Cohort, the independent technology group, today issues a trading update for its financial year ended 30 April 2020, and an update on its response to COVID-19.
· With the benefit of a lower tax charge we anticipate FY20 earnings per share to be in line with market expectations
· FY20 Revenue expected to be c.£133m (2019: £121.2m)
· FY20 Adjusted* operating profit expected to be c.£18m (2019: £16.2m)
· FY20 Adjusted earnings per share expected to be c.35.0p (2019: 33.6p)
· Net debt at 30 April 2020 of c.£5m (30 April 2019: net debt £6.4m)
· A closing order book of c.£186m (30 April 2019: £190.9m)
· FY21’s trading performance difficult to predict given COVID-19 impact but currently expected to be in line with FY20
*subject to audit; adjusted figures exclude the effects of marking forward exchange contracts to market value, other exchange gains and losses,
amortisation of other intangible assets and exceptional items.
In responding to the disruption caused by COVID-19, the wellbeing of all our employees remains paramount. The transition to having most employees work from home, and the adoption of social distancing measures for those unable to do so, was achieved quickly and efficiently. Fewer than 30% of the Group’s employees are now working on site and many of these are working from home for part or most of the time. Nevertheless, our manufacturing sites have remained operational with enhanced health and safety measures in place.
A small minority of Group employees are on furlough leave, most of whom either are vulnerable individuals or have vulnerable dependents. Cost containment and cash preservation measures have been implemented across the Group including Board and senior management pay freezes for the coming financial year.
FY20 year end update
Cohort’s performance was tracking broadly in line with expectations prior to the imposition of COVID-19 restrictions in the last two months of our financial year, typically our busiest period. We were assisted by the UK MOD’s quick action to support its suppliers, including faster payments and simplification of some procedures.
Nevertheless, the restrictions have affected our ability to carry out work on customer premises and customers’ ability to witness acceptance tests and to place new orders. This had some impact on our FY20 revenue and trading profit, although these still showed positive growth compared to FY19. With the benefit of a lower tax charge we anticipate FY20 earnings per share to be in line with market expectations.
Despite delays to orders caused by COVID-19 restrictions in the final quarter, order intake for the year was c.£125m, a satisfactory outcome compared to the record order intake of £189.9m in FY19 which included a number of large, long term awards. The expected year end order book of c.£186m is similar to the prior year (2019: £190.9m).
As at 30 April 2020, net debt stood at c.£5m (31 October 2019: net debt £6.8m; 30 April 2019: net debt £6.4m); this was better than both our forecast and the position at the last year-end and represents a net debt / EBITDA ratio of less than 0.3 (2019: 0.4).
The net debt comprised of gross cash of £20m and gross debt of £25m, together with a £5m undrawn facility, gives the Group access to £25m of available facilities. In addition, the Group has agreed with its banks to convert an existing £10m accordion into a committed facility. This will be used for the proposed acquisition of ELAC, the Germany-based market leader in naval surface ship and submarine sonar systems, that was announced in December 2019.
We remain in positive discussions with the German Federal Authorities about approval of the transaction. Both Cohort and Wärtsilä are working hard to complete the transaction in June 2020 as originally planned, but COVID-19 restrictions are likely to result in some delay. We will provide a further update when the conditions for completion have been met.
Given the Group’s satisfactory performance last year and strong balance sheet, the Board expects to recommend the payment of a final dividend for the year ended 30 April 2020 in line with our progressive policy of recent years. The decision will be announced as usual at the time of the Group’s final results and will be subject to shareholder approval at the AGM.
Cohort remains well placed, having entered the new financial year with a substantial long-term order book. The 30 April 2020 order book of c.£186m underpins nearly £83m (2019: £80m) of current financial year revenue, representing c.60% of expected revenue for the year. The Group has a number of significant new domestic and export opportunities, and extensions to existing contracts, being addressed at Chess, EID and MASS and with good prospects at MCL and SEA.
The potential impact of COVID-19 makes it more difficult than usual to provide guidance. At this early stage the Board expects that restrictions on international travel due to COVID-19 may result in short term constraints on export activity (which represented over 30% of Cohort’s revenues in the year just ended). As a result, FY21 trading performance is currently expected to be in line with that achieved in FY20. If appropriate the Board will provide further updates during the current financial year.
In the longer term, the Group expects to return to growth, as it recovers the orders and revenue delayed due to COVID-19.
Notice of FY20 results
It is the Group’s current intention to issue its final results for the year ended 30 April 2020 in July 2020. Given the recent guidance from the FRC around the potential complexity of the audit process under COVID-19 restrictions, the Group will confirm the proposed date in a later announcement.
Andrew Thomis, Chief Executive of Cohort, said:
“Cohort had a satisfactory year despite the impact of COVID-19 on the business in the last two months of our financial year. We successfully transitioned to most employees working from home, with the adoption of social distancing measures for those unable to do so. We have a robust financial position, a strong order book underpinning 60% of expected current year revenues, and an encouraging pipeline of order opportunities across the business.
“Overall, as a result of the impact of COVID-19 we expect trading performance in the coming financial year to be in line with that achieved in 2019/20.”