Preliminary Results

RNS Number : 3859G

Cohort PLC

23 July 2019

One Waterside Drive

Arlington Business Park

Reading

Berks

RG7 4SW

23 July 2019

Cohort plc

COHORT PLC

PRELIMINARY RESULTS

FOR THE YEAR ENDED 30 APRIL 2019

Cohort plc today announces its unaudited results for the year ended 30 April 2019.

Highlights include:	2019 Unaudited	2018² Unaudited	%
· Revenue	£121.2m	£110.5m	10
· Adjusted operating profit¹	£16.2m	£15.2m	6
· Adjusted earnings per share¹	33.60p	29.08p	16
· Net (debt)/funds	(£6.4m)	£11.3m	n/a
· Order intake	£189.9m	£76.6m	148
· Order book (closing)	£190.9m	£103.8m	84
· Proposed final dividend per share	6.25p	5.65p	11
· Total dividend per share	9.10p	8.20p	11

Statutory

2019

Unaudited

2018¹

Unaudited

· Statutory profit before tax

£5.7m

£10.2m

(44)

· Basic earnings per share

13.37p

18.95p

(29)

• Overall results in line with expectations:

o Initial contribution from Chess better than expected

o Growth at MASS, SEA and MCL

o Weaker performance at EID

• Record order intake of £189.9m (2018: £76.6m), with better performance across the Group

• All the large order opportunities signalled last year were won - both renewals and new orders

• 81.84% of Chess acquired for an initial cash consideration of £20.1m in December 2018

• Chess's Counter Unmanned Air Vehicle (C-UAV) system was deployed at Gatwick Airport in December 2018

• Dividend increased by 11% - dividend raised every year since IPO in 2006

¹Excludes exceptional items, amortisation of other intangible assets, research and development expenditure credits and non-trading exchange differences, including marking forward exchange contracts to market.

²2018 figures have been restated for the impact of IFRS 15 'Revenue from Contracts with Customers'.

Looking forward:

• Strong order book and pipeline of prospects provide a good underpinning for revenue in the coming year.

• The 30 April order book of £190.9m underpins nearly £81m of revenue, representing 55% (2018: 46%) of consensus forecast revenue for the year. This has risen to 60% as at the end of June.

• Expect the Group to grow, including an improved performance from EID.

• Financial resources in place for investment and acquisitions. Net debt expected to remain flat.

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

"MASS, MCL and SEA all posted increases in profits and the result also benefitted from the acquisition of Chess in December 2018, partially offset by a weaker performance at EID."

"Our record order intake of nearly £190m and an all time high closing order book of £191m gives us a strong base for the coming financial year. We also have a good pipeline of order prospects."

"Overall, we expect the Group to continue to make progress in the coming year and beyond, taking into consideration the budgetary risks of our main UK customer, the timing of exports and the strong opening order book".

A presentation for analysts is being hosted today 23 July 2019 at 9.15am for 9.30am

at the IET Savoy Place, 2 Savoy Place, London WC2R 0BL.

For further information please contact:

Cohort plc	0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director

Investec Bank Plc (NOMAD and Broker)	020 7597 5970
Daniel Adams, Chris Baird

MHP Communications Limited	020 3128 8100
Reg Hoare, Ollie Hoare, Luke Briggs

NOTES TO EDITORS

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

· Chess (www.chess-dynamics.com & www.vision4ce.com) - Chess Technologies provides specialist products and

technologies in the areas of electro-optics, tracking and fire control to customers world-wide. It was acquired by Cohort in December 2018.

· EID (www.eid.pt) - a Portugal based supplier of advance electronics, communication, and command and control

products and systems for the global defence market. Cohort acquired a majority stake in June 2016.

· MASS (www.mass.co.uk) - a specialist defence and technology business, focused mainly on electronic warfare,

information systems and cyber security. Acquired by Cohort in August 2006.

· MCL (www.marlboroughcomms.com) - an expert in sourcing, design and integration of communications and

surveillance technology, as well as support and training for UK end users including the MOD and other government

agencies. MCL has been part of the Group since July 2014.

· SEA (www.sea.co.uk) - an advanced electronic systems and software house operating in the defence, transport and offshore energy markets. 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 employs in total around 900 core staff there and at its other operating company sites in Bristol, Cambridgeshire, Devon, Lincolnshire, Somerset, Surrey, West Sussex, Scotland and Portugal.

Chairman's statement

Cohort made further progress in 2019, achieving a record adjusted operating profit of £16.2m (2018 restated: £15.2m). MASS, MCL and SEA all posted increases in profits and the result also benefitted from the acquisition of Chess Technologies (Chess) in December 2018, which performed ahead of our expectations.

These gains were partially offset by a weaker performance at EID caused by lower naval activity and slippage of deliveries on a major contract in its Tactical division. As a result, the Group performance, excluding Chess, was slightly below last year.

We acquired Chess on 12 December 2018 for an initial consideration of just over £20m for 81.84% of the business with an option to acquire the remaining 18.16% on or before 31 October 2021 for a maximum consideration of £9.1m. We also agreed an earn out with the selling shareholders of Chess of up to £12.7m. The magnitude of these further payments will depend on the performance of the business over the three years ending 30 April 2021. Our current view is that the further consideration payable, including earn out, to take control of the whole of Chess in 2021 will be £5.5m.

The Chess transaction accords with our strategy of acquiring businesses, primarily in the defence and security sector, with a strong niche capability and market position. Chess also increases the Group's reach and potential in international markets. We were pleased with the contribution from Chess, which included order intake, revenue and profit arising from the deployment of Chess's Counter Unmanned Air Vehicle (C-UAV) system at Gatwick just before Christmas in response to drone flights over the airport.

The Group had a record year for order intake, securing £189.9m of orders in 2019 (2018: £76.6m). This intake included £70m of important renewals, primarily at MASS, and also some key wins at MCL for submarine systems and at EID to supply communications equipment to a Middle East customer.

The acquisition of Chess added a further £20m to the Group's order book which closed at an all-time high of £190.9m. This provides a solid base for the coming financial year and beyond.

Key financials

The 2018 comparative figures have been restated following adoption by the Group of IFRS 15 'Revenue from contracts with customers' on 1 May 2018. The impact of this restatement is analysed in note 30, but overall it has been immaterial. The comparative figures in this report are the restated figures.

In the year ended 30 April 2019, Cohort achieved revenue of £121.2m (2018 restated: £110.5m), including £39.0m (2018: £37.5m) from MASS Consultants Limited (MASS), £38.3m (2018 restated: £37.3m) from SEA (Group) Limited (SEA), £21.7m (2018: £17.4m) from Marlborough Communications Limited (MCL), £11.5m (2018 restated: £18.3m) from EID and an initial contribution from Chess for five months of £10.7m.

The Group's adjusted operating profit was £16.2m (2018 restated: £15.2m). This included contributions from MASS of £8.2m (2018: £7.1m), SEA £5.5m (2018 restated: £4.4m), MCL £2.3m (2018: £2.1m), EID £1.3m (2018 restated: £4.3m) and a good initial performance at Chess of £1.7m.

Cohort Group overheads were £2.8m (2018: £2.7m).

MASS, which remains the Group's largest profit contributor, saw adjusted operating profit grow 15% on revenue growth of 4%. The enhanced profitability was a result of improved mix, including increased export sales.

MCL's adjusted operating profit grew by 10% on revenue growth of 25%. The marked revenue growth was driven by new long-term work on UK submarines, although the high level of bought-in content on that work and one problem project resulted in MCL's net margin falling to 10.5% (2018: 11.9%).

After some years of little or no growth at SEA, a restructuring exercise was completed in the first half of the financial year, at a cost of £0.5m. As a result, on modest revenue growth of 3%, SEA's adjusted operating profit increased by 25% from £4.4m in 2018 (restated) to £5.5m in 2019. The resulting net return of just over 14% is a marked improvement.

EID had a disappointing year with its profitability falling by nearly 70% from £4.3m in 2018 (restated) to just over £1.3m in 2019. This was a result of a drop in revenue of nearly 40% and reflected a decline in higher margin naval activity and slippage of deliveries on a major land communications order into the 2019/20 financial year.

Chess's initial contribution of just under £1.7m on £10.7m of revenue, a net return of 15.8% was better than we expected when we acquired the business last December, primarily due to the contribution from C-UAV systems and support at two UK airports, including Gatwick, following drone incursions before Christmas.

The Group's operating profit of £5.9m (2018 restated: £10.3m) is stated after recognising amortisation of intangible assets of £9.5m (2018: £5.3m), exceptional items of £1.5m (2018: £0.1m) and research and development expenditure credits of £0.7m (2018: £0.7m). Net foreign exchange gains of less than £0.1m (2018: net loss of £0.3m) were also recognised. Profit before tax was £5.7m (2018 restated: £10.2m) and profit after tax was £5.1m (2018 restated: £8.1m).

Adjusted earnings per share (EPS) were 33.60 pence (2018 restated: 29.08 pence). The adjusted EPS figure was based upon profit after tax, excluding amortisation of other intangible assets, net foreign exchange movements and exceptional items. Basic EPS were 13.37 pence (2018 restated: 18.95 pence). The adjusted EPS benefitted from a lower tax charge on adjusted earnings of just over 15% (2018: 21%).

Dividends

The Board is recommending a final dividend of 6.25 pence per ordinary share (2018: 5.65 pence), making a total dividend of 9.10 pence per ordinary share (2018: 8.20 pence) for the year, an 11% increase. This will be payable on 18 September 2019 to shareholders on the register at 23 August 2019, subject to approval at the Annual General Meeting on 17 September 2019. The growth in our dividend reflects our policy of bringing the dividend growth into line with our long-term growth expectations of the Group. The dividend has now been increased every year since the Group's IPO in 2006

Cash

The Group moved into a net debt position following the acquisition of Chess. The closing net debt of £6.4m (2018: net funds of £11.3m) was better than our expectation, as a result of improved working capital, partly from accelerated receipts but also from lower supplier payments as a result of programme delays.

The £16.2m (2018 restated: £15.2m) of adjusted operating profit and an overall working capital outflow resulted in £11.6m (2018: £15.1m inflow) operating cash inflow.

The operating cash inflow was utilised in paying tax, dividends and capital investment, a total outflow of £8.2m (2018: £5.5m), as well as acquiring Chess (£21.0m including acquired net debt).

Looking forward we expect net debt to rise over the first half of the coming financial year as the positive timing advantage in working capital unwinds before returning to a similar level of net debt at the year end. With no other acquisitions we would expect the Group to move back into net funds during the year ended 30 April 2021.

Board, management and staff

As always, my thanks go to all staff within the businesses. Their hard work, skill and ability to deliver what the customer needs are what continues to drive the performance of our Group.

Andy Thomis and his senior executive colleagues have continued their dedicated and skilful work which has helped the Group to progress in the face of challenging trading conditions in parts of the defence market.

I also welcome the management and staff of Chess to the Cohort Group. They showed the importance our people attach to playing their part when deploying at short notice, for long shifts, to assist Gatwick Airport to continue to operate over the Christmas period.

As previously announced, Ed Lowe joined the Board of Cohort plc on 1 July 2019, fulfilling the plan announced last year to appoint a new Non-executive Director. Ed has great experience in the defence sector and I look forward to his contribution to the Board and business. Ed has joined the Audit Committee and taken over from Sir Robert Walmsley as Chairman of the Remuneration & Appointments Committee. Sir Robert has stepped down from both committees after serving on them since 2006. I am grateful for all the work he has put into these roles and the Board is pleased that he is continuing to serve as a Non-executive Director. His experience of the defence sector has been and continues to be of great benefit. Jeff Perrin has taken over from Sir Robert in the role of Senior Independent Director.

Outlook

Markets

The political and economic context within which Cohort operates has not changed appreciably since last year. On the one hand the international and domestic security environment calls for greater resources to be devoted to defence and counter-terrorism in the UK and many other countries. On the other hand, the pressures on public expenditure in the UK are strong and this applies in varying degrees in many other markets.

Although the UK defence market remains tight, 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. Export prospects for the Group continue to develop and the acquisition of Chess has strengthened our position in this respect. Outside of defence, MASS made progress on its digital forensics service for the Metropolitan Police and is now actively promoting this service to Police and security forces in the UK and overseas. SEA's ROADflow product made further progress with significant deliveries of its Red Light System to Network Rail for improving safety at level crossings.

As already mentioned, Chess has deployed its C-UAV system at major UK airports and has recently developed its product offering for this market and is looking for customers in the UK and overseas.

Our business from the UK into EU countries remains small (£1.4m in 2019; £1.4m in 2018), and consequently we do not expect any direct effects upon Cohort from the Brexit process. In the longer term there could be indirect effects, resulting from the broad economic and political consequences of Brexit, and the future defence and security relationship that develops between the UK and the EU. Whether these will be favourable or unfavourable is not possible to say. The responsibility of the Cohort Board is to manage our affairs so that our businesses prosper whatever the political and economic backdrop.

Our collective experience of the defence business, our size and our decentralised management structure, which together enables us to make quick decisions, and our focus on niche product and service offerings, for which demand is increasing both domestically and internationally, are the keys to this.

We continue to look for opportunities to augment organic growth through targeted acquisitions.

Divisional

Our strong order intake of nearly £190m and a closing order book of nearly £191m give us a strong base for the coming financial year.

We expect MASS, with a record order book, to make progress in the coming year.

MCL had a slightly weaker closing order book than last year but has good opportunities in key UK land programmes and we expect MCL to make progress.

SEA, after restructuring in the current year, has set its overhead base at a more appropriate level for a business with revenue at just below £40m. SEA enters the coming year with lower order cover than we have seen historically, and we expect, at best, to see a flat year for SEA in 2019/20. Looking into the mid-term, SEA is in a good position for a number of overseas naval programmes and success in these will enable SEA to return to growth from 2020/21 onwards.

After a weak year, EID has a strong order book and expects to secure some important long-term Portuguese orders in the first half of this coming year. This gives us confidence that EID will return to a satisfactory level of performance this year.

We expect the Group to benefit from a full year contribution from Chess, albeit at a lower annualised level than the five month contribution to 2018/19 would suggest. That period was stronger than expected because of C-UAV orders. Looking further ahead Chess has strong positions and potential on a range of naval and land programmes with significant customers.

Our record order intake of nearly £190m and an all time high closing order book of £191m gives us a strong base for the coming financial year. We also have a good pipeline of order prospects.

Overall, we expect the Group to continue to make progress in the coming year and beyond, taking into consideration the budgetary risks of our main UK customer, the timing of exports and the strong opening order book.

Nick Prest CBE

Chairman

Business review

Operating review

2019 has been another year of progress for Cohort, with a record level of adjusted operating profit and record closing order book.

2019 highlights

The Group's adjusted operating profit of £16.2m (2018 restated¹: £15.2m) on revenue of £121.2m (2018 restated¹: £110.5m) was a net return of 13.3% (2018 restated¹: 13.8%).

MASS remains the strongest contributor to the Group's adjusted operating profit and saw continued growth.

Cohort acquired 81.84% of Chess Technologies (Chess), and the new business made a strong initial contribution.

MCL and SEA both improved their performance.

EID had a weaker year.

Operating review

2018/19 has been another year of progress for Cohort, with a record level of revenue, adjusted operating profit and order intake. Revenue grew by 10%. Both revenue and adjusted operating profit benefited from a strong initial five-month contribution from Chess, which was acquired in December 2018.

All of the Group's existing UK businesses delivered growth in revenue and adjusted operating profit. The improvement at SEA was in part due to the restructuring we announced last year, which was completed in the first half of this year.

However, these improvements were offset by the performance at EID whose revenue was down 40% and adjusted operating profit down 70%. As a result, the Group, excluding Chess, produced a mixed performance with revenue flat year on year at £110.4m and trading profit down £0.7m (5%).

The Group's adjusted operating profit grew by 6% to £16.2m (2018 restated¹: £15.2m) on revenue of £121.2m (2018 restated¹: £110.5m), a net return of just over 13.3% (2018 restated¹: 13.8%). The Group's operating profit of £5.9m (2018 restated¹: £10.3m) is significantly impacted by the amortisation of other intangible assets, a £9.5m charge in 2019 (2018: £5.3m charge). In this review, therefore, the focus is on the adjusted operating profit of each business, which we consider to be a more appropriate measure of performance year on year. The adjusted operating profit is reconciled to the operating profit in the Consolidated income statement and by business in note 2.

Adjusted operating profit by subsidiary

	Adjusted operating profit			Adjusted operating margin
	2019 Unaudited £m	2018 (restated¹) Unaudited £m	Change %	2019 Unaudited %	2018 (restated¹) Unaudited %
Chess	1.7	-	-	15.8	-
EID	1.3	4.3	(70)	11.8	23.6
MASS	8.2	7.1	15	21.0	18.9
MCL	2.3	2.1	10	10.5	11.9
SEA	5.5	4.4	25	14.3	11.8
Central costs	(2.8)	(2.7)	(4)	-	-
	16.2	15.2	6	13.3	13.8

The growth at MASS was mainly due to growth in electronic warfare operational support (EWOS) to overseas customers and completion of a long-term support contract. A new contract, won in competition, was subsequently received to continue this work. This growth in higher margin areas offset weaker activity in Training Support.

MCL delivered strong revenue growth, mostly on the supply of systems to the UK submarine programme. An overall higher level of bought-in content on this work and one poorly performing project accounted for the reduction in MCL's net margin from 11.9% last year to 10.5% this year.

After some difficult years, SEA delivered a 3% growth in revenue and a much improved adjusted operating profit of £5.5m, up 24% on 2018 (£4.4m). Some of this improvement was a result of the restructuring in the first half which delivered £0.6m of overhead saving in the second half. This was somewhat ahead of our expectation of an annualised saving of £1.0m.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

The remainder of the profit growth was a result of improved margin, partly a result of a loss-making contract being completed in late 2017/18 and no losses repeated in 2018/19.

EID had a disappointing year. Its adjusted operating profit of just over £1.3m on revenue of £11.5m was significantly down on last year's £4.3m on £18.3m of revenue (2018 figures were restated for IFRS 15, see note 8).

The reduction at EID was in both its Tactical and Naval divisions. In Tactical, this was due to slippage into 2019/20 of a significant delivery due to have been made in the last quarter of the year.

In the Naval division, various customer driven delays and slippage of orders accounted for the weaker activity.

The more marked deterioration in profitability at EID is due to the burden of the business overhead.

Chess delivered a good initial contribution for its first five months within the Group. Its performance was stronger than we had expected last December and was a result of the C-UAV systems it deployed, along with support personnel, at two UK airports, including Gatwick, over the Christmas period.

Operating strategy

Cohort operates as a group of five medium-sized businesses, operating primarily in defence and security markets, and with a strong emphasis on technology, innovation and specialist expertise:

EID is a high-tech company with 35 years' experience in the design, manufacture and support of advanced high performance command, control and communications equipment for the global defence and security market. The Royal Navy is amongst the customers for its naval communications systems, as are the navies of Portugal, the Netherlands, Spain and Belgium, and many other export customers. In total its maritime products equip over 120 warships worldwide, and its army products have also enjoyed wide domestic and export success.

EID operates through two market-facing divisions:

o Naval Communications: integrated command, control and communications systems for warships and submarines; and

o Tactical Communications: tactical radio, vehicle intercoms, field communications and networking equipment.

These divisions are supported by an internal production and logistics unit. EID operates from an engineering facility near Lisbon and has a regional office in Indonesia. It is led by its Managing Director, António Marcos Lopes.

MASS is a business which enables customers to better protect, analyse and interpret data to provide valuable information. It is a leading international provider in the fields of electronic warfare (EW) and secure communications, including cyber security. Its products include the THURBON™ EW database and it provides EW operational support services to customers in the UK and overseas. MASS has some unique capabilities that have enabled it to establish strong niche positions in these important areas. It also has an increasing reputation as a leading provider of secure networks, cyber protection and analysis (including digital forensics) to defence and other security customers. MASS delivers training support and simulation to the UK's Joint Forces Command, a service the Group has provided for over 15 years. MASS was founded in 1983 and is led by its Managing Director, Chris Stanley.

MCL is a supplier of advanced electronic communications equipment (including hearing protection systems), information systems and signals intelligence technology, to defence and security customers. It sources technologies from a global supplier network, as well as developing and supplying its own solutions. MCL has a reputation for being flexible and agile in creating effective, mission deployable solutions for customers in the most challenging of timeframes. MCL was founded in 1980 and is led by its new Managing Director, Shane Knight. MCL's former Managing Director, Darren Allery, remains in the business on a part-time basis having stepped back into a more technical role and remains a valued member of the MCL team.

SEA specialises in providing advanced technology systems and specialist services to government and industry. Its External Communications System (ECS) is being provided for the Royal Navy's Astute and Vanguard class submarines and will ultimately be fitted to all the Royal Navy's underwater fleet. Its products include sonar systems and torpedo launchers. It also offers defence technology research and technical support services. Outside of defence, it provides software and systems for the transport market, including the successful ROADflow range of traffic enforcement products, and services for the offshore energy market. SEA was founded in 1988 and is led by its Managing Director, Steve Hill.

Chess Technologies (Chess) is a combination of two businesses:

1. Chess Dynamics

2. Vision4ce

Chess Dynamics designs, develops, manufactures and supports a range of surveillance, detecting and tracking systems for naval and land-based platforms and installations. This capability includes C-UAV systems for countering drones in both the military and civilian environment. Chess Dynamics is based in Horsham and Plymouth.

Vision4ce is a software house based in Wokingham which designs, develops and supplies tracking and control software for both Chess Dynamics products and systems and third-party applications.

Chess was founded in 1993 by Graham Beall, its Managing Director.

Cohort's management approach is to allow its subsidiary businesses a significant degree of operational autonomy in order to develop their potential fully, 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. High calibre employees find our business model attractive and more rewarding as it allows them 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 positions us well with customers where such attributes are highly valued.

Although the degree of autonomy our subsidiary businesses enjoy is high, and we believe that this is an effective operational strategy, we take a practical view of the best way forward when circumstances change. When the operational situation is such that a merger, restructuring or even sale is necessitated, we will act and have acted in the best interests of the wider Group and its shareholders.

Within our markets we have sought to use our agility and innovation to identify niches where prospects are attractive and where we have some sustainable competitive advantage. These can be for products, services or high value one-off projects to design bespoke equipment or software. Examples include MASS's electronic warfare operational support offerings, SEA's ECS for submarines, MCL's range of hearing protection systems and Chess's recent Air Shield and Air Guard solutions for countering drones at airports. We have also been active in finding new customers for the capabilities we have developed, both in export markets and for non-defence purposes. During the recent year we have continued to widen the customer base for our Thurbon EW database, our torpedo launcher system and our small diameter sonar array (Krait).

Being part of the Cohort Group brings advantages to our businesses compared with operating independently. The Group's strong balance sheet gives customers the confidence to award large or long-term contracts that we are technically well able to execute but which might otherwise be perceived as risky. One example is a £50m plus in-service support contract awarded to MASS this year, a renewal of a contract we have been performing for over 15 years. Others include approximately £80m of contracts awarded to SEA, so far, for ECS across the UK's submarine platforms, over £30m of orders won by MCL for supply and support of hearing protection systems across a range of UK military users, and a recent single order of £15m for supply of systems across the UK submarine fleet.

The Group's Directors have long experience of operating in the defence sector and have contacts and working relationships with senior customers in the UK and internationally, which would be hard for independent smaller businesses to establish. Our current four UK operating businesses, while remaining operationally independent, have close working relationships and benefit from each other's technical capabilities, customer relationships and market knowledge. We have made further progress in the year on ensuring that EID participates in this collaborative approach and bringing Chess fully into the Group. In the case of Chess, SEA was able to find and deploy ex-service personnel to support Chess's C-UAV solution at two major UK airports, including Gatwick, in the final quarter of the financial year. We will continue to work to promote the Group's services and products in wider markets, including through business development visits. In the past year, Andy Thomis has led visits of both UK and Portuguese teams to South East Asia and Canada. Plans are in place for a team visit to Australia later this year, and a large combined presence at the DSEI exhibition in London.

Cooperation between the Group businesses has extended to the sharing of technology. For example, SEA and EID continue to work together on developing a secure communication system for the Royal Navy's new Type 31 Frigate, bringing together EID's expertise in surface ship communications with SEA's knowledge of the UK and especially its security requirements. They are also collaborating on an important trial of SEA's new anti-submarine warfare system, based on its small diameter sonar array (Krait) with the Portuguese Navy, which will take place this summer.

These strategies have allowed us to grow our profit at a time when UK defence expenditure, our largest source of revenue, has been tightly constrained. They have also generated long-term customer relationships and good opportunities that give us confidence that we can continue to prosper, despite the current difficult and unpredictable market conditions.

Innovation and technology

With the acquisitions of EID and Chess and the evolving strategy at SEA, the Group has become more focused on technology development to enhance its product and service offerings. One of the benefits of Cohort's operating model is the freedom it gives to our subsidiaries, and this in turn leads to a culture of technological innovation.

Chess, the newest member of the Group, has a history of successful innovation that has created a portfolio of products with real competitive advantage in terms of both performance and price. For instance, the AUDS C-UAV system developed by Chess and its partners Blighter and ECS is the only such system in service with the US armed forces. Since the disruption at Gatwick Airport caused by malicious drone use in December 2018, Chess has developed Air Guard and Air Shield, new C-UAV systems designed to protect complex civilian airports within their perimeter and along the aircraft approach path. Chess's subsidiary business Vision4ce has supported C-UAV development with work on high-performance optical tracking and systems to discriminate hostile drones from birds and aircraft using machine learning techniques. Chess has close partnerships with world-leading defence technology businesses in the UK and world-wide to create new and innovative products and systems.

EID, our Portuguese military communications business, is investing in a new vehicle intercom system, based on a resilient architecture and incorporating advanced technology. It provides a capability matched by very few competitor systems at a much more attractive price. EID is preparing to supply the system to its first customers in 2019/20.

At SEA considerable development effort has been focused on the Krait Defence System, an innovative new submarine detection and tracking system optimised for use with light naval vessels. The system is now in its second generation. The use of digital transducers makes construction simpler and more reliable and enables the production of longer arrays, with increased sensitivity and bearing accuracy. It will take part in major customer trials this year, and the future development strategy will be reviewed in light of the results. SEA has also been investing in the development of its ROADflow family of traffic enforcement systems. New variants launched recently include Red Light for level crossing protection, Motion for moving traffic offences, and Fusion, a modular multi-purpose version.

Much of the development effort at MASS and MCL is related to security classified programmes, but innovation activities are underway in both businesses. In MASS's case this includes enhancements to the CounterWorX suite of missile engagement simulation software and the NEWTS electronic warfare training system. MCL works with its partners on innovations to support close combat soldiers, special forces and signals intelligence users.

Many of the Group's innovative products will be on display at the DSEI exhibition in London in September 2019. We welcome current and future customers, partners and investors to visit our stands there.

Acquisitions

Alongside our organic growth strategy, we continue to see opportunities to accelerate our growth by making further targeted acquisitions. We believe that there are good businesses in the UK and overseas that would thrive under Cohort ownership, whether as standalone members of the Group or as "bolt-in" acquisitions to our existing subsidiaries.

The most likely candidates for bolt-in acquisitions are businesses with capabilities and/or customer relationships that are closely linked to one of our existing subsidiaries. We would expect to integrate an acquired business of this nature fully within the relevant subsidiary. This could lead to both cost savings and benefits from shared access to markets and technologies. The J+S acquisition by SEA in 2014/15 is a good example of this.

For standalone acquisitions we are looking for agile, innovative businesses that have reached a stage of development where there will be mutual benefit in joining Cohort. It is likely that candidates will be operating in the defence and security markets either in the UK or internationally, as that is where the Group can add most value. Growth prospects, sustainable competitive advantage and the ability to operate as part of a publicly quoted UK group will all be important.

On 12 December 2018, we announced the acquisition of 81.84% of Chess for an initial consideration of just over £20m.

The acquisition includes an earn-out clause and an option for acquiring the minority interest (18.16%), both based on Chess's performance for the three years ending 30 April 2021. These additional payments are capped at £12.7m and £9.1m respectively. We currently expect to pay £5.5m in total on or before 31 October 2021.

The acquisition model for Chess is very similar to that successfully used for the acquisition of MCL, where we initially acquired 50% in 2014 and the remainder in 2017.

The acquisition of Chess, although a competitive process, was a business we knew well having first held discussions with the owners of Chess in 2013.

Chess fits well with our acquisition strategy and importantly increases the Group's exposure to scalable product and systems and export customers, including the first significant relationship with the US Department of Defence (DoD).

Divisional Review

Chess

	2019 (5 months) Unaudited £m	2018 Unaudited £m
Revenue	10.7	-
Adjusted operating profit	1.7	-
Operating cash flow	1.3	-

Chess had a good start to its life within Cohort. It delivered a much stronger result than we expected in December, benefiting from the deployment of C-UAV systems at two UK airports, including Gatwick, in response to drone incidents just before Christmas.

Chess gave an excellent demonstration of the Group's values in delivering this response. Chess staff were deployed at short notice, providing 24-hour cover over the Christmas and New Year holidays. A further positive for the Group was SEA being able to supply expert operational staff to relieve Chess's own stretched resources.

Chess secured and undertook initial deliveries of further C-UAV systems to the US DoD as well as continuing to deliver on longer term programmes for the Royal Navy's Type 26 frigate and an export land system.

Our initial experience has confirmed that Chess is a good strategic fit for the Group. Chess is a leading supplier within its market and has a strong ethos of innovation and responsiveness.

Chess has grown rapidly over the last few years which has caused it some growing pains, especially in project control and delivery. Cohort will work with Chess's management over the coming year to strengthen its management and control processes to ensure that Chess can successfully grow whilst still maintaining its agility and innovative approach.

Chess's order book and prospects, especially on some significant overseas land and naval programmes, give us optimism that Chess will grow in the coming year.

Divisional review

EID

	2019 Unaudited £m	2018 (resated¹) Unaudited £m
Revenue	11.5	18.3
Adjusted operating profit	1.3	4.3
Operating cash flow	(1.7)	1.9

Following two strong years of performance for EID following its acquisition in July 2016, this year has been disappointing and below our expectations.

The fall in revenue of nearly 40% impacted directly on gross margin, with a drop of 28%. As a result, the net margin of EID fell from 23.5% (2018 restated) to 11.3% with the overhead, which only marginally increased, weighing more heavily on the much lower revenue.

The fall in revenue of nearly £7m was equally split between its Naval and Tactical divisions. In the Naval division, this was mostly completion of radio deliveries for the Portuguese Navy in 2017/18 and customer delay to the M-class frigate programmes for Holland, Belgium and Portugal.

In the Tactical division, a key order was secured in 2018/19, part of which was expected to be delivered in the year but delivery delays have pushed this revenue into 2019/20. This delay accounts for EID's unexpected deterioration since December and the underlying Group, before Chess, falling short of our expectations at the time of our Interim Statement.

The mix of work at EID is expected to continue to change in the coming few years with lower levels of naval support activity and increased deliveries of intercom and radio products. The latter generate a lower margin, since they contain a higher proportion of bought-in material. As a result, the net margin is expected to return to more historically normal levels of around 18% to 20%.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

Divisional review

MASS

	2019 Unaudited £m	2018 Unaudited £m
Revenue	39.0	37.5
Adjusted operating profit	8.2	7.1
Operating cash flow	7.4	7.1

MASS had another year of good growth with adjusted operating profit rising 15% on revenue that grew 4% compared to 2017/18.

The main drivers of growth in revenue were EWOS, especially for overseas customers and MASS's long-term support contract to the UK MOD.

The EWOS growth was a result of securing orders which had been in discussion for some years, exemplifying the unpredictable nature of export sales. This growth is at higher margins due to the high level of input from MASS technical staff.

The long-term support contract was, after competition, renewed in year for a further eight years and the growth was a result of closing out the old contract. Going forward we expect the revenue in this area to be lower than that seen historically.

MASS's net margin increased to 21.0% (2018: 18.9%), with higher revenue and, particularly, an improved mix increasing its gross margins and more than offsetting a small growth in overheads.

MASS's operating cash flow this year was consistent with last year with the improved profitability driving better cash performance. Looking forward, we expect MASS's operating cash flow to be broadly in line with its profitability.

MASS operated through the year with five divisions. The EWOS division includes the THURBON™ EW database, SHEPHERD (the provision of a system embodying THURBON to the UK MOD) and MASS's EW managed service offerings in the UK and elsewhere. The Cyber Security division includes MASS's offerings of solutions and training to government security customers, including the Metropolitan Police. This division also delivers secure network design, delivery and support and information assurance services to commercial, defence and educational customers. The Strategic Systems division provides certain managed service and niche technical offerings to the UK MOD. The Training Support division provides training simulation and support to the UK's Joint Warfare Centre as well as similar high level command training to other UK and overseas customers. Finally, MASS's Information as a Service division supports a key UK military intelligence platform as well as providing similar information services to other defence and commercial customers.

MASS has implemented a new management and reporting system, the same product as SEA's new system, which went live in May 2019.

Divisional review

MCL

	2019 Unaudited £m	2018 Unaudited £m
Revenue	21.7	17.4
Adjusted operating profit	2.3	2.1
Operating cash flow	4.4	5.9

MCL's revenue grew 25% compared to last year, mostly from initial deliveries of systems for the UK submarine fleet. The bought-in content for these items is much higher and as a result, although the absolute gross margin increased, the gross margin percentage fell.

The overall profitability of MCL improved by 10% off the back of increased volume and margin partly offset by slightly higher overheads. The latter was the result of MCL's increased headcount during 2018 with this year bearing the full annual cost.

MCL secured several key contracts in the year and its total order intake of £26.0m was 1.2 times its revenue.

When we acquired MCL, back in July 2014, one of the primary objectives was to support it in building an order book and business with greater longevity and visibility. This year saw the order book grow from £10.3m (April 2018) to £14.6m (April 2019). Despite this, the visibility of MCL's revenue remains, on average, in the three to six-month range.

The very strong operating cash flow was better than expected and reflected MCL's peak of activity at the end of the financial year, with supplier payments slipping into early 2019/20.

Divisional review

SEA

	2019 Unaudited £m	2018 (restated¹) Unaudited £m
Revenue	38.3	37.3
Adjusted operating profit	5.5	4.4
Operating cash flow	0.8	4.0

SEA has had a better year. Its revenue did grow, mostly driven by its transport division and with some growth in its research activity. These were partly offset by a further contraction in its submarine activity.

The change in SEA's business over the last few years is analysed as follows:

	2017 (restated¹⁾ Unaudited £m	2018 (restated¹) Unaudited £m	2019 Unaudited £m
Submarines	16.9	7.3	4.7
Research	2.1	2.3	2.7
Other	25.7	27.7	30.9
SEA total revenue	44.7	37.3	38.3

The submarine and research activities are exclusively for the UK MOD.

SEA's year-on-year revenue increase was 3%, but as a result of the restructuring and improved margin mix, the net margin at SEA improved from 11.8% to 14.6%, close to our expectations.

The improved margin mix is a continuation of a trend at SEA over the last few years with increasing product sales, particularly in export and transport, and a lower level of submarine activity, which is subject to contractual limitations on margin.

This trend has been accompanied by less predictability in some of the key revenue and major growth drivers. For instance, SEA's transport contracts are typically on short time-frames from win to delivery, usually a few weeks to months. As a result, SEA's opening order book as at 1 May 2019 provides less cover for 2019/20 than we have seen historically and we expect this situation to continue until longer-term naval programmes (UK and export) are secured for communications and Torpedo Launcher System (TLS) products. The former is exclusively, at present, for the UK submarine programme and we do not expect the Dreadnought class work to begin until 2020. For TLS, a number of overseas navies are regenerating their fleets and this provides good opportunities for long-term significant work for SEA.

SEA, as indicated last year, again saw modest growth in its research activity.

SEA's main growth was in transport which increased from £5.3m (2018 restated) to £9.2m in 2019. The growth mostly arose from the delivery of Red Light variants of our ROADflow system for Network Rail to improve safety at level crossings.

In the coming year SEA will trial its new Anti-Submarine Warfare (ASW) system based upon its 16mm diameter Krait (sonar) array with the Portuguese Navy. This activity will be supported by EID in country and is an important step in positioning SEA as a supplier of ASW capability for smaller ships for which we see demand in many navies.

SEA's Subsea division saw revenue remain flat. The division's gross margin stayed high due to the proportion of refurbishment and repair activity, reflecting the cost-conscious approach in the oil and gas sector. Much of this work is done by SEA's staff, with lower bought-in content.

As we announced last year, restructuring was undertaken at SEA to reduce both direct and indirect headcount. Back-office services at SEA, including finance and purchasing, were concentrated at Barnstaple. The total cost of this restructuring was £0.5m and is expected to realise a saving of £1.0m per annum. The saving in 2018/19 was £0.6m in the second half.

SEA now reports through three divisions based upon their geographical location. These are:

· Communications (from the former Maritime division), Research and Technical Support and Software Solutions and Products divisions under a single manager based at Beckington.

· The remainder of the former Maritime division, Launchers and Advanced Technologies along with Production under a single manager based at Barnstaple.

· Subsea, based at Aberdeen under a single manager.

These changes have enabled SEA to improve its delivery and shape its cost base to its current level of activity.

During 2018/19, SEA progressed the integration of SEA and J+S. A new management and reporting system, the same as MASS's new system, is expected to go live in September 2019 completing this integration.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

Revenue by sector and business

	Chess		EID		MASS		MCL		SEA		Group
	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 Unaudited £m	%	2018 Unaudited £m	%
Defence and security	10.7	-	11.4	16.4	35.8	34.6	21.7	17.4	26.9	29.8	106.5	88	98.2	89
Transport	-	-	-	-	-	-	-	-	9.2	5.3	9.2	7	5.3	5
Offshore energy	-	-	-	-	-	-	-	-	2.1	2.1	2.1	2	2.1	2
Other commercial	-	-	0.1	1.9	3.2	2.9	-	-	0.1	0.1	3.4	3	4.9	4
	10.7	-	11.5	18.3	39.0	37.5	21.7	17.4	38.3	37.3	121.2	100	110.5	100

The defence and security revenue is further broken down as follows:

	Chess		EID		MASS		MCL		SEA		Group
	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 £m	2018 £m	2019 Unaudited £m	%	2018 Unaudited £m	%
Direct to UK MOD	-	-	-	-	18.1	20.1	20.2	15.7	7.8	6.9	46.1	38	42.7	39
Indirect to UK MOD where the Group acts as a subcontractor or partner	1.2	-	0.2	0.4	3.6	4.2	0.3	0.3	10.9	15.9	16.2	13	20.8	19
Total to UK MOD	1.2	-	0.2	0.4	21.7	24.3	20.5	16.0	18.7	22.8	62.3	51	63.5	58
Portuguese MOD	-	-	4.4	4.5	-	-	-	-	-	-	4.4	4	4.5	4
Security	4.8	-	-	-	3.2	3.3	1.0	0.9	-	-	9.0	7	4.2	4
Export defence	4.7	-	6.8	11.5	10.9	7.0	0.2	0.5	8.2	7.0	30.8	26	26.0	23
	9.5	-	11.2	16.0	14.1	10.3	1.2	1.4	8.2	7.0	44.2	37	34.7	31
	10.7	-	11.4	16.4	35.8	34.6	21.7	17.4	26.9	29.8	106.5	88	98.2	89

Note: EID and SEA 2018 figures have been restated for the impact of IFRS 15 'Revenue from Contracts with Customers' (see note 8).

Note: The percentages applied to the defence and security revenue is based on the total revenue for the Group in each year.

Defence and security revenue is categorised into market segments as follows:

	Year ended 30 April 2019 Unaudited		Year ended 30 April 2018 (restated¹) Unaudited
	£m	%	£m	%
By market segment
Combat systems	22.9	19	20.9	19
C4ISTAR	51.1	42	43.5	39
Cyber security and secure networks	15.5	13	15.6	14
Simulation and training	6.5	5	9.4	9
Research, advice and support	9.3	8	6.6	6
Other	1.2	1	2.2	2
Total defence and security revenue	106.5	88	98.2	89

The Group's total revenue, broken down by type of deliverable is as follows:

	Year ended 30 April 2019 Unaudited		Year ended 30 April 2018 (restated¹) Unaudited
	£m	%	£m	%
Product	65.2	54	60.6	55
Services	56.0	46	49.9	45
Total revenue	121.2	100	110.5	100

Note: The percentages applied to the defence and security revenue is based on the total revenue for the Group in each year.

Revenue analysis

The overall pattern of sales in 2018/19 was similar to 2017/18 in terms of market segment. The most noticeable changes were an increase in C4ISTAR activity, mostly at MCL, and an increase in research and advice at SEA. The reductions in this area were in simulation and training, the latter at MASS where there was less exercise activity by the Joint Forces Command, and at SEA in relation to the DECKsim product.

Looking at our defence and security revenue by sector we saw a fall in our overall rates to the UK MOD both directly and indirectly. This was mostly in indirect sales and was due to the continued fall in SEA's submarine activity. Direct sales to the MOD were static reflecting the high proportion of our work that was in service provision, which is generally a steady revenue stream.

Sales to Portugal were flat, but we expect this to increase in the coming year with some deliveries on recently won land system orders getting underway.

Both security and export sales saw growth. This was mostly due to the initial contribution of Chess, but MASS and SEA also saw their export sales increase, offsetting a drop at EID where some naval projects delivered in 2017/18 were not repeated or slipped into 2019/20.

The Group's defence and security business is, and is expected to remain, the largest part of our business, supplying 88% of revenue this year (2018: 89%). Nevertheless, the Group's non-defence revenue was up by 19% compared to last year, with growth mostly coming from SEA's transport activity. Transport sales rose from £5.3m in 2018 to nearly £9.2m in 2019, much of this due to delivery of Red Light ROADflow systems to Network Rail for safety enforcement at level crossings.

Operational outlook

Order intake and order book

	Order intake		Order book
	2019 Unaudited £m	2018 Unaudited £m	2019 Unaudited £m	2018 (restated¹) Unaudited £m
Chess	11.3	-	20.8	-
EID	18.9	8.4	25.6	19.0
MASS	97.0	29.1	98.8	40.9
MCL	26.0	12.1	14.6	10.3
SEA	36.7	27.0	31.1	33.6
	189.9	76.6	190.9	103.8

The 2019 order book includes £20.1m of order book acquired with Chess in December 2018.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

The increase in the Group's order intake was across the Group. As we indicated last year, we expected a number of key renewals, especially at MASS, and these were all secured in the year. The order intake was a record for the Group and has returned the order cover for the coming year to over 55%.

Delivery of the Group's order book into revenue

http://www.rns-pdf.londonstockexchange.com/rns/3859G_1-2019-7-23.pdf

The above table shows the underpinning of future revenue from the current order book (all figures are £m). The Group's order intake and order book are the contracted values with customers and do not include any value attributable to frameworks or other arrangements where no enforceable contract exists. The order intake and order book include contractual changes to existing orders including extensions, variations and cancellations.

Chess's order intake of £11.3m included follow-on orders for its C-UAV system for the US DoD and nearly £4m of orders for C-UAV systems for civilian airports. Chess's closing order book of £20.8m includes £15.0m for delivery in 2019/20 and Chess is well positioned for several key naval and land programmes which we hope will convert to orders in the coming year. Chess should continue to grow in the coming year, but we do not expect Chess's full year performance for 2019/20 to reflect what was an abnormally strong five months for 2018/19.

EID's order intake for this year was just under £19m compared with just over £8m last year. The main items of order intake for EID in 2018/19 were in its Tactical division, securing an order of over £4m to deliver radios for Portuguese armoured vehicles and an important export order for vehicle intercoms, the initial batch of which will now be delivered in 2019/20, later than expected. EID's order book of £25.6m gives good underpinning for the year ahead, especially in its Tactical division. The coming year is important for EID to secure important Naval programmes and extend its current export order for vehicle intercoms. We expect EID to return to growth in 2019/20.

MASS's order intake of £97.0m was a record. It included renewals, won in competition, of over £50m plus long-awaited export EWOS orders. MASS's closing order book of nearly £99m includes over £29m of revenue to be delivered in 2019/20. The coming year for MASS should see further export orders for its EWOS and THURBON offerings and an expansion of its digital forensics offering. Its provision of support to the UK's Joint Forces Command, a service the Group has provided for over 15 years, will be subject to a competitive renewal, probably in early 2020/21. MASS is expected to continue to grow in the coming year.

At MCL, order intake of £26.0m was higher than last year's £12.1m. MCL's order intake was dominated by a large order to provide systems across the UK's submarine fleet, a programme which will run over a number of years. MCL's closing order book of £14.6m includes just under £8m to be delivered in 2019/20. Our long-term strategy remains to try and strengthen MCL's order book and prospects to give it more visibility of future work flows and with some key prospects in UK land programmes, MCL should continue to grow, modestly, in the coming year.

SEA's order intake at £36.7m was above last year's £27.0m and included £5.5m of research activity for the UK MOD and just over £3m of extension and change orders for Submarine communication systems. Various support orders for existing SEA equipment on UK naval platforms totalled over £12m, much of this deliverable over several years. SEA's transport division order intake was just under £9m, half of which was for Red Light ROADflow systems for Network Rail. SEA's order book of £31.1m includes £12.3m for delivery in 2019/20, a historically low level for SEA. SEA has an important year ahead to secure orders for its medium and long-term prospects, especially in naval programmes in the UK and overseas. SEA faces a challenging year and we expect a relatively flat performance.

In the near term, the majority of Cohort's business will continue to be derived from the UK MOD, either directly or indirectly. The Government's Strategic Defence Review published in November 2015 gave high priority to a number of areas where the Group's capabilities are strong, including submarines, special forces, cyber and secure communications. It also brought a welcome increase in planned defence equipment spending. We do expect to see opportunities arising from this increase, but it is also clear that delays and cost growth are limiting the freedom of movement of the UK MOD and armed forces in acquiring new equipment. As we predicted last year, this tightness, coupled to a shortage of commercial staff, has resulted in unpredictable fluctuations between purchase commitments and cash controls during 2018/19. However, we have seen the UK MOD continue to place orders for important and necessary services and capability.

Unlike the year just gone, the coming year is not dependent upon a few significant orders to deliver the in-year performance. However, order infill is required, as always, across the Group, especially at MCL and SEA. The coming year is an important one for longer term orders at EID, Chess and SEA.

Funding resource and policy

The Group retains a robust financial position and continues to be cash generative enabling it to continue to invest in internal R&D and other value-adding projects on a carefully considered basis as well as maintaining its progressive dividend policy.

The Group's cash position and its banking facility provide it with the resources to conduct its acquisition strategy.

NatWest is the Group's primary bank, especially for clearing purposes and day-to-day transactions. In November 2018 the Group completed a new UK bank facility with Lloyds and NatWest.

The current facility is a revolving credit facility for four years with an option to extend for one year. The amount of the facility is £30m with an option to extend by a further £10m to £40m.

The facility itself provides the Group with a flexible arrangement to draw down for acquisitions and overdraft and, as at 30 April 2019, £25.0m of the facility was drawn leaving £5.0m available to be drawn down.

This facility is available to the UK members of the Group and is fully secured over the Group's assets, including those of Chess but excluding EID's.

The UK Group has separate bilateral facilities with each of Natwest and Lloyds to provide trading facilities for instruments such as forward exchange rates, bank guarantees and letters of credit. In addition, the Group is able to have such facilities with other banks where pricing and operational efficiency warrant it. MCL, for example, has a forward exchange facility with Investec Bank.

The Group takes a prudent approach to treasury policy with its overriding objective being protection of capital. In implementing this policy, deposits are usually held with institutions with credit ratings of at least Baa3. 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 monthly 13-week cash forecasts, retaining flexibility whilst trying to ensure an acceptable return on its cash. Most of the Group's UK 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.

EID's bank facilities are managed locally with banks in Portugal. The cash is spread across a number of institutions to mitigate risk to the capital.

EID provides no security over its assets and its wide range of banks enable it to be well supported in executing export business.

During the year, EID agreed a local overdraft facility of €2.5m with Santander which is available to EID only. This was undrawn at 30 April 2019.

The Group regularly reviews the ratings of the institutions with which it holds cash and always considers this when placing a new deposit.

The Group's return on net funds during the period was 0.00% to 0.15% (2018: 0.00% to 0.15%).

The Group's net debt as 30 April 2019 of £6.4m is after the acquisition of Chess at a cost of just over £20m plus acquired net debt of £1.0m.

Looking forward, we expect the Group's net debt at 30 April 2020 to be at a similar level to 30 April 2019 with the Group moving back into net funds by 30 April 2021, if there is no further corporate activity.

In addition to its cash resources, the Group has in issue 41.0m ordinary shares of 10 pence each. Of these shares 0.1m (2018: 0.3m) are owned by the Cohort plc Employee Benefit Trust (EBT), which waives its rights to dividends. The EBT purchased a further 0.4m shares in May 2019. In addition, the Group has issued options over ordinary shares through Key Employee Share Option and SAYE schemes to the level of 1.6m at 30 April 2019 (2018: 1.7m).

The Group's exposure to foreign exchange risk arises from two sources:

1. the reporting of overseas subsidiaries' earnings (currently only EID) and net assets in sterling; and

2. transactions in currencies other than our Group reporting currency (£) or subsidiary reporting currency where different (currently € at EID).

The first risk is a reporting rather than cash risk and we do not hedge the reporting of earnings.

In terms of reporting the assets, we have in place a natural hedge of borrowing in euros to acquire a euro asset (EID) but over time as the asset grows and the loan diminishes, this hedge will wane.

We take a prudent approach to transactional foreign exchange risk requiring all significant sales and purchases to be hedged at the point in time when we consider the likelihood of the transaction to be certain, usually on contract award. We do not hedge account and mark these forward contracts to market at each reporting date, recognising any gain or loss in the income statement.

The Group, as in the past, has maintained its progressive dividend policy, increasing its dividend this year by 11% to a total dividend paid and payable of 9.10 pence per share (2018: 8.20 pence).

The last five years' annual dividends, growth rate, earnings and cash cover are as follows:

Year ended 30 April	Dividend paid and proposed Pence	Growth over previous year %	Earnings cover (based upon adjusted earnings per share)	Cash cover (based upon net cash inflow from operations)
2019	9.1	11	3.8	2.3
2018	8.2	15	3.5	4.0
2017	7.1	18	3.9	0.2
2016	6.0	20	4.5	2.8
2015	5.0	19	4.1	9.2
2014	4.2	20	4.6	1.5

The growth over recent years has moved the dividend from a relatively low base to a more normal level for an established cash-generative business.

Looking forward the Group plans to maintain a policy of growing its dividend each year but we expect the rate of growth to reduce over the coming years to align more closely with the earnings growth of the Group.

The Group's cash generation in 2019 was, as had been expected, weaker than last year. In summary, the Group's cash performance was as follows:

	2019 Unaudited £m	2018 (restated¹) Unaudited £m
Adjusted operating profit	16.2	15.2
Depreciation and other non-cash operating movements	1.4	1.4
Working capital movement	(5.0)	(0.9)
	12.6	15.7
Acquisition of 81.84% of Chess (including costs of acquisition of £1.0m and acquired debt of £1.0m)	(22.0)	-
Acquisition of EID: 23% in 2018	-	(3.5)
Payment of final earn-out for MCL in 2018	-	(2.5)
Restructuring of SEA	(0.5)	-
Reorganisation of SCS	(0.5)	(0.6)
Tax, dividends, capital expenditure, interest, loans and other investments	(7.3)	(6.3)
(Decrease)/increase in net funds	(17.7)	2.8

The slightly higher cash outflow in tax, dividends, etc. was mostly due to higher capital expenditure, tax payments and dividends. Looking forward, we retain the flexibility to use newly issued shares as well as EBT shares to satisfy employee share options.

The Group's customer base of governments, major prime contractors and international agencies make its debtor risk low. The year-end debtor days in sales were 22 days (2018: 24 days). 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. This is 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 reflects invoicing revenue, especially at MCL and MASS, earlier in the final quarter than last year, enabling more receipts to be collected in the financial year.

Tax

The Group's tax charge for the year ended 30 April 2019 of £584,000 (2018: charge of £2,074,000) was at a rate of 10.3% (2018: rate of 20.4%) of profit before tax. This includes a current year corporation tax charge of £2,350,000 (2018: £3,357,000), a prior year corporation tax credit of £9,000 (2018: credit of £391,000) and a deferred tax credit of £1,757,000 (2018: £892,000).

The Group's overall tax rate was below the standard corporation tax rate of 19.00% (2018: 19.00%). The reduction is due to an R&D tax credit in Portugal of £0.5m in respect of expenditure incurred this year in developing an enhanced vehicle intercoms system by EID.

The Group this year has reported research and development expenditure credits (RDEC) for the UK in accordance with IAS 20 and shown the credit (£744,000) in cost of sales and adjusted the tax charge accordingly. The 2018 comparatives (£679,000) has been restated accordingly. This results in the reported tax charge for the Group being higher than would have been reported previously and more in line with the headline tax rate for the UK.

The RDEC has been reversed in reporting the adjusted operating profit for the Group to ensure comparability of operating performance year on year.

Looking forward, the Group's effective current tax rate (excluding the impact of RDEC reporting) for both 2019/20 and 2020/21 is estimated at 16%. This takes account of the expected reduction in headline tax rates in the UK and assuming that the R&D tax credit regime remains unchanged from its current level and scope offset by an increased proportion of profit before tax from EID at higher Portuguese tax rates. The Group maintains a cautious approach to previous R&D tax credit claims for tax periods that are still open, currently 2017/18 and 2018/19.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

Exceptional items

The exceptional items this year are £1.0m in respect of acquiring Chess and £0.5m for restructuring SEA in the first half of the year.

Adjusted earnings per share

The adjusted earnings per share (EPS) of 33.60 pence (2018 restated: 29.08 pence) is reported in addition to the basic earnings per share and excludes the effect of exceptional items, amortisation of intangible assets and exchange movement on marking forward exchange contracts to market, all net of tax.

The adjusted earnings per share exclude the non-controlling interest of EID (20%) and Chess (18.16%) for the five months from acquisition.

The reconciliation is as follows:

	Adjusted operating profit Unaudited £m	Adjusted earnings per share Unaudited Pence
Year ended 30 April 2018 (restated¹)	15.2	29.08
Contribution from Chess for five months (at 81.84% for adjusted earnings per share)	1.7	2.72
100% owned businesses throughout the year ended 30 April 2019	2.2	4.33
EID (80% owned)	(2.9)	(4.51)
Change in tax rate 15.1% (2018: 21.0%)	-	2.08
Dilution from higher weighted average number of shares (due to option exercises)	-	(0.10)
Year ended 30 April 2019	16.2	33.60
Increase from 2018 to 2019	6%	16%

The adjustments to the basic EPS in respect of exceptional items, exchange movements and other intangible asset amortisation of EID and Chess only reflect that proportion of the adjustment that is applicable to the equity holders of the parent.

Accounting policies

The 2018 comparative figures have been restated to reflect the impact of IFRS 15 'Revenue from Contracts with Customers' as shown in note 8.

Our people

All of the Group's capabilities and customer relationships ultimately derive from our people, and such success as we have enjoyed is a result of their efforts. We would like to take this opportunity to express our thanks to all employees of Cohort and its businesses.

Andy Thomis Simon Walther

Chief Executive Finance Director

CONSOLIDATED INCOME STATEMENT

For the year ended 30 April 2019

	Notes	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 (restated¹) Unaudited £000

Revenue	2	121,182	110,547

Cost of sales		(78,143)	(70,856)

Gross profit		43,039	39,691

Administrative expenses		(37,095)	(29,429)
Operating profit	2	5,944	10,262

Comprising:
Adjusted operating profit	2	16,164	15,225
Amortisation of other intangible assets (included in administrative expenses)		(9,514)	(5,312)
Research and development expenditure credit (RDEC) (included in cost of sales)		744	679
Credit/(charge) on marking forward exchange contracts to market value at the year end (included in cost of sales)		33	(280)
Exceptional items:
Costs of acquisition of EID (included in administration expenses)		17	(50)
Costs of acquisition of Chess (included in administrative expenses)	7	(1,000)	-
Restructuring of SEA (included in administrative expenses)		(500)	-
Operating profit	2	5,944	10,262

Finance income		27	14

Finance costs		(296)	(103)

Profit before tax		5,675	10,173

Income tax charge	3	(584)	(2,074)

Profit for the year		5,091	8,099

Attributable to:
Equity holders of the parent	5,447	7,710

Non-controlling interests	(356)	389

	5,091	8,099

All profit for the year is derived from continuing operations.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

		Year ended 30 April 2019 Unaudited Pence	Year ended 30 April 2018 (restated¹) Unaudited Pence
Earnings per share	4
Basic		13.37	18.95
Diluted		13.29	18.76

Adjusted earnings per share	4
Basic		33.60	29.08
Diluted		33.42	28.79

Dividends per share paid and proposed in respect of the year	5
Interim		2.85	2.55
Final		6.25	5.65
		9.10	8.20

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 April 2019

	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 (restated¹) Unaudited £000
Profit for the year	5,091	8,099
Foreign currency translation differences on net assets of EID, net of loan used to finance acquisition	(21)	(167)
Other comprehensive income for the year, net of tax	(21)	(167)
Total comprehensive income for the year	5,070	7,932
Attributable to:
Equity shareholders of the parent	5,559	7,410
Non-controlling interests	(489)	522
	5,070	7,932

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 April 2019

	Notes	At 30 April 2019 Unaudited £000	At 30 April 2018 (restated¹) Unaudited £000
ASSETS

Non-current assets
Goodwill		41,354	39,156
Other intangible assets		20,588	6,168
Property, plant and equipment		10,956	9,597
Deferred tax asset		365	406

		73,263	55,327

Current assets
Inventories		13,452	5,877
Trade and other receivables		42,971	34,693
Derivative financial instruments		-	51
Cash and cash equivalents		18,763	20,511

		75,186	61,132
Total assets		148,449	116,459

LIABILITIES

Current liabilities
Trade and other payables		(35,225)	(28,836)
Current tax liabilities		-	(265)
Derivative financial instruments		(99)	(183)
Bank loans and overdrafts		(61)	(9,173)
Other creditors		-	-
Provisions		(818)	(1,156)

		(36,203)	(39,613)

Non-current liabilities
Bank loans and overdrafts		(25,126)	-
Deferred tax liability		(4,041)	(1,414)
Provisions		(608)	(436)
Other creditors	7	(5,500)	-

		(35,275)	(1,850)
Total liabilities		(71,478)	(41,463)

Net Assets		76,971	74,996

Equity
Share capital		4,096	4,096
Share premium account		29,657	29,657
Own shares		(348)	(1,190)
Share option reserve		603	626
Other reserve: option for acquiring non-controlling interest in Chess	7	(4,350)	-
Retained earnings		41,034	39,253

Total equity attributable to the equity shareholders of the parent		70,692	72,442

Non-controlling interests		6,279	2,554

Total equity		76,971	74,996

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For the year ended 30 April 2019

	Attributable to the equity shareholders of the parent
Group	Share capital £'000	Share premium account £'000	Own shares £'000	Share option reserve £'000	Other reserves £'000	Retained earnings £'000	Total £'000	Non- controlling interests £'000	Total equity £'000
At 1 May 2017	4,096	29,657	(1,142)	783	(465)	36,901	69,830	4,158	73,988
Impact of IFRS 15¹ on opening reserves	-	-	-	-	-	(270)	(270)	-	(270)
Restated as at 30 April 2017	4,096	29,657	(1,142)	783	(465)	36,631	69,560	4,158	73,718
Profit for the year (restated¹)	-	-	-	-	-	7,710	7,710	389	8,099
Other comprehensive income for the year	-	-	-	-	-	(300)	(300)	133	(167)
Total comprehensive income for the year	-	-	-	-	-	7,410	7,410	522	7,932
Transactions with owners of Group and non-controlling interests, recognised directly in equity
Equity dividends	-	-	-	-	-	(3,035)	(3,035)	-	(3,035)
Vesting of Restricted Shares	-	-	-	-	-	175	175	-	175
Own shares purchased	-	-	(1,467)	-	-	-	(1,467)	-	(1,467)
Own shares sold	-	-	697	-	-	-	697	-	697
Net loss on selling own shares	-	-	722	-	-	(722)	-	-	-
Share-based payments	-	-	-	273	-	-	273	-	273
Deferred tax adjustment in respect of share-based payments	-	-	-	(248)	-	-	(248)	-	(248)
Transfer of share option reserve on vesting of options	-	-	-	(182)	-	182	-	-	-
Completion of acquisition of MCL by settlement of non-controlling interests' earn-out	-	-	-	-	465	-	465	-	465
Effect of acquisition of 23.09% of non-controlling interest in EID	-	-	-	-	-	(1,388)	(1,388)	(2,126)	(3,514)
At 30 April 2018 (restated¹)	4,096	29,657	(1,190)	626	-	39,253	72,442	2,554	74,996
Profit for the year	-	-	-	-	-	5,447	5,447	(356)	5,091
Other comprehensive income for the year	-	-	-	-	-	112	112	(133)	(21)
Total comprehensive income for the year	-	-	-	-	-	5,559	5,559	(489)	5,070
Transactions with owners of Group and non-controlling interests, recognised directly in equity
Equity dividends	-	-	-	-	-	(3,464)	(3,464)	-	(3,464)
Vesting of Restricted Shares	-	-	-	-	-	178	178	-	178
Own shares purchased	-	-	(631)	-	-	-	(631)	-	(631)
Own shares sold	-	-	743	-	-	-	743	-	743
Net loss on selling own shares	-	-	730	-	-	(730)	-	-	-
Share-based payments	-	-	-	291	-	-	291	-	291
Deferred tax adjustment in respect of share-based payments	-	-	-	(76)	-	-	(76)	-	(76)
Transfer of share option reserve on vesting of options	-	-	-	(238)	-	238	-	-	-
Acquisition of 81.84% of Chess	-	-	-	-	(4,350)	-	(4,350)	4,214	(136)
At 30 April 2019	4,096	29,657	(348)	603	(4,350)	41,034	70,692	6,279	76,971

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 April 2019

	Notes	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 Unaudited £000
Net cash generated from operating activities	6	8,635	13,220

Investing activities
Interest received		27	14
Purchases of property, plant and equipment		(2,058)	(747)
Acquisition of Chess	7	(20,885)	-
Acquisition of EID		-	(3,514)
Acquisition of MCL		-	(2,529)
Net cash used in investing activities		(22,916)	(6,776)

Financing activities
Dividends paid		(3,464)	(3,035)
Repayment of borrowings		(2,027)	(3)
Drawdown of borrowings		18,017	5,514
Purchase of own shares		(631)	(1,467)
Sale of own shares		743	697
Net cash generated from financing activities		12,638	1,706

Net (decrease)/increase in cash and cash equivalents		(1,643)	8,150

	At 1 May 2018 £'000	Effect of foreign exchange rate changes £'000	Cash flow £'000	Debt acquired (note 7) £'000	At 30 April 2019 £'000
Net funds reconciliation (unaudited)
Group
Cash and bank	20,511	(105)	(1,643)	-	18,763
Short-term deposits	-	-	-	-	-
Cash and cash equivalents	20,511	(105)	(1,643)	-	18,763
Loan	(9,167)	139	(15,973)	(27)	(25,028)
Finance lease	(6)	-	(17)	(136)	(159)
Debt	(9,173)	139	(15,990)	(163)	(25,187)
Net (debt)/funds	11,338	34	(17,633)	(163)	(6,424)

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 2019. The information in this preliminary statement has been extracted from the financial statements for the year ended 30 April 2019 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with IFRS.

Throughout the period, the Group owned 80% of EID and had effective control. Therefore, 100% of EID's result and balances has been consolidated with the non-controlling interest identified.

81.84% of Chess was acquired 12 December 2018. The Group had effective control from that date. Therefore, 100% of Chess's result and balance sheet has been consolidated from 12 December 2018 with the non-controlling interest identified.

The Group's Annual Report for the year ended 30 April 2019 has yet to be delivered to the Registrar of Companies.

The comparative figures for the financial year ended 30 April 2018 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was:

i. unqualified,

ii. did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying

their report, and

iii. did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The comparative figures for the year ended 30 April 2018 have been restated as a result of the adoption of IFRS 15 'Revenue on Contracts from Customers', the impact of which is shown in note 8. This restatement has not been audited for the purposes of this statement and hence the comparative figures are unaudited.

The preliminary announcement was approved by the Board and authorised for issue on 23 July 2019.

Copies of the Annual Report and accounts for the year ended 30 April 2019 will be posted to shareholders on 7 August 2019 and will be available on the Company's website (www.cohortplc.com) from that date.

2. SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT

	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 (restated¹) Unaudited £000
Revenue

Chess	10,674	-
EID	11,530	18,298
MASS	38,936	37,553
MCL	21,715	17,381
SEA	38,327	37,315
	121,182	110,547

Adjusted Operating Profit

Chess	1,682	-
EID	1,357	4,315
MASS	8,175	7,113
MCL	2,282	2,072
SEA	5,492	4,418
Central costs	(2,824)	(2,693)
	16,164	15,225

Amortisation of other intangible assets	(9,514)	(5,312)
Research and development expenditure credit (RDEC)	744	679
Credit/(charge) on marking forward exchange contracts to market value at the year end	33	(280)
Exceptional items:
Costs of acquisition of EID	17	(50)
Costs of acquisition of Chess	(1,000)	-
Restructuring of SEA	(500)	-
Operating Profit	5,944	10,262

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, RDEC, change 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.

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

3. TAX CHARGE

	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 Unaudited £000
UK Corporation tax:
Current year	2,729	2,251
Prior year	(10)	(389)
Portugal corporation tax	(409)	1,117
Other foreign corporation tax	31	(13)
	2,341	2,966
Deferred taxation:
Prior year	(44)	264
Current year	(1,713)	(1,156)
	(1,757)	(892)
	584	2,074

The current year corporation tax charge (2018: charge) includes £169,000 credit (2018: £nil) in respect of exceptional items and the current year deferred tax credit includes a credit of £1,688,000 (2018: credit of £1,063,000) in respect of the amortisation of other intangible assets and a current year charge of £6,000 (2018: £53,000 credit) in respect of marking forward exchange contracts to market value at the year end.

4. 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 2019 Unaudited £000	Year ended 30 April 2018 (restated¹) Unaudited £000
Earnings
Basic and diluted earnings	5,447	7,710
Amortisation of other intangible assets (net of tax of £1,476,000; 2018: £945,000)	6,956	3,844
(Credit)/charge on non-trading foreign exchange movements (net of tax charge of £6,000 (2018: credit of £53,000)	(27)	227
Costs of acquisition of EID (nil tax)	(17)	50
Costs of acquisition of Chess (net of tax credit of £74,000)	926	-
Restructuring of SEA (net of tax credit of £95,000)	405	-
Adjusted basic and diluted earnings	13,690	11,831

The adjustments for the amortisation of intangible assets in respect of EID and Chess for the year ended 30 April 2019 and EID only for the year ended 30 April 2018 reflect the interests of the equity holders of the parent only and exclude the proportion allocated to the non-controlling interest in each year.

	Number	Number
Weighted average number of shares
For the purposes of basic earnings per share	40,749,551	40,400,179
Share options	224,086	553,515

For the purposes of diluted earnings per share	40,973,637	40,953,694

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

	Year ended 30 April 2019 Unaudited Pence	Year ended 30 April 2018 (restated¹) Unaudited Pence
Earnings per share
Basic	13.37	18.95
Diluted	13.29	18.76

Adjusted earnings per share
Basic	33.60	29.08
Diluted	33.42	28.79

5. DIVIDENDS

The proposed final dividend for the year ended 30 April 2019 is 6.25 pence (2018: 5.65 pence) per ordinary share. This dividend will be payable on 18 September 2019 to shareholders on the register at 23 August 2019 subject to approval by shareholders at the AGM on 17 September 2019.

The total paid and proposed dividend for the year ended 30 April 2019 is 9.10 pence per ordinary share; a cost of £3,718,000 (2018: 8.20 pence per ordinary share; cost of £3,336,000).

The charge for the year ended 30 April 2019 of £3,464,000 is the final dividend for the year ended 30 April 2018 paid (£2,300,000) and the interim dividend for the year ended 30 April 2019 paid (£1,164,000).

6. NET CASH GENERATED FROM OPERATING ACTIVITIES

	Year ended 30 April 2019 Unaudited £000	Year ended 30 April 2018 (restated¹) Unaudited £000

Profit for the year	5,091	8,099
Adjustments for:
Tax charge	584	2,074
Depreciation of property, plant and equipment	1,147	1,116
Amortisation of goodwill and other intangible assets	9,514	5,312
Net finance expense	269	89
Share-based payment	291	273
Derivative financial instruments and other non-trading exchange movements	(33)	280
Decrease in provisions	(1,186)	(520)

Operating cash inflows before movements in working capital	15,677	16,723

Increase in inventories	(2,812)	(581)
(Increase)/decrease in receivables	(794)	3,064
Decrease in payables	(451)	(4,081)
	(4,057)	(1,598)
Cash generated by operations	11,620	15,125
Tax paid	(2,689)	(1,802)
Interest paid	(296)	(103)
Net cash generated from operating activities	8,635	13,220

1 Prior year comparatives have been restated upon the Group's adoption of IFRS 15 'Revenue from Contracts with Customers'. See note 8 for details regarding the restatement.

7. ACQUISITION OF CHESS TECHNOLOGIES LIMITED (CHESS) (UNAUDITED)

As announced on 12 December 2018, Cohort plc acquired 81.84% of Chess for an initial cash consideration of just over £20.0m. The Group has recognised 100% of Chess's results and net assets from that date as it has effective control.

Under the sale and purchase agreement, up to a further £12.7m is payable to the shareholders of Chess as an earn out based upon its performance over the three years ended 30 April 2021. Based upon latest forecasts, this earn out is estimated at £1.15m as at 30 April 2019.

The acquisition accounting is as follows:

	Book value £'000	Fair Value £'000
Recognised amounts of identifiable assets and liabilities assumed:

Property, plant and equipment	563	494
Other intangible assets	4,154	23,934
Inventory	5,195	4,214
Trade and other receivables	9,390	8,641
Trade and other payables	(6,628)	(7,699)
Provisions	-	(1,021)
Deferred tax	(52)	(4,349)
Loan	(27)	(27)
Finance leases	(136)	(136)
Overdraft	(844)	(844)
	11,615	23,207
81.84% of net assets acquired		18,993
Goodwill		2,198
Total consideration		21,191
Satisfied by:
Cash		20,041
Deferred consideration		1,150
Total consideration transferred		21,191
Net cash outflow arising on acquisition:
Cash consideration paid		20,041
Plus: overdraft acquired		844
		20,885

The loan and finance leases acquired (£163,000) are shown as debt acquired in the net funds reconciliation on page 26.

The fair value adjustments reflect policy alignments and adjustments arising out of Cohort's due diligence work on the acquisition.

The most significant fair value adjustment is in respect of the other intangible assets and is analysed as follows:

	Book value £'000	Fair Value £'000
Goodwill held by Chess	56	-
Research & development expenditure	4,098	-
Contracts acquired	-	8,091
Future orders and prospects	-	15,843
	4,154	23,934

The other intangible assets of £23.9m acquired and their estimated useful lives are as follows:

	Other intangible asset £'000	Estimated life years
Contracts	8,091	6
Future orders and prospects	15,843	6
	23,934

A deferred tax liability of £4.3m in respect of the other intangible assets balance above was established and is disclosed as part of the fair value deferred tax liability.

The goodwill of £2.2m arising from the acquisition represents the customer contracts, supplier relationships and know-how to which no certain value can be ascribed. None of the goodwill is expected to be deductible for tax purposes.

The sale and purchase agreement for the acquisition of Chess includes an option for the purchase of the remaining shares (18.16%) in Chess, the non-controlling interest.

This option is exercisable by 31 October 2021 and is capped at £9.1m. The amount payable is dependent upon the performance of the Chess business for the three years ended 30 April 2021.

The non-controlling interest is entitled to participate in any dividends payable by Chess in the period to 30 April 2021.

In accordance with IFRS 3, the Group has ascribed a value to the option to acquire the non-controlling interest of Chess. This value is £4.35m and the option is shown as a non-current liability and, as the non-controlling interest has a right to dividends, in the other reserves as "option for acquiring non-controlling interest in Chess".

The acquisition cost of £1.0m in respect of Chess was charged as an exceptional item in the Consolidated Income Statement. This cost includes £0.4m in respect of renewing the Group's banking facility. £18.0m of this facility was utilised in acquiring Chess.

Chess contributed £10.7m of revenue and £1.7m of adjusted operating profit for the period from 12 December 2018 to 30 April 2019.

8. CHANGES IN ACCOUNTING POLICIES AND RESTATEMENTS

This note explains the impact of changes in accounting policies on prior periods.

Impact on financial statements

As a result of changes in the Group's accounting policies, prior year comparative information has been restated for the adoption of IFRS 15 'Revenue from Contracts with Customers'.

The impact of IFRS 9 was not material and no restatement was required.

The following tables show the adjustments recognised for each individual line item. Line items that are not affected by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers provided.

Consolidated income statement

	Year ended 30 April 2018
	As previously stated Audited £'000	Impact of IFRS 15 Unaudited £'000	Restated on adoption of IFRS 15 Unaudited £'000
Revenue	111,798	(1,251)	110,547
Cost of sales	(71,730)	874	(70,856)
Gross profit	40,068	(377)	39,691
Operating profit	10,639	(377)	10,262
Adjusted operating profit	15,602	(377)	15,225
Profit before tax	10,550	(377)	10,173
Income tax charge	(2,074)	-	(2,074)
Profit for the year	8,476	(377)	8,099

	Year ended 30 April 2018
	As previously stated Audited £'000	Impact of IFRS 15 Unaudited £'000	Restated on adoption of IFRS 15 Unaudited £'000
Attributable to:
Equity shareholders of the parent	8,087	(377)	7,710
Non-controlling interests	389	-	389
	8,476	(377)	8,099

	Pence	Pence	Pence
Earnings per share:
Basic	19.88	(0.93)	18.95
Diluted	19.68	(0.92)	18.76

Consolidated statement of comprehensive income

	Year ended 30 April 2018
	As previously stated Audited £'000	Impact of IFRS 15 Unaudited £'000	Restated on adoption of IFRS 15 Unaudited £'000
Profit for the year	8,476	(377)	8,099
Total comprehensive income for the year	8,309	(377)	7,932
Attributable to:
Equity shareholders of the parent	7,787	(377)	7,410
Non-controlling interests	522	-	522
	8,309	(377)	7,932

Consolidated statement of financial position

	Year ended 30 April 2018
	As previously stated Audited £'000	Impact of IFRS 15 Unaudited £'000	Restated on adoption of IFRS 15 Unaudited £'000
Current assets	60,246	886	61,132
Total assets	115,573	886	116,459
Current liabilities	(38,080)	(1,533)	(39,613)
Total liabilities	(39,930)	(1,533)	(41,463)
Net assets	75,643	(647)	74,996
Equity
Retained earnings	39,900	(647)	39,253
Total equity attributable to the equity shareholders of the parent	73,089	(647)	72,442
Non-controlling interests	2,554	-	2,554
Total equity	75,643	(647)	74,996

Note 8 - Earnings per share

	Year ended 30 April 2018
	As previously stated Audited	Impact of IFRS 15 Unaudited	Restated on adoption of IFRS 15 Unaudited
Basic earnings (£'000)	8,082	(377)	7,705
Diluted earnings (£'000)	8,082	(377)	7,705
Adjusted earnings (£'000)	12,203	(377)	11,826
Diluted adjusted earnings (£'000)	12,203	(377)	11,826
Weighted average number of shares	40,679,428	-	40,679,428
Share options	413,334	-	413,334
Diluted weighted average number of shares	41,092,762	-	41,092,762
Basic earning per share - pence	19.88	(0.93)	18.95
Diluted earning per share - pence	19.68	(0.92)	18.76
Adjusted earnings per share - pence	30.01	(0.93)	29.08
Diluted earnings per share - pence	29.71	(0.92)	28.79

The Group has adopted IFRS 15 'Revenue from Customer Contracts' fully retrospectively. Comparatives for the year ended 30 April 2018 have been restated accordingly.

The following expedients within the standard have been used:

- Revenue in respect of completed contracts that begin and end in the same accounting period have not been restated.

- Revenue in respect of completed contracts with variable consideration reflects the transaction price at the date the contracts were completed.

In addition, the impact on retained earnings is shown in the Consolidated statement of changes in equity and is summarised below.

Note 2 - Segmental analysis for the year ended 30 April 2018

	EID £'000	MASS £'000	MCL £'000	SEA £'000	Group £'000
Revenue:
As previously reported (audited)	19,084	37,568	17,381	37,805	111,798
Impact of IFRS 15 (unaudited)	(786)	-	-	(465)	(1,251)
As restated (unaudited)	18,298	37,568	17,381	37,340	110,547
Segment adjusted operating profit:
As previously reported (audited)	4,677	7,113	2,072	4,433	15,602
Impact of IFRS 15 (unaudited)	(362)	-	-	(15)	(377)
As restated (unaudited)	4,315	7,113	2,072	4,418	15,225

The impact of adoption of IFRS 15 on the Group's retained earnings at 30 April 2018 and 30 April 2017 is as follows:

	2018 £'000	2017 £'000
Retained earnings as previously reported (audited)	39,900	36,901
Recognition of revenue for over-time contracts based on costs incurred and including attributable margin (unaudited)	(647)	(270)
Adjustment to retained earnings upon adoption of IFRS 15 (unaudited)	(647)	(270)
Retain earnings - IFRS 15 (restated) (unaudited)	39,253	36,631

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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