusted earnings per share. 

The Group, as for 2011/12, enters 2012/13 with over half of its forecast revenue on order. As mentioned already, the Group has had another strong cash performance in 2011/12 with the operating cash conversion above 200% of profit before tax.

Simon Walther

Finance Director

CONSOLIDATED INCOME STATEMENT

For the year ended 30 April 2012       

	Notes	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Revenue	2	75,408	65,135
Cost of sales		(53,386)	(45,217)
Gross profit		22,022	19,918
Administrative expenses		(17,828)	(17,079)
Operating profit	2	4,194	2,839
Comprising:
Adjusted operating profit	2	6,513	4,439
Amortisation of other intangible assets (included in administrative expenses)		(1,364)	(1,477)
(Charge)/ income on marking forward exchange contracts to market value at the year end (included in cost of sales)		(955)	595
Exceptional items (included in administrative expenses)	3	-	(718)
Operating profit	2	4,194	2,839
Finance income		77	27
Finance costs		(115)	(170)
Profit before tax		4,156	2,696
Income tax credit	4	411	65
Profit for the year		4,567	2,761

All profit for the year is attributable to equity shareholders of the parent and derived from continuing operations.

		Year ended 30 April 2012 Pence	Year ended 30 April 2011 Pence
Earnings per share	5
Basic		11.30	6.79
Diluted		11.28	6.79
Adjusted earnings per share	5
Basic		15.52	9.60
Diluted		15.50	9.60
Dividends per share paid and proposed in respect of the year	6
Interim		1.00	0.80
Final		1.90	1.60
		2.90	2.40

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 April 2012

	Notes	At 30 April 2012 £000	At 30 April 2011 £000
ASSETS
Non-current assets
Goodwill		31,395	31,395
Other intangible assets		791	2,155
Property, plant and equipment		7,252	7,820
Deferred tax asset		157	118
		39,595	41,488
Current assets
Inventories		215	356
Trade and other receivables		20,468	20,339
Derivative financial instruments		-	575
Cash and cash equivalents		14,140	10,177
		34,823	31,447
Total assets		74,418	72,935
LIABILITIES
Current liabilities
Trade and other payables		(16,492)	(15,220)
Current tax liabilities		(1,086)	(973)
Derivative financial instruments		(413)	-
Bank borrowings		-	(3,131)
Provisions	7	(3,318)	(3,339)
		(21,309)	(22,663)
Non-current liabilities
Bank borrowings		-	(313)
Deferred tax liability		(953)	(1,601)
Provisions	7	(56)	(103)
		(1,009)	(2,017)
Total liabilities		(22,318)	(24,680)
Net Assets		52,100	48,255
Equity
Share capital		4,079	4,079
Share premium account		29,519	29,519
Own shares		(302)	(302)
Share option reserve		703	555
Hedge reserve		-	24
Retained earnings		18,101	14,380
Total equity attributable to the equity shareholders of the parent		52,100	48,255

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 April 2012

		Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Profit for the year		4,567	2,761
Cash flow hedges - (expense)/income taken to equity (net of tax credit of £9,000; 2011: charge of £25,000)		(24)	13
Comprehensive income for the year		4,543	2,774

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 April 2012

		Share		Share
	Share	premium	Own	option	Hedge	Retained
	capital	account	shares	reserve	reserve	Earnings	Total
Group	£000	£000	£000	£000	£000	£000	£000
At 1 May 2010	4,079	29,519	-	379	11	12,372	46,360
Profit for the year	-	-	-	-	-	2,761	2,761
Other comprehensive income for the year	-	-	-	-	13	-	13
Total comprehensive income for the year	-	-	-	-	13	2,761	2,774
Own shares acquired	-	-	(302)	-	-	-	(302)
Equity dividends	-	-	-	-	-	(894)	(894)
Share-based payments	-	-	-	317	-	-	317
Transfer of share option reserve on vesting of options	-	-	-	(141)	-	141	-
At 30 April 2011	4,079	29,519	(302)	555	24	14,380	48,255
Profit for the year	-	-	-	-	-	4,567	4,567
Other comprehensive expense for the year	-	-	-	-	(24)	-	(24)
Total comprehensive income for the year	-	-	-	-	(24)	4,567	4,543
Equity dividends	-	-	-	-	-	(1,051)	(1,051)
Share-based payments	-	-	-	353	-	-	353
Transfer of share option reserve on vesting of options	-	-	-	(205)	-	205	-
At 30 April 2012	4,079	29,519	(302)	703	-	18,101	52,100

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 April 2012

	Notes	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Net cash generated from operating activities	8	8,424	6,512
Investing activities
Interest received		77	27
Proceeds on disposal of property, plant and equipment		2	-
Purchases of property, plant and equipment		(141)	(599)
Acquisition of subsidiaries, net of cash acquired		-	(918)
Net cash used in investing activities		(62)	(1,490)
Financing activities
Dividends paid		(1,051)	(894)
Repayment of borrowings		(3,444)	(171)
Purchase of own shares		-	(302)
Net cash out flow from financing activities		(4,495)	(1,367)
Net increase in cash and cash equivalents		3,867	3,655

	At 1 May 2011 £000	Exchange gain £000	Cash Flow £000	At 30 April 2012 £000
Funds reconciliation
Cash and bank	10,177	96	(136)	10,137
Short term deposits	-	-	4,003	4,003
Cash and cash equivalents	10,177	96	3,867	14,140
Bank loans	(3,444)	-	3,444	-
Debt	(3,444)	-	3,444	-
Net funds	6,733	96	7,311	14,140

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 2012.  The information in this preliminary statement has been extracted from the financial statements for the year ended 30 April 2012 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with IFRS.

The Group's Annual Report for the year ended 30 April 2012 has yet to be delivered to the Registrar of Companies.  The auditors have reported on these accounts.  Their report was not qualified and did not contain a statement under Section 498 of the Companies Act 2006 . The figures for the year ended 30 April 2012 and 2011 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 2011 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.  The preliminary announcement was approved by the Board on 25 June 2012 and authorised for issue on 25 June 2012.

Copies of the Annual Report and accounts for the year ended 30 April 2012 will be posted to shareholders on 9 August 2012 and available on the Company's website (www.cohortplc.com) from that date.

2.         SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT

	Year ended 30 April 2012                 £000	Year ended 30 April 2011                  £000
Revenue
MASS	26,117	23,526
SCS	17,508	18,450
SEA	31,783	23,159
	75,408	65,135
Adjusted Operating Profit
MASS	4,831	4,231
SCS	1,320	1,025
SEA	1,723	289
Central costs	(1,361)	(1,106)
	6,513	4,439
Amortisation of other intangible assets	(1,364)	(1,477)
(Charge)/ income on marking forward exchange contracts to market value at the year end	(955)	595
Exceptional items	-	(718)
Operating Profit	4,194	2,839

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

All revenue and adjusted operating profit is in respect of continuing operations.

The operating profit as reported under IFRS is reconciled to the adjusted operating profit as reported above by the exclusion of amortisation of other intangible assets, (charge)/income on marking forward exchange contracts to market value at the year end and exceptional items.

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

The adjusted operating profit is stated after charging £353,000 in respect of share-based payments (year ended 30 April 2011: £317,000).

3.         EXCEPTIONAL ITEMS

	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Restructuring at SCS	-	177
Restructuring at SEA	-	538
Cost of acquisition of Abacus EW	-	13
Profit on sale of AGS's business	-	(10)
	-	718

All in respect of continuing operations.

4.         TAX CREDIT

	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Corporation tax:
Prior year	(1,001)	(1,124)
Current year	1,268	459
	267	(665)
Deferred taxation:
Prior year	-	586
Current year	(678)	14
	(678)	600
	(411)	(65)

The current year corporation tax charge includes a credit of £nil (year ended 30 April 2011: credit of £200,000) in respect of continuing exceptional items and the current year deferred tax credit includes a credit of £370,000 (2011: credit of £414,000) in respect of the amortisation of other intangible assets and a credit of £240,000 (2011: charge of £155,000) in respect of marking forward exchange contracts to market value at the year end.

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:

	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Earnings
Basic and diluted earnings	4,567	2,761
Amortisation of other intangible assets (net of tax of £370,000; 2011: £414,000)	994	1,063
Charge/(income) in respect of marking forward exchange contracts to market value at the year end (net of tax of £240,000; 2011: £155,000)	715	(440)
Exceptional items (net tax of £nil; 2011: £210,000)	-	518
Normalised basic and diluted earnings	6,276	3,902

		Number	Number
Weighted average number of shares
For the purposes of basic earnings per share		40,425,342	40,633,523
Share options		70,022	1,143
For the purposes of diluted earnings per share		40,495,364	40,634,666

	Year ended 30 April 2012 Pence	Year ended 30 April 2011 Pence
Earnings per share
Basic	11.30	6.79
Diluted	11.28	6.79
Adjusted earnings per share
Basic	15.52	9.60
Diluted	15.50	9.60

6.         DIVIDENDS

The proposed final dividend for the year ended 30 April 2012 is 1.9 pence (year ended 30 April 2011: 1.6 pence) per ordinary share.  This dividend will be payable 19 September 2012 to shareholders on the register at 24 August 2012.

The total paid and proposed dividend for the year ended 30 April 2012 is 2.9 pence per ordinary share; a cost of £1,172,000 (year ended 30 April 2011 2.4p per ordinary share; cost of £970,000).

The charge for the year ended 30 April 2012 of £1,051,000 is the final dividend for the year ended 30 April 2011 paid (£647,000) and the interim dividend for the year ended 30 April 2012 paid (£404,000).

7.         PROVISIONS

	Restructuring	Withdrawal from AGS	Abacus EW earn out	Warranty and other contract related provisions	Total
	£000	£000	£000	£000	£000
At 1 May 2011	62	22	1,400	1,958	3,442
Utilised/released	(62)	-	-	(747)	(809)
Charge / (credit) to income statement	-	(6)	-	747	741
At 30 April 2012	-	16	1,400	1,958	3,374
Due less than one year	-	16	1,400	1,902	3,318
Due greater than one year	-	-	-	56	56
	-	16	1,400	1,958	3,374

The warranty and other contract related provisions are management's best estimates of contract related costs and undertakings, which are in addition to contract accruals, and include provisions for loss making contracts.  The timing of these is uncertain but expected to be resolved within twelve months of the balance sheet date.

The Abacus EW earn out provision is dependent upon the performance of Abacus EW up to 30 April 2013. 

8.         NET CASH GENERATED FROM OPERATING ACTIVITIES

	Year ended 30 April 2012 £000	Year ended 30 April 2011 £000
Profit for the year	4,567	2,761
Adjustments for:
Tax credit	(411)	(65)
Depreciation of property, plant and equipment	699	707
Amortisation of other intangible assets	1,364	1,477
Net finance costs	38	143
Share-based payment	353	317
Derivative financial instruments	955	(595)
Decrease in provisions	(68)	(635)
Operating cash inflows before movements in working capital	7,497	4,110
Decrease in inventories	141	84
(Increase)/decrease in receivables	(129)	2,802
Increase/(decrease) in payables	1,236	(148)
	1,248	2,738
Cash generated by operations	8,745	6,848
Tax paid	(206)	(166)
Interest paid	(115)	(170)
Net cash generated from operating activities	8,424	6,512

 

END

 

 

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