Final Results

RNS Number : 2991O

Cohort PLC

28 June 2010

 



COHORT PLC

PRELIMINARY RESULTS ANNOUNCEMENT

FOR THE YEAR ENDED 30 APRIL 2010

"Tough year, positive outlook"

Cohort plc, the independent technology group, today announces its preliminary results for the year ended 30 April 2010.  Highlights include:

	2010	2009 Restated	%
·      Revenue	£78.1m	£76.7m	2
·      Adjusted operating profit	£4.1m	£6.3m	(34)
·      Adjusted profit before tax*	£4.0m	£6.0m	(34)
·      Profit before tax	£2.7m	£4.6m	(40)
·      Net funds	£3.0m	£3.7m	(19)
·      Adjusted earnings per share*	8.10 pence	12.83 pence	(37)
·      Proposed final dividend per share	1.4 pence	1.2 pence	17

* Excludes exceptional items, amortisation of other intangible assets and share of results of joint ventures.

The figures for the year ended 2009 have been restated to take account of the prior year overstatement.

Commenting on the results, Nick Prest CBE, Chairman of Cohort plc said: "Cohort has come through a difficult year, closing with a record order book of more than £112m which provides a basis for a recovery in profitability.  The Board is focused on improving operational performance so that the Group can take advantage of emerging opportunities."

"The proportion of Cohort's business being derived from outside the UK defence market (principally export defence, space and transport) is increasing and the Board's view is that the Strategic Defence and Security Review can provide opportunities for nimble, cost effective companies such as Cohort.  We expect to be able to trade satisfactorily through the review period and grow our business when the landscape becomes clear."

For further information please contact:

Cohort plc	01491 845 630
Andy Thomis, Chief Executive
Simon Walther, Finance Director
Investec Investment Bank	020 7597 5970
Keith Anderson
Hogarth Partnership Limited	020 7357 9477
Reg Hoare

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: 

·      SCS (www.scs-ltd.co.uk) - a defence consultancy, combining technical expertise with practical experience and domain knowledge. Owned by Cohort since flotation in March 2006. 

·      MASS (www.mass.co.uk) - a specialist defence and aerospace business focused mainly on electronic warfare, information systems and electronic systems development.  Acquired by Cohort in August 2006.  

·      SEA (www.sea.co.uk) - an advanced surveillance systems and software house with hardware development capability operating in the defence, space and transport market sectors.  Acquired by Cohort in October 2007. 

Cohort (AIM: CHRT) was admitted to London's Alternative Investment Market in March 2006. It has its headquarters in Oxfordshire and, through its operating companies, employs in total around 500 core staff there and at bases in Bristol, Berkshire, Cambridgeshire, Lincolnshire and Somerset. 

CHAIRMAN'S STATEMENT

Cohort has experienced a difficult year, with accounting problems and a significant deterioration in trading performance at SCS. SEA also performed below expectations. On the positive side MASS performed strongly and the Group has closed the year with a record order book, which provides a basis for a recovery in profitability.

Key financials

In the year ended 30 April 2010, Cohort posted revenueof £78.1m (2009: £76.7m). This included revenue of £26.4m (2009: £29.2m) from Systems Consultants Services Limited (SCS), £21.5m (2009: £20.6m) from MASS Consultants Limited (MASS) and £30.2m (2009: £26.9m) from SEA Group Limited (SEA). Both MASS and SEA grew their revenues but SCS suffered a decline in sales from 2009 as a result of more difficult market conditions and withdrawal from unprofitable areas of activity.

The Group's adjusted operating profit was £4.1m (2009: £6.3m). This included adjusted operating profit from SCS of £0.1m (2009: £1.5m), from MASS of £3.5m (2009: £2.9m) and from SEA of £1.6m (2009: £3.1m). Cohort Group overheads were £1.1m (2009: £1.2m).

The Group operating profit of £2.9m (2009: £5.0m) was after charging £0.7m in respect of relocation and restructuring.

Profit before tax was £2.7m (2009: £4.6m) and profit after tax was £2.3m (2009: £3.8m).

Basic earnings per share were 5.63 pence (2009: 9.28 pence). Adjusted earnings per share were 8.10 pence (2009: 12.83 pence). The adjusted earnings per share were based upon profit after tax, excluding amortisation of other intangible assets, exceptional items and share of result of joint ventures.

The net funds at year end were £3.0m (2009: £3.7m) after the purchase by MASS of its new building for £3.0m.

Dividends

The Board is recommending a final dividend of 1.4 pence per ordinary share (2009: 1.2 pence), making the full year dividend in respect of the year ended 30 April 2010 2.05 pence per ordinary share (2009: 1.75 pence), a  17% increase. This will be payable on  8 September 2010 to shareholders on the register at 6 August 2010 subject to approval at the Annual General Meeting on 2 September 2010.  The Board continues to maintain a progressive dividend policy.

SCS

SCS had a very difficult year, uncovering significant accounting errors which had disguised a deterioration in profitability caused by a combination of overhead cost increases, under-utilisation of core consulting staff, pricing pressure and the assumption of new business at inadequate margins.

Stanley Carter led a major restructuring of SCS in the final quarter of the financial year which has reduced the cost base significantly, reducing the annual payroll cost by £2.0m. We expect an improved performance from SCS in the current year.

SCS has moved into a new office in Theale which provides a better working environment for the business and will facilitate improved working practices. From 1 June 2010, Andy Thomis took over from Stanley as acting Managing Director of SCS.  As separately announced today, Bill Bird will be joining SCS as full time Managing Director from 6 September 2010.  Bill has considerable experience in the defence and consultancy sectors.

SEA

SEA underperformed against its financial targets in the year, primarily as a result of cost increases on a small number of fixed price contracts and slower order intake in some areas. A re-organisation has been effected which has resulted in closure of the loss making Offshore division and a restructuring of the three defence divisions into two. At the same time management systems have been modified to ensure tighter project control. SEA has had a record year for order intake of £39.2m, has made particularly good progress in its Space division, and overall has a strong customer offering. We expect its financial performance to improve in the current year.

MASS

MASS traded strongly in the year and posted record figures for sales, profits, cash generation and order intake.  The company will move into its new premises in the near future and is well placed to build further on its good position. Shortly after the end of the financial year MASS completed the acquisition of Abacus EW Consultancy Limited (Abacus EW), an Electronic Warfare training company based near MASS at Lincoln. Abacus EW brings additional capability and export customers to the MASS presence in the Electronic Warfare support market.

Board and Personnel

There were no changes to the Cohort Board in the course of the year.  The Executive team responded well to a difficult series of problems. Stanley Carter stepped in as Managing Director of SCS in December and the Board is grateful to him for his work in overseeing the necessary restructuring. On behalf of the Board I would like to thank all our employees for their hard work and dedication during a none too easy period for Cohort.

Outlook

Following a very good year for order intake with total orders of £143.6m (2009: £65.7m) the Group order book at 1 May 2010 stood at £112.7m (2009: £47.2m). This provides a good platform for the future.

The difficulties encountered at SCS, and to a lesser extent at SEA, are a matter of regret to the Board. All shareholders, Board, staff and external stakeholders have been affected. The absolute priority is to return the Group to a satisfactory level of operating performance, which will in turn open up wider strategic options for the business.

Cohort obtains approximately 70% of its business from the UK defence market, directly or indirectly, and there are obvious uncertainties for the direction of this market generated by the overall climate for UK public expenditure and the Strategic Defence and Security Review (SDSR) currently being conducted by the UK Government. But the proportion of Cohort's business being derived from outside the UK defence market (principally export defence, space and transport) is increasing and the Board's view is that the SDSR can provide opportunities for nimble, cost effective companies such as Cohort.  We expect to be able to trade satisfactorily through the review period and grow our business when the landscape becomes clear.

Nick Prest CBE

Chairman

CHIEF EXECUTIVE'S REVIEW

This has been a challenging year for Cohort. In December 2009 it became apparent that SCS's financial performance in 2008/9, as published in our Annual Report and Accounts, had been significantly overstated. This left us with three immediate issues: identifying the cause and extent of the error, putting corrective measures in place and dealing with the operating problems that had been obscured by the overstatement.  We reported on progress in addressing these issues both in our Interim Results on 9 December 2009 and in our Business and Trading Update on 18 March 2010. Although there is still work to do, the restructured SCS with a new Managing Director appointed and its cost base significantly reduced is now on a much firmer footing.

Despite a promising start to the year SEA too has also experienced operating problems, as a result of project difficulties and slower than anticipated order intake in some areas. We have responded by withdrawing from loss-making activities and rationalising our activities in the marine sector into a single division.  As a result, SEA too goes into the new financial year on a more solid basis.

The year has also seen some major successes. MASS has once again had a record year, with some significant orders, notably the £55m contract to provide technical support to the MOD. SEA's space business continued its rapid and profitable growth, and the company won a strategically important order to provide the External Communication System for Astute submarines. SCS has seen strong performance in its Logistics activities. The record order book at the year-end provides a good base for the 2010/11 financial year.

Group overview

Cohort is an independent group whose constituent companies provide a wide range of technical advice, support, managed services and certain niche products, the latter characterised by high tech design and low volume manufacture. Our approach has been to maximise the autonomy afforded to our subsidiary companies, allowing them the space to be innovative, responsive to customer needs, and agile in their market positioning. At the same time we have sought to provide advice, mentoring and business development support from the strong Cohort central team, and give customers the confidence to place large orders with us that they might have been reluctant to award to smaller privately owned businesses. 

We have looked hard at this basic concept as a result of the operating problems that have arisen and have concluded that it remains fundamentally sound. Nevertheless we have significantly enhanced our central financial controls and monitoring procedures to ensure there is no repetition of the events of last December. We have also appointed a new auditor, KPMG, with the aim of providing additional confidence to shareholders and the board. Work continues to correct the shortcomings in SCS's internal processes and controls under close supervision from Cohort. This supervision will be sustained until we are certain that the issue has been fully resolved.

In August Cohort's executive team will relocate from its Henley-on-Thames office to make use of spare capacity at SCS's new leased facility in Theale.

Trading subsidiaries

SCS

As reported extensively elsewhere in this Report, SCS has had a difficult year, but has nevertheless seen continuing profitable growth in some areas of its activity, including support engineering and logistic information systems. It was a pleasing indication of customer confidence to be awarded a further year's extension to the long-running training support contract at the UK's Permanent Joint Headquarters valued at £2.2m.

The company has recently moved from its offices in Henley-on-Thames to Theale, south of Reading. With a significantly reduced cost base and a new and experienced Managing Director appointed, SCS is now better placed to face the challenges and uncertainties of the current defence market.

SEA

SEA grew its revenue again after a record year in 2008/9, achieving turnover of £30.2m, up 12%. One major contributor to this was its space business, which won a number of orders for European Space Agency programmes and achieved sales well in excess of expectations. SEA's submarine business also grew significantly, thanks to a large and strategically important order for a communications system. SEA's profitability was affected by problems on some of its projects, in particular a loss-making contract for a customer in the offshore sector, as well as slower than expected order intake in its transport business. Profit was £1.6m, down from its record level of £3.1m in 2008/9.

Towards the end of the year, SEA carried out a restructuring exercise, rationalising several of its divisions to reduce cost and refocus its activities in the defence sector, and withdraw from unprofitable activities. With a strong order book it is positioned to deliver an improvement in performance in 2010/11.

MASS

MASS has had another record year, with revenue of £21.5m and a trading profit of £3.5m. Good performance was achieved in all three of its divisions. With support from Cohort, in May MASS acquired Abacus EW Consultancy Ltd, a Lincoln-based EW training business. Abacus EW is an excellent match for MASS's existing business in this area and brings with it new capabilities, customers and opportunities.

MASS's continuing growth has meant it has become increasingly compressed within its St Neots headquarters. The company has now acquired a new and larger facility adjacent to its existing building that will provide it with a long term home, with options for expansion if needed.

Outlook

We have taken action to deal with the problems that have emerged over the last year.  As a result our businesses are leaner and better equipped for the challenges ahead. Nevertheless, UK defence, and public sector spending more widely, face a turbulent time under the new government, with a Strategic Defence and Security Review underway and a tough new approach to spending commitments. There will certainly be risks for Cohort. It is possible that crude spending curbs might be introduced that could affect all defence suppliers, though historically these have never been long-lasting. Our operational model, which focuses on customer-friendly, strategically nimble businesses with high-tech capabilities and fast decision-making, is better suited to this new environment than any of the alternatives. Although we have some exposure to defence programmes that may be subject to delay, cancellation or cutbacks, much of our work tends to focus on short-term operational needs which have a high priority and are unlikely to go away. The international situation remains tense and unstable in many regions of the world, and our export activities are growing. There will be domestic opportunities too: as government seeks to rationalise its areas of activity, opportunities will emerge for businesses like ours which can carry out the same activities with greater flexibility and cost-effectiveness. Not least, we go into the new financial year with a record order backlog of well over £100m. Overall I am confident that we will emerge strongly from the uncertainties of the coming months, ready to take swift advantage of opportunities, and to thrive when the new landscape becomes clear.

Andy Thomis

Chief Executive

FINANCE DIRECTOR'S REVIEW

The following review explains in further detail the significant financial issues arising during the year ended 30 April 2010 and highlights other matters over and above what is included in the primary financial statements and accompanying notes.

Prior year restatement

The prior year restatement of the Group's result for the year ended 30 April 2009 are analysed in detail at note 7 to the financial statements as well as in other notes.

The prior year restatement arose from a series of errors in the Group's subsidiary SCS, resulting in an overstatement of amounts recoverable on contracts for the year ended 30 April 2009 of £1,837,000.

All comparative figures for the year ended 30 April 2009 have been restated accordingly.  The highlight restatement figures were as follows:

	£000
Reduction in revenue	1,837
Reduction in profit before tax	1,837
Reduction in trade and other receivables	1,837
Reduction in tax charge	514
Reduction in tax creditor	514

The tax adjustment to the prior year restatement of £514,000 is 28% of £1,837,000.

The restatement was independently reviewed by KPMG.  No restatement was required for the year ended 30 April 2008.

The impact on the Group's comparative effective tax rates for the total Group tax charge and the current tax charge for the year ended 30 April 2009 was as follows:

	As previously reported £000	Restatement £000	As restated £000
Profit before tax	6,454	(1,837)	4,617
Total tax charge	1,372	(514)	858
Effective tax rate (%)	21.3		18.6
Profit before tax	6,454	(1,837)	4,617
Current tax charge	1,299	(514)	785
Effective tax rate (%)	20.1		17.0

The overstatement of amounts recoverable on contracts arose from errors on fixed price contracts as follows:

i.              Incorrect transfer of data from SCS's old accounting system to its new accounting system.

ii.            Errors in posting transactions.

iii.           A failure to properly review at regular intervals the amounts recoverable on contracts for recoverability.

iv.            A failure to review and check cost to complete projections with project management.

These errors were identified by management in November 2009 and the Cohort Board confirms that there was no evidence of intentional misstatement by the SCS management.

SCS replaced its head of finance at the time of identifying the error.

Since uncovering the error which masked the underlying poor operational performance, SCS has ended its loss making activities and carried out a major restructuring and cost reduction exercise.  The total number of staff has reduced from almost 140 at the beginning of 2009/10 financial year to below 100.

It is also undertaking an overhaul of its business processes.  The priority processes are:

i.              Invoicing

ii.            Fixed price contract revenue and profit recognition

iii.           Project review

iv.            Project control

Revenue

The segmental analysis (note 2) presents the Group's revenue by subsidiary. The revenue is further analysed as shown in the table below.

The significant changes in revenue for the year ended 30 April 2010 compared with the year ended 30 April 2009 are an increase in Aerospace (mainly space) by 95% and a fall in Transport of 25%, the latter reflecting the completion of a major contract for Transport for London during the year ended 30 April 2010.

Defence revenue overall has remained virtually level with a fall in MOD revenue of 3%, offset by a rise in export defence revenue of 23%.

Revenue analysis	2010			2009 (restated)
By sector	£m	%		£m	%
Direct to United Kingdom MOD	40.3			43.2
Indirect to United Kingdom MOD, where the Group acts as a sub-contractor or partner	16.8			15.7
Total to the United Kingdom MOD	57.1	73		58.8	77
Export defence customers	7.5			6.1
Total defence revenue	64.6	83		64.9	85
Transport	3.4			4.5
Space	8.2			4.2
Other commercial	1.9			3.1
Non-defence revenue	13.5	17		11.8	15
Total revenue	78.1	100		76.7	100

	2010			2009 (restated)
By type of work	£m	%		£m	%
Technology solutions	34.5	44		30.3	40
Advisory services	17.0	22		20.2	26
Manpower provision	11.6	15		11.8	15
Managed services	9.8	13		9.0	12
Product	5.2	6		5.4	7
Total revenue	78.1	100		76.7	100

The analysis of revenue for the year ended 30 April 2009 has been restated (see note 7) reducing revenue by just over £1.8m from the previously reported £78.6m to £76.7m. This adjustment has been reflected in the above table by a reduction in revenue direct to the United Kingdom MOD of £1.1m and Indirect to United Kingdom MOD by £0.7m and also a reduction of £1.8m in Advisory Services.

Adjusted operating profit

The adjusted operating profit is presented to reflect the trading profit of the Group and excludes amortisation of other intangible assets, share of result of joint ventures and exceptional items. This allows the Group to present its trading performance in a consistent format year on year.

The adjusted operating profit is stated after charging the cost of share-based payments of £259,000 (2009: £184,000) which is allocated to each business in proportion to its employee participation in the Group's share option schemes.

The adjusted operating profit of SEA (and the Group) is after a net charge of £231,000 (2009: credit of £47,000) in respect of marking forward foreign exchange contracts to market at 30 April 2010. The forward foreign exchange contracts are used to hedge the forward sales of currency on Euro denominated trading contracts.

Looking forward, the cost base of SCS has fallen as a result of the restructuring during this year with an annual saving of £2.0m.  The moving of SCS from its previous facility in Henley-on-Thames to a more appropriate facility in Theale increases its operating cost by approximately £0.2m per annum.

At MASS, the moving of the business in St Neots from its present leased office to a bespoke freehold facility will increase its annual operating cost by £0.2m per annum.

SEA's cost base is not expected to change significantly with cost savings in loss making divisions being offset by investment in other growing divisions, especially Aerospace and Marine.

Exceptional items (see note 3)

The key items charged as exceptional items were as follows:

·      Restructuring cost at SCS of £0.3m.  In addition to the removal of 26 posts as a result of redundancy, further natural wastage has reduced core staff levels from nearly 140 people to below 100 producing an expected annualised cost saving of £2.0m.

·      Restructuring at SEA comprises redundancy costs from the rationalisation of the Offshore division and the three Defence divisions into two: Marine, and Land and Air. The cost of £0.1m reduced the headcount by 8. The annualised saving from this restructuring is expected to be £0.4m.  In addition, £0.2m of stock write off in respect of offshore products was charged as an exceptional item.

·      Relocation costs at MASS of over £0.1m have been recognised as an exceptional item due to their one-off nature.

Tax

The Group's tax charge for the year ended 30 April 2010 of £457,000 (2009: £858,000) was at an effective rate of 16.6 % (2009: 18.6%) of profit before tax. This includes a current year corporation tax charge of £961,000 (2009: £785,000), a rate of 35.0% (2009: 12.7%) of profit before tax, a prior year tax charge of £135,000 (2009: £nil) and a deferred tax credit of £639,000 (2009: charge of £73,000).

The reported current tax rate is higher than the standard rate due to disallowed items (for tax purposes), in particular; general provisions, amortisation of other intangible assets and prudent recognition of R&D tax credits.  The effective current tax rate, after taking account of appropriate deferred tax items in respect of the current year is approximately 22%.

The Group's overall tax rate was below the standard corporation tax rate of 28%. The majority of the reduction in the effective rate of tax was due to the recognition of brought forward tax losses at SEA and research and development (R&D) credits at MASS and SEA for the year ended 30 April 2010.

The Group's businesses are only allowed to claim the lower R&D tax credit allowance available to larger companies, currently 30%.  This accounts in part for the higher current year corporation tax rate compared with 2009 when the Group was able to receive the larger relief available to smaller and medium sized entities for the period from 1 August 2008 to 30 April 2009.

Looking forward, the Group's overall tax charge will continue to rise for this reason.  Nevertheless I would expect the Group tax charge to remain at or slightly above 20% and certainly below the standard rate of 28%, based upon expected R&D spend and reliefs remaining available. The Group retains a prudent position in respect of R&D tax credits previously claimed.

The impact on the Group of the recent budget announcement by the Government to reduce headline corporation tax rates over the next four years cannot be fully determined until the R&D tax credit regime going forward is known.

Provisions

The Group's provisions at 30 April 2010 are as per note 18.

The Group's provisions have increased by 68% since 30 April 2009 reflecting a number of specific issues and prudence in cost to complete recognition on fixed price contracts.

Specific provision changes, accounting for £0.6m of the £1.0m overall increase in provisions, were as follows:

·      Provision against the NASNET contract at SEA.

·      Provision for an onerous lease at MASS for its leased property in St Neots.

·      Redundancy provision at SCS.

·      Other property related provisions.

Accounting policies

The following standards, and changes to existing standards and interpretations, are relevant to these accounts:

·      Revised IFRS 3 Business Combinations and amendments to IAS 27.  These standards are applicable for accounting periods commencing after 1 July 2009 but have been adopted early from 1 May 2009.  These standards affect the future accounting for acquisitions. There is no retrospective impact.

·      Amendments to IAS 1 Presentation of Financial Statements - these amendments revise requirements for the presentation of the financial statements and do not affect the Group's overall reported results.

·      Amendments to IFRS 2 Share-based Payments: Vesting Conditions and Cancellations - these amendments concern certain aspects of the valuation of share-based payments and the impact of a cancellation by a grantee. These amendments have not had a significant impact on the charges recognised to date for share-based payments.

·      Amendments to IFRS 7 Financial Instruments: Disclosure - these amendments require additional disclosure of the basis of fair value measurements and liquidity risks.

·      IFRS 8 Operating Segments - this standard amends the requirements for disclosure of segmental performance and does not have any effect on the Group's overall reported results. Note 2 reflects the new requirements.

·      Amendment to IAS 23 Borrowing Costs - the amendment generally eliminates the option to expense borrowing costs attributable to the acquisition, construction or production of a qualifying asset as incurred, and instead requires the capitalisation of eligible borrowing costs as part of the cost of the specific asset. There is no significant impact, as the Group generally funds qualifying assets from gross cash resources and consequently does not have significant eligible borrowing costs.

The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.

One key area of management judgement is revenue recognition and more especially profit recognition on long term fixed price contracts.  This judgement is reflected in the level of work in progress and especially contract accruals and provisions.

The other key area of judgement is where work is undertaken on behalf of customers prior to formal contract award.  This work is only taken to the balance sheet, for subsequent charging to cost of sales when revenue is recognised where the prospect of contract award is virtually certain.  This level of work is relatively low across the Group amounting to £0.5m of work in progress at 30 April 2010.

Treasury facilities

At 30 April 2010 the Group had facilities with its banking provider, RBS as follows:

	£m	Term at commencement of facility
Overdraft facility for working capital requirements	2.5	364 days
Structured debt facility for acquisitions	10.0	364 days with 3 year term out

Of the structured debt facility of £10.0m, £3.0m was drawn to part finance the acquisition of SEA and remains drawn at 30 April 2010.  The £2.5m overdraft facility was not drawn at 30 April 2010.  In addition, the Group has £0.6m of mortgage debt with RBS which was acquired with SEA.

The Group's facilities are due for renewal in October 2010 and the Board expects these to be renewed.

At 30 April 2010, the Group had in place forward foreign exchange contracts to sell Euro 13.0m at a £ Sterling equivalent value of £11.4m.  These forward contracts are used by the Group to manage its risk exposure to foreign currency on trading contracts where it either or both receives and pays currency from customers and suppliers respectively.  These forward exchange contracts are entered into when customer contracts are considered effective.  The Group does not enter into speculative foreign exchange dealing.

Exposure to interest and foreign exchange risk in not a significant risk with the Group having net funds.  The Group's foreign exchange exposure, primarily at SEA and relating to receivables from the European Space Agency, is hedged using forward contracts.

The Group's bank covenants were all satisfied at 30 April 2010 based upon its latest internal forecasts the Group does not anticipate any breaches.  The covenants are assessed quarterly with a measured and reported twelve month look back and an assessment of the next twelve months.

The Group takes a prudent approach to treasury policy with  its overriding objective being protection of capital.  In implementing this policy, deposits are held with at least AA rated institutions and deposits are generally held on short (less than 3 months) duration to maturity.  This matches the Group's cash resources with its internal 13 week cash forecasts retaining flexibility whilst trying to ensure an acceptable return on its cash.  All of the Group's cash 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.

Deposit rates during 2009/10 have been low, typically below 0.4% compared with the Group's weighted interest rate on its borrowings of 3.7%.  The Group has retained its debt during the period despite the unfavourable comparative interest rates to ensure it has had facilities available to support its working capital demands, invest in new facilities during 2009/10 and acquire Abacus EW in May 2010.  The small size of the Abacus EW acquisition was best suited to cash settlement rather than equity which would have been relatively expensive and dilutive at the current share price.

The Group's liquidity remains good with profit conversion to cash remaining above 100% (See KPIs on page 14).  The Group has historically had low levels of working capital with many of its contracts being less than one year in duration and reliability of its customer base making debt risk low.  During 2010, working capital levels have risen slightly, as described below.

Goodwill and other intangible assets

The Group has recognised goodwill and other intangible assets in respect of the acquisition of MASS and SEA. The other intangible assets are in respect of contracts acquired in each case and are to be amortised over the life of the earnings associated with the contracts acquired.

The goodwill, which is not subject to amortisation but to annual impairment testing, arises from the intangible elements of the acquired businesses for which either the value or life is not readily derived. This includes, but is not limited to, reputation, customer relations, contacts and market synergies with existing Group members. The goodwill relating to the acquisitions of MASS and SEA has been tested for impairment as at 30 April 2010 and no impairment is to be recognised in either case.  The impairment test for the goodwill in respect of SEA is more sensitive to the Group's weighted average cost of capital (WACC) with no impairment at the Group's WACC of 11.5%.  A slight impairment (£0.3m) in the SEA goodwill would arise if the WACC increased to 13.5%.

Working capital

The working capital of the Group, defined as inventory plus trade and other receivables less trade and other payables, has risen from £6.6m net assets (after adjusting for the prior year restatement) to £8.1m net assets, an increase of £1.5m (23%), despite only a 2% rise in revenue.  The increase in working capital was primarily due to the unwinding of advance receipts and increasing work in progress, particularly at SEA in respect of work with the European Space Agency (ESA) where supplier payments have been delayed by internal ESA issues.

The year-end days' debtors in sales have decreased slightly from 52 days in 2009 to 50 days in 2010. This calculation is based upon dividing the revenue by month, working backwards from April into the trade debtors balance (excluding unbilled income and work in progress) at the year-end, a more appropriate measure than calculating based upon the annual revenue as it takes into account the heavy weighting of the Group's revenue in the last quarter of each year.

The Group has a working capital facility of £2.5m with RBS which was not utilised during the year. The Group had cash at 30 April 2010 of just over £6.6m (2009: £7.5m). Advance receipts on contracts at the year end were £1.7m (2009: £2.5m).

The Group generated £4.0m of cash from operating activities (operating profit was £3.6m before amortisation of intangible assets) which was offset by investment of £4.0m in fixed assets and investments.  The net cash outflow reflected the dividends paid of nearly £0.8m.

Performance indicator	Description	2010	2009
Change in revenue	Change in total Group revenue compared to the prior year	2%	34%
Change in adjusted operating profit	Change in Group profit before tax, amortisation of other intangible assets, share of result of joint ventures and exceptional items.	(34%)	3%
Order book visibility	Orders for next financial year expected to be delivered as revenue, presented as a percentage of consensus market revenue forecasts for the year.	58% cover on forecast 2011 revenue of £76.7m	48% cover on forecast 2010 revenue of £82.3m
Change in adjusted earnings per share	Annual change in earnings per share, before amortisation of other intangible assets, share of result of joint ventures and exceptional items.	(37%)	(12%)
Operating cash conversion	Net cash generated from operations before tax as compared to the profit before tax.	155%	166%

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

The performance indicators for the year ended 30 April 2009 have been restated for the correction of the overstatement at SCS (see note 7).

Simon Walther

Finance Director

CONSOLIDATED INCOME STATEMENT

For the year ended 30 April 2010       

	Notes	Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
Revenue	2	78,129	76,734
Cost of sales		(56,666)	(54,001)
Gross profit		21,463	22,733
Administrative expenses (including amortisation of intangible assets and exceptional items)		(18,573)	(17,684)
Operating profit	2	2,890	5,049
Comprising:
Adjusted operating profit	2	4,109	6,263
Amortisation of other intangible assets		(595)	(540)
Exceptional items	3	(624)	(674)
Operating profit	2	2,890	5,049
Share of result of joint ventures		-	(224)
Finance income		38	95
Finance costs		(180)	(303)
Profit before tax		2,748	4,617
Tax expense	4	(457)	(858)
Profit for the year		2,291	3,759

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

The consolidated income statement for the year ended 30 April 2009 has been restated (note 7) for the prior year overstatement of revenue and profit before tax.

		Year ended 30 April 2010 Pence	Year ended 30 April 2009 (restated) Pence
Earnings per share	5
Basic		5.63	9.28
Diluted		5.62	9.21
Adjusted earnings per share	5
Basic		8.10	12.83
Diluted		8.09	12.74
Dividends per share paid and proposed in respect of the year	6
Interim		0.65	0.55
Final		1.40	1.20
		2.05	1.75

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 April 2010

	Notes	At 30 April 2010 £000	At 30 April 2009 (restated) £000
ASSETS
Non-current assets
Goodwill		31,043	31,043
Other intangible assets		632	1,227
Property, plant and equipment		7,930	4,727
Deferred tax asset		1,015	266
		40,620	37,263
Current assets
Inventories		440	359
Trade and other receivables		22,837	22,438
Derivative financial instruments		15	178
Cash and cash equivalents		6,656	7,511
		29,948	30,486
Total assets		70,568	67,749
LIABILITIES
Current liabilities
Trade and other payables		(15,117)	(16,164)
Current tax liabilities		(1,804)	(993)
Derivative financial instruments		(53)	(68)
Other loans		-	(32)
Bank borrowings		(3,171)	(3,167)
Provisions	8	(2,411)	(1,528)
		(22,556)	(21,952)
Non-current liabilities
Bank borrowings		(444)	(615)
Deferred tax liability		(1,053)	(920)
Provisions	8	(155)	-
		(1,652)	(1,535)
Total liabilities		(24,208)	(23,487)
Net Assets		46,360	44,262
Equity
Share capital		4,079	4,059
Share premium account		29,519	29,297
Hedge reserve		11	(49)
Share option reserve		379	266
Retained earnings		12,372	10,689
Total equity attributable to the equity shareholders of the parent		46,360	44,262

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 April 2010

		Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
Profit for the year		2,291	3,759
Cash flow hedges - gains/(losses) taken to equity (net of tax charge of £23,000; 2009: credit of £19,000)		60	(49)
Comprehensive income for the year		2,351	3,710

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 April 2010

		Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
At 1 May as previously reported		45,585	40,843
Prior year adjustment at SCS		(1,323)	-
At 1 May restated		44,262	40,843
Comprehensive income for the year as previously reported		2,351	5,033
Prior year adjustment at SCS		-	(1,323)
Comprehensive income for the year restated		2,351	3,710
Equity dividends paid		(754)	(627)
Total recognised income and expense		1,597	3,083
Exercise of share options		242	152
Share-based payments		259	184
At 30 April		46,360	44,262

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 April 2010

	Notes	Year ended 30 April 2010 £000	Year ended 30 April 2009 £000
Net cash generated from operating activities	9	3,961	7,271
Investing activities
Interest received		38	95
Proceeds on disposal of property, plant and equipment		35	6
Purchases of property, plant and equipment		(3,795)	(432)
Acquisition of subsidiaries, net of cash acquired		(280)	(4,673)
Net cash used in investing activities		(4,002)	(5,004)
Financing activities
Dividends paid		(754)	(627)
Repayment of borrowings		(199)	(174)
Proceeds on issue of shares		242	152
Net cash out from financing activities		(711)	(649)
Net (decrease)/increase in cash and cash equivalents		(752)	1,618

	At 1 May 2009 £000	Exchange gains/(losses) £000	Cash Flow £000	At 30 April 2010 £000
Funds reconciliation
Cash and bank	1,311	(103)	5,448	6,656
Short term deposits	6,200	-	(6,200)	-
Cash and cash equivalents	7,511	(103)	(752)	6,656
Other loans	(32)	-	32	-
Bank loans	(3,782)	-	167	(3,615)
Debt	(3,814)	-	199	(3,615)
Net funds	3,697	(103)	(553)	3,041

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 2010.  The information in this preliminary statement has been extracted from the financial statements for the year ended 30 April 2010 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with IFRS.

The Group's Annual Report for the year ended 30 April 2010 has yet to be delivered to the Registrar of Companies.  The auditors have reported on these accounts.  Their report was not qualified and did not contain a statement under Section 498 of the Companies Act 2006 . The figures for the year ended 30 April 2010 and 2009 do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The comparative figures for the year ended 30 April 2009 were derived from the statutory accounts for that year which have been delivered to the Registrar of Companies and have been restated for appropriate adjustments in respect of a prior year overstatement of revenue, profit before tax, and trade and other receivables (see note 7).  Those accounts received an unqualified audit report.  The preliminary announcement was approved by the Board on 25 June 2010 and authorised for issue on 28 June 2010.

2.         SEGMENTAL ANALYSIS OF REVENUE AND OPERATING PROFIT

	Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated)                  £000
Revenue
MASS	21,484	20,622
SCS	26,398	29,208
SEA	30,247	26,904
	78,129	76,734
Adjusted Operating Profit
MASS	3,549	2,832
SCS	90	1,506
SEA	1,560	3,124
Central costs	(1,090)	(1,199)
	4,109	6,263
Amortisation of other intangible assets	(595)	(540)
Exceptional items	(624)	(674)
Operating Profit	2,890	5,049

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

The previously reported results for the year ended 30 April 2009 have been restated for a prior year overstatement at SCS of £1,837,000 in trade and other receivables.  This restatement has been adjusted by a reduction in SCS revenue from £31,045,000 to £29,208,000 and SCS adjusted operating profit from £3,343,000 to £1,506,000.  The details of the adjustment to the consolidated income statement and balance sheet is shown in note 7.

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 consistent basis from year to year.

The adjusted operating profit is stated after charging £259,000 in respect of share-based payments (year ended 30 April 2009: £184,000) and after charging £231,000 of loss in respect of marking forward foreign exchange contracts to market at 30 April 2010 (year ended 30 April 2009: credit of £47,000).

3.         EXCEPTIONAL ITEMS

	Year ended 30 April 2010 £000	Year ended 30 April 2009 £000
Restructuring at SCS	310	-
Restructuring at SEA	291	-
Relocation of MASS's operation	148	-
Cost of acquisition of Abacus EW	75	-
Charge in respect of withdrawing from the Group's joint venture AGS	-	674
Profit on sale of AGS's business	(200)	-
	624	674

All in respect of continuing operations.

4.         TAX EXPENSE

	Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
Corporation tax:
Prior year	135	-
Current year	961	785
	1,096	785
Deferred taxation	(639)	73
	457	858

The current year tax charge includes a credit of £210,000 in respect of continuing exceptional items.

5.         EARNINGS PER SHARE

The earnings per share are calculated by dividing the earnings for the year by the weighted average number of ordinary shares in issue as follows:

	Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
Earnings
Basic and diluted earnings	2,291	3,759
Exceptional items	414	674
Amortisation of other intangible assets	595	540
Share of results of joint ventures	-	224
Normalised basic and diluted earnings	3,300	5,197

		Number	Number
Weighted average number of shares
For the purposes of basic earnings per share		40,727,969	40,491,561
Share options		55,361	310,247
For the purposes of diluted earnings per share		40,783,330	40,801,808

	Year ended 30 April 2010 Pence	Year ended 30 April 2009 (restated) Pence
Earnings per share
Basic	5.63	9.28
Diluted	5.62	9.21
Adjusted earnings per share
Basic	8.10	12.83
Diluted	8.09	12.74

6.         DIVIDENDS

The proposed final dividend for the year ended 30 April 2010 is 1.40 pence (year ended 30 April 2009: 1.20) per ordinary share.  This dividend will be payable 8 September 2010 to shareholders on the register at 6 August 2010.

The total paid and proposed dividend for the year ended 30 April 2010 is 2.05 pence per ordinary share: a cost of £836,000 (year ended 30 April 2009 1.75p per ordinary share: £709,000).

The charge for the year ended 30 April 2010 of £754,000 is the final dividend for the year ended 30 April 2009 paid (£489,000) and the interim dividend for the year ended 30 April 2010 paid (£265,000).

7.         PRIOR YEAR ADJUSTMENT IN RESPECT OF THE YEAR ENDED 30 APRIL 2009

As originally announced on 3 December 2009 and clarified on 18 March 2010, the Group had previously overstated its revenue and profit before tax in its subsidiary SCS by £1,837,000.

The overstatement was identified as an overstatement of trade and other receivables.

Consolidated Income Statement	As previously reported	Restatement	As restated
	£000	£000	£000
Revenue	78,571	(1,837)	76,734
Cost of sales	(54,001)	-	(54,001)
Gross profit	24,570	(1,837)	22,733
Administrative expenses (including amortisation of other intangible assets and exceptional items)	(17,684)	-	(17,684)
Operating profit	6,886	(1,837)	5,049
Comprising:
Adjusted operating profit	8,100	(1,837)	6,263
Amortisation of other intangible assets	(540)		(540)
Exceptional items	(674)		(674)
Operating profit	6,886	(1,837)	5,049
Share of result of joint ventures	(224)	-	(224)
Finance income	95	-	95
Finance costs	(303)	-	(303)
Profit before tax	6,454	(1,837)	4,617
Income tax expense	(1,372)	514	(858)
Profit for the year attributable to the equity shareholders of the parent	5,082	(1,323)	3,759
Earnings per share	Pence	Pence	Pence
Basic	12.55	(3.27)	9.28
Diluted	12.46	(3.25)	9.21

Consolidated Statement of Financial Position	As previously reported	Restatement	As restated
	£000	£000	£000
Assets
Non-current assets
Goodwill	31,043	-	31,043
Other intangible assets	1,227	-	1,227
Property, plant and equipment	4,727	-	4,727
Deferred tax asset	266	-	266
	37,263	-	37,263
Current assets
Inventories	359	-	359
Trade and other receivables	24,275	(1,837)	22,438
Derivative financial instruments	178	-	178
Cash and cash equivalents	7,511	-	7,511
	32,323	(1,837)	30,486
Total assets	69,586	(1,837)	67,749
Liabilities
Current liabilities
Trade and other payables	(16,164)	-	(16,164)
Current tax liabilities	(1,507)	514	(993)
Other loans	(32)	-	(32)
Derivative financial instruments	(68)	-	(68)
Bank borrowings	(3,167)	-	(3,167)
Provisions	(1,528)	-	(1,528)
	(22,466)	514	(21,952)
Non-current liabilities
Bank borrowings	(615)	-	(615)
Deferred tax liability	(920)	-	(920)
	(1,535)	-	(1,535)
Total liabilities	(24,001)	514	(23,487)
Net assets	45,585	(1,323)	44,262
Equity
Share capital	4,059	-	4,059
Share premium account	29,297	-	29,297
Hedge reserve	(49)	-	(49)
Share option reserve	266	-	266
Retained earnings	12,012	(1,323)	10,689
Total equity attributable to the equity shareholders of the parent	45,585	(1,323)	44,262

8.         PROVISIONS

	Earn out in respect of the acquisition of MASS	Restructuring at SCS	Withdrawal from AGS	Warranty and other contract related provisions	Total
	£000	£000	£000	£000	£000
At 1 May 2009	280	-	210	1,038	1,528
Utilised/released	(280)	-	(122)	(405)	(807)
Charge to income statement	-	105	(66)	1,705	1,744
Reclassification from trade and other payables	-	-	-	101	101
At 30 April 2010	-	105	22	2,439	2,566
Due less than one year	-	105	22	2,284	2,411
Due greater than one year	-	-	-	155	155
	-	105	22	2,439	2,566

The earn out in respect of MASS was settled 5 June 2009 at £280,000 (including costs) in cash.

The warranty and other contract related provisions are management's best estimates of contract related costs and undertakings which are in addition to contract accruals.

The timing of these is uncertain but expected to be resolved within twelve months of the balance sheet date.

9.         NET CASH GENERATED FROM OPERATING ACTIVITIES

	Year ended 30 April 2010 £000	Year ended 30 April 2009 (restated) £000
Profit for the year	2,291	3,759
Adjustments for:
Share of results of joint ventures	-	224
Tax expense	457	858
Depreciation of property, plant and equipment	557	563
Amortisation of other intangible assets	595	540
Net finance costs/(revenue)	142	208
Share-based payment	259	184
Derivative financial instruments	231	(47)
Increase in provisions	1,318	612
Operating cash inflows before movements in working capital	5,850	6,901
Increase in inventories	(288)	(213)
Increase in receivables	(399)	(2,247)
(Decrease)/increase in payables	(736)	3,541
	(1,423)	1,081
Cash generated by operations	4,427	7,982
Tax paid	(286)	(408)
Interest paid	(180)	(303)
Net cash generated from operating activities	3,961	7,271

10.             The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 30 April 2010 or 2009. The financial information for the year ended 30 April 2009 is derived from the statutory accounts for that year which have been delivered to the Registrar of Companies and which have been restated for a prior year overstatement at SCS. The auditors reported on those accounts. Their report was unqualified and did not contain a statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2010 will be delivered to the Registrar of Companies following the company's Annual General Meeting, to be held 2 September 2010.  The auditors have reported on these accounts.  Their report was not qualified and did not contain a statement under Section 498 of the Companies Act 2006.

Copies of the Annual Report and accounts for the year ended 30 April 2010 will be posted to shareholders on 3 August 2010 and available on the Company's website (www.cohortplc.com) from that date.

 

END

 

 

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