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RNS Number : 8209D
Cohort PLC
09 December 2009
9 December 2009
COHORT PLC
UNAUDITED INTERIM RESULTS FOR THE HALF YEAR ENDED
31 OCTOBER 2009
Cohort plc, a leading independent technology group, today announces unaudited interim results for the half year to 31
October 2009. Highlights include:
6 months ended 31 October 2009 6 months ended31 October2008
Revenue £37.3m £33.9m
Adjusted operating profit* £1.4m £3.2m
Profit before tax £1.2m £2.6m
Order book £60.2m £57.6m
Adjusted earnings per share* 2.42p 6.25p
Interim dividend per share 0.65p 0.55p
* Excludes exceptional items (net of tax) and amortisation of other intangible assets.
Commenting on the result, Nick Prest CBE, Chairman of Cohort plc said:
"Two of Cohort's subsidiaries, MASS and SEA have continued to trade well. MASS is well ahead of expectations having made
good progress on both UK MOD projects and overseas deliveries in the first half. SCS has had a very poor first half and as
a result our overall Group expectations for this year have been lowered. A full review is underway to identify and correct
the causes of the problems which have arisen at SCS. Taking a longer view the Board believes that the prospects for all of
the Group's businesses are sound and that this will feed into shareholder value after the problems at SCS have been
rectified. Our decision to maintain our progressive dividend policy reflects this belief."
For further information, please contact
Cohort plc Andrew Thomis, Chief ExecutiveSimon Walther, Finance Director 01491 845 630
Investec Keith AndersonDaniel Adams 020 7597 5970
Hogarth Partnership Limited Julian Walker, Vicky Watkins 020 7357 9477
NOTES TO EDITORS
Cohort plc (www.cohortplc.com) is an independent technology group working primarily for defence (air, land and sea), wider
government and industry clients, through three market-facing subsidiary companies:
*
MASS (www.mass.co.uk) - a specialist defence and aerospace business focused mainly on electronic warfare, information
systems and electronic systems development. Acquired by Cohort in August 2006.
*
SCS (www.scs-ltd.co.uk) - an independent defence consultancy, combining technical expertise with practical experience and
domain knowledge. Owned by Cohort since flotation in March 2006.
*
SEA (www.sea.co.uk) - an advanced surveillance systems and software house with hardware development capability operating in
the defence, space, transport and offshore market sectors. Acquired by Cohort in October 2007.
Cohort (AIM: CHRT) was admitted to London's Alternative Investment Market in March 2006. It has its headquarters in
Oxfordshire and, through its operating companies, employs in total around 500 core staff there and at bases in Bristol,
Cambridgeshire, Oxfordshire, Lincolnshire and Somerset.
CHAIRMAN'S STATEMENT
OVERVIEW
Cohort has continued to make progress during the first six months of this year in two of its three subsidiaries, MASS and
SEA, both achieving good revenue growth over the equivalent period last year. MASS continued to show good profit growth
whilst SEA's profit was slightly lower than for the corresponding period last year, in line with expectations. This
performance reflects SEA's current position in a number of key programmes, with stronger second half delivery expected. As
announced on 3 December 2009, SCS has had a poor first half. An income overstatement for prior periods has also been
identified and the comparative figures restated accordingly. An urgent investigation to identify the causes of the
difficulties at SCS and resolve them is underway. As a consequence of the position at SCS the trading profit for the Group
was down compared with the first six months for last year and the Group now anticipates a result for the full year
significantly lower than the result for the year to 30 April 2009.
FINANCIALS
In the six months ended 31 October 2009, Cohort achieved revenue of £37.3m (2008: £33.9m), a 10% increase. The Group's
revenue for the first half included £10.9m from MASS, an increase of 14% and £13.6m from SEA, an increase of 28%. SCS
revenue was down on the first half of last year by £0.9m from £13.7m to £12.8m, a fall of 7%.
The Group's adjusted operating profit was £1.4m (2008: £3.2m). This included contributions from MASS of £1.9m (2008: £1.3m)
and from SEA £1.1m (2008: £1.2m). The loss from SCS of £0.9m (2008: profit of £1.2m) reduced the Group's overall trading
performance. The Group's operating profit was £1.3m (2008: £2.9m).
During the period, the business of the Group's joint venture undertaking, AGS, was sold, realising an exceptional profit to
the Group of £0.2m. The Group had previously withdrawn from this joint venture undertaking and written down its investment.
As announced on 3 December 2009, as part of the review leading up to the interim results the Group identified an
overstatement of income at SCS of £1.85m. Of this amount, £0.6m has been identified as relating to the value of work in
progress at 30 April 2009 and as the Board consider this to be a material amount the figures reported for the year ending
on this date have been correspondingly restated.
The adjusted earnings per share (before exceptional items and amortisation of other intangible assets) for the six months
ended 31 October 2009 are 2.42 pence per ordinary share (2008: 6.25 pence).
Net cash outflow from operating activities was £0.1m (2008: inflow of £1.2m). Working capital increased in the first half
but we expect it to reduce in the second half as deliveries are made. The net outflow in the first half compared with the
net inflow in 2008/9 was primarily due to higher tax payments on account, with elements of R&D tax credits not yet
reflected in these. The period ended with the Group holding £3.0m of net funds (£3.7m at 30 April 2009 and £1.8m net debt
at 31 October 2008).
MASS
MASS has continued to perform very well, producing a 43% increase in operating profit from a 14% increase in revenue over
the same period last year. Good progress on the MoD secure communications project as well as increased overseas deliveries
contributed to a good performance, exceeding our expectations. MASS secured its role as IT provider for North Lincolnshire
Building Schools for the Future programme as well as being part of one of the two teams down selected to the next stage of
the UK's Defence Electronic Warfare Improvement Programme, worth up to £50m to the winning consortium. Down selection to
one contractor is expected in the second half of next year. The order book of MASS at 31 October 2009 was £27.9m,
underpinning £8.2m of second half revenue.
During the early part of November, MASS completed the acquisition for £2.3m of a freehold property in St Neots, close to
its current operations. This acquisition has been made to enable MASS to continue to expand its operations. Refurbishment
costing up to £1.4m will take place over the next six months with MASS due to occupy its new facility in the summer of
2010. This purchase has been funded from the Group's own cash resources.
SEA
SEA performed in line with expectations. An increase in revenue of 28% was accompanied by a slight deterioration in net
profit compared with the first half of 2008/9. The lower net profit, which was in line with expectations, reflected a
change in mix with higher volumes in the period of lower margin revenue, primarily from current stages on space programmes
and the research framework agreement for Future Soldier Systems. SEA also increased manning for delivery of some programmes
which have slipped into the second half. As is typical for SEA, the delivery of revenue will be much more weighted to the
second half. SEA order book at 31 October 2009 was £22.8m, underpinning £10.5m of the second half revenue.
SCS
SCS has had a very poor first half to 2009/10 producing a net loss of £0.9m (2008: £1.2m profit) on revenue of £12.8m
(2008: £13.7m). This very disappointing result has arisen from a tightening in the market leading to reduced revenue, a
poor mix of work leading to lower margins and lower utilisation of core staff. The reported operating loss of £0.9m
includes £0.4m of costs in respect of contracts completed in the year ended 30 April 2009 which do not fall to be
classified as a prior year adjustment under accounting standards. The balance of the announced income overstatement,
£0.8m, arose during the six months ended 31 October 2009 and is included in the reported operating loss.
Since the announcement on 3 December 2009 the Group has been carrying out an urgent investigation, in conjunction with its
auditor, into the causes of the income overstatement, which relates mainly to work in progress on a small number of fixed
price contracts. Preliminary conclusions are that causes were: errors in migrating data from the previous management
information system to the present one; shortcomings in operation of the system; poor interaction between the finance and
project management functions; and accounting errors. As a result of a lack of adequate balance sheet review at SCS these
errors accumulated until identified by the company in the process of preparing the Interim result.
Prior to identification of the income overstatement, an initial restructuring programme had already been implemented at SCS
which reduced annual costs by £0.7m. Following the recently identified problems, further changes are likely to be required
to put SCS back on a satisfactory trading path. An urgent review of the management, operations and financial control at
SCS is underway in order to identify and implement the necessary changes.
The SCS second half performance is expected to be in profit, and the Board presently anticipates that SCS will trade
approximately at break even over the whole year. The SCS order book at 31 October 2009 was £9.5m with £8.0m of this
deliverable in the second half of the year.
SCS will relocate in early 2010 from Henley-on-Thames to a new office in Theale, near Reading. SCS, as now, will lease its
new facilities.
OUTLOOK AND DIVIDENDS
The Group's order book at 31 October 2009 stood at £60.2m. £26.7m of this order book is deliverable in the second half.
Despite the expected good performance from MASS and SEA, the breakeven trading outlook for SCS for the year means that the
profit before tax for the current financial year will be significantly below that for the year ended 30 April 2009.
Taking a longer view, the Board believes that the prospects for all of the Group's businesses are sound and that this will
feed into shareholder value after the problems at SCS have been rectified. Reflecting this belief, the Board is
maintaining its progressive dividend policy. The Group plans to pay an interim dividend of 0.65 pence (2008: 0.55 pence)
per ordinary share on 6 March 2010 to shareholders on the register at 27 February 2010.
CONSOLIDATED INCOME STATEMENT
For the six months ended 31 October 2009
Notes Six months ended 31 October 2009 Unaudited £000 Six months ended 31 October 2008 Unaudited £000 Year ended 30 April 2009Restated Unaudited£000
Revenue 2 37,283 33,860 77,951
Cost of sales (27,252) (22,763) (54,001)
Gross profit 10,031 11,097 23,950
Administrative expenses (8,659) (7,868) (16,470)
Adjusted operating profit* 2 1,372 3,229 7,480
Amortisation of other intangible assets (297) (312) (540)
Exceptional items 3 200 - (674)
Operating profit 2 1,275 2,917 6,266
Share of results of joint ventures - (216) (224)
Finance income 16 90 95
Finance costs (88) (177) (303)
Profit before tax 1,203 2,614 5,834
Income tax expense 4 (316) (613) (1,242)
Profit for the period attributable to the equity shareholders of the parent. 887 2,001 4,592
Earnings per share
Basic 2.18p 4.94p 11.34p
Diluted 2.17p 4.92p 11.26p
All profit for the period is derived from continuing operations. The business of the joint venture was sold during the
period.
*Adjusted operating profit is the operating profit before exceptional items and amortisation of other intangible assets.
The consolidated income statement for the year ended 30 April 2009 has been restated for the income overstatement described
in note 8.
STATEMENT OF OTHER COMPREHENSIVE INCOME
For the six months ended 31 October 2009
Six months ended 31 October 2009 Unaudited £000 Six months ended 31 October 2008 Unaudited £000 Year ended 30 April 2009RestatedUnaudited£000
Profit for the period attributable to equity shareholders of the parent 887 2,001 4,592
Other comprehensive income:
Cash flow hedges - losses taken to equity (net of tax) - - (49)
Total comprehensive income for the period attributable to the equity shareholders of the parent 887 2,001 4,543
The statement of other comprehensive income for the year ended 30 April 2009 has been restated for the income overstatement
described in note 8.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 October 2009
31 October 2009 Unaudited £000 31 October 2008 Unaudited £000 30 April 2009RestatedUnaudited £000
ASSETS
Non-current assets
Goodwill 31,043 31,042 31,043
Other intangible assets 930 1,675 1,227
Property, plant and equipment 4,731 4,754 4,727
Deferred tax asset 266 62 266
36,970 37,533 37,263
Current assets
Inventories 417 333 359
Trade and other receivables 19,654 20,765 23,655
Derivative financial instruments 210 121 178
Cash and cash equivalents 6,749 2,134 7,511
27,030 23,353 31,703
Total assets 64,000 60,886 68,966
LIABILITIES
Current liabilities
Trade and other payables (11,086) (11,047) (16,164)
Current tax liabilities (1,068) (1,475) (1,377)
Other loans - (42) (32)
Derivative financial instruments (68) - (68)
Bank borrowings (3,180) (3,126) (3,167)
Provisions (1,354) (1,266) (1,528)
(16,756) (16,956) (22,336)
Non-current liabilities
Other loans - (11) -
Bank borrowings (529) (728) (615)
Deferred tax liability (920) (662) (920)
(1,449) (1,401) (1,535)
Total liabilities (18,205) (18,357) (23,871)
Net assets 45,795 42,529 45,095
Equity
Share capital 4,076 4,048 4,059
Share premium account 29,491 29,186 29,297
Hedge reserve (49) - (49)
Share option reserve 356 260 266
Retained earnings 11,921 9,035 11,522
Total equity attributable to the equity shareholders of the parent 45,795 42,529 45,095
The consolidated statement of financial position for the year ended 30 April 2009 has been restated for the income
overstatement described in note 8.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 October 2009
Note Share capital Share premium account Hedge reserve Share option reserve Retained earnings Total equity
£000 £000 £000 £000 £000 £000
At 1 May 2009 as previously reported 4,059 29,297 (49) 266 12,012 45,585
Restatement in respect of income overstatement at SCS 8 - - - - (490) (490)
At 1 May 2009 as restated 4,059 29,297 (49) 266 11,522 45,095
Dividends - - - - (488) (488)
Total comprehensive income for the period - - - - 887 887
Share options 17 194 - - - 211
Share based payments - - - 90 - 90
At 31 October 2009 4,076 29,491 (49) 356 11,921 45,795
At 1 May 2008 4,046 29,158 - 200 7,439 40,843
Dividends - - - - (405) (405)
Total comprehensive income for the period - - - - 2,001 2,001
Share options 2 28 - - - 30
Share based payments - - - 60 - 60
At 31 October 2008 4,048 29,186 - 260 9,035 42,529
At 1 May 2008 4,046 29,158 - 200 7,439 40,843
Dividends - - - - (627) (627)
Total comprehensive income for the year 8 - - (49) - 4,592 4,543
Share options 13 139 - - - 152
Share based payments - - - 66 118 184
At 30 April 2009 4,059 29,297 (49) 266 11,522 45,095
CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 31 October 2009
Notes Six months ended 31 October 2009 Unaudited Six months Ended 31 October 2008 Unaudited Year ended 30 April 2009RestatedUnaudited
£000 £000 £000
Net cash (used in)/generated from operating activities 7 (81) 1,233 7,271
Cash flow from investing activities
Interest received 16 90 95
Proceeds on disposals of property, plant and machinery 27 - 6
Proceeds on disposal of interest in joint ventures 140 - -
Purchases of property, plant and equipment (296) (141) (432)
Acquisition of subsidiaries, net of cash acquired (280) (4,673) (4,673)
Net cash used in investing activities (393) (4,724) (5,004)
Cash flow from financing activities
Dividends paid (488) (405) (627)
Repayment of borrowings (105) (81) (174)
Proceeds on issue of shares 211 30 152
Net cash used in financing activities (382) (456) (649)
Net (decrease)/increase in cash and cash equivalents (856) (3,947) 1,618
Cash and bank brought forward 1,311 6,081 6,081
Cash flow 3,344 (4,947) (4,582)
Exchange 94 - (188)
Cash and bank carried forward 4,749 1,134 1,311
Short term deposits brought forward 6,200 - -
Cash flow (4,200) 1,000 6,200
Short term deposits carried forward 2,000 1,000 6,200
Cash and cash equivalent brought forward 7,511 6,081 6,081
Cash flow (856) (3,947) 1,618
Exchange 94 - (188)
Cash and cash equivalents carried forward 6,749 2,134 7,511
Total debt (3,709) (3,907) (3,814)
Net funds/(debt) 3,040 (1,773) 3,697
NOTES TO THE INTERIM REPORT
1. BASIS OF PREPARATION
The financial information contained within this interim report has been prepared using accounting policies consistent with
International Financial Reporting Standards (IFRS) as adopted by the EU and expected to apply at 30 April 2010. This
interim report is condensed with respect to IFRS requirements. As permitted, this interim report has been prepared in
accordance with AIM Rules for companies and not in accordance with IAS34 'Interim Financial Reporting' and is therefore not
fully compliant with IFRS. This interim report is presented in sterling and all values are rounded to the nearest thousand
pounds (£000) except where otherwise indicated.
The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1
May 2009.
IAS 1 (revised), "Presentation of financial statements". The revised standard requires "non-owner changes in equity" to be
presented separately from owner changes in equity. All "non-owner changes in equity" are required to be shown in a
performance statement. Entities can choose whether to present one performance statement (the statement of comprehensive
income) or two statements (the income statement and statement of comprehensive income). The Group has elected to present
two statements: an income statement and a statement of comprehensive income. The interim financial statements have been
prepared under the revised disclosure requirements.
IFRS 8, "Operating segments". IFRS 8 replaces IAS 14, "Segment reporting". It requires a "management approach" under which
segment information is presented on the same basis as that used for internal reporting purposes. This will not result in a
change in the reportable segments presented.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker has been identified as the Board that makes strategic decisions.
In accordance with s434 of the Companies Act 2006, the unaudited results do not constitute statutory financial statements
of the Company. The six months results for both years are unaudited.
The comparative figures for the year ended 30 April 2009 were derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. Those accounts received an unqualified audit report which did not include
statements under section 498(2) or (3) of the Companies Act 2006. The figures for the year ended 30 April 2009 have been
restated for the income overstatement at SCS (see note 8).
The interim report was approved by the Board and authorised for issue on 8 December 2009. Copies of the interim report
will be sent to shareholders on 21 December 2009.
2. SEGMENTAL ANALYSIS OF REVENUE AND ADJUSTED OPERATING PROFIT
Six months ended 31 October 2009 Unaudited £000 Six months ended 31 October 2008 Unaudited£000 Year ended 30 April 2009RestatedUnaudited£000
Revenue
MASS 10,905 9,561 20,622
SCS 12,821 13,688 30,425
SEA 13,557 10,611 26,904
37,283 33,860 77,951
Operating profit
MASS 1,884 1,322 2,832
SCS (902) 1,171 2,723
SEA 1,074 1,231 3,124
Central Costs (684) (495) (1,199)
Adjusted operating profit 1,372 3,229 7,480
Amortisation of other intangible assets (297) (312) (540)
Exceptional items 200 - (674)
Operating profit 1,275 2,917 6,266
All revenue and adjusted operating profit is in respect of continuing operations.
The operating profit as reported under IFRS is reconciled to the adjusted operating profit as reported above by the
exclusion of exceptional items and amortisation of other intangible assets.
The adjusted operating profit is presented in addition to the operating profit to provide the trading performance of the
Group, as derived from its constituent elements on a comparable basis from period to period.
The adjusted operating profit is stated after charging £90,000 in respect of share-based payments (six months ended 31
October 2008: £60,000, year ended 30 April 2009: £184,000)
As announced on 3 December 2009 the Group identified an overstatement of income of £1,850,000. Of this, £620,000 has been
accounted as prior year adjustment (see note 8). Of the remainder £434,000 relates to costs incurred on contracts completed
in the year ended 30 April 2009 which do not fall to be classified as prior year adjustments under accounting standards and
£796,000 relates to costs overruns on contracts in progress. The underlying performance of SCS in the period is therefore a
loss of £468,000 (2008: profit of £1,171,000).
REVENUE ANALYSIS BY SECTOR AND TYPE OF WORK
Six months ended 31 October 2009 Unaudited Six monthsended31 October 2008 Unaudited Year ended 30 April 2009RestatedUnaudited
£m % £m % £m %
By sector
Direct to UK MoD 19.5 18.9 43.7
Indirect to UK MoD, where the Group acts as a sub-contractor or partner 6.8 7.4 16.4
Total to the UK MoD 26.3 71 26.3 78 60.1 77
Export defence customers 4.1 2.5 6.0
Defence revenue 30.4 82 28.8 85 66.1 85
Transport 1.9 2.2 4.6
Space 3.6 1.6 4.2
Other commercial 1.4 1.3 3.1
Non defence revenue 6.9 18 5.1 15 11.9 15
Total revenue 37.3 100 33.9 100 78.0 100
By type of work
Technology solutions 16.0 43 12.1 36 30.4 39
Advisory services 7.6 20 11.8 35 23.2 30
Manpower provision 6.5 17 3.7 11 10.0 13
Managed services 4.4 12 4.3 13 9.0 11
Product 2.8 8 2.0 5 5.4 7
Total revenue 37.3 100 33.9 100 78.0 100
3. EXCEPTIONAL ITEMS
Six months ended 31 October 2009 Unaudited £000 Six months ended 31 October 2008 Unaudited£000 Year ended 30 April 2009RestatedUnaudited£000
Charge in respect of withdrawing from the Group's joint venture in AGS - - (674)
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