(CHRT) Cohort

CHAIRMAN'S STATEMENT

Overview

In line with our expectations, Cohort showed a significant improvement in performance in the first half of 2011/12.  MASS performed strongly with an increase of 42% in its trading profit on 20% higher revenue compared to the same period in 2010/11.  Commencement of the delivery of the new Electronic Warfare database for the UK MOD contributed around half of MASS's revenue increase.

SCS has continued to face a tighter market environment for advisory services to the MOD.  Despite this background and a resulting decline in revenue, the business has continued to be profitable and to secure both new and repeat business from the MOD and other customers.

SEA, following considerable organisational and management change in the second half of 2010/11 has returned to a better level of profitability, £0.8m compared with £0.1m in the first half of 2010/11.  Work continues in consolidating the changes and closing out some poorly performing projects over the next six to twelve months.

Key Financials

In the six months ended 31 October 2011, Cohort achieved revenue of £37.4m (2010: £32.7m), an increase of 14%.  As well as the £14.0m from MASS the Group's revenue for the first half included just under £15.4m from SEA, an increase of 33% and £8.0m from SCS, a decrease of 16% on the 2010 comparative.

The Group's adjusted operating profit was £3.0m (2010: £1.8m) (stated before marking forward exchange contracts to market value, exceptional items and amortisation of intangible assets).  This included contributions from MASS of £2.7m (2010: £1.9m), SCS £0.3m (2010: £0.5m) and SEA £0.8m (2010: £0.1m).  The SEA performance excluded £0.4m of expense (2010: income of £0.3m) from marking forward exchange contracts to market value at 31 October 2011, which has been shown separately on the face of the income statement and in the segmental analysis so that the underlying trading performance of the business can be compared from period to period without distortion from marking forward contracts to market value based upon period end exchange rates beyond the Group's control.

The Group's operating profit was £1.9m (2010: £0.8m) after recognising amortisation of intangible assets of £0.7m (2010: £0.7m).

Adjusted earnings per share increased by 66% to 5.56 pence (2010: 3.34 pence).  Basic earnings per share for the six months ended 31 October 2011 were 3.46 pence (2010: 1.04 pence).

The Group achieved a strong first half cash performance.  Cash inflow from operating activities was £3.6m (2010: inflow of £4.3m) which increased the Group's net funds to £9.6m (2010: £5.5m) at 31 October 2011.  In October 2011, the Group paid off all of its borrowings, a total of £3.4m.

MASS

MASS continues to trade strongly achieving a 20% increase in revenue and trading profit of £2.7m (2010: £1.9m). The strong margin performance at MASS in the first half was a result of successfully closing out some projects and margins are expected to return to more normal levels in the second half.

MASS's work as part of the Excalibur team providing a significant information management upgrade for the UK's Defence Electronic Warfare Centre, following contract award in May this year, is progressing well.  MASS is in discussions to licence its Thurbon data management system, which is central to this capability, to a number of overseas customers.

MASS's order book at 31 October 2011 was £75.3m, of which £10.7m is deliverable in the second half.

SCS

SCS has continued to experience tighter market conditions in the first half of 2011/12, resulting in some reduction in revenue and profit compared with the same period last year.

SCS continues to monitor its cost base carefully in the face of the current market conditions and accordingly reduced costs by a further £0.3m per annum during the first half of this year, the benefits of which will partly be seen in the second half.  The business has managed its balance sheet efficiently in the first half converting most of its outstanding debt to cash and reducing its on-going working capital levels to below £1m. 

The fall in revenue at SCS by 16% to £8.0m in the first half reflects continuing tightness in the market for manpower provision and consultancy within the UK MOD.  As a result SCS delivered a trading profit before exceptional items of £0.3m against the comparative period last year of £0.5m.

Against this backdrop it is pleasing that SCS has continued to win both new and repeat orders from MOD and other customers, some of whom are new to the business. SCS's closing order book at 31 October 2011 was £8.4m of which £5.8m is deliverable in the second half.

SEA

SEA has returned to a better level of profitability, delivering a trading profit (before marking forward exchange contracts to market value) of £0.8m (2010: £0.1m) on revenue of just under £15.4m (2010: £11.6m).

The organisational and management changes made at SEA during the second half of 2010/11 and continuing in 2011/12 have begun to deliver improved results.  Although the changes have been fully implemented it will take further time and effort to ensure that they are embedded and that SEA is able to perform at its full potential.  In particular SEA's profitability continues to be impaired by some poorly performing projects.  The aim is to complete these during the next six to twelve months.

SEA has been selected by BAE Systems to provide two additional External Communication Systems (ECS) for the Royal Navy's Astute class of submarine.  SEA has commenced work on the additional systems under a formal instruction to proceed pending the agreement of the full contract.  The work is valued at over £9m in total and will be carried out over the next three and a half years.  It is additional to SEA's initial ECS contract announced in April 2010.  SEA's strong technical capability has enabled it to continue to secure good levels of research activity from the MOD as well as further orders in Space and Transport.

SEA's order book at 31 October 2011 was £23.1m of which £14.3m is deliverable in the second half.

Dividend

The Board is recommending an increased interim dividend of 1.00p per share (2010: 0.80p).  This increase reflects the improved performance of the Group in the period and its healthy cash position, together with the Board's confidence in the outlook for Cohort.  The Board believes that dividends are an important constituent of long term shareholder returns and therefore remain committed to a progressive dividend policy.  The dividend will be paid on 7 March 2012 to shareholders on the register at 10 February 2012.

Outlook

The Board of Cohort is of the view that the Group's operating companies have strong capabilities and market positions. We have focused on these and aligned resources accordingly and the Group's profitability has returned to a more satisfactory level, notwithstanding the uncertainties in some areas of the defence market.

The Group continues to look to new domestic and overseas markets aligned to our defence and security offering for growth.  Progress is being made but the timing of conversion of opportunities into new business streams, especially in overseas markets, is difficult to predict.

The Group remains on track to meet management expectations with much of the second half revenue underpinned by our strong order book.  The changes already made in the businesses are now bearing results and there is more to come as we complete this process, especially at SEA.  Overall, our strong order book, pipeline of prospects and financial position provide confidence for the future.

The Board's priority remains to increase shareholder value, both through operational improvements and organic growth and through corporate activity where suitable opportunities arise.

Nick Prest CBE

Chairman