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

All right. Let's go again. Just a few points of admin from myself to start with. We are recording this meeting. So if there are points you want to go back and check, you will be able to do so either on the Equity Development or Cohort website. The presenters are going to use some slides, and that deck is also now available on the Cohort website. So you don't need to be taking pictures of each slide as we move through. The presentation is going to come first, but we do invite you to submit questions, which will be dealt with after the formal part. And for those of you who are new to Zoom, that is as simple as clicking on the Q&A button and submitting your question there, which we will endeavor to answer. Obviously, given the activities that Cohorts engage in, some of the answers may be politically sensitive or crucial to national defense. So don't expect too much clarity on that one for obvious reasons. All Right. Without further ado, I'm going to pass over to our presenters who have a wealth of experience in the industries and both at Cohort for a substantial period of time as well. So we've joined by Simon Walther, who is the Finance Director; and Andy Thomis, who is the Chief Executive. And I am going to pass over now to Andy, if you'd like to start the presentation.

Yes. Good morning. As [ Andy ] said, my name is Andy Thomis. And Simon Walther, our Finance Director, and I will be here to present to you this morning. I will begin. Simon will cover some of the financial details and also round up at the end and, as [ Andy ] said, will be a good opportunity for questions at the end. So can we move to the first slide, [ Andy ]? We're going to set out today for you I hope the investment case very clearly. But this slide is aimed to give you a summary of the key points. So to start, we've got a strong business model, which we believe is well suited to the sector we operate in. It combines the benefits of small, agile, innovative technology businesses with the strong visibility and balance sheet that the larger group can offer. We've paid a growing dividend every year since we IPO-ed in 2006, and that's providing a return to our investors and also a practical demonstration of the fact that as well as generating technology, we're also generating profits and cash. Access to growth markets. An investment in Cohort gets exposure to some real growth markets that are driven by global events. So for instance, conflict in Europe and tensions in Asia are driving strong increases in regional defense spending. Financially, we are strong. Simon will say more about this, but we have net cash on our balance sheet, and we have excellent banking relationships. And our exposure to growth markets and our innovative agile businesses give us the opportunity to generate organic growth. But another important part of our strategy is to make further acquisitions, and we've been making acquisitions since we were founded back in 2006. Our cash generation gives us the ability to fund transactions without recourse to equity markets. And we don't rule that out, but we haven't done so since 2007. So for quite a while, we've funded all of our acquisitions from our cash flow and banking relationships. And finally, we announced back in December with our half year results, an order book of over GBP 300 million going out well into the long term. And that gives us very good future visibility of revenues. And Simon will show that in more detail later in the presentation. But our pipeline of future opportunities is even stronger than that, driven, as I've indicated, by international pressures for greater defense spending. So if we can move on to the next slide, an overview of the group itself and our background. So we were founded back in -- well, in fact, we were IPO-ed in 2006. We were founded in 2005 by Nick Prest who's currently the Chairman, Stanley Carter and myself. Nick previously led the armored vehicle company, Alvis plc, that was bought by BAE Systems back in 2004. And Simon and I both worked with Nick there. Stanley founded a defense technical advisory business called SCS, which became the first operating business of Cohort when we IPO-ed back in 2006. And we operate through 6 separate businesses, and they vary in size and in the sort of thing that they do. And I'll say a little more about each of them in a moment. But our model is to give them a considerable degree of management or timing within a light touch but effective framework of strategic and financial controls. And that gives them the freedom to innovate and also the agility to respond quickly to customer demands. Now as I said, we operate primarily in defense and security markets. And by security, I mean, national security, so typically quite closely related to defense as opposed to sort of barbed wire and CCTV type of things. In terms of size, our businesses range from less than 50 people to over 300. And all in all, we have something over 1,000 employees. A high proportion of those are scientists and engineers. And that is fundamentally the way that we add value through the expertise of those people. And in terms of financial size, you can see our most recent full year numbers here. As Simon will explain, we are expected to do rather better in the current year, and a bit over GBP 200 million of market capitalization makes us one of the more serious businesses, I would say, on the AIM market. So if we can have the next slide. I wanted to next say a little bit more about what our 6 operating businesses do. And I'll be happy to elaborate on these, if anyone is interested during the Q&A session at the end. But in brief, Chess provides surveillance and weapon control systems for land and naval customers. And they supply into the U.K., Europe, Asia and the United States. They have a very strong capability in counter drone and air defense technology, which are in demand, especially given what's happening in Central Europe at the moment. EID is a Portuguese business based just South of Lisbon, providing communication systems for ships, armored vehicles and soldiers. And they also have a very international list of customers. ELAC, which is based in Kiel, in Northern Germany, is one of Europe's leading suppliers of sonar systems for both ships and submarines, and they are currently providing the sonar systems that will be the eyes and ears of the new Italian submarine fleet. MASS is our largest contributor to group profit. It specializes in services and software connected with intelligence and other sensitive data in the defense and national security world. MCL, or Marlborough Communication Systems works with partners in Europe and also in the United States to supply intelligence gathering equipment, communications equipment, unmanned vehicles and other systems, primarily into U.K. government customers. And finally, SEA provides technology-based systems for navy users torpedo launch systems, decoy launchers, communication systems and a very innovative sonar system that is complementary to the ones that I mentioned earlier on offered by ELAC. So moving on, if we can -- if I can enlarge a little on our business model. As I said, we see it as combining the advantages of small- and medium-sized businesses with those of a larger group. As individual businesses, Cohort's operating subsidiaries have the autonomy to set their own strategy and to make day-to-day decisions without having to get those approved and negotiated with the sort of coordination layer of middle management that you find in some larger defense prime contractors and defense companies more widely. Our process is very simple. Financial and customer commitments need to be approved either within the businesses or by Simon and myself, or by the whole board depending on scale and risk, and none of those approval processes takes more than a few days. And that means that we can be pretty agile even in making quite big decisions. But unlike small independent companies, our businesses also benefit from our strong balance sheet, and that enables them to take on substantial contracts that would otherwise be very difficult. So for instance, in recent years, businesses in the group have won several contracts that exceed in value the annual turnover of any of our subsidiaries. And as well as that strong benefit, strong financial bandit, they also get the benefit of information sharing and learning from experience, which we arrange through regular cross-group meetings at different levels of the business. And my small headquarters team and indeed, the plc Board is very experienced in the defense sector and works with all of our subsidiaries, both the managing directors and others to help mentor and guide them. And finally, all the businesses gain the visibility that comes with being part of a larger group, whether that is at trade shows or that something else we do that is group-wide visits to important customers to show the full breadth and depth of capability in the whole group. So in terms of our strategy, we see it as having 3 pillars: organic growth, acquisitions and maintaining confidence. It's starting with maintaining confidence. That's all about transparency, openness, communication with both shareholders and prospective shareholders. So this event this morning is a good example of what I mean. And it's also about risk management and indeed legal compliance, which seems to get more complex every year in terms of both legislation and regulation. But I'll talk about our acquisition and organic growth strategies in the next 2 slides. So if we can come to the next slide. Since 2006, we have grown from just 1 operating subsidiary at 3 to 6 by making careful acquisitions. And as well as adding new businesses to the group, we've also done several bolt-in acquisitions where we merged an acquired business with 1 of the existing subsidiaries. And we've also conducted several divestments where it's become clear that part of our operation could prosper more effectively and be more valuable under different ownership. And in doing that, we've made simple cash acquisitions. We've made acquisitions with earn-outs based on revenue or profit. We've made stage acquisitions where we acquire a bare majority stake and then acquire the remainder of related date. And in 1 case, we've made an acquisition of a majority stake alongside a continuing government minority shareholder. And our flexibility as a team and the fact that decisions on acquisitions are made right at the top of the organization, Simon and I always actively involved in acquisition processes has enabled us to bridge value gaps and negotiate acquisitions that would have been difficult, I think, for our competitors and that's been a source of strategic advantage. But we're not an acquisition machine with a target to do a certain number of transactions every year. We are actually rather discerning as far as acquisitions are concerned. We're very aware of the risks of doing acquisitions and the fact that track records have not always been good doing acquisitions in the sector. So we only acquire where we're convinced that it will add value and contribute to the long-term growth of the group. And I think it's fair to say that our acquisitions in that respect have been pretty successful. Now this slide shows our acquisition activities last year and our priorities for this year. In the last year, where we reviewed numerous opportunities, and that is the case every year. An awful lot of does certainly come past my and Simon's desk. But in terms of activity, the main 1 was acquiring -- well, about a 50% stake actually in the joint venture of JSK that our business SEA has in Canada. And that's operationally important to us, both to do business in Canada on one particularly substantial program and also more widely to support equipment that's in service in Canada. And we've acquired that from the previous joint venture partner. And our priorities in the current financial year, well, one was completion of the acquisition of the minority interest, which existed in Chess, which we acquired a few years ago, and that's now been successfully completed. And we continue to seek value-adding acquisitions with strong market positions in relevant sectors. And quite a few of those come to our attention, both from intermediaries like M&A houses and directly where business [ and owners ], knowing of our reputation and our strategy approach me or one of my team directly with an idea that we may be a good fit for them. So that's an outline of our acquisition strategy. And on the next slide, I would like to say a little bit about organic growth. In pursuit of organic growth, we support and encourage our businesses to develop long-term customer relationships, which they have successfully done in many cases and also to find new growth opportunities. And we monitor that progress very carefully. And if we feel it is necessary, we will act without hesitation to make changes to management or the strategy or both if that is necessary to gain access to those opportunities and to that organic growth. And this slide says a little more about our recent activities for organic growth in the group. In the last financial year '21, '22, we ended up with a record closing order book and improved visibility at 3 of our businesses. And new leadership, which we brought in at 2 of our businesses, SEA and EID, had begun to make very strong progress. And in '22, '23, we're going to look to continue to improve our long-term order book. And as we showed at the half year point, we did so in the first half of the year. And we're going to seek opportunities from increased focus on defense spending, especially in the NATO countries, several of which are not substantial increases in defense spending as a result of the conflict in Ukraine, but also more widely, where we've seen substantial increases in defense spending, and now as for example, in Asia Pacific. And much of our business, before I hand over to Simon, much in our business depends on large contracts that are lumpy in nature. And so we haven't achieved organic growth in every single year of our existence. Although I think it's fair to say we've done pretty well. And Simon will now talk through our record in recent years in delivering what I think is fair to say, is a considerable level of organic growth. So Simon, over to you.

Thank you, Andy, and good morning to you all. As Andy has just touched on, I mean, generally, we've been growing reasonably well over the last -- over many years. As you can see from this 5-year record, we had steady growth up until 2021. We had a bit of a blip in '22, which was caused primarily by weaker operating performance at Chess, which resulted in some management changes that have been made, and we're starting to see that turn around in the first half of this year. And also EID concluded a very large export contract in 2021, which unfortunately delays to domestic customer orders, particularly in the naval sector, which we are expecting to see come through in the next 12 to 18 months. The Portuguese MLB have been particularly slow on those. But -- and you can see what we refer to a term called adjusted operating profit, and you'll see adjusted earnings as well that effectively is operating profit, excluding the amortization of intangible assets, which fetches goodwill in the old days and also marking FX contracts to market, which, again, is a noncash effect. The other thing to point out here is the continued, and Andy mentioned this, dividend increase. We've increased our dividend since listing in 2006. And we've maintained a progressive dividend policy. And most importantly, the order book. I mean it's a record high at the end of '22, GBP 291 million. They actually grew again in the first half of this year, and we reported just over GBP 300 million at the half year last October. And that's -- and you'll see another slide shortly that will explain that. But that has been a very progressive movement on the order book. We move on to next slide, please. Thank you. These are consensus forecasts for the next 2 financial years. We have an April year-end, 30 of April year-end. So we're coming towards the end of financial year '23. We reported the figures last December for the first half. It was a strong first half, and I'll talk about that in the next slide. One thing to point out is that around -- at that point, 95% of our revenue was on contract for delivery in the second half. Obviously, that doesn't mean it may not be delivered. There are issues that we continue to see in the supply chain and customers can be difficult sometimes and delay things. But generally, we're fairly confident on that revenue line. The other thing on here, again, pointed out, the profit before tax is the adjusted profit before tax, it just takes off the interest. The earnings per share is the adjusted earnings per share. And as I said, dividend share, you can see going out increasing. And also, we remain in a net funds position both for this. I'll talk about it in a bit. At the half year, we were slightly in debt, but we're not expecting to be in net funds over the next 2 years. If we can move on, please. This was the financial highlights at the half year. And you can see it was a very strong first half, nearly 30% increase in revenue and a very large increase in the adjusted operating profit and a very large increase in adjusted EPS. I mean this was driven by the strong order book we had at the start of the year, an improvement in the performance at Chess particularly. EID has continued to struggle, and we expect this year that it will probably break even over the whole year. Importantly, the order book, over GBP 300 million, covering 95% of our expected revenue for the full year. And as I've touched on, another 10% increase in the dividend. We did end the half year with slight net debt, and that was all to do in the timing of working capital, particularly at some of our more active businesses. That actually moved back into net funds in early December, and we've remained in net funds since then and expect to end the year with net funds. Now the order book. This is the half year position. And what you can see here in the left-hand column is the actual order book at the half year point. The next 4 columns are the runoff, the expected runoff of that order book. It's important to point out that, that order book is contracted. It is not a pipeline. It is not a sort of framework. It is actual under contract purchase order, order book. You can see we're expecting GBP 82.5 million of that to be delivered in the second half of this financial year, and we've already got GBP 80 million into the following year. The order book itself goes out to 2032. You can see the large parts of SEA with just under GBP 100 million, MASS at about GBP 65 million and bigger -- and big orders also at ELAC and Chess. MCL typically operates on visibility of around 3 to 6 months. So for it to have an order book of GBP 25 million at the half year was a very good position, and we expect quite a strong performance from MCL in the second half. Overall, we're reasonably comfortable with the consensus forecast that are out there at the present time. Thank you. I'll hand back to Andy. Andy you're on mute, I think.

Thank you, Simon.

I knew that was going to happen at some point.

So just looking at the wider picture and the drivers for growth in our industry. In Europe, as everyone is aware, we have a very difficult conflict going on between Russia and the Ukraine. And that has, since February last year, resulted in a very substantial rethink in many NATO countries about the importance of defense spending on. I'll say more about that. But we've seen some very substantial announcements by, actually, the majority of European NATO about increasing the level of defense expenditure, recognizing the risks that they face, which have become so apparent. Some of the [indiscernible] are seeing very substantial tensions in the Asia Pacific region, driven by China's pretty aggressive military actions around the South China Sea. It's claim for most of the South China Sea as its territorial waters, absorbing quite a bit of territory that is actually legally part of several other countries. And in particular, Xi Jingping's continued commitment to making Taiwan an inalienable part of the People's Republic, which has led to increasing concerns about potential invasion of Taiwan. And that has had a marked effect on spending in the region. Recently, Japan has announced a doubling of defense expenditure as a proportion of GDP, also making it one of the largest spenders on defense in the world and right around the region, which I visited with several of our managing directors from around the group last year. There was a strong need, particularly for naval systems as the -- of the Chinese and that area is principally a maritime one. So the big picture is that defense expenditure being driven by these geopolitical events is growing. As far as our domestic markets are concerned, where we had previously had an announcement of significant increases in defense spending, a mini spending review is going on right now. We're expecting to see the results of that early this year. But given the events in Central and Eastern Europe, I would certainly expect that to be reflected in the results. In Portugal, another domestic market for us where EID operates, we are seeing some increased opportunities domestically with a number of quite important programs with EID lining up where they are either sort of preselected as the provider or bidding against other competitors. So we see opportunities growing there after a relatively light period of defense expenditure and relevant equipment in Portugal. And we're seeing growing orders from the German domestic market as well for ELAC. ELAC is like EID, very much focused on export opportunities, but it does supply specialists sonar equipment into the German domestic market. And the large increase in defense spending announced by Chancellor Scholz last year is resulting already in some increases in orders for them. And our export markets, as I've indicated already, are strong in the other NATO countries. We supply into France, Belgium, the Netherlands, into Northern Europe. And we also supply a considerable amount into Asia. And increasingly, we see Australia as being a very important market, where, again, activities by China have resulted in a reevaluation of the importance of defense spending. And for example, in the decision to acquire a fleet of nuclear submarines, which I'm -- I strongly expect that we will be involved in some aspects of the supply of those and we're certainly looking to do so. So the world picture overall, I think it's fair to say, does present a positive medium-term outlook. Could we have the next slide, please? So to wind up, I'll try and summarize what I've said in making the investment case today. We've got an experienced leadership team, both in the headquarters and within our subsidiaries themselves with very abilities and a lot of experience in defense and security. And the ability of those small and medium-sized businesses to grow and to access growth opportunities. That is helped by the fact that we have such a strong balance sheet with robust funding and a very strong set of banking relationships. Alongside organic growth, we have a strategy to grow through acquisition, and we have a track record of growing acquired businesses successfully. As I said, we're discerning in our acquisitions, and we only do so and we're convinced that we can do it in a way that will enable us to increase long-term growth. As Simon has shown you the dividend has increased every year since the IPO in 2006. And that is -- that remains our policy, providing a return to investors and also a visible demonstration of our success as a trading business on the AIM market. And the record order book, which includes revenue out to 2023 [indiscernible] much recently is a tangible indication of the positive market outlook that I outlined to you on the previous slide. I think I'll add 1 further point to those in the investment summary. If as investors, you believe that the social value of investment is something that is important. And then by supporting us and by investing, you are contributing to the most important social value of all, which is the security and stability of society, on which all other social banks depend. So all of our rights and all of our benefits really don't have meaning unless they rest on a secure and stable society. And we've seen a pretty brutal illustration of the kind of risk societies face if they are perceived as weak by potential adversaries since February 2022. Because we live in a dangerous world and dangerous people in it. And our armed forces and their bravery and their willingness to make sacrifices are a vital protection against that kind of aggression. But Cohort and the Western defense industry more widely also make a very important contribution to their activities and to the security of our country and to the security of our allies as well. And as someone who's part of the industry and an investor and myself along with Simon, I'm very proud to be part of that enterprise. And I believe that our investors can be proud of taking part in it as well. So if we can move on to the final slide. Yes, in a few words, this is our vision for the future of the Cohort Group, a major independent defense technology group offering world-class systems to domestic and export customers alike. We've made a lot of progress towards that aim, growing in size, in visibility and in reputation over recent years, and I certainly see it as being within reach. So thank you all for your attention this morning. I hope that, that has been helpful to you. And if you have any questions for us, we'd be delighted to try and answer them now.

Great. Thank you very much, gentlemen, very thorough on the business and the big [ band ] world that we're living in. [Operator Instructions] So let's dive straight in. Recognizing that there is quite a long lead time in a lot of the products that you develop, can you say at the moment which of the defense segments where you are active you are seeing the most material changes in spending patterns? and I think that can apply to geographies as well as products.

Yes. Well, as I mentioned in the presentation, I suppose the 2 sort of most important forces as far as the market are concerned are the invasion of Ukraine by Russia and the tension being generated by Chinese activities in the Asia Pacific region. So if you look at Asia Pacific, I mentioned Australia as reviewing quite significantly its defense posture, increasing its spending. Japan doing so announced recently very radically indeed in becoming one of the world's largest defense spenders and Russia around the South China Sea region. So Malaysia, Thailand, Indonesia, the Philippines and the smaller countries in that region as well looking to show that they are prepared to and willing and able to defend themselves against aggressive acts by regional neighbors. And of course, in Europe as well. We've seen an announcement of, I think, EUR 100 billion of additional defense spending by the Germans. We've seen Poland announcing a very significant increase in defense spending and other major countries as well, realizing that they can't be free riders on American defense spending and that they have a need and a responsibility to defend themselves, too. So those are the areas. In terms of sectoral answer to your question, I think, particularly in Southeast Asia, we're seeing demand in naval system because of the threats of principally maritime. As far as Europe is concerned, we see increasing demand for sensor and intelligence gathering systems related to the land environment, in particular, and their defense.

Okay. Thank you very much, Andy. Maybe one for you, Simon. You've mentioned the -- some of the problems that Chess has had in the past. There have been changes. Can you shed a little more detail about how pleased you are with the development at the moment of the business?

Yes. And Andy, jump in if you want, at any point. Yes, when we brought Chess, I mean, 4, 5 years ago, Chess was turning over around about GBP 8 million per annum. It's now moving into a sort of GBP 30 million business, which is quite a marked change. And it's been going through some growing pains basically. And we've made some changes to the senior management there. We've beefed up the senior leadership team quite substantially in the business. It's increased its head count by about 1/3 over the last couple of years, bringing in more capable engineering people and senior management. We're also spending some time on improving their sort of processes, particularly around bidding. And it really is -- the aim is to get the business which has been absolutely superb at winning orders to get better at delivering them. It's had a few problem projects that we've pretty much closed most of them out now. And that's what's impacted its results over the last couple of years. And we certainly expect once those projects are closed to move the business ahead. As Andy touched on, I mean, the current environment for Chess' products, particularly in Europe, are quite appealing, counter drones and air defense systems, which is one strong area for Chess. So there's plenty of market for Chess and the pipeline looks good. So it's important that we deliver. And that's why we've made the changes we've had to. I mean one of the things we're looking to do is -- it had a pretty poor cash performance over the last couple of years and ended '22 with GBP 11 million overdraft. So we're hoping to get that substantially [ low ]. I mean, at the half year point, it was around about GBP 5 million overdrawn. And by the end of this year, we'd hope to get that even lower, maybe even breakeven, but we will see -- certainly, moving into next year, we expect it to move back into positive cash, which I think is a reflection of the changes we've made in the business.

I'd only add that it's -- the improvement and performance in Chess in the first half is really quite marked and made a big contribution to that overall very improved performance, as Simon described.

Yes, then keeping that positive theme against an MCL had a very good first half, and you mentioned an exceptional order book. Could you elaborate on where and what sort of business they're winning and why they're doing so well at the moment?

Yes. I mean, again, Andy jump in. But I mean MCL is primarily works with the MOD. 95% of its business is U.K. MOD. And it's a sort of a number of factors driving primarily in hearing protection, particularly for the armored fighting vehicle fleet. That's going through a sort of an upgrade and new systems being booked. We're also looking at intelligence gathering equipment and areas like drones and counter drone systems, which MCL works in. So it's been driven by -- and no doubt some of it has been driven by what the MOD is seeing happening in Europe and then, and the need upgrade their systems and to invest in them. I don't think -- and it has had a very strong first half, and we expect the second half to be even stronger. I don't know if Andy could add anything on MCL.

I think that covers it, Simon. It's -- yes, it's our smallest business in terms of people with less than 50 employees. And it's has different business model in that it works with partners to deliver things primarily for the U.K. government. So it can be a little unpredictable from year-to-year. I think it's fair to say, although it's been growing steadily recently. But we've just seen a convergence of factors in the last year, where several different sort of lines of demand converged and results in a very strong year for MCL, which we expect that to persist for a little while.

Great. And perhaps one for you, Andy. The structure of the group, we have a question, do you have any examples of how collaboration between the different businesses is paying off? And then more strategically, and I'm sure you've thought long and hard about this. Can you explain why you've chosen to keep them as independent brands and names and operations rather than having a single unified Cohort product?

Yes, of course, yes. So there are plenty of examples of where our businesses are working together. But I should say that where -- I mean -- and our businesses do fit together quite nicely strategically. But our policy is that when there is an opportunity for 2 businesses to work together. It is always on an arm's length basis. And what we certainly don't do is to say, well, just because it's possible for 2 of our businesses to cooperate on an opportunity, then they must do so. So our businesses look to find the best partners to actually win the work rather than work together to internalize more of the revenue because if you don't win it, then you don't get to internalize any revenue at all. But that said, our business leaders meet regularly. They know each other well. We had a meeting together just yesterday. And that builds an atmosphere of trust and knowledge, which enables them to work closely together when the opportunity arises. And it makes some sort of natural partners. So I can think of 1 area, for example, at the moment where SEA and Chess are working together on a particular opportunity for the U.K. Royal Navy, where each of them brings a particular strength. In fact, in both cases, sort of world-beating strength, but makes them an extremely strong team together. And I won't go to the details of that, but it's a very important project for the Royal Navy surface ships. And there are plenty of other opportunities of that where customers -- companies either have technology that works together. So SEA working with EID to provide surface ship communication systems, for example, we have complementary capabilities or where they can work with each other geographically. So EID acting as a conduit to supply other group equipment to promote other group equipment in Portugal and similarly with our other markets. So there's plenty of examples of there. Why do we keep the businesses separate and not bring that full sort of 1,000 people with all of the engineers and scientists together? Well, the answer is that -- if we were looking to design and provide our own submarines, surface ships, combat aircraft. And undoubtedly, that's what we'd need to do because you need that size of team in that and that level of coordination across a single team in order to deliver on those large incredibly complex projects. But we operate at a different place in the supply chain. So instead of providing a surface ship, for example, we provide all of the things that go on that naval ship to make it effective. So surface ships are brilliant, naval surface ships they can go off around the world without refueling at sort of speeds that you could tell a water skier at. But unless they've actually got communications, sensors, weapons then they're going to be wondering what it is they're going to do when they get there. And those are the things that we provide. And those benefits those kind of systems from the innovation that small teams and really good scientists and engineers can provide. They don't need that huge set of processes in coordination, what they need are good ideas. And also because they're working with large, slow-moving customers, the ability to be a bit quick on their feet as well and adapt to changing circumstances. And so our size -- those size of businesses small, innovative, agile fit in very well to the supply chain. And so we try and keep those benefits while adding in some of the benefits of being part of the larger group as well. I hope that answers the question.

It does. And it's a very nice segue to a separate question that do you give technology and developing good ideas often come from smaller agile businesses. Do you have regular contacts outside the group with people come up with those new products and ideas? and separate but related, there's another question of whether cyber defense is likely to be of interest to you going forward?