Cohort : Preliminary Results

One Waterside Drive

Arlington Business Park

Reading

Berks

RG7 4SW

28 July 2022

		COHORT PLC
	UNAUDITED PRELIMINARY RESULTS
	FOR THE YEAR ENDED 30 APRIL 2022
Cohort plc today announces its unaudited results for the year ended 30 April 2022.
Highlights include:	2022	2021	%
	Revenue	£137.8m	£143.3m	(4)
	Adjusted operating profit1	£15.5m	£18.6m	(17)
 Adjusted earnings per share1	31.08p	33.63p	(8)
	Net funds	£11.0m	£2.5m
	Order intake	£186.4m	£180.3m	3
	Order book (closing)	£291.0m	£242.4m	20
 Proposed final dividend per share	8.35p	7.60p	10
 Total dividend per share	12.20p	11.10p	10
Statutory	2022	2021	%
	Statutory profit before tax	£10.2m	£7.1m	44
	Basic earnings per share	22.55p	13.38p	69

• Trading performance in line with previous guidance
• Divisional overview:

• • MASS was the largest profit contributor and improved on last year
  • Another year of growth at MCL
  • Stronger result at SEA
  • Strong first full year contribution from ELAC, ahead of expectations
  • As expected, weaker result at EID
  • Disappointing performance at Chess, but 2022/23 has started better
• Net funds at £11m, as previously disclosed. Robust cash generation
• Strong order intake of £186.4m (2021: £180.3m)
• Total dividend increased by 10%

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

Looking forward:

• Record year end order book of £291.0m:

• • underpins nearly £128m of current year revenue, representing 78% (2021: 64%) of current consensus forecast for the year
  • Coverage has risen to 90% in early July 2022 following contract wins in first two months
• Performance for 2022/23 expected to be ahead of 2021/22
• Expect lower (but positive) net funds at 30 April 2023 as a result of planned capital expenditure and expansion of working capital

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

"Performance for 2021/22 was in line with our revised expectations, with robust cash generation, and a record closing order book with strong cover for the coming financial year.

"It is hard to predict the duration of the conflict in Ukraine and any direct benefit to the Group's short-term trading. In the longer term we believe a more sustained growth in defence budgets is likely, both in NATO and in other parts of the world where security threats remain.

"Overall, we continue to expect that our trading performance for 2022/23 will be ahead of that achieved for the year ended 30 April 2022.

"Our order book is not only growing in value, but its longevity continues to increase. We now have orders across the Group stretching out to 2030. We are optimistic that the Group will make further progress in 2023/24, based on current orders for long- term delivery and on our pipeline of opportunities."

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A presentation for analysts is being hosted today 28 July 2022 at 9.15am for 9.30am online as follows:

Please join the event 5-10 minutes prior to scheduled start time. When prompted, provide the confirmation code or event

title.
Event Title:	Cohort Results
Time Zone:	Dublin, Edinburgh, Lisbon, London
Start Time/Date: 09:30 Thursday July 28, 2022
Duration:	60 minutes
Confirmation Code:	1829705

WEBCAST:	https://stream.brrmedia.co.uk/broadcast/62d008d30485375c36e3de8c
Conference Call Line:	UK Participant (Tollfree/Freephone)	0800 279 6877
	UK, Local Participant	[phone]
For further information please contact:
Cohort plc		0118 909 0390
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Raquel McGrath, Company Secretary
Investec Bank Plc (NOMAD and Broker)	020 7597 5970
Daniel Adams, Christopher Baird
MHP Communications		020 3128 8570
Reg Hoare, Ollie Hoare, Pete Lambie	[e-mail]

NOTES TO EDITORS

Cohort plc (www.cohortplc.com) is the parent company of six innovative, agile and responsive businesses based in the UK, Germany and Portugal, providing a wide range of services and products for domestic and export customers in defence and related markets.

Chess Technologies, through its operating businesses Chess Dynamics and Vision4ce, offers surveillance, tracking and fire-control systems to the defence and security markets. A majority stake was acquired by Cohort plc in December 2018. www.chess- dynamics.com

EID designs and manufactures advanced communications systems for naval and military customers. Cohort acquired a majority stake in June 2016. www.eid.pt

ELAC SONAR supplies advanced sonar systems and underwater communications to global customers in the naval marketplace. Acquired by Cohort in December 2020. www.elac-sonar.de

MASS is a specialist data technology company serving the defence and security markets, focused on electronic warfare, digital services and training support. Acquired by Cohort in August 2006. www.mass.co.uk

MCL designs, sources and supports advanced electronic and surveillance technology for UK end users including the MOD and other government agencies. MCL has been part of the Group since July 2014. www.marlboroughcomms.com

SEA delivers and supports technology-based products for the defence and transport markets alongside specialist research and training services. Acquired by Cohort in October 2007. www.sea.co.uk

Cohort (AIM: CHRT) was admitted to London's Alternative Investment Market in March 2006. It has headquarters in Reading, Berkshire and employs in total over 1,000 core staff there and at its other operating company sites across the UK, Germany and Portugal.

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Chairman's statement

"Performance in line with revised expectations, robust cash, and a record closing order book with strong cover for the coming financial year."

Performance

The Group's adjusted operating profit was in line with our revised expectations at the time we announced our half-year results on

14 December 2021, achieving an adjusted operating profit of £15.5m (2021: £18.6m) on revenue of £137.8m (2021: £143.3m). The reduction in performance compared to last year was primarily the result of a disappointing performance at Chess, along with an expected drop in profit from EID. MASS, MCL and SEA all posted increases in profit, and we benefited from a full year contribution from ELAC.

The Group had another strong year of order intake, winning £186.4m (2021: £180.3m) of orders, driving us to a record closing

order book of £291.0m (2021: £242.4m). This order book gives us a strong start to 2022/23. The Group's net funds also finished at a higher level than we expected at the start of the year, £11.0m compared with £2.5m.

Following strong order intake in 2020/21, SEA had an improved year, driven by export deliveries, including a first contract with the Royal New Zealand Navy. MCL delivered another year of growth and, importantly, ended the year with an unusually strong order book, providing good underpinning for 2022/23. MASS, despite slightly lower revenue and continued challenges in its EWOS and Training divisions from COVID-19 restrictions, delivered an improved net margin, with better mix and flat overhead. ELAC, having secured a large Italian sonar order early in the year, delivered a better than expected result. In line with our expectations, EID's performance was much weaker, having benefited from a large export delivery in 2020/21 that was not repeated this year. Chess's performance was disappointing. Order intake was lower than expected, as were customer deliveries, and a small number of problem contracts had a negative impact on margin. We have made progress in resolving these problems, and we saw an uptick in performance at Chess towards the end of the year.

We continued to see some negative impact from COVID-19 in the first half of our financial year, particularly at MASS. This started to alleviate in the second half and at the same time, as some normality returned to our business activities, we saw a return to more face-to-face business engagement, especially trade shows and exhibitions across the world. Despite two years of challenging business conditions the Group won over £365m of orders during that period. Our order book now stretches out to 2030 and we expect to extend that further in the coming year.

The Group's operating profit of £11.1m (2021: £7.8m) is stated after recognising amortisation of intangible assets of £6.9m (2021:

£10.1m), exceptional income of £0.7m (2021: £1.3m charge) and research and development expenditure credits of £1.0m (2021:

£1.0m). Profit before tax was £10.2m (2021: £7.1m) and profit after tax was £8.7m (2021: £5.5m).

The closing net funds of £11.0m (2021: £2.5m), was better than our expectation, due to an improved operating cash flow, particularly at ELAC, MASS, and SEA. The cash flow also benefited from slippage of some items of capital expenditure and the final Chess acquisition payment into 2022/23.

International conflict

The Russian invasion of Ukraine has had a notable impact on public and Government perceptions worldwide of the importance of an effective defence capability. Media reporting has reflected a sense of shock that a nascent European democracy can be the target of state-on-state violence of an intensity not seen on the continent since 1945. Many have had to re-learn that the stability of democracy and maintenance of our freedoms and values requires strong defence to deter, and if necessary, repel an aggressive invader. It is also clearer than ever that strong defence means a strong defence industry as well as capable armed forces. That is something that Cohort's leadership and employees understand well, and for many of us it is a large part of our motivation at work. We therefore believe that an activity that generates social value as well as business success such as the UK's defence sector, including Cohort, is worthy of investor consideration.

Our customers' response to the situation in Ukraine had some positive business impact in 2021/22 and we expect this to increase in 2022/23. There is also the potential for a negative effect as increased operational readiness makes it harder for us to provide maintenance services, upgrades and training. On balance, we believe that the long-term change in defence stance that has been catalysed by these events, especially among NATO countries, will be of benefit to the Group.

Strategic initiatives

Cohort's subsidiary, SEA, acquired the remaining 50% of its joint venture JSK in August 2021 for a net consideration of £0.4m. JSK is based in Montreal, Canada and provides SEA, and the Group, with a local presence to provide the Royal Canadian Navy with ongoing support to existing and new naval platforms. The latter include the new Canadian frigate programme for which SEA is providing certain important systems.

When we acquired Chess in December 2018, we agreed to pay further consideration depending on the performance of the business over the three years ended 30 April 2021. Our current best estimate is that the additional consideration payable, including earn-out, to take control of the whole of Chess in 2022 will now be £1.4m (2021: £2.8m), and we expect to pay this on or before 31 October 2022.

The Group continues to review acquisition opportunities as they arise, in line with our criteria.

Shareholder returns

Adjusted earnings per share (EPS) were 31.08 pence (2021: 33.63 pence). The adjusted EPS figure was based on profit after tax, excluding amortisation of other intangible assets, net foreign exchange movements and exceptional items. Basic EPS were 22.55 pence (2021: 13.38 pence). The adjusted EPS were 8% lower primarily due to the weaker adjusted operating profit (down 17%), partly offset by a lower tax charge of 13.5% (2021: 17.4%) and a change in mix from which the Group's profits were derived, with the 100% owned businesses (ELAC, MCL and SEA) performing most strongly.

The Board is recommending a final dividend of 8.35 pence per ordinary share (2021: 7.60 pence), making a total dividend of 12.20

pence per ordinary share (2021: 11.10 pence) for the year, a 10% increase. The dividend has been increased every year since the Group's IPO in 2006. It will be payable on 4 October 2022 to shareholders on the register at 26 August 2022, subject to approval at the Annual General Meeting on 27 September 2022.

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Over the medium term, the Group plans to maintain a policy of growing its dividend each year broadly consistent with the growth in adjusted earnings per share growth.

Our people

As always, my thanks go to all employees within the Cohort businesses. Their hard work, skill and ability to satisfy our customers' needs are what continue to drive the performance of our Group.

As already highlighted, the direct impact of COVID-19 has diminished over the year, and we have in most instances returned to normal work and travel practices. Where appropriate we continue to offer flexibility to our employees as to their location of work, including hybrid working in some cases. As of June 2022, 75% of our employees are mostly based on our or our customers' sites, which compares with 50% at this time last year.

We have seen a return to face-to-face customer meetings and in the last few months alone we have attended trade shows in Australia, Europe, Asia and the United States. We could not easily assess the direct impact of the various COVID-19 lockdowns on our long-term business prospects but the strong order intake in the last two years suggests this may not be as deep as we first feared. Andy Thomis, Simon Walther and their senior executive colleagues have continued their dedicated and skilful work which has helped the Group to progress in the face of continuing challenging conditions.

Governance and Board

As separately announced, Stanley Carter has decided not to stand for re-election as a non-executive Director at Cohort's forthcoming Annual General Meeting to be held in September 2022. Stanley has made an immense contribution to the development and success of Cohort since co-founding it with me in 2006, initially as Chief Executive, then as Co-Chairman and since 2015 as a Non-executive Director. The Board and all Cohort staff are grateful to him for his leadership and support during different phases of the company's development, and we look forward to continuing the relationship with him as a major shareholder.

We formally welcomed Beatrice Nicholas onto the Board as a Non-executive Director on 1 September 2021. Beatrice has had a long and successful career in the defence industry and brings a wealth of experience in engineering, project management and general management to Cohort.

I also take this opportunity to welcome David Tuddenham as the new Managing Director of Chess. David had worked for Chess for over ten years in senior positions before stepping up to this role in June 2021. David replaces Graham Beall who will lead Chess's business development in the USA. At ELAC, we have adjusted the senior roles, with Bernd Szukay appointed Managing Director and Ole Schneider as Finance Director.

Outlook

The new year has started in line with our expectations and with an encouraging outlook for Cohort, despite the challenging external environment.

Geo-political and macro-economic trends

The recent sad events in Ukraine have impacted on a world economy still recovering from the COVID pandemic. The invasion has seen a higher level of focus amongst governments, particularly European NATO members, on their defence stance. In some instances, notably the UK and Germany, this has already led to an increase in defence spending.

It is hard to predict the duration of the conflict in Ukraine and its direct impact upon the Group's trading. In the longer term, after the taboo over armed invasion of peaceful neighbours has so clearly been broken, we expect to see a more sustained growth in defence budgets, both in NATO but also in other parts of the world where security threats remain.

To set against this, we expect to see economic fallout from the war in Ukraine as well as the lingering impacts of COVID-19. These include higher inflation and rising interest rates and therefore pressure on governments to mitigate these effects on their populations.

The Group is not currently facing any direct restrictions on business activity arising from COVID-19, though we cannot rule out some re-introduction of restrictions if a new variant should cause severe health problems. We still face indirect fall-out in the form of cost increases and delays to supplies. These are not currently having any significant impact on performance, but we are seeing delivery schedules for certain components lengthen markedly and may see some impacts in the short term.

Encouraging outlook for Cohort

Our order intake for the year was strong and as a result of this success, the Group has entered the new financial year with a record order book of £291.0m. As we have indicated in the last few years, our order book is not only growing in value, but its longevity continues to increase. We now have orders across the Group stretching out to 2030. We have good prospects in the coming year to secure further long-term orders for our naval systems and support work, including from the UK MOD, Portugal and in export markets.

The order book underpins nearly £128m (2021: £100m) of current financial year revenue, representing 78% of expected consensus revenue for the year. Following order wins since the start of the financial year of just over £20m, that cover now stands at 90%.

Overall, we continue to expect that our trading performance for 2022/23 will be ahead of that achieved for the year ended 30 April 2022. As a result of planned capital expenditure and expansion in working capital we expect that our net cash balance will decrease, but that we will maintain positive net funds at the year end.

We are optimistic that the Group will make further progress in 2023/24, based on current orders for long-term delivery and on our pipeline of opportunities.

Nick Prest CBE

Chairman

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Operations Review

"The Group's profit performance for the year was in line with our expectations at the time of our half-year results announcement on 14 December 2021. Pleasing improvements in performance at ELAC, MCL and SEA were offset by reduced profits at EID and, especially, Chess. Cash performance was better than expected, resulting in a strong positive net cash position at the year end. Order intake was also strong, and the resulting record order book gives us a solid base for 2022/23. We see good prospects for further significant new orders in the year ahead."

Operating review

2022 saw another strong year for order intake, with £186.4m of new work contracted compared with £180.3m in 2021. That resulted in a record closing order book of £291.0m, an historic high for the Group, underpinning 78% of the consensus forecast revenue for 2023. Cash flow was robust, the Group closing the year with net funds of £11.0m (2021: £2.5m). In line with our expectations at the time of the half-year results announcement in December 2021, revenue was down despite a full year contribution from ELAC, and trading profit down 17%.

We saw a welcome return to growth at SEA, with an increase in export deliveries following order wins in 2020/21. MCL grew its revenue and trading profit with higher deliveries of autonomous vehicle systems to the UK MOD. Despite slightly reduced revenue, mostly from cessation of its lower margin support to the Metropolitan Police Service, MASS delivered a record high net margin. As expected, EID's contribution was lower this year, with deliveries on a large export order in 2020/21 not being repeated. The main disappointment of the year was at Chess, where significantly reduced revenue and profit resulted from order slippage, delayed deliveries on key programmes and continuing cost increases on certain legacy projects.

ELAC performed well in its first full year in the Group (compared with its five-month contribution in 2020/21). Its revenue and profit included a £1.1m contribution from the mechanism agreed with Wärtsilä, ELAC's former owner, in respect of an export contract that has not yet been made effective. This mechanism may provide up to a further £0.5m in 2022/23. ELAC has begun to recognise revenue on the major Italian submarine sonar contract won last July and has continued to deliver against a pleasing level of product, spares and repair orders.

Travel and operational restrictions arising from the COVID-19 pandemic continued in the first half of the financial year, with international travel restrictions still in place in many regions, and this has affected some customer contact, and with that some order closure and pipeline building opportunities, but despite this the Group overall has performed well in winning new business. The Group's record closing order book of £291m gives us order cover of just under £128m for 2022/23. Over the last two years, despite the effects of COVID-19, the Group secured orders of over £365m, materially growing and extending the duration of its order book.

We have seen an impact on deliveries of products and services resulting from pandemic-related customer site closures and restrictions. This has been especially true of MASS's training work, some of which has slipped into 2022/23. Although COVID-19 restrictions have now generally lifted, we continue to see price increases and extended lead times for certain materials and components, especially semiconductors. We also see upwards pressure on salaries in certain specialist areas of expertise. We are taking action to maintain deliveries and protect our margins through increasing stock levels, seeking alternative sources of supply, and ensuring that our commercial arrangements enable us to pass on higher costs.

Towards the end of the financial year, we began to see an increase in activity as certain of our customers responded to Russia's invasion of Ukraine. This had minimal financial impact on 2021/22 but we anticipate some of this activity converting to tangible orders and deliveries during 2022/23.

As we signalled in December 2021, the Group's adjusted operating profit fell by nearly 17% to £15.5m (2021: £18.6m) on revenue

of £137.8m (2021: £143.3m), a net operating return of 11.2% (2021: 13.0%). This was primarily a result of the disappointing

performance at Chess. The Group's statutory operating profit of £11.1m (2021: £7.8m) reflects the amortisation of other intangible

assets, a £6.9m non-cash charge in 2022 (2021: £10.1m 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.

ELAC made a strong full year contribution after its initial five-month contribution in 2020/21. Its revenue included an initial contribution from the major Italian submarine sonar programme won in July 2021. It also delivered specialist sonar products for various export customers, including its widely used underwater communication system, and spares and support for both its current product range and legacy hydrographic products.

MASS returned to growing its trading profit despite a slight (3%) fall in revenue. MASS continued to see some headwinds from COVID-19 restrictions, especially in the first half of the year, but these began to ease in the second half with a pick-up in its various training services and support to the UK's Joint Forces Command.

MCL delivered increased revenue and profit with provision of autonomous land vehicles and hearing protection more than offsetting a reduction in deliveries of systems for the UK submarine fleet last year.

SEA saw a welcome return to growth with higher export and support sales offsetting lower submarine activity. Transport sales also returned to growth following a hiatus in activity during COVID-19 restrictions in the early part of 2020/21.

As expected, EID's performance was much weaker than last year which included a large export order of intercom systems. EID had a stronger order intake for the year compared with 2020/21 but the business still awaits some key orders, particularly for long term naval programmes which are anticipated in the coming financial year.

Chess had a poor year, delivering only a marginal trading profit on much lower revenue compared to 2020/21. This resulted from order intake that was lower than expected, delivery delays and cost overruns on a small number of problem projects. Over the year we have strengthened Chess's senior management team and made organisational changes intended to improve performance and reduce risk. These changes have begun to have an impact, and we have seen an improved performance at the beginning of 2022/23.

The growth in central costs reflects the enhanced commercial, legal and financial resources we have brought in to support subsidiary growth, especially in export markets, together with the increasing compliance requirements faced by the Group.

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