Cohort plc (CHRT.L) Earnings Call Transcript & Summary

Hello. I'm Andy Thomis, Cohort Plc Group Chief Executive, and I'm going to talk to you briefly through the half year results for 2020-'21. Let me start with the highlights. Our operating performance was strong and in line with our internal expectations. Profit and earnings per share both improved compared to the position in the same period last year despite a drop in revenue. Order intake was also very pleasing. At GBP 89.2 million, it was sharply up compared to last year and showed a very positive book-to-bill ratio. That gives us a strong order book and much better revenue cover for the second half and beyond than we've seen in recent years. Finally, cash flow and net debt were in line with our expectations, which remain unchanged for the year as a whole. On the back of these pleasing results, the Board has declared an interim dividend up 9% to 3.5p per share. This slide shows the main moving parts underneath those results. One noticeable feature is that the benefits of the diversity of the group are apparent. Solid growth at MASS, EID and SEA make up for less positive results elsewhere. I'll start at the top right and go clockwise. First, the impact of the COVID-19 situation. It has had a massive effect on life, but so far, a limited impact on our ability to do business effectively. We have adopted new working practices and protective equipment to keep our employees safe. The vaccine now offers the welcome prospect of a gradual return to normal working. At both MASS and EID, we've seen a significant improvement in performance compared to last year. That is mostly down to the mix of work. Those improvements significantly outweighed the effect of the reduced profit contributions from Chess and MCL. Across the group, we've seen robust order intake, especially at Chess, which has been awarded over GBP 50 million of new orders in the period. That significantly underpins their performance in the medium term. SEA returned to profit this half, something it did not manage last year. That welcomed improvement for our cost reduction program there. And finally, as we announced at the beginning of December, ELAC SONAR has joined the group. We look forward to a strong future contribution from that. I should take a few moments to remind you of the rationale for that acquisition and how it will fit into the group. ELAC SONAR will be the group's sixth stand-alone subsidiary. Under its previous owner, WÄRTSILÄ, it was known as WÄRTSILÄ ELAC NAUTIK. ELAC is a contraction of electroacoustic. It's been renamed ELAC SONAR, which we think reflects what it does much more clearly. ELAC SONAR is a leader in sonar systems for both surface ships and submarines. Its products include high-specification systems for submarine detection, mine detection, obstacle avoidance, navigation, seabed mapping and underwater communications. It operates at the top end of international capability in this market. It's based in Kiel, which is a center of German and NATO naval activity and also home to several major international maritime defense businesses. It has about 130 employees, and its operational management is going to stay in place. Only its nominal managing director who oversees several other vets of the businesses will remain with the seller. It is primarily a naval defense business, increasing our exposure to this attractive growth market. It's strongly international, with a high proportion of its revenue derived from exports. It adds Germany as a new domestic market for the group and brings a strong position in Europe and Asia. And you can see a list of some of its larger customers here on this slide. If anything, since we first announced the acquisition in December 2019, the rationale has become even more compelling. Let me move on now to look at the outlook for the business. This slide will be familiar to veterans of our results presentations. It shows in the first column the order book as at the accounting date, broken down by our 5 operating businesses. The other column is showing how this will convert into revenue in the second half and in subsequent years. As you can see, that second half number is substantially greater than the revenue delivered so far. And it gives you an idea of where we will get to, even if there are no further orders this year. And of course, there have been further orders since the end of the half year. Beyond that, we see strong long-term order books, especially for MASS, EID and Chess. ELAC SONAR will add another strong layer, and we're optimistic of material improvements for both SEA and MCL over the next year to 18 months. We see good prospects for further orders in the remainder of the year and beyond with strong export demand and a very positive announcement from the Prime Minister on U.K. defense spending in November. Several of the priorities that he outlined are a very good match for Cohort's capabilities. And that brings me to the end of this short presentation. I hope you found it helpful. To summarize some of the key points: We survived the COVID restrictions and the disease itself quite robustly so far. With the vaccine now rolling out, there is light at the end of the tunnel. Order intake has been strong, and the order book has again grown. The second half is extremely well covered this year. Even without further orders, we can see that there will be a second half weighting to our revenue and profit. But there are good prospects of further orders in the second half, and these will contribute to both the full year results and later years, to0. Finally, we've been delighted to welcome ELAC SONAR to the group. It's another major step forward in our development. It's positioned well for a strong growth market and it adds complementary products, skills and markets. So let me leave you with our considered opinion on the remainder of the year, which is that performance will be in line with market expectations. I can say that we look to the longer term with confidence, too. Thank you for your attention.